Financial Year End 31/12/2014 Report Period Ending 31/03/2014 Reporting Quarter 1Q-2014 RESULTS REPORT Recommendation HOLD Target Price (MYR) 2.60 Current Price (MYR) 2.88 Industry Group Industry Sub Group FTSE-BURSA INDEX MEMBERSHIP REPORT INDEX Agriculture Agricultural Operations Key Company Statistics Bloomberg Ticker NPC MK Bursa Stock Code 5047 Issued Capital (mn shares) 120.0 Market Capitalisation (MYR mn) 345.6 52 w eek High (MYR) 3.19 52 w eek Low (MYR) 1.88 Average Volume (3 month) 000 269.8 1 Yr Return (%) 44.0 Major Shareholders (%) Jubilant Ventures Sdn Bhd 32.0 Koh Kin Lip 16.5 Loo Pang Kee 8.5 FBMKLCI FBM70 FBMEMAS FBMHIJRAH No No No No Contents Page Recommendation, Company Profile, Metrics 1 Quarterly Results, Competitor's Metrics 2 P&L, Balance Sheet, Per Share Data 3 12 Year Sales, Net Profit, Price, P-BV charts 4 Recent Co. New s, Recommendation Record 5 Analyst's Disclosure, Contact Details 6 SHARE PRICE LAST 12 MONTHS (MYR) YTD 1Q FY14 revenue increased 47.2% vs. YTD 1Q FY13, whilst PBT increased by 20.9% over the same period. YTD 1Q FY14 CPO selling prices were 10.8% higher than average selling prices prevailing over the period YTD 1Q FY13. YTD 1Q FY13 FFB production at NPC was 11.6% higher than YTD 1Q FY13. YTD 1Q 14 net profit only rose 13.9% over YTD 1Q FY13 owing to higher effective tax rates. Weather conditions appear to be worsening, and FFB production may average about 12,000-13,000 MT per month for the next few quarters. By 2016-2017, however FFB production may well be hitting 20,000-24,000 MT per month as new acreage comes on line. INVESTMENT RISKS Risks to our recommendation and target price include: i) a sharp decrease in CPO prices, ii) increases in the MYR exchange rate, iii) an increase in the general level of interest rates, and iv) a sharp slowdown in the general level of economic activity in Malaysia or among the economies of the major CPO importers: China, India, Pakistan, Europe and the US. Investors can take some comfort in the fact that vegetable oils are among the most resilient of food related commodities. RECOMMENDATION We downgrade our recommendation to HOLD on NPC Resources Bhd ( NPC ) as the price has increased about 40% since we published our Feb 2014 note. However, we increase our fair value estimate to MYR 2.60. Value investors will be attracted by prospects for profit growth as acreage in Indonesia and Sabah begins to bear fruit (see page 5). Looking ahead, average ROE is likely to be maintained at levels of 7-9%, whilst P-BV stands on 1.1x current year book value. Through FY 2014, revenue growth will depend largely on trends in CPO prices which may remain range bound between MYR 2,400-2,700 per ton. NPC is one of the few names in the plantation sector that can be purchased near book value. Also, NPC will become much more interesting as contributions from Indonesia grow larger in FY 2015-2016. See page five of this note for more detail on FFB production, etc. COMPANY PROFILE NPC s major line of business is the cultivation and refining of palm oil. The roots of the company began in 1981 with a plantation of 162 ha; today the company operates