CGS-CIMB in its latest report said: “The success of the takeover will largely depend on the take-up rate for the mandatory general offer." PETALING JAYA: The cost for Felda to take over the remaining stake it does not own in listed unit, FGV Holdings Bhd, is estimated at RM3.1bil based on a takeover offer price of RM1.30 per share, says CGS-CIMB Research. On Monday, Felda proposed to take over FGV at RM1.30 per share, once it acquired the 13.88% stake held by Retirement Fund Inc (KWAP) and Urusharta Jamaah Sdn Bhd for RM658mil – this will raise Felda’s stake in FGV to over 50%. Felda also proposed a mandatory takeover offer for the remaining FGV shares it did not already own upon the completion of the equity deal. The equity deal and takeover offer are conditional upon Felda securing financing for the acquisition. CGS-CIMB in its latest report said, “The success of the takeover will largely depend on the take-up rate for the mandatory general offer. “We see this takeover offer as a bittersweet offer for FGV shareholders. “The offer price of RM1.30 is at a 3% discount to our target price and only a 2% premium to FGV’s last closing price of RM1.27.” However, this is probably a better option for FGV shareholders as FGV’s share price was negatively impacted by concerns over the early termination of its land lease agreement (LLA) with Felda and the dispute over compensation terms, it noted. “The downside is that most long-term shareholders of FGV will have to realise a significant loss from FGV’s initial public offering (IPO) price of RM4.55 per share. “They will not be able to enjoy the upside of higher fresh fruit bunch (FFB) yields from its replanted estates or the stronger crude palm oil (CPO) prices, ” added CGS-CIMB Research. It also viewed the deal on balance would be more favourable to Felda than FGV’s shareholders. “This is probably a more efficient way for Felda to consolidate and restructure its assets, and a potentially cheaper option than terminating the LLA, ” it said. However, the takeover offer provides an avenue for large FGV shareholders to exit their position, the research unit noted. CGS-CIMB Research is maintaining a hold on FGV with a lower target price of RM1.30 to reflect the takeover offer price. The upside risk to the deal is Felda raising the takeover offer price while the downside risk is Felda withdrawing the takeover offer. Meanwhile, Kenanga Research in its report has deemed Felda’s takeover offer as a “fair price”. “Despite the mind-boggling gap between the offer price of RM1.30 per share and FGV’s IPO listing price of RM4.55 per share, we think it is fair, ” it added. The offer price implies the estimated financial year 2021 (FY21) price to book value (PBV) of 1.1 times or a 64% discount to the IPO valuation. This also better reflects FGV’s current prospect, given that the listed planter is a pale shadow of its former self. Furthermore, FGV’s return on equity (ROE) and return on assets (ROA) have deteriorated to about 5% and around 1% for FY20 from an average 15% and 6% in FY11-FY12, respectively. It has even been loss-making for the past two years. “Considering that the company has been less efficient in using its assets, it is only right that investors would ascribe a lower value to FGV’s assets, ” Kenanga Research pointed out. FGV’s financial position was also stronger back then, with a net cash/share position excluding the LLA of RM0.89 versus a net gearing of about 0.8 times currently. From a price earnings ratio (PER) perspective, the offer price implies the estimated FY21 PER of 18.5 times (a 5% premium to the IPO PER), potentially due to the current high price of CPO. TA Securities in its report viewed the offer price of RM1.30 per share by Felda as 4% higher than its targeted FGV share price of RM1.25 per share for the calendar year 2021 (CY21). In terms of earnings, this represents approximately 19.7 times the CY21 P/E. Felda’s offer price is also at a significant 71.4% discount to FGV’s IPO price of RM4.55 per share. TA Securities is of the view that minority shareholders may not be keen to sell their stakes in FGV, after taking into account the current high CPO prices and better palm-tree-age profile of FGV. Thus, the takeover offer may fall short of 90% needed to delist FGV from Bursa Malaysia. “Our target price is now benchmarked to the privatisation price of RM1.30 per share. We expect the offer price to be the floor price in the near term, ” added TA Securities.
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