TH Plantations Bhd’s (THP) plan to acquire 9,930ha of land from its parent Lembaga Tabung Haji (LTH) has been viewed as a positive development by analysts, as it would enable the company to expand its landbank to 38,660ha.
The acquisition would also boost its planted area by about 54% to 28,490ha.
The analysts, however, differ in the recommendation on the stock with Aseambankers Research maintaining a buy call while AmResearch Sdn Bhd has a sell call on it at RM3.22.
THP has proposed to acquire the land in Sabah from LTH for RM199 million, to be satisfied via the issuance of new shares and RM40 million cash. The company has also proposed a one-for-one bonus and the establishment of an employee share option scheme.
Aseambankers Research maintained its earnings forecast for THP and an unchanged target price of RM4 based on 10 times mid-2010 earnings per share (EPS) (previously 10 times 2009 EPS); supported by dividend yields of more than 8%.
THP has proposed to buy 9,930ha of oil palm estates from its parent company, LTH (held via two subsidiaries) to boost its planted area by 54% to 28,490ha and total landbank to 38,660ha. THP will pay RM147.5 million for LTH’s 51% stake in Sabaco.
Sabaco owns 8,606ha of estates (yielding 19.8 tonnes of fresh fruit bunch per hectare with average age of 14.2 years) and two oil mills in Sabah with total capacity of 50 tonnes per hour. Separately, THP will pay another RM51.9 million for 100% stake in Bukit Belian, which owns 1,061ha of estates in Sabah.
Aseambankers Research estimates the Sabaco acquisition at an enterprise value (EV) per mature hectare of RM39,136 (attaching a RM50 million value to the oil mills), and Belian at RM48,964 per mature hectare.
“Overall, we think the acquisition price is fair given the high crude palm oil (CPO) prices of more than RM3,000 per tonne, and even when compared to Sarawak Plantations and Hap Seng Plantations which were recently listed at EV/ha in excess of RM36,000 and RM72,000, with yields of 17.5 tonne per hectare and 25.4 tonnes per hectare respectively.”
“This was further supported by Sabaco and Belian’s historical acquisition PER of 9.5 times and 11.3 times, respectively. THP targets to complete the acquisition in 4QFY08. Post-acquisition, its gross gearing should rise to 25% from 7% in 1QFY08, a manageable level,” said Aseambankers Research.
With these acquisitions, Aseambankers Research said THP will meet its medium-term key performance indicators to position itself as a medium-sized plantation company of 32,000ha by 2009.
“Over the longer term, we hope that LTH will inject its 80,000ha of Riau’s young mature estate into THP,” it said.
Meanwhile, AmResearch said it was not surprised by the acquisition as THP had indicated previously that it would acquire land in Sabah from LTH, adding that it viewed the purchase positively as it would expand TH Plantation’s landbank and also give the group exposure to Sabah.
The research house said the purchase consideration was fair as it valued the landbank at RM20,082 per hectare, and was within the recent market transacted prices of RM18,000 to RM26,000 per hectare for two parcels of land in Sarawak by CB Industrial Product Holding Bhd.
“After adjusting for a higher number of shares from the issuance of 47.7 million new shares, a 49% minority interest in SSSB and higher interest expense, we estimate that the acquisition would improve THP’s FY09F EPS by 1.3% from 44.2 sen to 44.8 sen.”
“Financing the cash portion of the purchase consideration is not expected to be a problem as THP’s balance sheet is healthy. The group had cash of RM38.6 million as at end-FY07,” it said.
AmResearch said although the acquisition was earnings-enhancing, it was recommending a sell call on the counter with a target price of RM4 as the price of crude palm oil was expected to weaken, underpinned by higher supply.
“The price of crude oil is also tapering off while biofuel policies in the United States and Europe are not as positive as before,” it said.
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