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Best Plantation Play

Hap Seng Plantations Holdings Bhd's (HSP) initial public offering (IPO) of 300 million shares is expected to raise up to RM800 million - the biggest sale of shares in Malaysia this year so far. HSP's new shares are offered at RM2.65 per share, while the institutions side appears to be priced with a 50 sen premium on top of the IPO price. HSP forecasts a 56 per cent jump in net profit to RM157.7 million in the year ending January 31 2008. The IPO closes on November 2, with the shares targeted to be listed on the stock exchange on November 16. On 800m shares, the EPS would come in at 19.7 sen. Assuming 2009's net profit rises by 20%, net EPS would come to 23.6 sen. This will be the respective 2009 PER for Hap Seng Plantations market price on listing:

RM3.30 14x

RM3.50 14.8x

RM4.00 17x

But Hap Seng Plantations is not my pick, its IJM Plantations. Coincidentally, the EPS for March 2008 is 20 sen and for March 2009 EPS is slated to rise to 22 sen. That it, both companies EPS comes in at roughly the same level. Going forward, Hap Seng Plantations has probably sold forward 50% of production, while IJM Plantations has done negligible selling. The current rally in CPO prices would see IJM Plantations as a strong candidate for major re-rating. The fact that smaller plantations companies trade at a 20%-25% discount to larger counterparts, coupled with the fact that IJM Plantations' earnings was affected severely by the January floods - all bring about a positive glow for IJM Plantations share price. Added to that, the yields at IJM Plantations is a lot better. At the minimum, IJM Plantations share price should more than match Hap Seng Plantations shares price on listing day.

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