TH Plantations Bhd (July 25, RM2.54)
Maintain buy at RM2.51 with fair value of RM3.25: TH Plantations Bhd (THPlant) has proposed to acquire two companies from Lembaga Tabung Haji for RM535.6 million via the issuance of 209.3 million new shares at RM2.56 per share.The two companies own 25,490ha of oil palm land and 15,714ha of rubber and teak land. One of the companies also owns a 60 tonne per hour palm oil mill.
About 24,312ha of the acquired oil palm land is in Sarawak and 1,178ha in Terengganu. The teak and rubber land is located in Sabah. Most of the oil palm trees in Sarawak are young — at between one and 14 years old.
Although earnings contributions are not expected to be significant due to the earnings per share (EPS) dilution resulting from the increase in the number of shares, we are of the view that THPlant will benefit from the acquisitions.
The acquisitions will increase THP’s total landbank from 44,933ha to more than 85,000ha. In addition, its planted areas will rise from 38,154ha to 57,407ha.
Comparing on the basis of the size of landbank in Malaysia, THPlant will be larger than Kulim Bhd’s estimated 54,000ha and Sarawak Oil Palms Bhd’s 72,653ha.
We estimate that the acquisitions will marginally improve THP’s forecast EPS for the financial year ending Dec 31, 2013 (FY13).
The number of THPlant shares would rise 40% from 517 million to 727 million.
Lembaga Tabung Haji’s shareholding in THPlant would increase from 58.8% to 70.7%. The proposed acquisitions are targeted for completion in the fourth quarter of FY12.
The acquisition cost of RM535.6 million implies a price-earnings ratio of 15.7 times on the acquired company’s FY11 earnings. The other company recorded a small net loss of RM100,000 in FY11. Inclusive of borrowings but disregarding the cash and palm oil mill, the acquisition cost of RM535.6 million implies a market value of about RM25,000 per hectare on the oil palm landbank.
We believe this to be fair. In March, Tradewinds Plantation Sdn Bhd bought 10,436ha of land in Sibu from Tradewinds (M) Bhd at RM12,016 per hectare, while in November 2011 THPlant acquired 5,602ha of mainly greenfield land in Samarahan from Sawit Green Plantation Sdn Bhd at RM13,120 per hectare.
According to the Bursa announcement, the acquired companies’ landbank was valued at RM1 billion. This implies that THPlant is buying the landbank at 52% below the market value. — AmResearch, July 25
This article appeared in The Edge Financial Daily on July 26, 2012.
