FGV’s proposal to acquire Sabah planter Pontian United for MYR1.21bn via  a  voluntary  conditional  takeover  offer  has  become  Unconditional after garnering  acceptances  of  50.25%.  Based  on  updated  information, we  believe  the  pricing  is  much  more  palatable  now,  at  MYR55,580/ha, although earnings accretion is still likely to be minimal. No changes to our earnings forecasts and MYR4.60 fair value. 
 
- Take-over  offer  for  Pontian  now  unconditional.  As  FGV’s voluntary conditional takeover offer for all the shares in Pontian United Plantations for  MYR140/share  has  gotten  50.25%  in  acceptances,  the  offer  has become unconditional. The offer will close on 17 Sept 2013.  

- Positive  news,  based  on  updated  information.  In  our  18  July  report, we  deemed  the  acquisition  price  of  MYR1.21bn  (assuming  100% acceptance) for Pontian’s 16,194ha of land (of which 11,000ha is planted with  trees  with  an  average  age  of  15  years)  in  Sabah  to  be  high. However,  upon  further  examination,  we  understand  that  Pontian  has MYR249m cash sitting on its balance sheet, which would bring down the acquisition price to c. MYR961m. Also, Pontian has, within the estate, a 90-tonne/hr  crude  palm  oil  (CPO)  mill,  excluding  which  the  price  would come  down  further  to  around  MYR900m.  This  would  translate  into MYR55,580/ha  (instead  of  the  MYR74,765/ha  we  originally  estimated), which is a far more palatable price to pay, in line with industry averages of MYR45,000-60,000/ha.  

- Earnings  accretion  minimal.  Meanwhile,  the  earnings  accretion  -  based on the lower net cash outflow of MYR961m (on incorporating the MYR249m  cash  held  by  Pontian)  -  would  be  slightly  higher  at  3-3.5% p.a. (instead of our originally estimated 2-2.5%), albeit still minimal. 

- Maintain  NEUTRAL.  We  will  only  incorporate  this  acquisition  into  our forecasts upon completion of the deal. Meanwhile, we maintain our SOP-based  FV  for  FGV  at  MYR4.60,  as  well  as  our  NEUTRAL  rating.  The catalysts  required  for  a  re-rating  include:  i)  the  acquisition  of  a  larger stake  in  FHB,  which  would  turn  it  into  a  subsidiary  instead  of  an associate,  thus  resulting  in  a  much  cleaner  and  more  transparent structure,  ii)  the  disposal  of  its  non-core  assets  and  possibly,  its  non-performing  assets,  which  are  weighing  earnings  down,  iii)  further turnaround of its downstream divisions, and iv) a marked improvement in age profile and yields upon completion of its replanting programme.

Source: RHB