By Xavier Kong
TDM Bhd has seen quite a bit of volatility over the past few years, due to one of its core businesses being plantation. However, with the growth that it has seen, is the stock about to hit its prime?
TDM Bhd was founded in 1965, when it started as a plantation management company with six non-core businesses. In 1969, the group listed on Bursa Malaysia and has since restructured itself to two core businesses in the plantation and healthcare segments, with its other non-core businesses either divested or realigned.
The plantation subsidiary of the group owns 68,459ha of land spread over 12 estates in Terengganu and Kalimantan, of which 44,381ha is planted. The average age profile of their palm oil trees is about 12 years.
TDM also operates two palm oil mills, both of which are in Terengganu. The plantations segment forms the primary revenue source of the group, with some 66% of its financial year 2014 (FY14) revenue derived from plantations.
TDM’s medical arm manages four specialist hospitals, focused on secondary care, in Selangor, Pahang, Terengganu, and KL for a total of 204 beds. Management has declared that they are aiming for 450 beds before going for listing to unlock the full potential of its medical arm.
Shareholders and management: The largest shareholder of TDM by far is the Terengganu state government, which owns a 62.19% stake in the group via Terengganu Inc Sdn Bhd. The next largest stakeholder is the Terengganu State Economic Development Corp with a 13.28% stake. Retirement Fund Inc is the third-largest shareholder with a 9.42% stake.
The group fields as its chief executive officer Badrul Hisham Mahari, who joined the group in 2004 as a group general manager. Prior to joining TDM, he had held positions in UEM Group Bhd, PLUS Expressways Bhd and had founded Rangkaian Segar Sdn Bhd, the operator of the Touch ‘n Go smart card electronic payment system.
Share price performance: Over the past year, TDM has seen its share of ups and downs, linked as it is to the price of crude palm oil. Most noticeable about this is the recent intra-year low of 53 sen that the stock saw in August 2015, when crude palm oil prices were suppressed, as well as the climb it has seen to close at 66 sen on Oct 2, 2015. The group also saw an intra-year high of 94 sen on Oct 20, 2014.
What analysts think: PublicInvest Research initiated coverage on TDM recently with an “outperform” call, stating that the group is looking at exciting growth for its two segments in 2016, on top of what it has already seen.
“Despite relatively poor crude palm oil price performances, the group has been aggressive in expanding its plantation and healthcare businesses and aims to double the latter’s capacity in the medium term,” said PublicInvest, noting that the growth would be driven by aggressive expansions.
For the plantation segment, the group will be looking at planting about 1,000ha per annum for the next three years, while almost 8,000ha of the group’s already planted land bank will be reaching maturity this year. The research house anticipates stronger growth coming from the group’s Indonesian operations in 2016.
On the healthcare side of things, TDM’s specialist hospital in Kuala Terengganu will be operational by 2016, with the group also aiming to upgrade its Kelana Jaya and Taman Desa hospitals, thus bringing its total number of beds to 450.
Earnings forecast:
StockStalk: With the group looking at strong growth prospects in both segments moving forward, as well as the group’s current price per share at 66 sen, this looks to be an opening for investors to hop onto the bandwagon right before things get good.
To further sweeten the deal, the group also has a low net gearing of 0.28 times, with a net debt of RM377.3 million, as well as a 30% payout dividend policy, which translates to a dividend yield of 4%.
However, it should be noted that the group has made borrowings this year, following the group spending RM200 million on new planting and its first palm oil mill in Kalimantan, RM80 million on the hospital in Kuala Terengganu, as well as RM100 million on upgrading its Kelana Jaya and Taman Desa facilities.
At the same time, analysts have also noted that the El Nino effect this year will be stronger in Kalimantan, possibly affecting the group’s fresh fruit bunch numbers from Kalimantan in 2016 due to the low rainfall, offsetting the increase of mature palm oil trees owned by the group.
Another thing to note is that the group’s earnings are closely tied to the price of crude palm oil.
While crude palm oil prices have recently rallied due to the supply being threatened by a stronger El Nino, as well as the weakness of the ringgit to the US dollar, industry analysts have noted that this may not persist past December this year, depending on the strength of the US dollar against the ringgit, as well as the price of both crude oil and other vegetable oils, such as soybean oil.
However, there is the opportunity of getting in on the ground level of the group’s healthcare arm, which it plans to list by 2017. This may be something of interest to investors. As it always is, buying into a stock is a risk. Whether or not the risk is worth taking is a decision that lies with the individual investor.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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