News  IOI Corporation (IOICORP) announced that the Group has received in total, valid acceptances of 76.64% of Unico-Desa Plantations (UNICO) shares. Hence, IOICORP’s offer to acquire UNICO shares has become unconditional as to acceptances and we believe IOICORP shall be able to consolidate UNICO’s earnings from 3Q14 onwards. Note that IOICORP’s final stake in UNICO is still unknown with its offer to UNICO shareholders still open until 25-Nov-2013.

 Similar as previous announcement, IOICORP maintains that it does not intend to maintain the listing status of UNICO.

 Recall that on 2-Oct-2013, IOICORP has announced the acquisition of 339m shares (or 39.55%) of UNICO for RM397m or RM1.17 per share. Subsequently, IOICORP made a mandatory take-over offer (MGO) to acquire the remaining 518.1m of UNICO shares (or the balance 60.45%) at the same offer price of RM1.17 per share.

 We gather that UNICO owns 13,660 hectares of plantation estates (planted: 12,700 ha) in Kinabatangan and Lahad Datu, Sabah.

Comments  We are positive on the deal as FY14E earnings should increase by 2% based on the conservative 76.64% stake. We think the valuation of the deal at RM73,400/ha is fair as it is comparable to valuation of RM75,000 – RM80,000 per ha for matured Sabah plantation estate.

 The successful acquisition would increase IOICORP’s landbank by 13,660 ha (or 7.5%) to 196,867ha. UNICO's FFB yield of 23.8 MT/ha is also commendable against the average yield of 20.4 MT/ha in Sabah. Synergy can also be realized as both IOICORP and UNICO have landbank in Kinabatangan and Lahad Datu, Sabah.

Outlook  The news is positive but current low CPO prices are capping IOICORP’s upside potential.

Forecast  At this juncture, we maintain our FY14E and FY15E core net profits of RM1.73b and RM2.09b, respectively.

Rating   Maintain MARKET PERFORM

 Share price should be supported by its impending IOIPROP IPO. However, upside appears to be limited due to still low CPO prices.

Valuation  Maintain our Target Price of RM5.40 based on an unchanged Fwd. PER of 18.1x on CY14E EPS of 29.8sen.

Risks to Our Call  Lower than expected CPO prices.

Source: Kenanga