Plantations MALAYSIA

May 12, 2013

TDM Bhd NOT RATED

TDM MK / TDMS.KL
Current RM4.75
Market Cap Avg Daily Turnover Free Float Target N/A
US$391.9m US$0.55m 37.7% Previous Target N/A
RM1,173m RM1.67m 246.9 m shares Up/downside N/A
Conviction|

,
CIMB Analyst Share price not in full bloom yet
TDM's moves to streamline its businesses and improve earnings have
not gone unnoticed, going by its 38% share price rise in six months,
outperforming the sector and KLCI. But we believe the market has yet
to price in its healthcare assets, which it plans to list.
We estimate that the group's planted
SAW Xiao Jun estates are worth RM1,004m based
T (60) 3 2084 9203 on EV/ha of RM34,444 for its
E xiaojun.saw@cimb.com Malaysian estates and RM10,000 for
its Indonesian estates. Adding this to
Ivy NG Lee Fang CFA
its RM170m net cash, we arrive at
T (60) 3 2084 9697
E ivy.ng@cimb.com RM4.75, same as its current share
price. The market has yet to price in
a potential RM0.87 value from its
healthcare business and unplanted
Company Visit Expert Opinion landbank. We estimate potential
Channel Check Customer Views share price upside of 18% to its SOP
valuation of RM5.62.
A palm oil and healthcare
play
TDM, the listed plantation arm of the
Terengganu state government, is a
mid-sized planter with 34,875ha of
estates and also a healthcare play
with four hospitals offering 204 beds.
This relatively well-managed
company has raised its FFB yields by
3.1 tonnes/ha over the past nine
years despite its ageing Malaysian
estates which have an estimated
average age of 15 years. The key
drawback is its average yield of 18.3
tonne/ha, which is below the
national average due to the subpar
soil and weather conditions in
Terengganu. As a result, the group's
cost of production of RM1,350 per
tonne is higher than its peers.
Future growth
TDM has planted 8,081ha or 23% of
its planted area in Indonesia over the
past four years. The bulk of the
estates (5,767ha) will come onstream
in 2015, potentially boosting its
Fresh Fruit Bunches (FFB)
production by 15%. The group plans
to plant at least 5,000ha in
Indonesia and replant 5% of its
Malaysian estates annually.
Nearer-term growth will come from
the expansion of its healthcare unit
which is refurbishing and building
three hospitals. TDM is looking to
list the healthcare unit by 2016 to
unlock its value.
Valuations
TDM should worth RM5.62 per
share based on our base-case SOP
valuation and RM6.36 based on an
optimistic scenario. This suggests
18-34% upside to its current share
price of RM4.75.

Financial Summary
Price Close Relative to FBMKLCI (RHS)
Dec-08A Dec-09A Dec-10A Dec-11A Dec-12A
5.0 104
100
95
Revenue (RMm) 405.1 335.6 392.8 515.5 455.3
4.5
91 EBITDA (RMm) 154.5 92.3 145.8 237.6 172.4
86
4.0 82
77 Pretax Profit (RMm) 140.7 77.5 130.2 220.6 149.0
73
3.5
68 Net Profit (RMm) 98.6 54.8 91.7 161.0 102.4
64
3
3.0 59 EPS (RM) 0.45 0.25 0.41 0.68 0.42
2
Core EPS Growth 153% -45% 65% 65% -39%
Vol m

2
1 P/E (x) 10.5 19.0 11.5 7.0 11.4
1
DPS (RM) 0.11 0.12 0.14 0.22 0.22
May-12 Aug-12 Nov-12 Feb-13
Source: Bloomberg
Dividend Yield 2.2% 2.5% 2.8% 4.5% 4.6%
EFAPChartPriceVolRelDaily|
52-week share price range
EV/EBITDA 6.4 10.7 6.8 4.2 5.7
4.75 Net Gearing -21% -16% -24% -19% -15%
3.18 4.75 P/BV 2.0 1.9 1.7 1.0 1.0
ROE 16% 9% 13% 14% 8%
Current ROA 11% 7% 10% 11% 7%
Pretax Margins 35% 23% 33% 43% 33%

One third HalfSOURCE:

page CIMB, COMPANY REPORTS
Two thirds
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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TDM Bhd
May 12, 2013

1. BACKGROUND
1.1 A palm oil and healthcare company
TDM Bhd operates 40,518ha of palm oil estates in Malaysia and Indonesia, and
four private hospitals in Malaysia. It is 60.7% owned by the Terengganu state
government and run by a professional management team.

