IOI Corp; Buy; RM5.39
Price Target: RM6.15; IOI MK

IOI announced that it had acquired 39.55% of Unico Desa Plantations (UDP MK) (amounting to 339m shares) for RM396.63m; or RM1.17/share from UDP's substantial shareholders. The offer price represented 1% discount to UDP's latest price of RM1.18 (vs. NTA/share of RM0.85).

This acquisition triggers a Mandatory General Offer for the remainder of the shares not already owned by IOI (518,110,000 shares) at the offer price of RM1.17/share (excluding any treasury shares); which would value the entire acquisition at RM1 bn.

Hence at the offer price, IOI would be paying EV/planted of c.RM80k - relatively higher than the FGV - Pontian deal, which was valued at EV/planted of RM74.8k. UDP currently has total land bank of 13,660 ha located in Sabah; with planted hectarage of 12,700 - of which 9,121 is matured.

In 03/FY13, UDP booked net profit of RM25.5m - dropping from RM75.8m reported in 03/FY12. This represents 1-4% of IOI's net income. While the acquisition would have insignificant impact on IOI's bottom line, the announcement had assumed RM651m increase in the group's net borrowings to partly fund this acquisition. Based on the announcement's proforma illustration, IOI's net gearing would increase from 35% to 39% as a result. The MGO would be conditional upon IOI receiving at least 50% of UDP's shares; while the offer will remain open until 21 days after today; or if the offer is revised, an adiditonal 14 days after the revision.

While we believe the acquisition pricey relative to organic expansion, we note that available land is scarce; and that Sabah land prices now range between RM70k and RM90k per hectare. We believe IOI's growth driver post de-merger would increasingly come from its Indonesian estates as well as contribution from Bumitama. We do not expect IOI to revise its offer; and are maintaining our forecasts pending completion (expected in 1QCY14).

Source: HwangDBS Research - 3 Oct 2013