News

The acquisition of a 39.6% stake Unico-Desa Plantations for RM396.6m has triggered a mandatory take-over offer to acquire the remaining 60.4% stake in Unico at RM1.17 per share.

Unico is an oil palm plantation company, with 13,660 ha of oil palm plantation landbank in Lahad Datu and Kinabatangan, Sabah (see Figure 1 for the age profile of Unico’s plantation landbank).

The acquisition will result in IOI’s plantation land bank increasing by 7.5% to 196,867 ha.

Financial Impact

Based on the offer price of RM1.17/share, the acquisition values the landbank at EV/ha of RM74,500, which is slightly lower than Boustead’s recent acquisition of RM76,600/ha but pricier than FGV’s recent acquisition of Pontian United (which effectively values the latter’s plantation landbank at RM60,600/ha ex cash).

IOI has no issue funding the acquisition, as it will only increase IOI’s net debt and net gearing from RM4.4bn and 0.32x (as at 30 Jun 2013) to RM5.37bn and 0.39x respectively.

Pros / Cons

Neutral, as it is an earnings neutral acquisition (based on Unico’s FY13 earnings). Nevertheless, the acquisition will allow IOI to have immediate access and ownership control in Unico’s plantation operations in Sabah, hence bringing synergistic impact to IOI’s existing 98,088 ha of planted oil palm plantation estates there.

Risks

Downside risks – (1) Recovery in global vegetable oil production may result in a sharp plunge in vegetable oil prices; and (2) Economic uncertainties in world’s major economies that may hurt demand and prices of edible oil (including palm oil).

Forecasts 

Maintained for now, pending completion of the acquisition.

Rating

HOLD


Positives – (1) Value accretive demerger; (2) Strong balance sheet; and (3) Unlocking of property assets.

Negatives – Weak near-term upstream plantation sector outlook.

Valuation

SOP-derived TP maintained at RM5.16 (see Figure 2). Hold recommendation on the stock maintained.

Source:Hong Leong Investment Bank Research - 3 Oct 2013