Figure 1: Substantial shareholders

Free float, 39.3%

Terengganu Incorporated
Sdn Bhd, 47.4%

Perbadanan Memajukan
Iktisad Negeri
Terengganu, 13.3%
SOURCES: CIMB, COMPANY REPORTS

The company was listed in 1969 and is among the oldest listed plantation firms
on Bursa Malaysia. TDM started as a plantation company but transformed itself
into a mini conglomerate in 1980-2002 when it expanded into other businesses
like healthcare, food and beverage, poultry, hotels, transport and rubber
processing. In 2004, a new management team took charge and began to divest
non-core businesses. This was completed in 2012 and left TDM with the
plantations and healthcare units. Plantation remains the key contributor to the
group, making up 93% of earnings, with healthcare accounting for the rest.

Figure 2: Historical milestones

SOURCES: CIMB, COMPANY REPORTS

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TDM Bhd
May 12, 2013

Figure 3: FY12 pretax profit breakdown

(RM m)
160

10.0 -0.2
140 (6.7%) (-0.2%)

120

100

80
139.3 149.0
(93.5%)
60

40

20

0
Plantations Healthcare Others Profit before tax

SOURCES: CIMB, COMPANY REPORTS

1.2 Oil palm plantations

TDM started as a plantation management company in 1965 and expanded its
operations around Terengganu. By end-2012, it was managing 32,437ha of
palm oil estates in the state (19% of total planted area in Terengganu), out of
which 26,794ha was owned by TDM and the rest by the Terengganu state
government and external shareholders through a sublease scheme (see Figure
4). The scheme was started by the state government in 1965 to attract palm oil
investment in the state and the estates are owned mainly by small shareholders.
The group earns the bulk of its earnings from its plantation assets and a small
management fee for managing the sublease scheme.

Figure 4: Oil palm estates managed by TDM

Owner Planted size (ha) Location Management Fee Income Profit Sharing Income
TDM Bhd 26,794 Terengganu, Malaysia n.a. n.a.
Lembaga Tabung Amanah Warisan Negeri Terengganu (LTAW) 1,336 Terengganu, Malaysia TDM:65% / LTAW: 35%
Majlis Agama Islam dan Adat Melayu (MAIDAM) 792 Terengganu, Malaysia 10% on profit before tax p.a. TDM:68% /MAIDAM:32%
Sublease scheme 3,515 Terengganu, Malaysia -
Total Malaysian estates managed by TDM 32,437
TDM Bhd 8,081 W. Kalimantan, Indonesia n.a. n.a.
Total estates managed by TDM 40,518
SOURCES: CIMB, COMPANY REPORTS

In its search for growth, the group ventured into Indonesia in 2009 when it
acquired 25,000ha of landbank in west Kalimantan and planted 453ha of palm
oil estates there. As at end-2012, TDM had grown its Indonesian landbank to
37,856ha and developed a total of 8,081ha of palm oil estates in Indonesia.
These estates are currently immature.
TDM aims to plant around 5,000ha of new area in west Kalimantan every year.
With 29,775ha of unplanted landbank, the group has sufficient landbank for
expansion until 2018. TDM is also conservative in its Indonesian expansion as
it typically commences new planting after obtaining land cultivation rights
known as Hak Guna Usaha (HGU). This differs from the common practice of
getting HGU after new planting is carried out. While TDM's conservative
approach may have resulted in slower estate expansion than other planters, we
believe that it minimises operational disruption and land ownership dispute
with the local communities.
TDM's expansion into Indonesia has also improved its overall age profile as
new plantings in Indonesia over the past four years now make up 23% of TDM's

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TDM Bhd
May 12, 2013

total planted area. We estimate an average age of 13 years for the group’s
estates, broadly in line with the Malaysian planters under our coverage.

