Rescinds acquisition of Sarawak landbank

27 May 2008
RM7.40
Target Price: RM10.30

YE to June FY07 FY08F FY09F FY10F
FD EPS 22.7 33.3 39.1 41.5
FD PE (x) 32.6 22.2 18.9 17.8
Source : AmResearch

IOI Corporation has rescinded its proposed acquisition of majority shareholding in companies, which own 44,350 ha of landbank in Sarawak. The purchase consideration was supposed to be RM439.9m. According to the announcement, the reason for the rescindment is non-fulfillment of conditions. Recall that the proposed acquisition was first announced on 18 March 2008. The acquisition would have increased IOI’s plantation landbank to 262,428 ha. After the assumption of RM33.7m borrowings, the acquisition would have priced the Sarawak landbank at an undemanding enterprise value of RM10,677/ha

We have not factored in any contribution from the above landbank into our earnings forecast. We have previously estimated that the landbank would only improve IOI’s FY09F net profit by 1.6% as only 10% of the landbank are mature. In addition, only about 30% of the landbank are already planted with palm oil

We do not think that the rescindment of the proposed acquisition is a setback to IOI’s landbank expansion plans. We believe that the group would be busy developing 10,000 ha to 15,000 ha of landbank in Indonesia into oil palm estates this year

Currently, we estimate IOI has 218,078 ha of landbank in Malaysia and Indonesia. Out of these, approximately 49% are located in Sabah, 24% in Indonesia, 23% in Peninsular Malaysia and 4% in Sarawak

The age profile of IOI’s trees is attractive as about 73% of the oil palm trees are in the prime 7-15 years. In the longer-term, as these trees become older, young trees from IOI’s plantings in Indonesia would start to bear fruit and replace the contribution of the older trees

Maintain Buy on IOI as it is a proxy to the KLCI and plantation sector. As the group is one of the most efficient players in the Malaysian plantation industry, IOI would benefit from the uptick in CPO prices. IOI is also an increasingly global player in the specialty fats and oleochemical industries via its operations in USA and Europe.



note:out of season research of today.