KUCHING: Felda Global Ventures Holdings Bhd’s (FGV) proposed acquisition of 95 per cent equity interest each in PT via its 100 per cent subsidiary FGV Kalimantan, has been viewed as in line with the group’s long-term business to expand its landbank in Indonesia and enhance its future earnings.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a research note yesterday, FGV proposed to purchase Temila Agro Abadi (TAA) and PT Landak Bhakti Palma (LBP) for a cash consideration of about RM25.9 million and RM18.3 million respectively.
MIDF Research explained TAA and LBP are located in West Kalimantan, which is near to FGV’s existing landbank under PT Citra Niaga Perkasa. It added that TAA operates 8,193 hectare of oil palm plantation of which only 725 hectares (ha) or 8.8 per cent is planted while LBP’s landbank (12,844ha) is a greenfield land which suitable for rubber plantation.
“We view the purchase prices – which translates into RM3,161 and RM1,425 per hs respectively – as inexpensive vis-à-vis prevailing market price of RM1,500 per hectare to RM4,500 per hectare for greenfield estates and an average of RM30,000 per hectare for brownfield estates in Indonesia (based on our market sources),” the research firm opined.
FGV’s chairman, Tan Sri Mohd Isa Abdul Samad was quoted by a media as saying that the purchase consideration for the acquisition will be funded from initial public offering (IPO) proceeds of RM4.46 billion in which the group still has RM3.85 billion.
He added that the acquisitions were a strategic investment in two core commodities that was expected to enhance the future earnings and shareholders value of the group.
“Furthermore, the PT Temelia land is adjacent to our PT Citra Niaga Perkasa. Therefore, the acquisition presents an opportunity for us to achieve economies of scale by sharing the nursery and palm oil mill as well as reducing labour cost,” he told reporters after signing the purchase agreement.
Additionally, Kenanga Investment Bank Bhd (Kenanga Research) said in a separate note, current weak crude palm oil (CPO) prices are limiting the share price’s upside potential. “However, its downside risk appears to be limited as it is trading near to its IPO price of RM4.55,” it added.
Despite the positive outlook pegged to the recent acquisition, MIDF Research highlighted that since most of the landbank is a greenfield area, the research firm opined that it does not foresee any significant change in the FGV’s earnings for 2013 to 2014.
Meanwhile, on FGV’s other overseas businesses, HwangDBS Vickers Research Sdn Bhd (HwangDBS) pointed out that the management had also shed some light on the termination of the Bunge-ETGO joint venture partnership.
“We understand the decision to terminate was mutual as both parties agreed that FGV and Bunge would be better off operating their own plants.
“The management also said the termination was timely, taking advantage of the low prices of oil seeds and meals.
“Therefore, FGV will revert to recognising revenues from the sale of soybean and canola products, and costs of sales from the purchase of soybeans and canola seeds instead of tolling fees, effective September 1, 2013,” it added.
Nevertheless, the research firm noted that the impact is immaterial as FGV’s downstream business as a whole only contributes about two per cent of group earnings.