Hap Seng and Kretam attract investors' interest following RM1.18 billion deal

KUALA LUMPUR: Hap Seng Plantations Holdings Bhd’s shares were traded as high as RM2.63 in the morning session after the company announced a RM1.18 billion acquisition for a 55 per cent stake in Kretam Holdings Bhd.

The stock gained 0.39 per cent or one sen to RM2.57 at the close of the session, hitting a low of RM2.55, in a thin volume of 53,800 shares.

Kretam, meanwhile, rose 2.38 per cent or 20 sen to 86 sen in active trade during the session, with 19.1 million shares changing hands.

Analysts are mixed on the acquisition, with Kenanga Research downgrading its call on Hap Seng to “underperform” with lower target price of RM2.30 in anticipation of a negative short-term investors’ reaction.

“We are short-term ‘negative’ on the deal given stretched valuations and potential core net profit dilution,” Kenanga Research said in a report today.

The firm explained that the incremental earnings contribution of RM45 million a year would fail to offset additional interest cost of RM50 million to RM100 million a year, depending on the final acquired stake.

Affin Hwang Capital said Kretam would be a godd addition to Hap Seng in the long run.

“We believe the proposed acquisition is consistent with Hap Seng’s plan to further expand its palm oil plantation business and gain larger market access, especially in the downstream operations, in Sabah.”

It noted that Kretam has a total land bank of about 23,865 hectares in Sandakan, Lahad Datu and Tawau regions, of which 18,425 ha are matured areas, while Hap Seng Seng has a total land bank of about 40,279 ha in Lahad Datu, Tawau and Kudat, of which 32,374 ha are matured areas.

Hap Seng on Wednesday said it would pay 92 sen per Kretam share, an offer that triggered the 33 per cent mandatory takeover offer threshold.

The company entered into conditional share sale agreements with Kretam chief executive officer Datuk Lim Nyuk Sang @ Freddie Lim and Santraprise Sdn Bhd for the acquisition of 33.5 per cent and 21.5 per cent stakes in Kretam for RM716.99 million and RM460.79 million respectively.

Lim’s direct shareholding in Kretam will be reduced to 15.3 per cent after the completion of the deal.

The 92 sen offer represented a premium of 11.1 per cent to Kretam’s five-day weighted average market price of 83 sen.