KUALA LUMPUR (Mar 25): Given the steep discount to its underlying value, oil palm planter Chin Teck Plantations Bhd may stand to be privatised in the future, according to PublicInvest Research.

 In a research note on Monday, PublicInvest Research said the group is currently trading at an undemanding valuation of only 2.6 times historical price-to-earnings (P/E) ratio multiple or discounted price-to-book (P/B) ratio of 0.79 times, based on its financial results for the financial year 2023 (FY23).

Furthermore, the plantation group was also noted to be sitting on a cash position of RM408 million with zero gearing.  It also owns investment securities worth RM132 million.

"Assuming our current valuation of 11 times FY25 EPS (earnings per share) for the upstream plantation business plus the liquid assets (cash + investment securities for bond and equity instruments) totalling RM540 million, the fair value of the company could be worth more than RM900 million or RM9.84 per share," it said.

"Given steep discount to its underlying value, we do not rule out the possibility of privatisation in the future," the research house added.

It is worth noting that Chin Teck and plantation company Negeri Sembilan Oil Palms Bhd (NSOP) share a common major shareholder — Tiong Thye Co Sdn Bhd.

Tiong Thye holds a 36.67% stake in Chin Teck and a 55.13% stake in NSOP.

Both companies also have near identical boards of directors and key senior management.

PublicInvest Research highlighted that both companies are cash-rich, with Chin Teck holding RM408.4 million and NSOP having RM158 million. 

“Currently, both stocks are trading at an undemanding valuation of about 2 to 3 times PER of FY24 (after stripping out cash level and investment securities) due to poor liquidity and low profile.

“Given a decent plantation performance and strong fundamentals, we believe there are synergies to be reaped in terms of cost efficiency and yield performance,” said the report.

At the time of writing, Chin Teck was trading unchanged at RM7.49 per share, with a market capitalisation of RM684.31 million

PublicInvest Research maintained its 'neutral' call on the stock with an unchanged target price of RM7.78.

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