Analysts see robust M&A activities in plantation

TheStar Tue, Jul 21, 2020 10:00am - 7 months ago


In a research note, Maybank IB Research said plantation land/estate and plantation-related transactions within Malaysia had totalled RM647mil in the first half of this year, surpassing total transactions done in 2019 of RM528 mil.

KUALA LUMPUR: Merger and acquisition (M&A) activities in the plantation sector in Malaysia will remain robust in the second half of this year and next year, after picking up momentum in the first half of the year.

In a research note, Maybank IB Research said plantation land/estate and plantation-related transactions within Malaysia had totalled RM647mil in the first half of this year, surpassing total transactions done in 2019 of RM528 mil.

It said the transacted prices in 2019 and up to the first half 2020 ranged between RM18,801 and RM762,295 per hectare, with the lower end of the transaction values were mainly from two transactions in Sarawak where the estates were severely underperforming and/or located in less-than-ideal localities.

“We believe most of the large plantation companies in Malaysia are still looking for upstream acquisition opportunities. For instance, following the disposal of its 70 per cent-equity stake in Loders to Bunge back in 2017, IOI has earmarked approximately RM1 billion cash for M&A opportunities in the region.

“We understand IOI has been scouting for upstream opportunities since but to no avail as the asking prices were above its expectation, ” it said.

The research house was also not discounting the possibility of Hap Seng Plantations targeting another potential candidate after its failed attempt to acquire a 55 per cent equity stake in Kretam Holdings back in 2018 for RM1.1bil.

Armed with net cash of RM84mil and shareholders’ funds of RM1.63bil, the plantation company has the capacity to gear up for an acquisition.

Maybank IB Research said the easier and faster route for expansion would be acquiring smaller estates nearby established planters’ estates with legal titles that were clear of social and environmental issues.

This is because acquiring greenfield land for this purpose would take approximately 10 years before the investment yields positive returns as Roundtable on Sustainable Palm Oil (RSPO) members face increasingly onerous process of complying with RSPO’s new planting procedures (NPP) on greenfield developments.

RSPO’s NPP on greenfield developments could take up to three years before any planting could take place, assuming it was clear of other problems such as social issues and has clear legal status.

“Add another three years of planting-to-maturity and another three to four years of gestation before the estates turn profitable (with decent yield), the entire investment process will take approximately 10 years before the investment yields positive returns, ” it said.— Bernama

“As the industry experienced its lowest profitability (per hectare) in 2019, we anticipate entrepreneurs to seize the opportunity to bargain hunt and scout for opportunities previously not available during the commodity bull market, ” it said.

On gearing, the research house said overall, the industry’s collective net gearing stood at 38.6 per cent as of March 31,2020, which remains manageable and conducive for smaller M&A activities. Bernama






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