DBS Group Research 2015-07-23: First Resources Ltd - Acquisition of new estates. Maintain HOLD.

Acquisition of new estates 

  • Announced acquisition of planted estates totalling 6k ha in West Kalimantan. 
  • Deal is worth US$70m, funded by internal resources; translating into US$11.6k/planted ha. 
  • Immediately earnings accretive, but insignificant. 
  • HOLD call maintained

New acquisition. 

  • First Resources announced overnight that it had acquired 100% share capital of Pacific Agri Resources Pte Ltd, which in turn owns 95% of PT Falcon Agri Persada (Falcon). 
  • The remaining 5% has also been acquired by First Resources’ indirect subsidiary, PT Pancasurya Agrindo. 

About the acquiree. 

  • Falcon is engaged in the oil palm plantation business in West Kalimantan with total planted hectarage of 6,000 (roughly equally split between mature and immature) with an average age of 3 years. 
  • We understand that the estates have a leasehold title (HGU) with Plantation Permit (IUP) issued prior to the Ministerial Regulation capping the maximum concession at 100k ha; but do not have smallholders under Plasma programme. 
  • While there remains unplanted reserve of undisclosed hectarage, the group would need to undertake a closer study to avoid HCS (High Carbon Stock) and HCV (High Conservation Value) areas prior to developing any further, and to comply with regulations requiring any allocation for smallholder estates. 
  • Falcon will immediately contribute to First Resources’ 3Q15 P&L – although insignificant, given the young age of its trees. 

Not cheap, but fairly priced. 

  • The cash consideration for the acquisitions was c.US$28.6m, while the entire deal was valued at c.US$70m. The acquisition is deemed complete. 
  • This value translates into an EV/planted ha of US$11,600/ha. 
  • Relative to First Resources’ own EV/planted ha of c.US$15,700, we believe the price was fair, although we should note that average EV/planted ha valuation of IDX-listed planters under our coverage now stands at US$9,000. 
  • Through this acquisition, we believe First Resources will expand by more than 10k ha this year; assuming that the group will be able to undertake new planting of 6.5k ha. 

Forecasts unchanged. 

  • Subject to imputation, we are maintaining our forecasts, TP and HOLD rating for the counter. 
  • We do not anticipate any significant impact.


Source: http://www.dbsvickers.com/