• Acquiring plantation land in Indonesia

• Positive on the acquisition

• Higher net gearing

• Maintain Neutral with unchanged TP of RM11.55

Acquiring plantation land in Indonesia. Genting Plantations Berhad (GENP) announced that it has entered into a sale and purchase agreement with Lee Rubber to acquire 100% equity interest in Knowledge One Investment Pte Ltd (KOI) for USD94.97m (RM407m). KOI through its 85% owned subsidiary in Indonesia owns approximately 14,661 hectares of land in Kalimantan Selatan, Indonesia. The proposed acquisition is expected to complete in 4QFY17.

Positive on the acquisition. We are positive on the acquisition as the acquisition is a brownfield acquisition which will provide additional FFB production to GENP. Note that 12,893 hectares of the land have already been planted with tree age of more than 4 years, which will increase GENP total planted area in Indonesia by 18% to 84,833 hectares. The planted land produced 95k MT of FFB production in 2016, which is equivalent to 6% of FFB production of GENP in 2016. Besides, the land is situated close to GENP’s landbank in Kalimantan Tengah hence the land acquisition is expected to create operational synergies.

Higher net gearing. GENP intends to fund the acquisition via bank borrowings. We estimate net gearing of GENP to be lifted to 0.32x from 0.2x as at end 1QFY17 upon completion of the acquisition and debt consolidation of KOI’s subsidiary. Meanwhile, we estimate the acquisition to lift FY18 earnings marginally by 3.4% due to increased FFB production.

Maintain Neutral with unchanged TP of RM11.55. We maintain our earnings forecasts for FY17/18 pending completion of the acquisition. We maintain our TP of RM11.55, based on sum-of-parts valuation. We maintain our Neutral recommendation of GENP due to its rich valuation. GENP is trading at forward PER of 24.6x of FY17 EPS.

Source: MIDF Research - 22 Aug 2017