- Maintain HOLD on IOI Corporation with an unchanged fair value of RM5.70/share. IOI is currently trading at a FY14F PE of 18.7x. In the past seven years, IOI’s PE ranged from 8.1x to 33.0x. Average PE was 20x.

- We are neutral on IOI’s proposed acquisition of UnicoDesa Plantations Bhd. We do not expect significant earnings enhancement from Unico-Desa in the short term as the group recorded a net profit of only RM348,000 in 1QFYE3/14.

- IOI’s acquisition price of RM1.17/share or RM1bil values Unico-Desa at a FYE3/13 PE of 39x. Using Unico-Desa’s FYE3/12 EPS, which reflected a higher realised CPO price, IOI’s acquisition PE would translate into 16.8x.

- Dividing the purchase consideration of RM1bil over UnicoDesa’s landbank of 13,660ha, IOI’s acquisition price values Unico Desa at RM73,411/ha.

- After taking into account Unico-Desa’s two palm oil mills, IOI’s purchase consideration would actually be lower than RM73,411/ha.

- For comparison purposes, Boustead Holding’s acquisition of Uniglobal Sdn Bhd valued its landbank at RM76,603/ha. Boustead proposed to acquire 2,410ha of landbank in Lahad Datu from Uniglobal on 27 September 2013.

- Unico-Desa’s landbank would increase IOI’s landbank by 7.5% to almost 200,000ha. This assumes a 100% take-up rate for IOI’s general offer. At the current shareholding of 40%, IOI would only be able to equity account UnicoDesa’s earnings.

- Out of Unico-Desa’s 13,660ha of land, about 93% are already planted. Mature areas amounted to 9,121ha as at end-March 2013.

- FFB yield was decent at 23.8 tonnes/ha while oil extraction rate was 20.3%. Unico-Desa’s landbank are located in the districts of Kinabatangan and Lahad Datu.

- About 28% of Unico-Desa’s oil palm trees were between one to four years old as at end-Mar 2013. Another 23% were aged between 11 and 15 years.

- An additional 46% of the trees were over 16 years old while the balance 3% were between five to 10 years old.

- Unico-Desa’s balance sheet is healthy. As at end-June 2013, net debt amounted to RM15.2mil, which translates into a net gearing of 2.1% only.

Source: AmeSecurities