Indonesia land sale ‘bountiful’ for TSH Resources
KUCHING: TSH Resources Bhd (TSH Resources) plans to dispose of land in North Kalimantan, Indonesia for a total of RM711.66 million and will be made through its 90 per cent-owned subsidiary, PT Bulungan Citra Agro Persada (BCAP).
In a filing with Bursa Malaysia, the oil palm plantation group said BCAP has entered into a heads of agreement with PT Kawasan Industri Kalimantan Indonesia and PT Kalimantan Industrial Park Indonesia.
The proposed disposal includes two plots of land in Tanah Kuning Village, covering a total area of 3,829.27 hectares (ha); and five plots of land in Mangkupadi Village, covering a total area of 9,385.63 ha.
The disposal also includes plots of land in Tanah Kuning Village and Mangkupadi Village that have been previously acquired by TSH Resources from individuals landowners but have not yet been certified and registered in the National Land Agency Indonesia.
“The buyers intend to undertake an industrial development on the subject land, while the proposed disposal will be satisfied entirely by cash,” it said.
The team with Public Investment Bank Bhd (PublicInvest Research) said this was a ‘handsome gain in the bag’ for TSH Resources as back in August 2011, the original cost of investment was only RM181,000.
Stripping out the net book value (NBV) of RM271 million, as well as plasma settlement of RM20.5 million and estimated expenses for the proposed disposal of about RM19.6 million, the group is expected to record a one-off gain of RM400.3 million or 29sen per share and it is expected to be completed by the first quarter of 2023.
“Interestingly, the disposal consideration of RM711.6 million represents a premium of 140.7 per cent to the market value ascribed by the valuer and it represents a premium of approximately RM440.5 million or 162.4 per cent to the audited net book value of the sale land of RM271.1 million,” it described in its notes.
“However, the proposed disposal is regarded as a related party transaction and it is subject to the shareholders’ approval.”
In PublicInvest Research’s view, the proposed land disposal was timely in anticipation of the multiple global rate hikes amid high crude palm oil (CPO) price cycle. The expected proceeds of RM711.6 million will bring down the group’s net gearing from 0.45 times to about 0.15 times.
About RM550 million or 77 per cent of the proceeds will be used to pare down its RM1.1 billion borrowings. RM45 million or 6.3 per cent of the total proceeds will be used for undertaking new planting and replanting of 3,500ha of oil palm estates in Sumatera and Kalimantan over 2023-2024.
Researchers at Kenanga Investment Bank Bhd (Kenanga Research) said the intention of selling less strategic assets to pare down debts as well as to accelerate the development of new planting makes sense for TSH.
“In the case of the 3,001 hectares of Sabah land sold for RM248 million, much of the estate is matured area with oil palm trees at (or near) 25 years of age.
“For this NE Kalimantan land, only 3,819ha have been planted, thus over 70 per cent remains undeveloped.
As for its sales price, CH William Talhar & Wong’s Sabah office valued the 13,898ha at RM296 million using a combination of disounted cahs flow and comparison method. Meanwhile audited NBV as at December 31, 2020 stood at RM271 million.
As such, the divestment is expected to result in pro-forma gain of RM400 million. The agreed selling price of RM51,200 per ha is also above market price of around RM45,000 per ha for agriculture land in Kalimantan.
“Altogether, having paid for agriculture or Hak Guna Usaha land earlier and now selling it with some development land (Hak Guna Bangunan) premium imputed into the price, TSH has come out well.
“We are expecting the agreement to conclude only in 1HFY23 but expect neutral impact on FY23 Core EPS as the loss of some CPO earnings will be offset by lower interest expenses following de-gearing.
“However, if CPO price falls below RM4,000 per MT, the disposal could be EPS accretive.”