• We view Sarawak Plantation’s (SPB) potential emergence of major shareholder – Ta Ann – positively.

• Ta Ann has recently announced its intention to acquire 30.39% stake in SPB from Cermat Ceria Sdn Bhd (CCSB) for a cash consideration of RM169.9m which is equivalent to RM2.00 per share.

• Should the deal materialize, the entry of Ta Ann offers potential synergies by allowing SPB to leverage on Ta Ann’s expertise to improve FFB yield and resolve NCR land issues.

• We maintain our earnings forecast for FY17 and FY18 with Target Price of RM1.78. Maintain HOLD recommendation.

Ta Ann to emerge as the single-largest shareholder of SPB

Ta Ann recently announced their intention to acquire 30.39% stake in SPB from Cermat Ceria Sdn Bhd (CCSB) for RM169.9m cash or equivalent to RM2.00 per SPB share. The proposed acquisition is deemed as relatedparty transaction as Ta Ann’s Executive Chairman and major shareholder Datuk Amar Abdul Hamed Sepawi is also the controlling shareholder of CCSB – who is also the Executive Chairman of SPB.

The entry of Ta Ann should benefit SPB

Upon completion of the proposed acquisition, Ta Ann will emerge as SPB’s single largest shareholder. Given Datuk Amar is both companies’ Executive Chairman, we are of the view that this would present potential synergies by allowing SPB to tap on Ta Ann’s expertise and to further accelerate growth in the company. This can be done via knowledge sharing, as well as estates management practise to improve yield as well as to deal with NCR land issues.

To recap, SPB’s FFB yields dropped for 5 consecutive years and was at 9.22 MT/ha in FY16 (Ta Ann: 16.0/ha; Sarawak: 14.86/ha) mainly due to 1) weather issues; 2) replanting activities especially in Northern region – replant 1,600ha, 3) Ganoderma infestation at Northern region that affects approximately 1,500 ha areas, 4) shortage of tall palm harvester, and 5) decline in NCR land as well as local encumbrances at several estates affecting 6,200 ha and another 1,855 ha dispute with local participants.

Valuation and recommendation.

We peg a TP of RM1.78 and maintained our hold recommendation for SPB. Our target price is based on SPB’s PER of 14x (-1 SD below 5-yrs average PER of 19.6x) and FY18 EPS. Maintain HOLD.

Source: BIMB Securities Research - 22 Jan 2018