Figure 5: Plantation profile

Malaysia Indonesia Total
Planted area (ha) (ha) (ha)
-mature 30,574 - 30,574
-immature 1,863 8,081 9,944
Total planted 32,437 8,081 40,518*
Unplanted - 29,775 29,775
Total landbank 32,437 37,856 70,293
*Includes 5,643ha of managed estates

CPO mills
Milling capacity 60 MT/hr 60MT/hr (planned)
SOURCES: CIMB, COMPANY REPORTS

Figure 6: Age profile of TDM's palm oil estates Figure 7: Estimated average age of TDM vs. Malaysian planters
under our coverage
>25 yr, 1%

21-25 yr, 15% 18 17 17 Title:

Immature, 24% Source:
16

14 Please
13 fill 13
in the values
13 above to have them entered in your rep

12 11
10
10

4-10 yr, 9% 6 5
16-20 yr, 27%
4

0
FGV HAPL SIME IOI TDM* KLK GENP JT
11-15 yr, 24%
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

The group's plantations operations have shown noticeable improvements under

the new management. Prior to 2004, TDM's FFB yields lagged behind the
national average as a result of subpar soil and volatile weather in Terengganu
(see Figure 10). It has raised its FFB yield from 14.7 tonnes per ha in 2003 to
18.3 tonnes per ha in 2013 while its oil extraction rate (OER) has gone up from
19.7% to 20.3%. The group attributed the improvement to optimisation of
fertiliser, planting material, logistics and labour management. It also believes
there is still room for improvement through the use of better planting materials
for its replanting programme and the upgrade of its CPO mills in Terengganu.
The group is also in the midst of buying out the minority shareholders of its
90%-owned plantation subsidiary, TDM Capital Sdn Bhd for RM17.6m. This
means that the group will own 100% of its 26,794ha Malaysian estates.

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TDM Bhd
May 12, 2013

Figure 8: Improvement in FFB yield under the new management Figure 9: Improvement in OER under the new management
(tonnes per ha) Avg FFB yield in 2004-2012: 17.2MT/ha Average OER in 2004-2012: 19.8%
21.0%
20
Title:
Avg FFB yield in 1996-2003: 14.7MT/ha Source:
19 20.5%
Average OER in 1996-2003: 18.9%

18 Please fill in the values above to have them entered in your rep
20.0%
17

16 19.5%

15
19.0%
14

13 18.5%

12
18.0%
11
17.5%
10
1996 1998 2000 2002 2004 2006 2008 2010 2012
1996 1998 2000 2002 2004 2006 2008 2010 2012

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 10: Rehabilitation programme has improved TDM's FFB yield

(FFB yield - tonnes per ha)
TDM Terengganu Malaysia

21
New management since 2004
20

19

18

17

16

15

14

13

12
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SOURCES: CIMB, COMPANY REPORTS, MPOB

5
TDM Bhd
May 12, 2013

1.3 Healthcare division

TDM owns four hospitals with 204 beds in Malaysia. It positions itself as a
secondary care provider (see Figure 11) and targets the middle-income
consumer group. TDM has a cost advantage over tertiary care providers as it
does not invest in costly specialised equipment and facilities needed for tertiary
care. This enables the group to keep its operating costs low and achieve better
profit margins than tertiary care hospitals even though TDM's fee is 25% lower
than the industry average (based on Malaysian Medical Association’s fee
schedule).

