by SHAZNI ONG/ pic by MUHD AMIN NAHARUL

THE current high crude palm oil (CPO) is likely to play a catalyst for more corporate privatisations among plantation players, analysts have observed.

Hong Leong Investment Bank Bhd (HLIB Research) analyst Chye Wen Fei said this comes after taking cue from Kwantas Corp Bhd’s privatisation offer last month.

Kwantas’ major shareholders recently launched a surprise general offer to privatise Kwantas via selective capital reduction and repayment at RM1.65 per share.

Chye believes merger and acquisition activities among plantation players will remain robust.

This Chye said, given the lack of available landbank for expansion, exacerbated by increasingly stringent certification process by the Roundtable on Sustainable Palm Oil, which may entice larger scale plantation players to expand their planted area via brownfield land acquisition instead of organic expansion.

“(Also), escalating cost pressure (amid rising labour cost and labour shortage), which may result in smaller scale players exiting the oil palm plantation business by disposing their oil palm plantation assets to larger scale players.

“Relative to the smaller scale players, larger scale players tend to manage their production cost better due to economies of scale,” she said in a sector note update yesterday.

Chye added that there was also the rising appetite for landbanks for property development and urbanisation purposes, which may in turn drive land transactions.

“Case in point is Hap Seng Plantation Holdings Bhd’s recent move to dispose part of its landbank in Ladang Kawa for RM76 million or RM137,000 per ha, as the landbank is no longer economically viable (given its low yield resulted from high age profile) and deemed more suitable for property development (given its close proximity to town),” she said.

According to Chye’s observation, most privatisation targets share several similar characteristics, which include low trading liquidity, low valuation and under-researched.

“We did a quick search on KL Plantation Index components based on four criteria, namely six-month daily trading volume of less than 500,000 shares, (ii) price-to-book (ratio) of not more than one time, enterprise value of not more than RM40,000 per ha (planted), and limited or no research coverage.

“Our search results show that about one third of the KL Plantation Index components (14 out of 43 companies) meet all our above-mentioned criteria as potential privatisation targets,” she said.

HLIB Research which has maintained a ‘Neutral’ call on the sector, noted year-to-date CPO price average at circa RM2,550 per tonne.

“While we are still holding the view that the current high CPO price will unlikely sustain into the remaining months of 2020, full year average price will likely come in higher than our assumption of RM2,350 per tonne; possibly averaging RM2,450-RM2,500 per tonne.

“Pending a further review on the sector, we keep our assumptions for now at RM2,350-RM2,400 per tonne in 2020-2021. For exposure, our top pick is TSH Resources Bhd with a ‘Buy’ call and target price of RM1.14,” Chye said.