Affin Hwang positive on Hang Seng's proposed acquisition

KUALA LUMPUR: Affin Hwang Capital Research believes Hap Seng Plantations Holdings Bhd's proposed acquisition of Kretam Holdings Bhd could contribute positively to the group as Hap Seng's expertise in estate management could further improve Kretam's operations.

The research firm maintained its FY17-19E forecasts and hold rating on Hap Seng with an unchanged target price of RM2.58 on the back of news of the proposed purchase.

On Wednesday, Hap seng announced it had entered a conditional share sale agreement with Datuk Lim Nyuk Sang and Santraprise Sdn Bhd to acquire about 33.5% and 21.5% equity interest respectively in Kretam for total cash of about RM1.18bil or 92 sen a share, which is about 11.1% premium to the five-day weighted average market price.

Upon completion of the acquisition, Hap Seng will also be obliged to extend a mandatory general offer (MGO) for the remaining shares at a cash offer price of 92 sen a share.

"We believe the proposed acquisition is consistent with HAPL’s plan to further expand its palm oil plantation business and gain larger market access, especially in the downstream operations, in Sabah," said Affin Hwang Research. 

"Kretam has a total land bank of about 23,865 ha in Sandakan, Lahad Datu and Tawau regions, of which 18,425 ha are matured areas, while HAPL has a total land bank of about 40,279 ha in Lahad Datu, Tawau and Kudat, of which 32,374 ha are matured areas. 

"Taking into account the scarcity of sizeable and suitable palm oil plantation land, particularly in Sabah, the proposed acquisition is considered a strategic investment for HAPL."

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