Figure 11: Comparison between primary, secondary, and tertiary care

SOURCES: CIMB, COMPANY REPORTS

Figure12: TDM's healthcare operating margin is higher than its peers

(Operating margin) TDM Healthcare Sime Darby Healthcare KPJ
16%
Lower margin due to high depreciation charges
resulted from renovation work in newly acquired
14% 13% hospital. The management expects the renovation
to be completed by mid-2013.

12%
11%

10%
9% 9%
8%
8% 8%
8% 7% 7%

6%

4%

2%

0%
FY10 FY11 FY12

SOURCES: CIMB, COMPANY REPORTS

TDM plans to list its healthcare unit by 2016. Management believes that it
needs to expand its bed capacity to 600-800 before it can proceed with the
listing plan. We suspect that a larger bed capacity is required to improve
economies of scale and make its healthcare unit noticeable to investors. Its
current size of 204 beds is significantly smaller than that of its listed peers (KPJ
- 2,600, Sime Darby – 913, IHH 4,800). The group is refurbishing one of its
hospitals and building two new hospitals which will increase its bed capacity to

6
TDM Bhd
May 12, 2013

430 by 2015. It may acquire another hospital in 2016 to achieve the desired bed
capacity.

Figure 13: TDM is small healthcare player compared to its listed peers

Company No. of hospitals No. of beds Location of hospitals FY12 EBITDA FY12 pretax profit Market Cap
RM m RM m RM m
TDM Healthcare 4 204 Malaysia (Terengganu, Pahang, Klang Valley) 16.5 10.0 n.a.
Sime Darby Healthcare 3 913 Malaysia (Klang Valley) 51.5 26.1 1,149*
KPJ 23 2,600 Malaysia (All states except Terengganu), Indonesia 244.8 148.0 4,111
IHH Healthcare 30 4,800 Malaysia, Singapore, Turkey, India, China 1,500.8 997.4 31,524
*Implied market value based on proposed JV with Ramsay group
SOURCES: CIMB, COMPANY REPORTS

Figure 14: Location of TDM's hospitals

SOURCES: CIMB, COMPANY REPORTS

Figure 15: Doubling of bed capacity by 2015

SOURCES: CIMB, COMPANY REPORTS

7
TDM Bhd
May 12, 2013

2. OUTLOOK
2.1 Steered onto the right growth path
TDM's management has performed well since it took charge of the group in
2004. Apart from disposing of the non-core businesses, management improved
the plantations' productivity and made a push into Indonesia. It also tripled the
bed capacity of its healthcare unit from 71 beds to 204 beds and set clear goals
for further expansion. We believe that the current management has steered
TDM in the right strategic direction, which will drive future earnings growth.
2.2 Strong FFB output growth prospects in Indonesia
23% of TDM's planted estates are located in Indonesia. These estates are
currently immature and will fuel FFB output in the next few years. The group
also aims to plant its entire 37,856ha of landbank in Indonesia by 2018, i.e.
about 5,000ha of new plantings annually. We are positive on this as it could
double the group's FFB production in 8-10 years and boost future earnings.

Figure 16: Aggressive expansion of planted area in Indonesia Figure 17: New planting expenditure
(ha) (RM m)
9,000 45 Title:
8,081 Source: 40.1 39.6
8,000 40

7,000 6,575 35 Please fill in the values above to have them entered in your rep

6,000 30

5,000 25

4,000 20
15.7
3,000 15

2,000 10

808 5 3.5
1,000 453

- -
2009 2010 2011 2012 2009 2010 2011 2012

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 18: Status of TDM's landbank in Indonesia

HGU
18,008ha
Izin Usaha Perkebunan 48%
19,848ha
52%

SOURCES: CIMB, COMPANY REPORTS

8
TDM Bhd
May 12, 2013

2.3 Stronger healthcare earnings from capacity expansion

and turnaround of a hospital
TDM plans to expand its bed capacity from 204 to 430 over the next three years
and has begun the construction and renovation works for all its hospital
projects. Looking at its strong track record, we believe that it will be able to
increase the number of patients in line with the added capacity. This could
double its healthcare EBITDA by FY16, assuming its patient numbers rise in
proportion with its bed capacity and assuming a flat EBITDA per patient in
FY12.
Earnings growth is also supported by the group's plan to turn around its
loss-making hospital, Taman Desa Medical Centre (TDMC), which it acquired
in 2011. We gathered that the loss is due to high depreciation charges for the
hospital which is undergoing renovations. Management hopes to turn around
this hospital by end-2013, following the completion of the renovation works in
mid-2013.

