FGV has announced a proposed acquisition of MSM Perlis Sdn Bhd along with 11 parcels of lands and buildings (totalling 4,499 Ha). The reference final consideration of RM206.1m translates to EV/Ha of RM45.8k (vs. the typical c.RM80k benchmark for planted agricultural land in West Malaysia) which we think is fair as: (i) the lands are only partially planted, and (ii) it is valued at 31% premium to F&N’s offer. Win-win situation for MSM (to unlock value – RM91.6m gain in disposal) and FGV (tapping into Northern Corridor economic developments). No changes to earnings estimates, pending further details. Maintain MP with unchanged TP of RM1.30.

Related party transaction. FGV announced a proposed acquisition of MSM Perlis Sdn Bhd along with 11 parcels of lands and buildings in Chuping, Perlis totaling 4,499 Ha for a reference final consideration of RM206.1m, taking into account: (i) cash consideration (RM175.0m), (ii) reference net working capital (RM23.2m), and (iii) reference net debt (RM7.8m). These figures are subject to adjustment at completion date, estimated by end of 3QCY21. We estimate that the planted area of the land merely comprises of: (i) c.44.5 Ha of rubber, (ii) c.106 Ha of oil palm, and (iii) c.911 Ha of mango trees.

Fair price. The reference final consideration of RM206.1m translates to an EV/Ha of RM45.8k (vs. the typical RM80k benchmark in West Malaysia for planted agricultural land), which we think is fair as the lands are only partially planted. We also reference F&N’s offer of RM156m for the same Ladang Chuping estate (4,454 Ha) which translates into an EV/Ha of RM35.0k. FGV’s offer is c.31% higher, likely due to the additional sugar refinery plant.

Win-win for both FGV and MSM. The sale will allow MSM to unlock the value of its non-core assets with a disposal gain of RM91.6m (BV/share of c.RM0.130), while potentially enabling FGV to tap into: (i) Chuping Valley Industrial Area which is centered on green and halal industries, as well as (ii) Perlis Inland Port which is aiming to facilitate cross-border trade between Malaysia and Thailand. Post announcement, we made no changes to our earnings estimate, pending further details from management.

Maintain MARKET PERFORM with unchanged TP of RM1.30 based on FY21E PER of 16x, in line with peers. Meanwhile, its FY21E PBV of 1.14x reflects valuation slightly above its 3-year mean and peers’ average of c.1.0x PBV. At this juncture, we believe there is limited upside potential, hence our MARKET PERFORM call.

Source: Kenanga Research - 3 May 2021