MARKET DEVELOPMENT
Analysts Turn Neutral on FGV
Analysts Turn Neutral on FGV
09/09/2014 (The Star) - Analysts are positive on Felda Global Ventures Bhd’s (FGV) acquisition of Asian Plantations Ltd (APL) for the long term as it would help to boost FGV’s production.
FGV recently held an analysts’ briefing to provide more details of its proposed acquisitions of APL and a biodiesel plant.
FGV has proposed to buy London-listed APL for RM628mil.
It said APL, a Singapore-incorporated plantation company, owned 24,622ha of oil palm plantations through its five wholly-owned estates within Miri and Bintulu, Sarawak.
FGV has also teamed up with M2 Capital Sdn Bhd and Benefuel International Holdings S.A.R.L to acquire a biodiesel plant in Kuantan Port for US$22.5mil (RM71.8mil) to strengthen its market presence in the biodiesel business.
Maybank Investment Bank (IB) Research said although the two deals would position the company in a net debt position, the bank was positive on the deals for the long term.
The research house said the land in Miri would give FGV the upper hand in the longer run given the scarcity of land in the region.
On the acquisition of the 250,000-tonne per annum biodiesel plant, FGV estimated the expected payback period from the investment in four years.
“Upon completion of this acquisition in the fourth quarter this year, FGV’s total biodiesel capacity would increase to 350,000 tonnes per annum,” Maybank IB said.
CIMB Research said FGV believed APL was an attractive acquisition target due to its young estates (average age of five years) and noted the lack of potential acquisition opportunities in the peninsula, Sabah and Sarawak and land ownership limitation rules in Indonesia.
“The group paid an enterprise value per ha (EV/ha) of RM62,000 for planted areas for the estates, which we believes is fair when compared with average transacted prices by Malaysian peers of RM71,000 per ha,” it said.
It added that FGV projected APL would turn profitable in the financial year 2017 and believed the estates could achieve 28 tonnes per ha of fresh fruit bunches yield by 2020.
It said FGV expected to complete the acquisition of APL in 45 to 60 days and revealed the biodiesel plant that would be retrofitted with Benefuel technology, which would use heaper feedstocks (palm fatty acid distillate versus crude palm oil) and offer lower costs of conversion to biodiesel.
“We are neutral following the briefing. We concur with 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, compared with similar transactions in Sarawak,” CIMB said.
It added that the differences in FGV’s calculation for EV/ha of RM62,000 against its RM75,000 was because it had used the planted area as at end-Dec 2013 to match the debt figure, while FGV used the 16,000 planted area as at end-July 2014 to derive its EV/ha. It maintained a “reduce” rating on FGV 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 merger and acquisition, may reduce its ability to pay strong dividends, which has been the key support for its share price,” it said.
According to M&A Securities, FGV should have no problem of financing as their initial public offering proceeds had hardly been touched and now stood at RM1.08bil.
“The group also has a solid balance sheet given its net cash position as at its second quarter of 2014 (excluding land lease agreement),” it said.
FGV recently held an analysts’ briefing to provide more details of its proposed acquisitions of APL and a biodiesel plant.
FGV has proposed to buy London-listed APL for RM628mil.
It said APL, a Singapore-incorporated plantation company, owned 24,622ha of oil palm plantations through its five wholly-owned estates within Miri and Bintulu, Sarawak.
FGV has also teamed up with M2 Capital Sdn Bhd and Benefuel International Holdings S.A.R.L to acquire a biodiesel plant in Kuantan Port for US$22.5mil (RM71.8mil) to strengthen its market presence in the biodiesel business.
Maybank Investment Bank (IB) Research said although the two deals would position the company in a net debt position, the bank was positive on the deals for the long term.
The research house said the land in Miri would give FGV the upper hand in the longer run given the scarcity of land in the region.
On the acquisition of the 250,000-tonne per annum biodiesel plant, FGV estimated the expected payback period from the investment in four years.
“Upon completion of this acquisition in the fourth quarter this year, FGV’s total biodiesel capacity would increase to 350,000 tonnes per annum,” Maybank IB said.
CIMB Research said FGV believed APL was an attractive acquisition target due to its young estates (average age of five years) and noted the lack of potential acquisition opportunities in the peninsula, Sabah and Sarawak and land ownership limitation rules in Indonesia.
“The group paid an enterprise value per ha (EV/ha) of RM62,000 for planted areas for the estates, which we believes is fair when compared with average transacted prices by Malaysian peers of RM71,000 per ha,” it said.
It added that FGV projected APL would turn profitable in the financial year 2017 and believed the estates could achieve 28 tonnes per ha of fresh fruit bunches yield by 2020.
It said FGV expected to complete the acquisition of APL in 45 to 60 days and revealed the biodiesel plant that would be retrofitted with Benefuel technology, which would use heaper feedstocks (palm fatty acid distillate versus crude palm oil) and offer lower costs of conversion to biodiesel.
“We are neutral following the briefing. We concur with 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, compared with similar transactions in Sarawak,” CIMB said.
It added that the differences in FGV’s calculation for EV/ha of RM62,000 against its RM75,000 was because it had used the planted area as at end-Dec 2013 to match the debt figure, while FGV used the 16,000 planted area as at end-July 2014 to derive its EV/ha. It maintained a “reduce” rating on FGV 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 merger and acquisition, may reduce its ability to pay strong dividends, which has been the key support for its share price,” it said.
According to M&A Securities, FGV should have no problem of financing as their initial public offering proceeds had hardly been touched and now stood at RM1.08bil.
“The group also has a solid balance sheet given its net cash position as at its second quarter of 2014 (excluding land lease agreement),” it said.