Figure 19: Expansion in bed capacity Figure 20: Growth in number of patients
('000)
250 180 Title:
166
Source:
160
204 204 145
200 Please fill in the values above to have them entered in your rep
140
122
120 116

150 103
136 136
125 100
86
106 110
80
68
100
59 60
76 60
71

40
50

20

0 -
2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 21: Healthcare EBITDA per patient was fairly stable in 2009-12
(RM per patient)
120

100

80

60

40

20

-
2009 2010 2011 2012

SOURCES: CIMB, COMPANY REPORTS

9
TDM Bhd
May 12, 2013

2.4 Longer-term strategy

The group is guided by three corporate goals 1) to own 100,000ha of oil palm
plantation, 2) to be the top healthcare provider in the East Coast region, and 3)
to list its healthcare business.
TDM currently owns 34,875ha of palm oil estates in Terengganu and west
Kalimantan. It has another 29,775ha of landbank reserves in Indonesia. Should
the group achieve its annual new planting target of 5,000ha, it would run out of
landbank by 2018 and its planted area would jump by 85% to 64,650ha. It is
keen to acquire more land to achieve its goal of 100,000ha of planted estates.
The group is already a leading healthcare provider in the East Coast region as it
owns the two largest private hospitals in Kuala Terengganu and Kuantan. It is
looking to expand into new markets such as Kota Bharu in Kelantan.
TDM has also appointed an investment bank to advise it on pre-listing matters
for its healthcare unit. It aims to list its healthcare unit by 2016.

3. VALUATION
3.1 Underappreciated assets
We believe that the stock should be valued on an SOP basis to reflect its diverse
business segments. Our base-case SOP estimate is RM5.62, 18% higher than its
current market price of RM4.75. We estimate that the current market cap of
RM1,173m only reflects the fair value of its planted estates and net cash. As
such, investors are getting its healthcare business and unplanted landbank for
free.
Plantation valuation of RM1,051m
In valuing TDM's plantation assets, we benchmark it to Hap Seng Plantations
(HAPL MK, Neutral) as the two companies have a similar estate size and age
profile for their Malaysian estates, operate only in the upstream segment and
are in a net cash position. However, all of Hap Seng Plantations’ estates are
located in Sabah, which is a more fertile region than Terengganu where TDM's
estates are located. As a result, TDM's estates have on average been 40% less
profitable than Hap Seng Plantations in the past three years.
Hap Seng Plantations' current market cap of RM2,176m implies an EV of
RM57,406 for each hectare of planted estate that it owns. Applying a 40%
discount to the valuation to reflect the lower profitability of TDM's estates, we
estimate TDM’s plantation assets in Malaysia to be worth RM923m.
TDM's estates in Indonesia are worth RM81m, assuming an EV/ha of
RM10,000 which equates to about half of the cost of developing new estates in
Indonesia as most of the group's estates in Indonesia are only 1-2 years old. We
gathered from management that its cost of new plantings in Indonesia is
RM15,000-18,000 per ha, which means a total estate development cost of
RM16,500-19,500 per ha based on its landbank acquisition cost of around
US$500 per ha. Assuming that half of the development costs are spent in the
first year of new planting, we estimate an EV/ha of RM10,000.

