RHB Bank Singapore analysts maintain “neutral” on First Resources EB5 (FR) following the planter’s successful bid for 17,600 hectares of landbank and assets in Riau, a province on the central east coast of Sumatra, Indonesia.
FR’s bid for the assets held by Tri Bakti Sarimas was at a cash consideration of IDR1.9 trillion ($119.8 million). The assets include mills, plantations and unplanted landbank. The acquisition will be fully funded by First Resources’ internal reserves.
RHB understands that FR intends to revamp the entire landbank by undertaking replanting, with replanting cost-to-maturity at US$5,000 to US$6,000 per hectare. By deducing the approximate cost of mill assets and assuming the landbank is 80% plantable, the analysts expect the plantation landbank to cost FR around US$7,850 per hectare.
“Taking into account the replanting cost of US$5,500 per hectare, the total cost would be around US$13,350 per hectare, which we believe is reasonable as it is comparable to the brownfield transactions in Indonesia of US$10,000 to US$15,000 per hectare. We estimate this landbank, once fully planted, would add about 8% to FR’s total planted landbank,” they add.
Maybank Securities analyst Ong Chee Ting, who is keeping a "buy" call on FR, notes that the purchase price appears fair relative to KLK's average purchase price of US$13,457 per planted hectares. This was announced in December 2023 for prime mature estates in East Kalimantan, with estimated fresh fruit bunches (FFB) yield of 20 tonnes per hectare.
That said, Ong points out that FR did not provide other details on the bid, such as planted area, FFB yield, age profile and others. Based on a dated RSPO ACOP2020 filing, however, Ong understands that Tri Bakti Sarimas has about 14,700 hectares of planted area and about 2,900 hectares of unplanted area, which in aggregate is broadly similar to the total 17,600 hectares purchased.
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"Based on the RSPO filing, we gather Tri Bakti Sarimas was underperforming with FFB yields estimated at 8.5 tonnes per hectare back in 2020. Hence, we suspect the estates will be fully replanted if it cannot be rehabilitated," he adds.
Although the acquisition presents an opportunity for an operational expansion for FR, RHB analysts do not expect to see any earnings contribution from the acquired assets in the next three years, given FR’s intention to replant the landbank.
Additionally, the acquisition would reduce FR’s cash reserve by 49% from US$252 million as at end September 2023 to US$129.3 million, which translates to a net gearing of about 0.07x from a net cash position. “The immediate earnings impact is, however, expected to be minimal, at less than -2%,” the analysts note.
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Both RHB and Maybank are keeping their target price for FR at $1.45 and $1.82 respectively.
As at 2.09pm, shares in FR are trading 1 cent lower or 0.69% down at $1.46.
