IOI Made a Non-binding Offer to NPC Resources Bhd for the Acquisition of Several Parcels of Planted Oil Palm Plantation Land in Several Districts of Sabah, Measuring a Total Planted Area of 4,627.8 Ha, for a Total Sum of RM281.2m. The Offer Price Translates to Circa RM61k/ha, Which We Deem Reasonable. In 2018, Boustead Acquired Brownfield Plantation Landbank in Sabah for RM65-66k/ha. The Acquisition Will Expand IOI’s Oil Palm Plantation Landbank by 2.6% to 181,537 Ha, and We Believe IOI Will be Able to Realise Some Synergies From the Acquisition, Given IOI’s Vast Landbank Exposure in Sabah. Maintain Earnings Forecasts, Sum - Of-parts TP of RM4.67, and BUY Rating.

Expanding brownfield landbank in Sabah. IOI made a non-binding offer to NPC Resources Bhd (NPC) for the acquisition of several parcels of planted oil palm plantation land in several districts of Sabah (namely Labuk & Sugut, Kinabatangan, and Beluran), measuring a total planted area of 4,627.8 ha, for a total sum of RM281.2m. The offer is subject to execution of definitive agreements between IOI and NPC.

HLIB’s VIEW

Valuation wise. The offer price translates to circa RM61k/ha, which we deem reasonable. In 2018, Boustead acquired brownfield plantation landbank in Sabah for RM65-66k/ha.

Impact on IOI. Details of the abovementioned landbank (such as age profile, productivity, etc) remain scarce at this juncture. Once materialises, the acquisition will expand IOI’s oil palm plantation landbank by 2.6% to 181,537 ha, and we believe IOI will be able to realise some synergies (which include, amongst others, logistic cost savings and increased operating efficiencies) from the acquisition, given IOI’s existing exposure (with more than 110k ha plantation landbank) in Sabah. Nevertheless, financial impact (i.e. earnings and balance sheet) will be minimal, given its large earnings base and cash pile (>RM2bn as at 31 Mar 2021).

Forecast. Maintain, pending completion of the acquisition. In any case, we believe earnings impact from the pending acquisition will be minimal.

Maintain BUY with unchanged TP of RM4.67. We maintain our BUY rating on IOI, with unchanged sum-of-parts TP of RM4.67 (see Figure #1). At RM3.73, IOI is trading at FY21-22 P/E of 19.8x and 20.6x, respectively.

Source: Hong Leong Investment Bank Research - 6 Jul 2021