IJM Plantations a target
Cash-rich IOI is believed to be a leading suitor if deal materialises
PETALING JAYA: IJM Plantations Bhd (IJMP) has emerged as a takeover target as demand picks up for mature plantations in Sabah.
It is learnt that there is renewed demand for brown-field plantations in Sabah and prospective parties feel that the current environment is right given the low price of crude palm oil (CPO).
CPO is trading at between RM2,180 and RM2,206 per tonne, which is in the lower range of the average price of the commodity in the last three years.
Going forward, analysts expected CPO to average between RM2,300 and RM2,350 per tonne next year.
“There is demand for mature and well-managed plantations in Sabah because there are almost no large plantations available in the peninsula. In the case of IJMP, it also has plantations in Indonesia that will start yielding in two years,” said a banker.
It is learnt that among the suitors eyeing IJMP, which has 61,000ha of planted area in Sabah, Kalimantan and Sumatra, are plantation groups such as IOI Corp Bhd and Hap Seng Plantations Holdings Bhd.
Sources said IOI, which has the bulk of its plantations in Sabah and Sarawak, is said to be the leading candidate to take over IJMP if a deal materialises.
“The bulk of IOI’s plantations are in Sabah and it has the financial resources to undertake the deal. IOI is almost three times the size of IJMP and a takeover would create the largest plantation group from Sabah, where the yields are high due to fertile soil conditions,” a source said.
IOI has 175,447ha of planted area, with 66% in Sabah and Sarawak.
Moreover, IOI is cash-rich following the disposal of a 70% stake in Loders Croklaan Group BV to US-listed Bunge Ltd for RM3.79bil. Loders Croklaan is involved in the processing of vegetable fats that are used in the food industry from bakeries to confectionery and human nutrition.
Hap Seng had proposed to take over the plantations belonging to Kretam Holdings Bhd early this year for RM750mil. However, the deal did not go through.
“IJMP is too big for Hap Seng, as its market capitalisation is close to RM3bil based on today’s price. However, if a deal is to go through and for IJM Corp Bhd to be convinced, it has to be an offer that it cannot refuse,” said a banker.
IJM Corp is the single largest shareholder in IJMP with a 55% stake. The Employees Provident Fund is the largest shareholder in IJM Corp with 13%, while the rest is held by other funds.
The other plantation group on an acquisition trail in Sabah is Boustead Plant at ionsBhd.Bou stead Plantation s acquired 11,597ha belonging to Dutaland Bhd for RM750mil in a deal completed in January.
IJM Corp owns 55% of IJMP, which contributes to only 15% of the group’s total profitability.
It is believed that the shareholders of IJM Corp would be open to a disposal of IJMP because the market does not attach a value to the plantation business.
“There is a 20% discount to IJM Corp’s real value because it is seen as a holding company. Apart from plantations, IJM Corp is also seen as the holding company for the property development and toll highway divisions.
“Toll highways and property development are related to the core construction business of IJM Corp. However, the plantation business is not viewed as part of IJM Corp’s core business,” said the banker.
In the past, the earnings of IJMP provided the cushion for the lumpy earnings from the construction sector. However, IJM Corp now has a mature toll and port division to give it recurring earnings.
IJM Corp’s property division also is sitting on a decent landbank that is ripe for township development.
“When the economy improves, IJM Corp can count on the property and construction sector to give it the upside in earnings. Plantations are no longer seen as crucial to give it steady earnings as they used to be some 10 years ago,” said a source.
Sources also added that IJMP’s plantations were all located in Sabah and not suitable for property development in the near term.
Also, going forward, the plantation sector, as a whole, will face cost pressures due to the higher minimum wage and continued pressure from an oversupply of CPO in the market.