- According to its Bursa announcement, Top Glove Corp (Top
Glove) has entered into a conditional share sale and purchase agreement to
acquire a 95% equity stake in PT Agro Pratama Sejahtera (PT Agro) for RM22mil,
via its wholly-owned subsidiary Best Advance Resources Limited (BARL).
- PT Agro is principally involved in the rubber forest
plantation business in Indonesia.
- We view this development positively as Top Glove’s
long-term goal to venture upstream is finally gaining traction. Though a
similar acquisition for a greenfield rubber plantation in Cambodia was
initiated by the group back in end-2010, we understand progress had been slow
due to lack of relevant government approvals.
- The Indonesian rubber land, measuring circa 30,773
hectares, is located in Kabupaten Bangka and Kabupaten Belitung in the
Kabupaten Bangka Belitung province.
- At the purchase price of RM22mil, the translated price per
hectare of RM715 in Indonesia is 35% cheaper than the rubber land costs in
Cambodia.
- Based on our estimates, we believe the acquisition would
sufficiently meet 60%-70% of Top Glove’s latex requirements. Latex accounts for
60% of its total operating costs (3QFY12).
- Nonetheless, the group is only expected to reap the
benefits in 6-7 years due to rubber trees’ long gestation period.
- Management expects the acquisition to be completed in 15
months (Sep 2013), subject to approvals from Ministry of Law and Human Rights
of the Republic of Indonesia, Indonesia Investment Coordinating Board as well
as the MOF.
- We maintain BUY on Top Glove with an unchanged fair value
of RM6.30/share based on a target PE of 19x FY13F earnings (0.5SD of its 5-year
mean) as the group is a prime beneficiary of easing latex price.
Source: AmeSecurities
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