OPTIMISTIC BOOST: Tai says the acquisition is an optimistic boost to IOI Corp’s FFB production which has fallen for two straight years due to ageing trees.

KUCHING: Analysts see the recent acquisition of plantation estates in Sabah by IOI Corporation Bhd (IOI Corp) as a positive move to boost the group’s fresh fruit bunch (FFB yields), which has been declining over the past few years.

According to OSK Research Sdn Bhd (OSK Research) analyst Alvin Tai, the acquisition was an optimistic boost to IOI Corp’s FFB production which has fallen for two straight years due to ageing trees.

“This acquisition represents IOI Corp’s first plantation asset acquisition for the longest time,” Tai revealed.

“In terms of age profile, the numbers provided for the new estates were insuf photoficient to draw a conclusion on for potential production growth going forward, but we believe most of the trees are still very young.”

IOI Corp purchased the two estates with a total hectarage of 11,977.91 hectares (ha) for a cash consideration of RM830 million from a wholly-owned subsidiary of Dutaland Bhd.

This translated to about RM69,294 per ha, which Tai considered to be “slightly more expensive than expected.”

TA Securities Bhd’s (TA Securities) head analyst, James Ratnam noted that there were several factors which compensated for the ‘premium price’ paid by IOI Corp.

“There could be potential cost savings for the group, since the new estates (located in Labuk and Sugut) are quite close to the group’s own Mayvin estates in Sabah. IOI Corp could also see value accretion from its rehabilitated estates as well.”

Ratnam noted that this acquisition would boost the group’s total plantation land bank by 6.7 per cent to approximately 191,000 ha currently.

Analysts at ECM Libra Capital Sdn Bhd (ECM Libra) also viewed this acquisition as fair, based on the fact that brownfield land in Sabah was hard to come by.

“We are positive on the group’s initiative to expand its stagnating plantation business. Furthermore, there could be positive news from its property segment from land banking activities, like the recent purchase into South Beach Properties in Singapore,” highlighted head analyst Bernard Ching.

Based on this, OSK Research, TA Securities and ECM Libra pegged IOI Corp at target prices of RM5.55 per share, RM6.11 per share and RM6.11 per share respectively.