• NPC Resources announced that it has accepted a non-binding offer by IOI Corporation to acquire 3,746.44ha of planted areas in Sugut, Kinabatangan and Beluran, Sabah for RM226.6mil.

• IOI has also proposed to acquire 881.4ha of planted areas in Sugut and Labuk, in which NPC holds the development rights to, for RM54.6mil. The land is owned by Koperasi Kakitangan Perkhidmatan Pelajaran Sabah Bhd.

• The time frame to execute the definitive agreements are 30 August 2021 for the first acquisition and 30 September 2021 for the Koperasi land.

• The proposed acquisition of the 3,746.44ha of land would increase IOI’s planted areas from 176,909ha as at end-June 2020 to 180,655ha. We believe that most of the 3,746.44ha of land are mature. We estimate that the land would improve IOI’s FFB production by 2% to 3%.

• The proposed acquisition of the 3,746.44ha of planted areas for RM226.6mil translates into a purchase consideration of RM60,480/ha. We believe that this is fair as the market price of a brownfield estate in Sabah is between RM80,000/ha and RM100,000/ha.

• In respect of the Koperasi land, we believe that IOI would be paying a certain percentage of the value of the FFB production to the landowner.

• IOI is expected to use its internal cash to finance the proposed acquisitions. The group’s gross cash stood at RM2.3bil as at end-June 2020.

• We do not expect earnings contribution from the proposed acquisitions to be significant dueto the small size of the planted areas.

• We maintain HOLD on IOI Corporation with a fair value of RM4.20/share.

Source: AmInvest Research - 6 Jul 2021