Ta Ann’s proposed acquisition seen as expensive

PETALING JAYA: Analysts have pegged Ta Ann Holdings Bhd’s proposed acquisition of oil palm-based Agrogreen Ventures Sdn Bhd at RM211.14mil as expensive, with a potential near-term earnings dilutive effect.

CIMB Research in its report said the acquisition price appeared to be pricier than recent transactions of estates in Sarawak.

It also expects the acquisition to be nearterm earnings dilutive for Ta Ann in view of the immature and young age profile of Agrogreen Ventures’ estates.

“Our rough estimate is that it could dilute our financial year 2017 net profit by 5%, but could contribute to future earnings when the estates reach their prime yielding age in three to four years,” said the research unit.

On Monday, timber and oil palm player Ta Ann announced that it was acquiring a 100% stake in Agrogreen Ventures, which is involved in the development of oil palm on 5,280ha in Lundu, Sarawak. This is part of Ta Ann’s plan to expand its plantation land bank in Sarawak.

CIMB Research pointed out that the pricing of the Agrogreen Ventures estates was more expensive compared with the recent proposed acquisition of Sarawak Oil Palms Bhd’s 47,000ha of oil palm estates from Shin Yang for RM873mil.

The average entreprise value (EV) per ha pricing paid for the planted oil palm estates of Shin Yang was only RM32,347 per ha, it added.

“But we estimate that Ta Ann’s proposal to acquire 100% for RM211.1mil is 5% cheaper compared to the proposed purchase consideration by BLD Plantation Bhd for the same assets.

“We also estimate that Ta Ann is paying RM41,473 per ha for the planted estates (excluding debt in the company). This may appear to be lower than Puncak Niaga Holdings Bhd’s proposed EV per ha pricing for Murni Estates in Murum for RM45,695 per ha on Oct 17.

“However, the two estates’ pricing is strictly not comparable, as Puncak is buying the land while Ta Ann’s estate price is based only on cash consideration for the company.”

According to CIMB Research, Ta Ann’s proposed acquisition was arrived at on a “willing buyer-willing seller” basis after taking into consideration the market value of the land and rationale of the proposed acquisitions and future prospects of the estates.

The funding will mainly come from internally generated funds and partially from bank borrowings.

The proposed acquisition is expected to be completed in the first half of 2017.

The research unit estimates that the acquisition will raise Ta Ann group’s total planted oil palm area by 12% to 46,231ha.

It will also raise the immature oil palm area of the group from 17% to 21% of total planted area.

This will help boost the future fresh fruit bunch output growth of the group.

CIMB Research also expects Ta Ann to not have issues funding the acquisition in view of its low net gearing position of 11.4% as at June 30, 2016.

“Post-acquisition, we estimate the group’s net gearing ratio could rise to 26%,” said CIMB Research. It is also maintaining a “hold” on the stock, with an unchanged sum-of-parts-based target price of RM3.55.

The share price is supported by dividend yields.

At the close yesterday, Ta Ann’s stock fell six sen to RM3.52 per share.