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Wednesday, March 2, 2011

Kencana - Back on High Gear Soon (OSK)

Kencana Agri’s FY10 earnings beat our expectation as 4Q production recovered and exceeded our estimates by 9.4%. 1H production this year could still be below potential but on a full year basis, it should be back on a double-digit growth path due to a very strong 2H.

We continue to believe Kencana is a multi-bagger in the making. Given its thin liquidity, it is a stock that investors need to buy during a downcycle if one wants to build up a meaningful stake. Our target price is maintained at SGD0.60 based on a sum of parts (18x CY11 earnings plus EV on forward planting of 8k ha this year). The stock will trade at a single-digit PE based on CY12 earnings.

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