PETALING JAYA: IOI Corp Bhd’s expansion of its landbank in Sabah comes at a “reasonable” price, but the addition is considered relatively small and should have a minimal impact on its earnings.
This is according to analysts who track the palm oil player.
In its note to clients, Hong Leong Investment Bank’s (HLIB) research unit said the offer price of RM281mil to NPC Resources Bhd for the landbank, which translates to around RM61,000 per hectare (ha), is deemed “reasonable”.
It benchmarked the buy against Boustead Plantation’s 2018 purchase of brownfield plantation landbank in Sabah for RM65, 000 to RM66, 000 per ha.
The acquisition will expand IOI’s oil palm plantation landbank by 2.6% to 181, 537ha.
“We believe IOI will be able to realise some synergies from the acquisition, given IOI’s vast landbank exposure in Sabah, ” it said.
However, it has not made any changes to its earnings forecasts for IOI, pending completion of the acquisition.
“In any case, we believe earnings impact from the pending acquisition will be minimal, ” HLIB said.
UOB Kay Hian Research also said the price was fair for IOI.
“With the total consideration of RM281mil for 4, 627ha of planted land, the acquisition price would translate into RM61, 780 per planted ha.
“This is slightly cheaper than the last transaction that NPC Resources had entered into with Veetar Plantations back in May 2019. With this, we reckon that the acquisition price is fair for IOI, ” UOB Kay Hian said.
It said the deal was positive for IOI as it will increase IOI’s planted area and was a strategic buy as the purchased land parcels are located close to their existing estates and its refineries.
On top of that, IOI has huge exposure in Sabah, with about 65% of its estates located there, the research unit noted.
UOB Kay Hian has a “hold” call on IOI with a target price of RM4.50 while HLIB has a “buy” call on it with a RM4.67 target price.
The stock ended yesterday at RM3.77, valuing the entire group at more than RM23.4bil.
IOI was in the news recently for alleged forced labour issues at its plantations.
Reuters reported the company as saying that it would assist in any investigation after the US Customs and Border Protection said that it was probing the firm over forced labour allegations.
IOI later said it would undergo an audit process to check on the compliance of its labour policies and workers’ working conditions at its plantations.
“Within the next months, IOI will undergo an audit supervised by one of our key customers and assisted by a reputable international labour rights consulting firm, ” it said in a filing with Bursa Malaysia last Friday.
UOB Kay Hian has forecast IOI’s earnings for financial year 2021-2023 to be at RM1.26bil, RM1.13bil and RM1.16bil, respectively.