KUALA LUMPUR: Merger and acquisition (M&A) activities in the plantations sector are expected to continue, underpinned by the high price of crude palm oil (CPO) and undervaluation of small and mid (SMID) cap companies.
“Undervalued SMID caps such as Boustead Plantations Bhd and Hap Seng Plantations Holdings Bhd will continue to be potential M&A and/or privatisation targets,” said Maybank Investment Bank Research in a note yesterday.
The brokerage noted that Boustead Plantations is trading at just 0.55 times price-book-value (PBV), 0.3 times price/revalued net asset value and enterprise value (EV) per planted ha of RM34,400.
The company is 57.4% owned by Boustead Holdings Bhd and 12.1% owned by Lembaga Tabung Angkatan Tentera.
Hap Seng Plantations, meanwhile, could also be a privatisation target as it trades at an attractive EV per planted ha of RM37,800, PBV of 0.9 times and has a net cash of 32 sen per share, said Maybank IB.
It added that Hap Seng Consolidated Bhd had raised its stake in Hap Seng Plantations to 74.9% last week by acquiring an additional 120 million shares from Innoprise Corp Sdn Bhd via a direct business transaction for RM264mil.
The research house also cited reports that pilgrimage fund Lembaga Tabung Haji is considering taking its 74%-owned TH Plantations Bhd private.
It noted that there was a valuation gap between the transacted physical prices and the equity values of many SMID caps.
“The SMID caps that we observe trade at implied unadjusted EV/ha of just RM17,000-RM38,000, which are at or below replacement costs. About 60% of KL Plantation Index members trade below one time PBV as at Sept 1,” the research house said.
Year-to-date, the M&A activities in the sector have surpassed the RM3bil transacted values recorded in 2020.
According to Maybank IB, at least six transactions worth a combined RM3.56bil M&A deals have been announced so far this year.
These included Kuala Lumpur Kepong’s ongoing general offer to buy IJM Plantations Bhd worth up to RM2.73bil, Federal Land Development Authority’s unsuccessful attempt to privatise FGV Holdings Bhd although it had raised its equity stake by 44% to 78% for RM2.1bil, and the successful privatisation of Kwantas for RM200mil by its major shareholder.
Meanwhile, CGS-CIMB Research reiterated its “neutral” view on the plantations sector with average CPO price forecasts of RM3,700/RM2,900/RM2800 per tonne maintained for 2021/2022/2023, respectively.
The research house noted that average CPO price rose 10% month-on-month and 62% year-on-year to RM4,555 per tonne in August on concerns of tight edible oil supplies. This was, in part, due to the adverse weather event in the United States, India and Canada, and labour shortage issues in Malaysia.
“We think the slump in exports in August may be temporary due to the upcoming mooncake and Diwali festivals. We project the price of CPO to remain firm at RM3,500-RM4,000 per tonne this month.”