UNATTRACTIVE ACQUISITION?

However, analysts say deal not earnings accretive for buyers due to poor CPO price

SUITORS may have to pay more than RM3 billion for a controlling 55 per cent stake in IJM Plantations Bhd, say analysts. However, they say a deal is unlikely as it will not be earnings accretive, given the poor crude palm oil price at the moment.

THE sale of a controlling 55 per cent stake in IJM Plantations Bhd could fetch more than RM3 billion, although some analysts think such a deal is unlikely to materialise.

They said the deal would not be earnings accretive for purported suitors, such as IOI Corp Bhd, in the short term given the poor crude palm oil (CPO) price at the moment.

IJM Plantations, which owns 60,981ha of plantation land in Sabah, Kalimantan and Sumatera, was reported to be a takeover target for IOI Corp and Hap Seng Plantations Bhd.

IJM Plantations’ stock climbed by as much as 10.2 per cent to a six-month high of RM2.48 in early trade on Tuesday following the news, before paring some of the gains to close at RM2.38, which was 13 sen, or 5.78 per cent, higher than Monday’s close. Yesterday, the stock closed unchanged in thin trading of 192,400 units.

Public Investment Bank Bhd (PublicInvest) analysts believe that IJM Plantations’ major shareholder, IJM Corp Bhd, plans to sell its 55 per cent stake largely because the market has not been valuing the plantation business fairly.

“The offer price for IJM Plantations could be in the range of RM2.1 billion to RM3.1 billion.

“The target company, which has a market capitalisation of RM2 billion, is easier for IOI Corp to swallow than Hap Seng Plantations,” said PublicInvest yesterday.

Nevertheless, the firm said the potential acquisition was unlikely to be earnings accretive for both suitors in the near term, given current the poor CPO price performance.

PublicInvest kept its target price of RM4.65 with a “neutral” call on IOI Corp, pending updates on the potential acquisition.

Meanwhile, UOB Kay Hian does not think the deal would materialise due to the pricing and the fact that it will substantially increase IOI Corp’s net gearing ratio.

However, if the deal materialised, it would be positive for IJM Plantations as the company was trading at a discount, it said.

“Assuming IJM Plantations is valued at the recent transacted price in Sabah of RM65,000 per hectare and US$10,000 (RM40,700) per hectare for its Indonesia estates, IJM Plantations’ planted area should be worth RM3.04 billion, or RM3.47 per share.”

This represented a share price upside of 54 per cent or implied financial year 2019 price earnings of 37 times versus IOI Corp’s price earnings of 23 times, it added.