10
TDM Bhd
May 12, 2013
Figure 23: Enterprise value (EV) of TDM's estates in Malaysia
Hap Seng Plantations (HSP)
Market Cap (RM m)
Net cash (RM m)
Enterprise Value (RM m)
Planted area in Malaysia (ha)
EV/planted ha of HSP (RM)
TDM's estates in Malaysia
EV/planted ha of TDM (RM)
Planted area in Malaysia (ha)
EV of TDM's estates in
Malaysia (RM m)
Figure 22: TDM's estates have been less profitable than HSP in the past three years
TDM Bhd
FYE Dec 2010 2011 2012
Plantations operating profit* (RM m) 116 206 131
Mature area (ha) 32,471 32,194 30,574
Profit per mature ha (RM) 3,565 6,389 4,281
Hap Seng Plantations
FYE Dec 2010 2011 2012
Plantations operating profit (RM m) 228 340 191
Mature area (ha) 32,087 31,068 31,068*
Profit per mature ha (RM) 7,108 10,953 6,139
TDM's profit per mature ha /
50% 58% 70%
HSP's profit per mature ha
Average 60%
*Estimates
SOURCES: CIMB, COMPANY REPORTS
Figure 24: Total EV of TDM's plantations asset
Value Comments Estates RM m Comments
EV of estates in Malaysia 923 See figure 24
2,176 Closing market cap as at May 10, 2013 EV of Indonesian estates 81 RM10,000 per ha x 8,081ha
131 Net cash held as at Dec 31, 2012 EV of unplanted landbank in Indonesia 47 US$500 per ha x 29,775ha
2,045 Market cap less Net cash Total TDM's plantations EV 1,051
35,617 Planted area as at Dec 31, 2011
57,406
34,444 40% discount to HSP's EV/planted ha
26,794 Planted area as at Dec 31, 2012
923
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Healthcare valuation of RM168m
We expect strong healthcare earnings growth over the next few years, driven by
the expansion of bed capacity and a turnaround of its loss-making hospital.
Management has laid down detailed plans to increase its bed capacity by 111%
within the next three years and turn around its unprofitable hospital by
end-2013.
Assuming earnings growth of 15% p.a. over the next two years, TDM's
healthcare unit could worth RM168m, based on 7.7x CY14 EV/EBITDA. This is
conservative, at 40% discount to KPJ and 55% discount to IHH, to reflect
TDM's smaller healthcare division.
Net cash of RM170m
The group is in the midst of buying out the minority shareholders of its
90%-owned plantation subsidiary, TDM Capital Sdn Bhd for RM17.6m. As the
vendor currently owes TDM RM5m, the acquisition will be settled through a
cash payment of RM12.6m, with the balance offset against the debt. TDM's net
cash will be RM170m post acquisition.
SOP valuation could be bumped up to RM6.36 in a more optimistic case
Adding TDM's net cash of RM170m to its plantations and healthcare assets, we
get an SOP value of RM5.62. At the current price of RM4.75, the market is only
pricing the stock for its plantation assets in Malaysia and net cash.
The shares could worth RM6.36 (34% upside) if we lower our valuation
discount for its Malaysian plantation assets (vs. Hap Seng Plantations) and its
healthcare unit (vs. KPJ Healthcare) from 40% to 30%. The group is still
11
TDM Bhd
May 12, 2013

rehabilitating its Malaysian estates though its plantations’ profitability gap vs.
HSP has narrowed from 50% in FY10 to 30% in FY12 (see Figure 22). A lower
valuation discount of 30% is justified if the management succeeds in improving
its estates’ profitability. A cut in the discount from 40% to 30% would raise its
Malaysian plantation assets’ valuation from RM923m to RM1,077m. There is
also a case for reducing the discount applied to the healthcare unit given its
superior profit margin against its peers. Should we assign a lower 30% discount
to it its healthcare unit instead of 40% discount in our base-case scenario, the
healthcare unit would worth RM196m instead of RM168m.