over 8700 ha of mature acreage. New plantation landbanks were aquired in Indonesia (36,000 ha) and Sabah (4,000 ha). Newly planted acreage in Indonesia started yielding 1Q 2013. NPC will soon be adding to its rapidly growing land bank. NPC converted to a public limited company in May 2000, prior to listing in May 2002. ANNUAL RESULTS AND METRICS (MYR mn) $1.50 $1.70 $1.90 $2.10 Share $2.30 Price $2.50 (MYR) $2.70 $2.90 $3.10 $3.30 5-13 6-13 7-13 8-13 9-13 10-13 11-13 12-13 1-14 2-14 3-14 4-14 5-14 Revenue 400.2 418.8 545.9 612.3 Revenue g (%) -12.9 4.7 30.3 12.2 Net Profit 12.5 14.2 24.0 26.6 Net Profit g (%) -62.8 13.0 69.3 10.8 Dividends 4.8 1.2 2.4 4.4 Ow ners' Equity 298.0 283.4 320.3 342.5 Total Liabilities 229.2 306.6 351.5 354.0 Debt/Equity (%) 76.9 108.2 109.7 103.4 EPS (sen) 10.4 11.8 20.0 22.1 P-S (x) 0.6 0.6 0.6 0.6 P-E (x) 19.7 19.1 14.4 13.0 P-BV (x) 0.8 1.0 1.1 1.0 ROE % 4.2 5.0 7.5 7.8 Page 1 of 6
QUARTERLY RESULTS TABLE (All figures in MYR mn unless otherwise indicated) FY Dec 1Q-14 1Q-13 Q-o-Q YTD YTD Y-o-Y %chg FY14 FY13 %chg Revenue 117.4 79.8 47.2 117.4 79.8 47.2 Operating Profit 11.1 8.3 33.1 11.1 8.3 33.1 Other Income 1.4 0.8 62.8 1.4 0.8 62.8 Share of Associates 0.0 0.0 na 0.0 0.0 na Depreciation/Amort'n -2.8-2.9-4.1-2.8-2.9-4.1 Finance Costs -2.9-1.6 85.7-2.9-1.6 85.7 Pre Tax Profit 8.2 6.8 20.9 8.2 6.8 20.9 Tax -2.6-1.9 na -2.6-1.9 38.9 Minority Interest -0.3-0.2 na -0.3-0.2 na Net Profit to S'holders 5.3 4.7 13.9 5.3 4.7 13.9 Dividends 0.0 0.0 na 0.0 0.0 na Comments YTD 1Q FY14 revenue increased 47.2% vs. YTD 1Q FY13. FFB production rose by 11.6% w hilst CPO prices rose 10.8% over the period indicated above. CPO prices probably bottomed at MYR 2,200 per ton 4Q 2013 - they are likely to trade in the MYR 2,400-2600 range through 2Q 2014. YTD 1Q FY14 PAT increased 13.9% vs. YTD 1Q FY13. EPS (sen) 4.4 3.9 13.9 4.4 3.9 13.9 DPS (sen) 0.0 0.0 na 0.0 0.0 na Operating Margin (%) 9.4 10.4-9.5 9.4 10.4-9.5 Net Margin (%) 4.5 5.8-22.6 4.5 5.8-22.6 Effective tax rate (%) 31.8 27.7 14.9 31.8 27.7 14.9 NTA/share (RM) 2.57 2.56 0.3 COMPETITOR S METRICS (All figures in MYR mn unless otherwise indicated) NPC United Cepatwawa Sarawak Resources Malacca san Group Plantations Current Year Bhd Bhd Bhd Bhd Ending* Dec-14 Apr-15 Dec-14 Dec-12 Revenue 545.9 265.3 243.5 416.0 Net Profit 24.0 78.9 26.3 69.6 Ow ners' Equity 320.3 1,595.8 461.0 622.6 Dividends 2.4 53.1 4.0 30.0 Market Cap 345.6 1,456.2 324.4 750.4 P-S (x) 0.6 5.5 1.3 1.8 P-E (x) 14.4 18.5 12.4 10.8 P-BV (x) 1.1 0.9 0.7 1.2 Div Yield (%) 0.7 3.6 1.2 4.0 Net Margins (%) 4.4 29.7 10.8 16.7 ROE (%) 7.5 4.9 5.7 11.2 Payout Ratio (%) 10.0 67.3 15.2 43.1 Debt/Equity (%) 109.7 14.5 38.7 27.7 *Consensus data used for peers where available Page 2 of 6
