Source: Agrimoney.com

Asian Plantations has received its second plaudit from a broker within a week, with Hardman & Co praising the plantation development minnow for the "flawless" executive of its business plan, days after Panmure Gordon termed it a "well-oiled machine".

Hardman analyst Doug Hawkins said that Asian Plantations shares, which closed on Monday up 4.1% at 177p, could top 450p by 2013 if it maintains its progress on developing its existing 15,600 hectares of oil palm plantations in Malaysia.

And the returns could be a lot larger if the company succeeds in purchasing up to a further 8,000 hectares of land that it has targeted by the end of 2011, or if the palm oil price remains above its two-year average of $682 a tonne.

The "young, high quality" estate that Asian Plantations is building, with trees whose 20 year span of peak production has yet to come, "will represent an attractive asset to other estate owners", Mr Hawkins said.

"We would expect the share price to be driven by the value of the underlying asset base."

Into the black?

The comments followed a note from Panmure Gordon which forecast that shares in Asian Plantations could treble over the next five years, initiating the stock with a "buy" rating and short term price target of 230p.

"Given the early stage of development, we expect the company to report modest losses at the net income level for the period 2010-2012, but a steep increase in profitability thereafter," the broker said.

Its implementation of cutting edge plantation methods and mill technology meant that its palm oil yields could be 50% higher than the Malaysian average of 3.9 tonnes per hectare – even if the group does not receive a bid for its land or the whole company.

Valuation arbitrage

Indeed, Asian Plantations has been founded on the idea of exploiting the gap between undeveloped land, which can be purchased, planted and developed for about $7,000 a hectare, and mature plots, which sell for about $20,000-30,000 a hectare.

"This is no different to any other property development, where the developer takes a profit after marshalling the financial and technical resources required to execute the build of a revenue-generating real estate development," Mr Hardman said.

The "optimal" value of the plantations looked likely to be achieved in 2012, when the group had finished development, but when trees were still at the start of their productive lifespan.

The brokers cited a fall in the palm oil price, oil palm disease, a labout shortage and protectionism as among risks to their rosy forecasts.