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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » CARS - 31.12.2013

CARS - 31.12.2013

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1CARS - 31.12.2013 Empty CARS - 31.12.2013 Thu Feb 13, 2014 7:46 pm

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
http://www.cse.lk/cmt/upload_report_file/502_1392289599632.pdf

2CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Thu Feb 13, 2014 9:11 pm

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
In a way I feel sorry for Carson group. They came up with a brilliant idea of growing palm trees on a mass scale.
However nothing seems to be working on their favour. Overall they are doing bit better but long bumpy ride ahead.
Too much competition in international market, supply clearly outpaces the demand at the moment, devaluating Rupaih etc

Doing business in Indonesia is kinda similar to doing business in Sri Lanka. Indonesian government can pass any Ad-hoc bill as they wish (such expropriation bill). To my eyes that’s risky.

3CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Thu Feb 13, 2014 9:41 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@UKboy wrote:In a way I feel sorry for Carson group. They came up with a brilliant idea of growing palm trees on a mass scale.
However nothing seems to be working on their favour. Overall they are doing bit better but long bumpy ride ahead.
Too much competition in international market, supply clearly outpaces the demand at the moment, devaluating Rupaih etc

Doing business in Indonesia is kinda similar to doing business in Sri Lanka. Indonesian government can pass any Ad-hoc bill as they wish. To my eyes that’s risky.

Dont feel sorry ! they are on a good wicket and it is getting better !

a closer look and a deep thorough understanding of whats going on is required.

Palm prices prices are up 15 % on average from last year. the indonesian rupiah devalued 27 % in 2013 and is camouflaging their real profits by over Rs 4 Bill. a weakening rupiah is good for them. their current output of 250,000 tons will double in 4-5 years. this could triple or quadruple their profits. (a high operating leverage business - economies of scale). CPO currently Rm 2650 up from Rm 2300 average last 6 months. due to increased bio-diesel mandates in malaysia & indonesia, CPO could average Rm 2950 in 2014. The downstream oil & fats sector has turned around and posted its first profit in 2.5 years.
For a sri-lankan perspective, you are getting a world class player (in scale & size), overseas exposure in a lower inflation environment (energy, fuel & feed), dollar denominated sales, and a hedge against a devaluing sri lankan rupee as if an export company.
all in all, super cash cow business and it can finance its own rapid expansion.      
CARS & BUKI trading at a steep discount to its enterprise value & intrinsic value of its holdings in Goodhope Asia.

4CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 8:11 am

sajeethk


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
However every year there minimum wage increase 10-15% it will affect all biz in Indonesia. Specially with large no of workers

5CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 8:31 am

econ

econ
Global Moderator
Plantation is always a risky business whether it is tea, rubber, coconut, or palmoil. So thier profit level affected by heavily due to plantation sector performance in this year.

anyway share price need to go down heavily on these over priced counters which will be healthy for overall CSE.
Currently NAVPS at 158, 9 month EPS at 4.. trades 350.

6CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 1:37 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Firms structured in the way the Sri Krishna (or Carsons) group are structured can create opportunities for fraud on minority shareholders.

Ownership of subs locked away offshore under multiple entities are ways in which funds can...... well let's say it can  create issues

Not saying this is going to happen but the value of these firms make these sorts of moves more valuable

7CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 3:39 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@econ wrote:Plantation is always a risky business whether it is tea, rubber, coconut, or palmoil. So thier profit level affected by heavily due to plantation sector performance in this year.

anyway share price need to go down heavily on these over priced counters which will be healthy for overall CSE.
Currently NAVPS at 158, 9 month EPS at 4.. trades 350.


Hi econ, only thing i will say is i promise to take your signature very seriously !  Smile

8CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 7:02 pm

Aubrey Perera


Vice President - Equity Analytics
Vice President - Equity Analytics
Should be trading at around 140 if you ask me !!!

9CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Fri Feb 14, 2014 8:44 pm

jonta999

jonta999
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Can you justify the dividend yield?  Evil or Very Mad 

10CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Sat Feb 15, 2014 3:28 pm

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@the Alchemist
Please let me know the reason behind the decreasing biological assets? Is it because the report in Sl rupee?

If i invest in Carson group, the main reason would be their expose to local beverage sector.

Regarding the government plan on minimum public floating. What would be CARS group's (CARS & BUKI only) reaction ( worse case)?

11CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Sat Feb 15, 2014 4:39 pm

Jana1


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@UKboy wrote:@the Alchemist
Please let me know the reason behind the decreasing biological assets? Is it because the report in Sl rupee?

If i invest in Carson group, the main reason would be their expose to local beverage sector.

Regarding the government plan on minimum public floating. What would be CARS group's (CARS & BUKI only) reaction ( worse case)?

Hello UKBoy,

What do u mean by local beverage sector? U feel local is risky? How Lion, Dist performing well or share prices are at its premium.

12CARS - 31.12.2013 Empty Re: CARS - 31.12.2013 Sat Feb 15, 2014 7:16 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@UKboy wrote:@the Alchemist
Please let me know the reason behind the decreasing biological assets? Is it because the report in Sl rupee?

If i invest in Carson group, the main reason would be their expose to local beverage sector.

Regarding the government plan on minimum public floating. What would be CARS group's (CARS & BUKI only) reaction ( worse case)?


By the decreasing biological assets, i presume you mean Changes in fair value of  biological assets in the Income statement note # 5. yes it has been less in the last 2 quarters in comparison to past periods. most probably this is due to timing of the plantation cycle. see, Carsons Singapore Palm Oil group subsidiary, of which it owns approx 60-65 %, Goodhope Asia Holdings Limited (GHAHL), owns an approx 150,000 Hectares Land Bank in Kalimantan (Borneo) Indonesia. FROM from their last AR in 2012/2013, 50,000 Hectares was planted & mature, 10,000 was planted & immature and 15,000 was been cleared and under development / for planting in this current FY.

The fair value biological Gain is only from the immature plantations. so it could very well be that the previous immature plantations bore fruit and thus became mature and the 15,000 is currently being planted and thus not yet immature but will be in subsequent quarters.    

In palm oil, you first have to clear land, prepare soil, and then plant from nursery. and it takes approx 28 months until the first fruit bunches arrive. from 28 months onward, you will get a 1-2-3 tons / hectare until 60 months = 5 tons/hectare. then bell shaped curve max 8 tons / hectare tapering at year 15 and declining until year 25 when it will need replanting. cost to develop one hectare (clearing, soil preparation & planting) cost usd 5000 / hectare. for the past 3-4 years, they have been developing approx 10,000 hectares / year (usd 50 mill) from the usd 50-100 mill profits they have been making. during 2010/11, GHAHL make over usd 100 mill due mainly to high CPO prices.

Regarding Breweries, best value is BREW but its illiquid.
remember 2 LION shares = 1 BREW share (in actual value)
but price 1 BREW is much less than 2 lion shares.  

When you look at CARS, the value break-up is as follows

Palm oil - Rs 425 ( based on value of GHAHL)
Breweries - Rs 75 (based on market price of BREW)
Investments - Rs 75 (based on NAV of GUAR)
Equity / Hotels - Rs 25 (based on NAV of these assets).

So i guess, no point buying CARS for Breweries exposure.

Regarding Minimum Float requirement, i did not see their name on the list in the newspapers. looking at the shareholder list, difficult to say who the beneficial shareholders are and how much they own. also, due to the Market Capitalization clause, they may not be impacted. i'm not sure.

However, in time to come, the most obvious thing for them to do is to merge BUKI & CARS as they are both mirror images of each other. then that combined entity will own approx 88 % of GHAHL which in 4-5 years, at current palm oil prices, could make usd 200 mill net profit / year. this may happen just before the inevitable GHAHL IPO / Listing in perhaps Singapore, when they could offer part of their combined 88 % stake for sale in a future GHAHL IPO.

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