GNEALY (FV RM8.02 - BUY) Corporate News Flash: Privatization Offer Firm

THE BUZZ

In line with Samling Strategic Corporation (SSC)’s bid to privatize Hong Kong-listed Samling Global Limited (SGL), SGL has made a formal offer to privatize Glenealy Plantations and timber player Lingui Developments at an offer price of RM7.50 and RM1.63 per share respectively.

OUR TAKE

Same old deal. On 27 Jan 2012, SSC, a  private   company  of  Tan  Sri  Yaw  Teck  Seng,  indicated  its interest  in  privatizing the three companies, including Glenealy  at  an  indicative  offer  price  of  RM7.50  per  share. The confirmed bid values the company at the same price, translating into a  PER of 11.2x CY12 EPS, PBV of 1.3x CY12 NTA and EV/EBITDA of 4.7x CY12 EBITDA. SSC currently holds an effective stake of 53.7% in Glenealy after combining Lingui’s 38.3% stake and SSC’s own direct stake of 15.4%. At the offer price, SGL will have to fork out RM396.3m to acquire the entire remaining 46.3% stake not under SSC’s effective control. The offer values Glenealy at a market capitalization of RM865.2m and an enterprise value of just RM765.2m, after taking into consideration the firm’s considerable cash pile of RM166.1m.

Not enough. We stand by our view that the RM7.50 offer undervalues Glenealy both on a PER and enterprise value per ha (EV per ha) basis. The disparity against comparables is most drastic from an EV-per-ha point of view, with the deal pricing Glenealy at just USD8,250 EV per planted ha for its 30,127 ha planted area in Sabah, Sarawak and Indonesia. This represents a 50% discount when compared to the sector average of about USD16,500 EV per ha. On a PER standpoint, the 11.2x CY12 EPS price tag placed on Glenealy comes at a 18.9% discount relative to regional sector peers and a 21.2% discount versus other Malaysian planters under our coverage. While a discount is justifiable given the company’s smaller size and stock illiquidity, we think the 50% and 19% discount to EV per ha and PER are unwarranted, considering that Glenealy’s planted area size is similar to that of TSH Resources.

Don’t take the offer. We advise shareholders not to take up the RM7.50 offer until SSC garners approval for the deal from at least 75% of the  minority shareholders which is equivalent to a 34.7% stake. The company’s third largest shareholder is Perkapalan Damai Timur SB with a 11.4% stake, a shareholder which management has previously said was not related to the Samling Group. Should the entity  turn out to be a friendly party, SSC will  only  need to  deal with 34.9% of non-related / friendly shareholders for the proposal.

Source: OSK188