KUALA LUMPUR: CIMB Equities Research is Neutral on Puncak Niaga Holdings Bhd’s plans to venture into plantations in Sarawak as the benefits will only be realised in the longer term.
It said on Tuesday Puncak’s current net losses are likely to sustain, dragged by oil & gas and depleting order book.
Puncak’s 60%-owned JV plans to acquire Danum Sinar, a Sarawak-based plantation company for RM446mil cash. Puncak’s share of the purchase price is RM267.9mil, to be funded by internal funds.
Other shareholders of the JV are 1) Sunshine Upland Sdn Bhd (30%) – owned by Tan Sri Yee Ming Sing, and 2) Astaka Suria Sdn Bhd (10%) – owned by Tan Sri Datuk Ling Chiong Ho.
“We are neutral on this purchase. We estimate a 4% upside to sum-of-parts (SOP) if we impute the plantation land bank at RM3,500 an acre (60% stake). The target price stays (at RM1.17) pegged to a 40% SOP discount.
“Greater visibility of other ongoing M&A plans with TRI plc should lend support to the shares. As the deal is set to complete in 1Q17, our EPS is unchanged,” it said.
To recap, Danum Sinar (not listed), a unit of Shin Yang Holdings Sdn Bhd, owns 46,674 ha of plantation land, mostly in Murum, Sarawak.
A total of 21% of the total land (9,766.9 ha) is planted, while the balance (33,372.6 ha) is unplanted.
Of the total planted area, 26% (2,509 ha) is matured with CPO production of 23,100 tonnes (2014 to Aug 2016). The balance 6,445.5 ha comprise crops of less than 18 months’ maturity.
CIMB Research said from the announcement, the acquisition price of RM447mil is based on a RM18,500 an acre valuation for the planted area. The valuation is deemed in line with market price of planted oil palm of a similar maturity profile. The unplanted area is valued at RM3,500 an acre.
Separately, the Menawan Wood Mill (timber concession) and quarrying concession owned by Danum Sinar are excluded from the deal and purchase price.
“There is limited financial information about Danum Sinar at this juncture, but based on the announcement, as at FY6/15, the company reported net losses of RM3.7mil.
“In our view, the presence of Yee and Ling in the JV that is acquiring Danum Sinar should lend credibility to the management of Puncak’s new plantation division. Ling is the executive chairman of the listed Sarawak Oil Palms and the founder/chairman of Shin Yang Group, while Yee is also a well-established planter in Sarawak.
“Puncak should have no difficulty in funding its share of the acquisition cost (RM268mil for 60%) as this is backed by the group’s end-2Q16 cash balance of RM280mil (excluding over an estimated over RM700mil at the holding company level),” said CIMB Research.
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