INVESTMENT HIGHLIGHTS

• Acquiring 30.39% stake in SPB for RM169.9m cash

• At best neutral on the deal

• Earnings estimate maintained

• Downgrade to NEUTRAL with TP of RM3.40

Acquiring 30.39% stake in SPB for RM169.9m cash. Ta Ann Holdings Berhad (TAANN) has entered into a conditional share sale agreement to acquire 30.39% equity interest in Sarawak Plantation Berhad (SPB) for RM169.9m. This is equivalent to RM2.00 per Share for SPB. We gather that the transaction is a Related Party Transaction (RPT). Expected completion date of the deal is 1QFY18.

At best neutral on the deal. The deal values SPB at 16.15x historical PE and EV/planted ha of RM16,667. We believe that the valuation is high as TAANN is not acquiring a controlling stake and SPB FFB yield is low at 9.22 MT/ha. Note that Sarawak FFB yield is 14.86 MT/ha in 2016.

Earnings estimate maintained. Pending the completion of the deal, we maintain our FY18 CNP estimate of RM135m. FY17 earnings estimate of RM121m is not affected by the deal. If the deal materializes, earnings increase is minimal at RM2.9m or 2% of our FY18 earnings forecast for TAANN. Net gearing is expected to increase from 0.24x to 0.37x.

Downgrade to NEUTRAL with TP of RM3.40. Downgrade to NEUTRAL with TP of RM3.40. We have lowered our Forward PER to 12.5x which reflects a -0.5 Standard Deviation (-0.5SD) in view of the high valuation of the deal and higher net gearing. Previously we are using 16.6x Forward PER which reflecting mean valuation. We are NEUTRAL on the stock as its downside is supported by decent dividend yield of 4.0%.

Source: MIDF Research - 12 Jan 2018