After taking almost 4 months, TSH has finally concluded the proposed land disposal measuring 13,214.9ha located in North Kalimantan, Indonesia for a total disposal consideration of RP2,428.8bn (RM711.6m). The deal values the plantation land at an indicative EV of RM53,848/ha, which is deemed to be fair, in our view. Nearly 77% of the proceeds would be used to pare down its total borrowings of RM1.1bn. The Group is expected to record a one-off gain of RM400.3m, which is expected to be recognized by 1QFY23. Maintain Outperform call with an unchanged TP of RM1.81 based on 15x FY23 EPS.

• To recap. On 10 Dec 2021 (refer to our report dated on 13th Dec 2021), TSH announced that its 90%-owned subsidiary had entered into a heads of agreement with PT Kawasan Industri Kalimantan Indonesia and PT Kalimantan Industrial Park Indonesia in relations to the proposed disposal of 7 plots of oil palm plantation land located North Kalimantan, totalling 13,214.9ha together with the uncertified land adjoining the plantation measuring 683.36ha for a total disposal consideration of RM711.6m. The proposed land sale, which are held under Hak Guna Usaha (Right to Cultivate) and Hak Guna Bangunan (right to build) have a total planted area of 3,818.8ha. It contributed FFB production of 74,244 mt in 2020, making up 9% of its total FFB production.

• Handsome gain in the bag. Back in Aug 2011, the original cost of investment was only RM181k. Stripping out the net book value of RM271m, as well as plasma settlement (RM20.5m) and estimated expenses for the proposed disposal (RM19.6m), the Group is expected to record a one-off gain of RM400.3m or 29sen per share and it is expected to be completed by the first quarter of 2023. Interestingly, the disposal consideration of RM711.6m represents a premium of 140.7% to the market value ascribed by the Valuer and it represents a premium of approximately RM440.5m or 162.4% to the audited NBV of the sale land of RM271.1m. However, the proposed disposal is regarded as a related party transaction and it is subject to the shareholders’ approval.

• To improve gearing levels. It our view, the proposed land disposal was timely in anticipation of the multiple global rate hikes amid high CPO price cycle. The expected proceeds of RM711.6m will bring down the Group’s net gearing from 0.45x to about 0.15x. About RM550m or 77% of the proceeds will be used to pare down its RM1.1bn borrowings. RM45m or 6.3% of the total proceeds will be used for undertaking new planting and replanting of 3,500ha of oil palm estates in Sumatera and Kalimantan over 2023-2024.

Source: PublicInvest Research - 5 Apr 2022