01/08/2011 (The Star) - IOI Corp Bhd's proposal to acquire 11,978ha of oil palm plantations in Sabah from a unit of DutaLand Bhd is part of the group's efforts to boost its plantation land bank and production efficiency.

The RM830mil acquisition, should it materialise by the fourth quarter of this year, will see IOI's land bank in Malaysia increasing to 190,862ha from 178,884ha currently, analysts said.

Analysts were generally neutral on the acquisition as IOI would need to rehabilitate the Sabah estates for the next three to four years before reaping good yields.

However, they were positive on IOI's ability to turn around the under-performing estates.

They regarded the pricing of the estates in Labuk and Sugut to be higher than that of most plantation land in Sabah.

OSK Research, in its latest report yesterday, said while pricing appeared to be more expensive, the acquisition would boost IOI's production of fresh fruit bunches (FFB), which has fallen for two straight years.

In terms of the age profile, OSK said: “From the numbers provided (1,552.9ha from one to three years and 8,896.34ha from four to 15 years), it is insufficient to draw a conclusion on potential production growth, but we believe that most of the trees are still young.

“This is because the yield is still low at 10.59 tonnes of FFB per mature hectare.”

OSK Research also will not factor the acquisition into its forecast earnings for IOI, pending the completion of the acquisition.

Kenanga Research said the price of RM69,294 per ha for the estates in Sabah was higher than the prices of most plantation land in Sabah which ranges from RM55,000 to RM65,000 per ha.

The research unit, however, opined that the acquisition was fair, considering the leasehold period of the land was at 68 to 76 years.

This is coupled with factors such as the potential to increase the current yield of 10.59 tonnes per ha and the scarcity of sizeable plantation land.

According to Kenanga, the acquisition is likely to have minimal impact to IOI's balance sheet. “We expect IOI to fund the acquisition using its existing cash reserves, given its cash pile of RM3.04bil as of the third quarter this year,” Kenanga added.

On FFB production, the research unit said IOI's FFB volume declined 3.2% to 3.36 million tonnes as adverse weather caused by La Nina in first quarter dragged the FFB output for financial year ending June 30, 2011.

“For FY2012, the group's FFB volume should grow by 10% to 3.53 million tonnes as the weather condition stabilises and the group should see additional contributions from this acquisition,” it added.