Figure 25: SOP valuations

Base case Optimistic case
Segments Method
Valuation metric RM m Valuation metric RM m
Plantations
RM34,308 per ha (40% discount RM40,026 per ha (30% discount
Malaysian estates EV/ha 922.9 1,076.7
against HSP) against HSP)
Indonesian estates EV/ha RM10,000 per ha 80.8 RM10,000 per ha 80.8
Unplanted landbank in Indonesia EV/ha US$500 per ha 46.9 US$500 per ha 46.9
Healthcare CY14 EV/EBITDA 7.7x (40% discount against KPJ) 168.3 9x (30% discount against KPJ) 196.4
Net cash as at Dec 31, 2012 less
Net cash RM12.6m (cost of acquisition for 169.5 169.5
10% stake in TDM Capital)

Total Sum-of-Parts value 1,388.5 1,570.3

Implied share price 5.62 6.36
Current market cap 4.75 4.75
Upside 18% 34%

SOURCES: CIMB, COMPANY REPORTS

3.2 Rewarding shareholders with higher dividend and better

liquidity
We believe TDM's share price does not fully reflect the value of its assets. We
suspect that this is due to its small market capitalisation and low trading
liquidity compared to its larger peers. However, several corporate exercises may
be in the offing and may put TDM on investors' radar screens.
Returning cash to shareholders through higher dividends
TDM announced a higher-than-expected final dividend of 22 sen (RM54m cash)
in FY12, which translates into a full-year dividend payout of 53%, higher than
the group's minimum payout ratio of 30%. We believe that the aim is to return
excess cash to shareholders. The dividend will go ex on 27 May. Investors who
buy the shares today will be able to pocket a dividend yield of 4.6% from the
payout.
We estimate that TDM's net profit may fall to around RM70m in FY13 from
RM102m in FY12 as a result of lower CPO prices (RM2,530 per tonne in FY13
against RM2,946 achieved in FY12), However, we feel that TDM has the ability
to maintain its FY12 dividend of RM54m given its net cash of RM182m as at
end-2012. Besides, it plans to gear up its balance sheet to improve its return on
equity. In view of this, we believe that the high dividend payment for 2012 may
be sustainable. This could lead to a dividend yield of 4.6%, one of the highest
among plantations stocks in Malaysia.
However, if the group wants to conserve cash for its Indonesia expansion and
healthcare division and stick to a dividend payout of 53% in FY13 instead of
77% if it maintains its FY12 DPS, investors would still get 15 sen per share as
FY13 dividend, earning a decent net dividend yield of 3.2%. Based on the target
dividend payout of 30%, the dividend payout for FY13 would be only 9 sen,
translating into 1.9% yield.

12
TDM Bhd
May 12, 2013

Figure 26: Potential dividend yields in FY13

Estimated FY13 net profit RM70m
Estimated FY13 EPS 28.3 sen

Scenario Dividend per share Dividend yield

TDM maintains its FY12 dividend of 22 sen per share 22.0 sen 4.6%
TDM maintains its FY12 dividend payout ratio of 53% 15.0 sen 3.2%
TDM pays 30% of its net profit as dividend as per its dividend policy 9.0 sen 1.9%
SOURCES: CIMB, COMPANY REPORTS

Listing of healthcare unit

Healthcare is currently a small division within TDM as it contributed a mere 7%
of earnings in FY12. Given its lower profitability and asset size (12% of the
group's total assets), we suspect that its potential may not be fully appreciated
by investors or reflected in its share price. A separate listing of the healthcare
unit would unlock its value as healthcare stocks typically trade at P/Es of
20-30x, higher than plantations stocks’ 10-16x. The group has appointed an
investment bank to advise it on pre-listing matters and aims to list the unit by
2016.
Bonus issue and share split
TDM has proposed a 1-for-5 bonus issue and 5-for-1 stock split to increase its
share liquidity. It expects to complete the exercises by early July 2013.

