PPB may use sugar proceeds to invest in Wilmar China

PPB may use sugar proceeds to invest in Wilmar China

Tags: HKEX | OSK Research | PPB Group Bhd | Wilmar China | Wilmar International

Written by Melody Song
Tuesday, 03 November 2009 11:17

KUALA LUMPUR: PPB GROUP BHD [] may utilise the RM1.29 billion proceeds from the sale of its sugar refining and trading business in Malaysia, to subscribe for shares in Wilmar China, according to OSK Research.

The research firm believes that by investing in Wilmar China, which is planning an initial public offering (IPO) on the Hong Kong Exchange (HKEX), PPB will get “a bigger bang for the buck”, compared to buying additional shares in Wilmar International Ltd.

PPB had in an announcement last Friday said it would channel the proceeds to make strategic investments rather than distribute them as special dividends to shareholders.

The announcement was pertaining to PPB’s proposed divestment to Felda Global Ventures Holdings Sdn Bhd of all its sugar refining and trading business in Malaysia, comprising a 100% stake in Malayan Sugar Manufacturing Sdn Bhd, 50% stake in Kilang Gula Felda Perlis Sdn Bhd and 5,797ha of land in Perlis, for a total consideration of RM1.29 billion.

According to OSK, PPB currently owns 18.22% stake in Wilmar International, which is planning to float its China operation under Wilmar China on the HKEX.

“If PPB were to raise its investment in Wilmar International, it would only be able to buy an additional 1.3% based on the current price,” said OSK in a note yesterday, citing that PPB’s chairman had mentioned the group would only raise stakes in Wilmar International if the price were right.

“We doubt that the proceeds would be used to buy into Wilmar International given that the additional stake (of 1.3%) will only raise PPB’s pre-tax profit by RM59.5 million (based on our estimates) compared to about RM165 million (in pre-tax profits) forgone from its sugar refining and trading business. Moreover, PPB is already equity-accounting Wilmar International’s contribution,” noted OSK.

Hence, the research firm believed that the company would rather invest the proceeds to subscribe for the IPO shares of Wilmar China.

OSK said PPB’s 18.22% stake in Wilmar International is worth RM17.86 billion compared to its own market capitalisation of RM17.95 billion.

“Assuming zero value for its other businesses, PPB’s revised net asset value (RNAV) is estimated at RM19.29 billion, taking into consideration its net cash of RM140.96 million and the sale proceeds of RM1.29 billion. Hence PPB is trading at a narrow 7% discount to its RNAV,” said OSK.

PPB closed 20 sen or 1.32% higher at RM15.34 yesterday.


This article appeared in The Edge Financial Daily, November 3, 2009.