UMB deal makes sense
PETALING JAYA: United Malacca Bhd 's (UMB) decision to acquire the remaining 17% it does not own in Indonesia-based PT LifereAgro Kapuas (PT LAK) from PT Bank OCBC NISP TBK for US$10mil is a good deal for the planter, according to Kenanga Research.
The research house said, in a report, that it made commercial sense to gain full control of a profitable and growing subsidiary.
'The acquisition is also valued fairly, hence neutral to prospective ratings and long-term positive financially as PT LAK has room to expand,' Kenanga Research added.
UMB had acquired 83% of PT LAK's equity back in January 2016 for US$66.4mil.
PT LAK came with Izin Usaha Perkebunan or a plantation licence for 24,585ha of agriculture land in central Kalimantan.
PT Lak is divided into four estates with a palm oil mill.
The land is slightly larger at 24,607ha split between Plasma smallholder scheme (10,434ha) and UMB's 'Inti' core holding of 14,173ha.
Out of this, 11,419ha can be planted with oil palm.
Kenanga Research said strategically, UMB would have full control over PT LAK.
At about 10 times PT LAK's earnings in financial year 2025 (FY25), the valuation also looks fair to attractive.
Importantly, PT LAK has capacity to grow as 3,312ha or 29% of its total plantable area of 11,419ha are still awaiting oil palm development.
Out of the 8,099ha already planted, the trees are still young (10 years of age), and hence, fresh fruit bunch (FFB) yields are still low at 15 tonnes per ha, whereas the group's more matured estates typically yield 19 tonnes to 20 tonnes per ha.
Meanwhile, Kenanga Research said the group could fully fund the latest acquisition internally.
UMB ended its financial year 2025 with a net cash of RM151mil.
'Even after paying out RM27mil in dividends – seven sen final and six sen special dividends – the group can easily fund this acquisition of RM42mil by cash,' the research house pointed out.
Furthermore, the returns from PT LAK should also exceed the rates UMB is earning from its cash deposits, it added.
Meanwhile, RHB Research said firm crude palm oil (CPO) prices are also to be expected.
CPO prices had eased since the recent peak in November 2024 but a global supply deficit looks set in 2025 with supply tightness likely to persist into 2026.
Hence, CPO prices are expected to stay firm with an average CPO price of RM4,000 per tonne expected for UMB over FY26-FY27, the research house explained.
Kenanga Research, which has maintained an 'outperform' call on the stock with a target price of RM6, said 'we see deep value at current levels'.
The risks to Kenanga Research's call include adverse weather, softer CPO prices and the rising cost of labour, fertiliser and fuel.
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