TH Plantations - Acquires landbank from Lembaga Tabung Haji

-  TH Plantations Bhd (THP) has proposed to acquire two companies from Lembaga Tabung Haji for RM535.6mil via the issuance of 209.3mil new shares at RM2.56/share. 

-  The two companies own palm oil landbank measuring 25,490ha as well as 15,714ha of rubber and teak landbank. One of the companies also owns a 60 tonne per hour palm oil mill.

-  About 24,312ha of the acquired palm oil landbank is located in Sarawak, and another 1,178ha in Terengganu. The teak and rubber landbank is located in Sabah.  

-  Most of the oil palm trees in Sarawak are young at between one and 14 years old.

-  Although earnings contributions are not expected to be significant due to the EPS dilution resulting from the increase in the number of shares, we are of the view that THP will benefit from the acquisitions. 

-  The acquisitions would increase THP’s total landbank from 44,933ha to more than 85,000ha. In addition, THP’s planted areas would rise from 38,154ha to 57,407ha. Comparing on the basis of the size of landbank in Malaysia, THP would be larger than Kulim Bhd’s estimated 54,000ha and Sarawak Oil Palms Bhd’s 72,653ha. 

-  We estimate that the acquisitions would improve THP’s FY13F EPS marginally. The number of THP shares would rise 40% from 517mil to 727mil. Lembaga Tabung Haji’s shareholding in THP would increase from 58.8% to 70.7%. The proposed acquisitions are targeted for completion in 4QFY12. 

-  The acquisition cost of RM535.6mil implies a PE of 15.7x on the acquired company’s FY11 earnings. The other company, which would be acquired, recorded a small net loss of RM0.1mil in FY11. 

-  Inclusive of borrowings but disregarding the cash and palm oil mill, the acquisition cost of RM535.6mil also implies a market value of about RM25,000/ha on the palm oil landbank. 

-  We believe this to be fair. In March 2012, Tradewinds Plantation bought 10,436ha of land in Sibu from Tradewinds (M) Bhd at RM12,016/ha while in November 2011, THP acquired 5,602ha of mainly greenfield land in Samarahan from Sawit Green Plantation at RM13,120/ha. 

-  According to the  Bursa Announcement, professional valuers had valued the acquired companies’ landbank at RM1bil. This implies that THP is buying the landbank at 52% below the market value.

Source: AmeSecurities