UNDERVALUED: Photo shows oil palm trees at one of Glenealy’s plantations. While an offer for RM7.50 per share represents a 14.5 per cent premium over the stock’s last closing price, its valuations would still be remarkably cheap on an EV per ha basis.
KUCHING: Glenealy Plantations (Malaya) Bhd (Glenealy Plantations) remains an undervalued stock and offers plenty of upside considering recent offers of privatisation by its major shareholder making buyback offers of public shares.
To recap, Samling Strategic Corporation Sdn Bhd (SSC), a private company wholly-owned by Tan Sri Yaw Teck Seng and his family, had submitted a proposal setting out its interest in privatising Glenealy Plantations, Lingui Developments Bhd (Lingui) and Hong Kong-listed Samling Global Ltd.
While an offer price had yet to be finalised, SSC had specified an indicative offer price of RM1.63 per share for Lingui and RM7.50 per share for Glenealy.
OSK Research Sdn Bhd analyst Gan Jian Bo stated in a research note, “If the privatisation proceeds and the final offer price materialises at the indicative offer price of RM7.50 per share, the offer will represent a 14.5 per cent premium over Glenealy’s last closing price and a 20.4 per cent premium to its last average one-month share price.
“These will translate into a price earnings (PE) of 10.9 times 2012 earnings per share (EPS), PBV of 1.3 times 2012 net tangible asset (NTA) and enterprise value (EV) over earnings before interest, tax, depreciation and amortisation (EBITDA) of 4.6 times 2012 EBITDA, valuing Glenealy at a market capitalisation of RM865.2 million and an enterprise value of RM756 million.
“Combining Lingui’s 38.3 per cent stake and SSC’s own 15.4 per cent direct stake in Glenealy, SSC already holds an effective stake of 53.7 per cent in Glenealy, and would thus need to fork out RM400.6 million cash to buy out the company’s minority shareholders.
“We think privatisation has long been a possibility for Glenealy given its very cheap valuation based EV per planted hectare (ha) at just US$7,200 per ha versus the sector average of about US$16,000 per ha, making it the cheapest among companies within our plantation universe.”
“With 9,900ha, 19,300ha and 200ha planted in Sabah, Sarawak and Indonesia respectively, the indicative offer price will value Glenealy’s planted area at US$8,400ha EV per ha, which we still find too cheap,” Gan opined.
The analyst explained that the second cheapest planter within its coverage based on this metric was Indonesian planter PT Jaya Agra Wattie (JA Wattie) at US$8,700 EV per ha.
At a fair value of RM8.23 per share, Glenealy would be trading at an EV per ha of US$9,400 per ha, PE of 12 times 2012 EPS, price to book value (PBV) of 1.4 times 2012 NTA and EV/EBITDA of 5.1 times 2012 EBITDA.
At a valuation of US$12,000 EV per ha (recent transacted prices for Indonesian plantation) for Glenealy’s planted estates, the stock would be valued at RM10.26 per share, which is 36.8 per cent higher than the indicative offer price of RM7.50 per share, he pointed out.
“While an offer for RM7.50 per share represents a 14.5 per cent premium over the stock’s last closing price, its valuations would still be remarkably cheap on an EV per ha basis.
“We believe the offer undervalues the company and opens up the possibility of an outside party making a competing bid.
“Given this view, we advise shareholders to hold out for a higher offer price and maintain our fair value at RM8.23, based on 12 times 2012 PER.
“We continue to like smaller cap planters which have relatively cheaper valuations and strong growth prospects. Other than Glenealy, names like JA Wattie, Sarawak Oil Palms Bhd and Kencana Agri Ltd come to mind,” Gan opined.