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Investors warm up to Harn Len’s sale of Sabah estates

KUALA LUMPUR: Harn Len Corp Bhd’s proposed disposal of its 2,409.8ha of mature palm oil estates in Lahad Datu, Sabah has attracted interest to the stock, which jumped from below 80 sen last month to RM1.06 last Friday.

The sale of the Sabah estates to Boustead Holdings Bhd, at RM184.6 million cash, will result in RM143.3 million gain for Harn Len and turn its balance sheet from a net debt of RM148.1 million as at June 30 to a net cash position of RM36.5 million.

Minus the net cash, Harn Len’s enterprise value comes in at RM160.1 million (market capitalisation of RM196.61 million less RM36.5 million net cash), for its remaining 13,909ha of planted palm oil estates (9,669ha in Sarawak and another 4,240ha in Johor). This works out to an enterprise value of only RM11,510 per ha.

In comparison, the company’s proposed disposal of the 2,409.8ha in Sabah to Boustead is valued at close to RM77,000 per ha.

Harn Len chief financial officer Low Yew Yern told The Edge Financial Daily that the company has about 10,000ha of undeveloped landbank in Sarawak, which is not reflected in the company’s balance sheet.

“We will utilise the proceeds to pay off all our debts,” said Low, adding that the company will also concentrate on efforts to develop its plantation landbank in Sarawak.

Harn Len’s total loans and borrowings stood at RM149.7 million as at June 30, 2013, with a rather high net gearing of RM148.1 million against its shareholders fund of RM235.6 million. Its finance costs of RM5.1 million for the first half (1H) of 2013 equalled 26.5% of its interim gross profit of RM19.4 million for 1H ended June 30 of 2013 financial year (1HFY13).

The company, which has deep value, began to be saddled with losses as commodity prices fell. For 1HFY13, Harn Len’s net loss widened to RM9.77 million or 5.27 sen a share from a loss of RM5.58 million in the previous corresponding period. The poorer performance was due to low crude palm oil (CPO) prices that had hurt industry margins.

“Last year’s average CPO price was RM2,764 per tonne, compared to the year-to-date CPO price of RM2,330 per tonne. As this is a 16% dip year-on-year in terms of selling price while costs are still stable, margins declined accordingly,” said Alan Lim Seong Chun, research analyst at Kenanga Investment Bank.

“Depending on their production costs, smaller players like Harn Len need to improve their efficiencies to sail through the current difficult time,” he said.

 

This article first appeared in The Edge Financial Daily, on October 07, 2013.

 

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