Share price: MYR5.39
Target price: MYR5.42 (unchanged)
Launching MGO for Unico-Desa
Neutral deal. IOI’s acquisition of a 39.55% stake in listed plantation group, Unico-Desa Plantations Bhd (UDP MK, MYR1.18, Not Rated) has triggered a MGO at MYR1.17/sh. We are Neutral on the pricing; at an implied MYR80,000 EV/planted ha, this is on par with the recent MYR76,600/ha price tag paid by Boustead (BOUS MK, NR) but above Felda Global’s (FGV MK; HOLD) acquisition of Pontian at MYR63,750/ ha. We expect muted short-term earnings enhancement to IOI (after borrowing costs) and maintain our earnings forecasts for now. Maintain HOLD with an unchanged TP of RM5.42 based on 19x 2014 PER.
Launching MGO. IOI acquired a combined 39.55% stake in UDP for MYR396.6m cash (or MYR1.17/sh) from four substantial shareholders of UDP. Since this breaches the 33% shareholding threshold, IOI has to extend a MGO to acquire the remaining 60.45% stake at MYR1.17/sh. At 100% take up, the maximum cost of the acquisition would be MYR1b. The MGO is conditional upon IOI acquiring more than a 50% stake in UDP. We think the MGO would garner good acceptance as UDP has hardly ever traded above the GO price over the past decade.
Acquisition valuation is fair. UDP owns 12,700 ha of planted oil palm estates in Lahad Datu and Kinabatangan, Sabah, of which 9,121 ha (72%) is mature with an estimated average age profile of 12.7 years. Its operational statistics are on par with industry norms with FY3/13 FFB yield at 23.8t/ha and OER of 20.3%. The price tag for UDP translates to historical FY3/13 37.7x PER (FY3/12: 16.8x) and 1.4x PBV, and an implied MYR80,000 EV/planted ha. All things considered, we deem the
acquisition price as fair on synergies that could be derived given the proximity to IOI’s existing estates in Sabah.
Muted earnings enhancement. The acquisition and MGO would be funded via internal funds and loans. A 100% take-up is estimated to raise IOI’s proforma net gearing (as at 30 June 2013) to 39% from 32%, a still manageable level. At c.4% funding cost, the earnings enhancement to IOI is anticipated to be negligible at the current CPO price of MYR2,350/t. The MGO is expected to complete before 1Q14.
Publish date: 03/10/13