PROFIT & LOSS (All figures in MYR mn unless otherwise indicated) Revenue 400.2 418.8 545.9 612.3 Operating Profit 24.4 25.6 45.2 48.3 Other Income 5.2 6.4 5.4 5.4 Share of Associates 0.0 0.0 0.0 0.0 Depreciation/Amortization -11.6-11.3-11.2-11.2 Finance Costs -4.5-7.4-10.3-10.3 Pre Tax Profit 20.0 18.2 34.8 37.9 Tax -5.8-3.4-9.3-9.5 Minority Interest -1.6-0.6-1.6-1.9 Net Profit to Shareholders 12.5 14.2 24.0 26.6 Operating Margin (%) 6.1 6.1 8.3 7.9 PBT Margin (%) 5.0 4.3 6.4 6.2 Net Margin (%) 3.1 3.4 4.4 4.3 Effective Tax Rate (%) 29.1 18.6 26.6 25.0 BALANCE SHEET (All figures in MYR mn unless otherwise indicated) Total Assets 529.9 593.8 675.8 700.5 Fixed Assets 255.0 269.9 281.1 292.5 Current Assets 81.0 91.1 119.6 121.7 Other LT Assets 194.0 232.8 275.2 286.3 Current Liabilities 100.2 114.0 153.3 171.2 LT Liabilities 129.0 192.6 198.2 182.8 Total Liabilities 229.2 306.6 351.5 354.0 Share Capital 120.0 120.0 120.0 120.0 Minority Interest 2.7 3.8 4.0 4.0 Ow ners' Equity 298.0 283.4 320.3 342.5 Total Equity 300.7 287.3 324.4 346.5 Total Liabilities & Equity 529.9 593.8 675.8 700.5 PER SHARE DATA (All figures in sen unless otherwise indicated) Revenue 333.5 349.0 454.9 510.3 Cash Flow 20.1 21.2 29.3 31.5 Earnings 10.4 11.8 20.0 22.1 Dividends 4.0 1.0 2.0 3.7 Book Value 248.3 236.2 266.9 285.4 Payout (%) 38.3 8.5 10.0 16.6 P-S (x) 0.6 0.6 0.6 0.6 P-CF (x) 10.3 10.6 9.8 9.2 P-E (x) 19.7 19.1 14.4 13.0 P-BV (x) 0.8 1.0 1.1 1.0 Dividend Yield (%) 1.9 0.4 0.7 1.3 ROE (%) 4.2 5.0 7.5 7.8 Total Debt/Equity (%) 76.9 108.2 109.7 103.4 Page 3 of 6
REVENUE - QUARTERLY LAST 12 YEARS (MYR mn) NET PROFIT - Q TERLY LAST 12 YRS (MYR mn) 3-02 9-02 3-03 9-03 3-04 9-04 3-05 9-05 3-06 9-06 3-07 9-07 3-08 9-08 3-09 9-09 3-10 9-10 3-11 9-11 3-12 9-12 3-13 9-13 3-14 Turnover MYR (mn) 0.0 50.0 100.0 150.0 Net Profits MYR (mn) -5.0 0.0 5.0 10.0 15.0 3-02 9-02 3-03 9-03 3-04 9-04 3-05 9-05 3-06 9-06 3-07 9-07 3-08 9-08 3-09 9-09 3-10 9-10 3-11 9-11 3-12 9-12 3-13 9-13 3-14 SHARE PRICE - MONTHLY LAST 12 YEARS (MYR) P-BV (X) - MONTHLY LAST 12 YEARS 7-02 1-03 7-03 1-04 7-04 1-05 7-05 1-06 7-06 1-07 7-07 1-08 7-08 1-09 7-09 1-10 7-10 1-11 7-11 1-12 7-12 1-13 7-13 1-14 Share Price (MYR) 0.10 0.40 0.70 1.00 1.30 1.60 1.90 2.20 2.50 2.80 3.10 3.40 7-02 1-03 7-03 1-04 7-04 1-05 7-05 1-06 7-06 1-07 7-07 1-08 7-08 1-09 7-09 1-10 7-10 1-11 7-11 1-12 7-12 1-13 7-13 1-14 P-BV (X) 0.0 0.5 1.0 1.5 2.0 Page 4 of 6
RECENT COMPANY NEWS NPC has been steadily transforming itself from an 8,000 ha plantation operation to one approaching 60,000 ha. FFB production is tipped to grow from the 138,000 MT per year level seen in FY 2013 to the 291,000 MT per year level by YE FY 2016. This represents a compound growth rate of about 20% per year. Though NPC has doubled its Total Debt/Owner Equity over the last three years, moving it from 47% in 2010 to 108% 1Q 2014, it has spent its money well, acquiring land banks in Indonesia and Malaysia at reasonable cost. Debt growth will probably peak in 2015-2016 as FFB growth drives large increases in cash flow. Value investors are likely to be well rewarded for positions taken in this small, but up and coming plantation operator. In 1Q FY 2014, NPC, via its wholly owned subsidiary Miasa Plantation Sdn Bhd ( Miasa ), entered into two agreements in Indonesia that once completed will cost MYR 26.6 mn and give Miasa access to substantial new sources of FFB to feed to its large capacity palm oil mill planned for construction on its Nala estate in Indonesia. This exercise will increase NPC s access