Figure 27: Sector comparisons

Dividend
Bloomberg Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x)
Company Recom. Yield (%)
Ticker (US$ m) CAGR (%)
(local curr) (local curr) CY2013 CY2014 CY2013 CY2014 CY2013
Sime Darby Bhd SIME MK Neutral 9.50 9.50 19,198 16.9 16.4 -3.6% 2.00 1.88 3.0%
IOI Corporation IOI MK Neutral 5.33 4.42 11,452 20.5 19.4 -2.3% 2.42 2.24 2.4%
Kuala Lumpur Kepong KLK MK Underperform 21.70 18.18 7,771 23.7 20.3 7.8% 3.14 2.99 3.4%
Felda Global Ventures FGV MK Neutral 4.63 4.32 5,680 29.5 22.7 1.9% 2.64 2.50 1.7%
Genting Plantations GENP MK Neutral 8.95 8.70 2,284 21.8 17.9 9.6% 1.84 1.70 1.4%
Hap Seng Plantations HAPL MK Neutral 2.72 2.70 731.7 16.3 13.6 7.4% 1.09 1.06 3.7%
Jaya Tiasa Holdings JT MK Neutral 1.97 1.82 641.3 30.3 15.3 26.6% 1.09 1.02 0.7%
Malaysia average 22.7 17.9 6.8% 2.03 1.91 2.3%
Wilmar International WIL SP Outperform 3.42 3.74 17,807 14.0 12.5 9.0% 1.16 1.08 1.4%
Golden Agri-Resources GGR SP Neutral 0.54 0.58 5,643 16.2 13.4 4.4% 0.64 0.62 1.2%
Indofood Agri Resources IFAR SP Underperform 1.10 1.02 1,284 18.6 16.5 -10.2% 0.87 0.83 0.0%
Mewah international MII SP Underperform 0.47 0.46 576.6 25.9 20.8 13.4% 1.00 0.96 0.8%
Singapore average 18.7 15.8 4.1% 0.92 0.87 0.9%
Astra Agro Lestari AALI IJ Neutral 17,150 19,000 2,779 13.4 12.3 -4.8% 2.85 2.60 4.4%
Salim Invomas Pratama SIMP IJ Underperform 810.0 864.0 1,318 18.3 15.8 -13.9% 0.92 0.88 2.2%
London Sumatra LSIP IJ Neutral 1,520 1,800 1,067 9.9 8.7 6.2% 1.51 1.36 4.3%
Sampoerna Agro SGRO IJ Neutral 1,930 2,000 375.4 11.2 9.7 7.7% 1.24 1.14 1.9%
BW Plantation BWPT IJ Neutral 940.0 950.0 391.9 13.1 8.2 34.3% 2.02 1.69 1.5%
Indonesia average 13.2 10.9 5.9% 1.71 1.53 2.8%
Average (all) 18.7 15.2 5.8% 1.65 1.53 2.1%
SOURCES: CIMB, COMPANY REPORTS

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(a) Hap Seng Plantations, Wilmar International

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Description Excellent Very Good Good N/A
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Recommendation Framework #1 *
Stock Sector
OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to
by 5% or more over the next 12 months. outperform the relevant primary market index over the next 12 months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in
return. line with the relevant primary market index over the next 12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to
return by 5% or more over the next 12 months. underperform the relevant primary market index over the next 12 months.
TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to
by 5% or more over the next 3 months. outperform the relevant primary market index over the next 3 months.
TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to
return by 5% or more over the next 3 months. underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan
Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market
volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

Recommendation Framework #2 **
Stock
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months.
NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months.
UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months.
TRADING BUY: Expected positive total returns of 10% or more over the next 3 months.
TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.
Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number
of stocks that are expected to have total returns of +10% or better over the next 12 months.
NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal
number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or
(ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%;
both over the next 12 months.
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number
of stocks that are expected to have total returns of -10% or worse over the next 12 months.
TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number
of stocks that are expected to have total returns of +10% or better over the next 3 months.
TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number
of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
AAV – not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good,
BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good,
GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very
Good, KAMART – not available, KBANK - Excellent, KK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL -
Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS - Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very
Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE -
Very Good, TUF - Very Good, WORK - Good.

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