Analysts mixed over RM1.2b offer for Pontian

This was written by my colleague Zaidi Isham Ismail.

KUALA LUMPUR: ANALYSTS are mixed over the RM1.2 billion price tag offered by Felda Global Ventures Holdings Bhd (FGV) for Pontian United Plantations Bhd.

Pontian is mainly involved in oil palm cultivation, extraction of crude palm oil and palm kernel, general insurance, property investment and money lending. It has 16,187ha of oil palm plantation land, mainly in Sabah. Last year, Pontian reaped RM39.48 million in net profits.

RHB Research Institute thinks the price is too steep, while MIDF Research believes it is fair.

RHB analyst said the valuation seems high based on Pontian United's 2011 and 2012 net profits of RM71.7 million and RM39.5 million, respectively, translating into price-earnings ratios of 16.9 times for 2011 and 30.7 times for 2012.

"More importantly, its landbank is priced at RM74,765 per ha, which looks expensive, even higher than the valuation of RM69,300 per ha for IOI Corp Bhd's attempted purchase of Dutaland estates in Sabah in 2011," RHB analyst added.

RHB Research said FGV is under pressure to put its net cash hoard of RM5.8 billion as at end-first quarter of 2013 to good use. "The cash is becoming a drag on earnings," the analyst said.

In recommending a "neutral" call on the stock, RHB analyst estimates that the acquisition could potentially add 2.0 to 2.5 per cent annually to FGV's bottom line.

MIDF Research, however, is more optimistic on FGV's move. "We are positive on the news. However, there's no change to our forecasts pending results of the offer. We maintain a 'neutral' recommendation on FGV with a target price of RM4.76." 

Two days ago, FGV told the stock exchange that it offered to buy all shares in Pontian United for RM140 apiece. The deal is expected to be completed by the end of this year.

MIDF said the RM140 per share translates into RM75,000 per hectare, which is considered fair for a local plantation estate. "Although the purchase price is slightly higher than the IOI Corp offer, it is still fair for a brownfield estate in Malaysia."

"Assuming full acceptance and completion of the exercise by end of this year, the acquisition will increase FGV's 2014 earnings per share by 3.5 per cent," MIDF analyst said.