to FFB bearing acreage in East Kalimantan by about 67%, from 36,000 ha to 60,000 ha. The table below shows our FFB production forecast over the period 2013-2017. FFB production is on a rising trend that will pick up speed smartly in 2016-2017. Our target price for NPC may well later be increased substantially should the next several quarters indicate a more rapid increase in FFB production than we are currently forecasting. FFB (ton s ) 2013 2014 2015 2016 2017 4 YR CAGR Malay s ia 137,672 146,302 148,829 153,160 161,279 2.7% Indones ia 692 3,063 13,088 70,787 130,542 218.0% T o tal 138,364 149,365 161,917 223,947 291,821 20.5% Annual % Chan g e 8.0% 8.4% 38.3% 30.3% ANALYST S RECOMMENDATION RECORD Ticker Date Recommendation FairValue Price At Date of Recommendation % Price Change Since Prior Recommendation NPC MK Equity 28-Feb-11 BUY 2.80 2.30 NPC MK Equity 11-Apr-11 BUY 2.80 2.16-6.1% NPC MK Equity 26-May-11 BUY 2.80 2.25 4.2% NPC MK Equity 25-Aug-11 BUY 2.80 1.99-11.6% NPC MK Equity 23-Nov-11 BUY 2.80 2.05 3.0% NPC MK Equity 23-Feb-12 BUY 2.80 2.45 19.5% NPC MK Equity 28-May-12 BUY 2.80 2.40-2.0% NPC MK Equity 30-Aug-12 HOLD 2.80 2.60 8.3% NPC MK Equity 28-Nov-12 HOLD 2.30 2.25-13.5% NPC MK Equity 26-Feb-13 HOLD 2.30 2.10-6.7% NPC MK Equity 22-May-13 HOLD 2.30 2.00-4.8% NPC MK Equity 27-Aug-13 HOLD 2.30 2.35 17.5% NPC MK Equity 27-Nov-13 HOLD 2.30 2.25-4.3% NPC MK Equity 24-Feb-14 BUY 2.40 2.04-9.3% NPC MK Equity 23-May-14 HOLD 2.60 2.88 41.2% Return Since Inception of Coverage 35.5% Page 5 of 6
ANALYST S DISCLOSURE BUY: Share price may exceed 10% over the next 12 months TRADING BUY: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain HOLD: Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT: Target price has been attained. Look to accumulate at lower levels SELL: Share price may fall by more than 10% over the next 12 months NOT RATED (NR): Stock is not within regular research coverage All research is based on materials compiled from data considered to be reliable at the time of writing. However, information and opinions expressed are subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. This report has been prepared Wilson & York Global Advisers Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. Wilson & York Global Advisers Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysia's website at: http://www.bursamalaysia.com/website/bm/listed_companies/ cmdf_bursa_research_scheme/ All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from Wilson & York Global Advisers Sdn Bhd. J Charles Wilson Head of Research QUESTIONS? CONTACT THE INVESTMENT ADVISER: CONTACT THE COMPANY: Wilson & York Global Advisers Sdn Bhd Suite B-11-3A, Level 11, Block B, Plaza Mont Kiara 2, Jalan Kiara, Mont Kiara 50480 Kuala Lumpur Malaysia Tel: +603 6203 2280 Fax: +603 6203 2281 E-mail info@wygainvesments.com Website: www.wygainvestments.com NPC Resources Berhad Lot 9, Taman Tshun Ngen Mile 5, North Road 90000 Sandakan Sabah, Malaysia Tel: +608 927 4488 Fax: +608 922 6711 Website: www.npc.com.my Copyright 2014, Wilson & York Global Advisers Sdn Bhd See important disclosures on this page Page 6 of 6