TSH Resources - Offer to Buy Pontian Lapses

THE BUZZ: TSH Resources’ attempts to acquire Pontian United Plantations (Pontian) in its entirety have fallen through following the expiry of the offer’s closing date on 14 Sept 2012. Over the past three months, the company has increased its stake in Pontian from 8.0% to 20.2%.

OUR TAKE

Now Pontian’s largest shareholder. Since it made the offer to Pontian on 26 June 2012, TSH and its joint offerors have managed to acquire 8.2% of Pontian from minority shareholders. Following TSH’s purchase of another 4.0% from one of its fellow joint offerors, the company now holds a 20.2% stake in its acquisition target, thus becoming Pontian’s single largest shareholder. The 12.3ppt increase in shareholding will cost TSH RM95.4m, with 50.1% of this sum to be funded through bank borrowings and the remaining 49.9% through the issuance of new shares. The offer has been extended thrice, from 7 Aug to 22 Aug, then to 10 Sept, and finally to 14 Sept.

Information on Pontian. Pontian, a non-listed company, owns a landbank consisting of planted oil palm areas, unplanted land and a palm oil mill (or mills). Its plantations are close to TSH’s existing planted areas in Lahad Datu, Sabah. Some of TSH’s plantations even share the same access road with Pontian’s estates, which could help to moderate the incremental infrastructure costs and possibly bring about higher operational economies of scale. We estimate Pontian’s plantable area to be in the region of 13,200 ha, with the bulk of its trees having hit peak maturity. TSH was looking to purchase Pontian at a 10.9x FY11 PER.

Forecast adjustments. The higher 20.2% shareholding in Pontian will allow TSH to equity-account the profit contributions from the former. As such, we are raising our FY13 associate contribution forecast by RM8.8m, as well as incorporate extra interest expenses amounting to RM2.4m arising from its borrowings to fund this acquisition. Our FY13 earnings forecast is corresponding raised by 4.2%. As TSH’s outstanding shares will also increase by 2.6% as a result of the exercise, this will lower its EPS accretion to 1.4%. Our FV is thus bumped up marginally to RM2.92, based on a 15.0x FY13 PER and RM0.16 per share for its non-producing rubber estates. The company’s net gearing, based on 2QFY12 figures, will increase from 0.89x to 0.90x. Maintain BUY.

Source: OSK