PETALING JAYA: Merger and acquisition (M&A) activities in Malaysia’s plantation and water sectors are expected to accelerate, on the back of improving macro-economic conditions and confidence.
In its Asia strategy report, Credit Suisse Research analyst Tan Ting Min said large Malaysian plantation companies such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Felda Global Ventures Holdings Bhd could be potential acquirers of small-cap plantation stocks or private plantation companies.
This is on the back of continued demand for plantation landbank, amid low availability of arable land, and greenfield projects that are challenged by regulations and non-governmental organisations.
“Acquisitions of non-listed plantation companies would be more prevalent. Upstream plantation companies are also taking the opportunity to acquire downstream businesses to be integrated,” he said.
Separately, Gamuda Bhd is a possible M&A target of the Malaysian Government, as part of plans to restructure Selangor’s water assets.
Gamuda holds a 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd or Splash, with another 30% being held by Kumpulan Perangsang Selangor Bhd and the remaining 30% by Tan Sri Wan Azmi Wan Hamzah.
“The Government is planning to take over the water assets in the Klang Valley from private operators so as to lower the funding cost of these assets, and take control of future tariff adjustments,” said infrastructure analyst Danny Goh.
There is a sense of urgency to complete the takeover of the water assets, as the Klang Valley region is currently operating on a 1% reserve margin. The complete takeover will make way for the Government to proceed with initiatives to expand supply.
Meanwhile, in Singapore, a consolidation of low-cost airlines is expected, given that most have probably over-committed themselves, and are juggling with too much capacity and too little demand or financing cover to make it work.
“Tiger Airways appears to be the most under pressure of the listed low-cost carriers, although Singapore Airlines’ position on its register suggests that it will continue to find cash,” said aviation analyst Timothy Ross.
The expected acceleration in M&A activity in Asia was due to the fact that cash-financed M&As or buy-backs were earnings enhancing, corporate balance sheets were under-leveraged, and it was cheaper to buy than to build, said Credit Suisse.
“Usually, M&As tend to lag confidence and macro uncertainty, and hence, with an improving macro backdrop, the M&A theme should continue to gain traction in 2014,” Credit Suisse analysts said in the Asia strategy note.
Given the fragmented nature of competition in the various markets in Asia and the challenging business environment, the research house said one common area for M&As was larger companies buying out smaller ones.
The research house expects more consolidation among the banking and insurance sectors. It also expects the larger Internet companies to further expand their presence via acquisitions.
“We also expect potential M&A activity in the gas sector in the Cooper Basin (Australia) and in Indonesia, in the palm oil sector in Malaysia/Indonesia, and in the Asian transport and marina sectors,” it said.