TH Plantations Bhd(Nov 14, RM2.13) Maintain outperform with fair value of RM2.55: THP has entered into two separate conditional sales and purchase agreements with: (i) Sawit Green Plantation Sdn Bhd to acquire a 70% stake in Hydroflow Sdn Bhd for RM73.5 million. Hydroflow owns eight parcels of land with provisional leases in the Sedilu-Gedong district of Sarawak, with total land area of 5,602ha. Some 693ha (12.4%) of the land is planted, with 85% of planted land more than four years old. This acquisition is to be completed by 1Q12; and (ii) Indonesian citizens H Rajasa Abdurachman and Badai Sakti Daniel to acquire a 93% stake in PT Persada Kencana Prima (PKP), for 46,211.96 million rupiah (RM16.18 million). PKP has obtained a plantation business permit (Izin Usaha Perkebunan) to operate 14,180ha of plantation land in Seseyap Hilir, Tana Tidung District, East Kalimantan. This acquisition is to be completed by 2Q12.
THP will need to spend an additional RM495 million (RM102 million for Hydroflow and RM393 million for PKP) over five to six years to develop all the land, which will be funded by internal funds and borrowings.
The acquisition price of the Hydroflow land works out to about RM18,740 per ha for its effective 70% stake, which we believe is relatively inexpensive for semi-planted land in Sarawak, given that planted land in Sarawak is usually about RM30,000 to RM50,000 per ha, while unplanted land is about RM10,000 RM15,000 per ha.
PKP’s acquisition price of RM1,275 per ha is also on the low end of greenfield land transactions in Kalimantan, of between US$500 (RM1,565) and US$1,000 per ha. Upon completion of the acquisitions, THP’s total plantation landbank will rise by 50% to 59,153ha (from 39,371ha currently), thereby meeting its key performance indicator to reach a landbank of 50,000ha by 2012.
We are positive on this development, as we believe the pricing is reasonable. We are pleased to note that as the land in Sarawak is not native customary rights (NCR) land, THP should not face the issues other planters who have tried to expand their landbank in Sarawak have.
Forecasts are unchanged pending more details at THP’s briefing tomorrow. Risks include: (i) a reversal in crude oil price trends; (ii) weather abnormalities; (iii) change in emphasis on implementing global biofuel mandates and trans-fat policies; and (iv) a faster or slower than expected global economic recovery.
We make no change to our fair value of RM2.55, based on CY12 price-earnings ratio target of nine times. This does not include its attractive dividend yield of 7% to 7.5% per year. We maintain our “outperform” recommendation. — RHB Research, Nov 14
This article appeared in The Edge Financial Daily, November 15, 2011.