STOCK FOCUS OF THE DAY
Genting Plantations : Acquires 12,893ha of planted land for US$94.97mil HOLD
We are upgrading Genting Plantations (GenP) from SELL to HOLD as its share price has fallen below our fair value of RM10.84/share. Our fair value for GenP implies a fully diluted FY18F PE of 25x. GenP has proposed to acquire Knowledge One Investment Pte Ltd (KOI) from Lee Rubber for US$94.97mil. KOI has an 85% shareholding in a subsidiary, which has the HGU (Hak Guna Usaha) land title for 14,661ha of oil palm land in South Kalimantan. Out of the 14,661ha, about 12,893ha are already planted. The landbank also comes with an palm oil mill of 60 tonnes per hour.
The oil palm estate in South Kalimantan is young as about 90% of the trees are just slightly older than four years old. Also, the acquisition will increase GenP's planted landbank in Indonesia from 71,940ha (as at end-FY16) to 84,833ha. GenP does not have to worry over land title issues as the oil palm estate in South Kalimantan already has HGU. It is difficult to acquire landbank with the HGU land title in Indonesia nowadays. However, we believe that the acquisition price of about US$15,196/ha (RM65,341/ha) for 85% shareholding of the landbank, is on the high side as it is slightly above the estimated market value of planted landbank in Indonesia of about US$10,000/ha. Our calculation excludes the value of the palm oil mill of 60 tonnes per hour.
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