MARKET DEVELOPMENT
FGV Sees Value in Asian Plantations Ltd
FGV Sees Value in Asian Plantations Ltd
08/09/2014 (The Star) - Felda Global Ventures (FGV) believes Asian Plantations Ltd (APL) is an attractive acquisition target due to its young estates, according to CIMB Equities Research.
It said on Monday FGV held an analysts’ briefing to provide more details of its proposed acquisitions of APL and a biodiesel plant.
CIMB Research said FGV believes APL is an attractive acquisition target due to its young estates (average age of five years) while there is a lack of potential acquisition opportunities in Peninsular and East Malaysia, and land ownership limitation rules in Indonesia.
“Other factors are that it paid enterprise value of each hectare of RM62,000 for planted areas for the estates, which it believes is fair when compared to average transacted prices by Malaysian peers of RM71,000 per ha.
“It projects APL will turn profitable in FY2017 and believes the estates could achieve 28 tonnes per ha of fresh fruit bunches yield by 2020; it expects to complete the acquisition of APL in a 45-60 days period; and it revealed the M2 biodiesel plant, which it recently proposed to acquire, will be retrofitted with Benefuel technology, which will use cheaper feedstocks (palm fatty acid distillate versus crude palm oil) and offer lower costs of conversion to biodiesel.
“We are neutral following the briefing,” it said.
CIMB Research concurred with FGV’s management on the output growth potential of the estates due to its young age profile.
“However, we remain concerned on the pricing for the estates, which is on the high-end when compared to similar transactions in Sarawak. The differences in FGV's calculation for EV/ha of RM62,000 against ours of RM75,000 is because we have used the planted area as at end-Dec 13 to match the debt figure, while FGV used the 16,000 planted area as at end-July 14 to derive its EV/ha.
“We maintain our Reduce rating on the stock due to concerns of potential earnings downside risk from declining CPO prices and earnings dilution risk from the acquisition of APL. These, coupled with the group's strong appetite for M&A, may reduce its ability to pay strong dividends, which has been the key support for its share price,” it said.
It said on Monday FGV held an analysts’ briefing to provide more details of its proposed acquisitions of APL and a biodiesel plant.
CIMB Research said FGV believes APL is an attractive acquisition target due to its young estates (average age of five years) while there is a lack of potential acquisition opportunities in Peninsular and East Malaysia, and land ownership limitation rules in Indonesia.
“Other factors are that it paid enterprise value of each hectare of RM62,000 for planted areas for the estates, which it believes is fair when compared to average transacted prices by Malaysian peers of RM71,000 per ha.
“It projects APL will turn profitable in FY2017 and believes the estates could achieve 28 tonnes per ha of fresh fruit bunches yield by 2020; it expects to complete the acquisition of APL in a 45-60 days period; and it revealed the M2 biodiesel plant, which it recently proposed to acquire, will be retrofitted with Benefuel technology, which will use cheaper feedstocks (palm fatty acid distillate versus crude palm oil) and offer lower costs of conversion to biodiesel.
“We are neutral following the briefing,” it said.
CIMB Research concurred with FGV’s management on the output growth potential of the estates due to its young age profile.
“However, we remain concerned on the pricing for the estates, which is on the high-end when compared to similar transactions in Sarawak. The differences in FGV's calculation for EV/ha of RM62,000 against ours of RM75,000 is because we have used the planted area as at end-Dec 13 to match the debt figure, while FGV used the 16,000 planted area as at end-July 14 to derive its EV/ha.
“We maintain our Reduce rating on the stock due to concerns of potential earnings downside risk from declining CPO prices and earnings dilution risk from the acquisition of APL. These, coupled with the group's strong appetite for M&A, may reduce its ability to pay strong dividends, which has been the key support for its share price,” it said.