Thursday, August 13

Pontian acquisition by FGV ‘win-win deal’

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KUCHING: Felda Global Ventures Holdings Bhd’s (FGV) recent proposal to undertake a voluntary conditional takeover offer for all the shares in a Sabah plantations company, Pontian United Plantations (Pontian), is seen as a win-win deal for the group despite Pontian’s premium priced landbank.

To recap, on Thursday, FGV announced that it has made a take-over offer for all shares in Pontian for a cash consideration of RM140 per share. The deal, which is expected to be completed by the fourth quarter of 2013 (4Q13), would cost FGV RM1.21 billion assuming full acceptance for the 8.648 million shares.

According to HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) in a recent note, inclusive of TSH Resources Bhd’s (TSH Resources) irrevocable undertakings, FGV has obtained a 23.81 per cent stake in Pontian, which is short of 26.19 per cent to fulfil the acceptance condition.

“The offer price represents 21.8-fold price earnings (two-year historical average). On enterprise value per hectare basis, it implies circa RM74,800 per hectare which appears expensive vis-à-vis our estimated sector average of RM51,000 per hectare.

“We think the premium could be attributed to the fully mature 2014plantation land of approximately 40,000 acres held by Pontian,” the research house explained.

Albeit the landbank’s premium pricing, HwangDBS Research reckoned that the deal would benefit both FGV and TSH Resources.

It said, “FGV could easily finance the proposed acquisition given its solid cash pile of RM6.2 billion. This will increase FGV’s oil palm land bank in Malaysia by five per cent to 360,000 hectare while financial year 2014 orecast (FY14F) earnings would potentially be raised by seven per cent.

“Meanwhile, TSH Resources stands to book a one-off disposal gain of RM86.4 million after raking in RM195.8 million cash proceeds. This will significantly reduce TSH Resources’ net gearing level to 0.7-fold from 1.1-fold (as at end-March 2013), providing leeway to undertake aggressive expansion given its huge unplanted land bank of approximately 70,000 hectares in Indonesia.”

Additionally, the RHB Research Institute Sdn Bhd (RHB Research) said in a separate note, “While we highlight that the pricing of this acquisition is steep, we acknowledge that FGV is under pressure to put its net cash hoard of RM5.8 billion (as at end-1Q13) to good use, as the cash is becoming a drag on earnings. FGV is in dire need to acquire assets which will be immediately earnings accretive.

“This acquisition could potentially add two to 2.5 per cent per annum. to FGV’s bottomline based on our estimates and on these assumptions FGV is able to buy 100 per cent of the company,

Pontian records a similar annual net profit of RM39.5 million, and interest income foregone is based on a two per cent interest rate.”

Meanwhile, on the complete accuisition of Pontian, HwangDBS Research opined, “We believe that FGV stands a good chance of receiving strong acceptance for the take-over offer in view of its generous offer and the irrevocable undertakings by key Pontian shareholders.

“To recap, TSH Resources launched similar offer in June 2012 at RM90 per share when crude palm oil (CPO) price was hovering at RM3,000 per metric tonne, but did not succeed.

“CPO price has plunged 27 per cent year-to-date to RM2,300 per metric tonne which may also prompt more Pontian shareholders to accept the offer.”