GNEALY (FV RM8.02 - BUY) Corporate News Flash: Privatization Offer Firm

Stock Name: GNEALY
Company Name: GLENEALY PLANTATIONS (M) BHD

Research House: OSK

Price Call: BUY

Target Price: 8.02

THE BUZZ

In line with Samling Strategic Corporation (SSC)'s bid toprivatize Hong Kong-listed Samling Global Limited (SGL), SGL has made a formaloffer to privatize Glenealy Plantations and timber player Lingui Developmentsat an offer price of RM7.50 and RM1.63 per share respectively.

OUR TAKE

Same old deal. On27 Jan 2012, SSC, a  private   company of  Tan  Sri Yaw  Teck  Seng, indicated  its interest  in privatizing the three companies, including Glenealy  at  an  indicative offer  price  of RM7.50  per  share. The confirmed bid values the companyat the same price, translating into a PER of 11.2x CY12 EPS, PBV of 1.3x CY12 NTA and EV/EBITDA of 4.7x CY12EBITDA. SSC currently holds an effective stake of 53.7% in Glenealy aftercombining Lingui's 38.3% stake and SSC's own direct stake of 15.4%. At theoffer price, SGL will have to fork out RM396.3m to acquire the entire remaining46.3% stake not under SSC's effective control. The offer values Glenealy at amarket capitalization of RM865.2m and an enterprise value of just RM765.2m,after taking into consideration the firm's considerable cash pile of RM166.1m.

Not enough. Westand by our view that the RM7.50 offer undervalues Glenealy both on a PER andenterprise value per ha (EV per ha) basis. The disparity against comparables ismost drastic from an EV-per-ha point of view, with the deal pricing Glenealy atjust USD8,250 EV per planted ha for its 30,127 ha planted area in Sabah,Sarawak and Indonesia. This represents a 50% discount when compared to thesector average of about USD16,500 EV per ha. On a PER standpoint, the 11.2xCY12 EPS price tag placed on Glenealy comes at a 18.9% discount relative toregional sector peers and a 21.2% discount versus other Malaysian plantersunder our coverage. While a discount is justifiable given the company's smallersize and stock illiquidity, we think the 50% and 19% discount to EV per ha andPER are unwarranted, considering that Glenealy's planted area size is similarto that of TSH Resources.

Don't take the offer.We advise shareholders not to take up the RM7.50 offer until SSC garnersapproval for the deal from at least 75% of the minority shareholders which is equivalent to a 34.7% stake. Thecompany's third largest shareholder is Perkapalan Damai Timur SB with a 11.4%stake, a shareholder which management has previously said was not related tothe Samling Group. Should the entity turn out to be a friendly party, SSC will  only need to  deal with 34.9% ofnon-related / friendly shareholders for the proposal.

Source: OSK188