HARN LEN worth RM1.80?

1.    The price that it sold its land is already RM1.00 per share. On 27-Sep-2013, Harn Len Corporation (HARNLEN) sold its 2410 ha of land in Sabah for RM184.6m cash to Boustead. If you look at the share base of 185.5m, the cash of RM184.6m translated into about RM1.00 per share. Since this Company still owns 12,200 ha of plantation land in other states, its share price is unjustifiably trade near RM1.00.

2.     Will HARNLEN sell its other plantation estates? HARNLEN has suffered consecutive 3 quarter of net losses due to low CPO prices, so it may make economic sense that the owner may want to sell its estates to another Company to realize its investment.

3.       HARNLEN is worth RM1.80 if the estates were to be sold. Assuming a very low land valuation of RM25,000 per ha for the remaining 12,200 ha of its land, this share is easily worth RM1.80. The 12,200 ha of land is already at deep discount of 65% to the Sabah estate price (due to the low FFB yield) in this calculation. This means its 12,200 ha land worth RM305m or RM1.60 per share. But of course we need to take care of its net debt of RM148m or RM0.80 per share.

4.    Conclusion: Land sold at cash (RM1.00) + Remaining estates (RM1.60) – Net Debt (RM0.80) = RM1.80 per share.

5.     Short term will be volatile, but the value should emerge soon. Investors sentiment may be clouded by US Government Shutdown Concern, but value investors know the trick to buy when the market is in fear. Grab this opportunity before too late.

CPO drop below RM3,000... plantation stocks may retreat tomorrow

1. CPO prices tumbled RM86 or 2.8% to RM2,998 as of 5.45pm. If critical support above RM3,000 is broken today, it will be negative for plantation stocks tomorrow.
2. Historically, KL Plantation Index tracks CPO prices closely with correlation of > 90%.
3. Based on technical RSI value, here's some of the OVERBOUGHT plantation stocks that are most vulnerable to possible selloff tomorrow:
a) Sarawak Oil Plantation - RSI 77.7
b) Tradewinds Plantation - RSI 75.3
c) BLD Plantation - RSI 72.4

3 reasons to take profit from some of plantation stocks

1. CPO prices should drop below RM3,200 soon (probably today) as soybean oil retreated 2.0% to 51.7 cents per pound overnight at CBOT market. Crude oil price also tumbled 3.7% to US$98.8 overnight. Concern on Europe is getting bigger as Spain bond yield is set to cross 7%.
2. 3Q result should be weaker QoQ as CPO prices has weakened in the quarter July-September. Among the big cap plantation company, IOI will kick start the result season today, which should register decline QoQ. Look for more QoQ decline...
3. Technically, some of plantation stocks has reach overbought level. For example, Genting Plantation 14-day RSI has touched 72 at closing price of RM8.02 yesterday. Rimbunan Sawit 14-day RSI reached 75 at closing price of RM0.94 yesterday.