THE BUZZ
According to Channel News Asia, Indonesian plantation
company Bumitama Agri lodged its prospectus with the Monetary Authority of
Singapore on Monday for listing on the Singapore Exchange. The IPO could raise
as much as SGD200m, which will be used for new planting. Indonesia's Harita
Group and palm oil firm IOI Malaysia are two of Bumitama's controlling
shareholders.
Separately, The Edge reported that IOI Corp is set to make a
paper gain of USD226m from the dilution of its stake from 36.0% to 30.4%.
OUR TAKE
We understand
that Bumitama has a
nucleus planted area of about 90k
ha, with an weighted average tree age
of about
5 years old. While we do not doubt Bumitama’s IPO could do well given
its impressive list of cornerstone investors, we do not think the IPO will have
any positive impact on IOI Corp’s stock price. This is because the offering
will be priced at around 11-12x PE compared to IOI’s own PE of around
16x.
Bumitama is poised to
show strong production growth given its
abundant newly matured areas, which will
see fresh fruit bunch (FFB) production accelerate in the next 5–6 years.
However, we do believe that the yield drag factor will be quite significant and could undermine its near-term profitability.
Hence, investors buying into Bumitama’s IPO will need to take a longer term
investment horizon. Bumitama’s young tree age profile nicely complements IOI’s
aging tree profile. Hence, if IOI were to raise its stake in Bumitama from
one-third to above 50%, it could be very positive for IOI’s stock price as this
will significantly boost its FFB production growth going forward.
We are maintaining our Sell call on IOI in view of its rich valuation relative to other
purer and bigger plantation names, most of which can be bought at the low teens
CY12 PE. We also do not think the market will be excited about the USD226m
one-off gain arising from the deemed disposal in Bumitama.
Source: OSK188
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