Stock Focus TSH snaps up more land fresh from selling Pontian

by **Cals** Thu 26 Dec 2013, 18:00

Stock Focus TSH snaps up more land fresh from selling Pontian

Business & Markets 2013

Written by Kamarul Azhar of theedgemalaysia.com

Thursday, 26 December 2013 16:34

TSH RESOURCES BHD has moved on since failing to take over Pontian United Plantations Bhd last year. The Sabah-based oil palm company has sold its shares in the latter and is now set to add more than 25,000ha in Kalabakan to its landbank.

On Dec 6, TSH announced that it had entered into a share sale agreement with Ratus Awansari Sdn Bhd to acquire the latter’s 60% stake in Sg Kalabakan Estate Sdn Bhd (SKE) for RM150 million cash.

TSH will also assume a maximum of RM30 million in liabilities from Ratus Awansari as part of the consideration for the stake in SKE. According to the announcement, SKE has 26,794ha of oil palm plantations in Kalabakan, near Tawau, Sabah, of which 2,979ha are planted.

One of the directors of Ratus Awansari is Datuk Choo Keng Weng, who also sits on the board of another public-listed oil palm grower, Sin Heng Chan (Malaya) Bhd. The Sabah Foundation, through Benta Wawasan Sdn Bhd, is a shareholder of SKE.

The acquisition will boost TSH’s overall plantation landbank by 26% to about 131,000ha. The group’s plantable reserves will also jump by 35% to 92,335ha. Based on its average planting of 3,600ha per annum, TSH’s new plantable reserves in Sabah and Indonesia will last it about 25 years.

A 100% stake in SKE would have cost RM280 million, says Alvin Tai of RHB Research Institute. Assuming the unplanted area costs RM6,000 per hectare, TSH effectively paid RM46,000 per planted hectare, says Tai in his research report.

“This is lower than its recent sale of Pontian United and the price IOI Corp Bhd paid for Unico-Desa Plantations Bhd of nearly RM70,000 per planted hectare. However, SKE’s planted area is immature and will not contribute positively to earnings for another two to three years.”

It is worth noting that TSH’s acquisition comes only four months after it sold its 16.17% stake in Pontian United to Felda Global Ventures Holdings Bhd (FGV) for a cash consideration of RM196 million, netting a gain of RM86 million.

The acquisition shows TSH’s drive to increase its plantation land, especially in Sabah, where yields are much higher than in the peninsula.

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Last year, TSH, together with Chin Leong Thye Sdn Bhd, Lee Chin Hwa, Lee Min Huat and Lee Sep Pian, jointly made a voluntary conditional takeover offer for shares they did not own in Pontian United for RM625 million or RM90 a share.

Had the deal gone through, it would have been synergistic for TSH because Pontian United’s land is located near its estates on the outskirts of Lahad Datu, Sabah.

However, the shareholders of Pontian United, which owns about 16,000ha of oil palm estates, mostly in Sabah, felt that their shares were worth more than RM90 each TSH offered. The deal fell through because the acceptance level was only 8.2%.

Then came FGV’s offer in July this year.

Analysts believe TSH acquired SKE in an attractive deal. This is because even after adding a development cost of RM15,000 per hectare, the total cost for TSH is lower than that for other recent transactions involving oil palm plantations.

“The pricing is fair because land of considerable size is hard to come by, especially in Sabah. And even after adding a planting cost of between RM15,000 and RM18,000 per hectare, the total cost works out to RM61,000, which is quite cheap,” says an analyst who covers TSH.

IOI Corp’s acquisition of a 39.55% stake in Unico-Desa for RM396.6 million cash implied a valuation of RM80,000 per planted hectare while Boustead Holdings Bhd paid RM76,600 per hectare for 2,410ha of plantation land in Lahad Datu.

Although the Kalabakan land is not located close to TSH’s current oil palm plantations in Sabah, analysts do not consider it a big issue. They do not see TSH encountering any problem in developing the land and optimising its resources in Sabah.

They are bullish on the long-term prospects of TSH because of the current young age profile of its plantations. If the group started replanting most of its land in Sabah, that would diversify its earnings from being too dependent on its Indonesian operations, they add.

“We are positive on the deal, given the scarcity of good land in Sabah, NGO intervention and social issues in Indonesia. This acquisition will provide TSH with some geographical diversification because 87% of its total planted area is now located in Indonesia,” an analyst says.

This article first appeared in The Edge Malaysia Weekly, on December 16, 2013.

by **Cals** Thu 26 Dec 2013, 18:01

hehe very nice move

Stock Focus TSH snaps up more land fresh from selling Pontian

Stock Focus TSH snaps up more land fresh from selling Pontian

Re: Stock Focus TSH snaps up more land fresh from selling Pontian