Maintain HOLD
Previous Rating: HOLD
Current Price: S$5.17
Fair Value: S$5.68
Maintains offer for Proserpine. Wilmar International Limited (WIL) announced yesterday that its Australian subsidiary Sucrogen has signed an agreement with Proserpine Cooperative Sugar Association (Proserpine) to maintain its offer to purchase the latter's business assets and continue its financial support to Proserpine. As a recap, Sucrogen originally planned to acquire the business assets of Proserpine for A$115m (S$151m) on a "debt-free and cash-free" basis; but the amount could rise to A$118m including completion adjustments. The move would boost Sucrogen's milling capacity by 2m tonnes to 17m tonnes. It will also increase the sugar giant's raw sugar production by 10% to 2.2m tonnes. In addition, it will increase its presence in the Mackay central region, where it already has operations in raw sugar production, sugar refining, ethanol and liquid fertilizer production.
Cites "strong support" from Proserpine. Sucrogen says the decision for maintaining its offer was undertaken after receiving continued strong support from the majority of Proserpine members. This as Sucrogen had earlier only managed to obtain 70% of the required 75% of Proserpine's members to vote in favour of the offer. Sucrogen has now agreed to Proserpine members to having a second opportunity to vote on its offer in Oct 2011. However, we note that even the extension of the offer is not a certainty that Sucrogen will be successful. According to a recent Dow Jones Newswire report, Tully Sugar Ltd, a unit of Chinese state-owned Cofco Corp, is also keen to progress its previously stalled A$120m takeover offer. But Sucrogen believes that its offer will result in a quicker, more certain outcome as it has already obtained the necessary regulatory approvals; this means that it is ready to complete the transaction immediately following member approval as opposed to rival offers.
Good strategic fit. As before, we think that Proserpine would be a good strategic fit for Sucrogen. Besides increasing its capacity, we note that the move will also add to its capabilities; this as Proserpine has recently invested in facilities to manufacture and market furfural, which is a globally traded industrial chemical used in solvent extraction, foundry resins and pharmaceuticals. Last but not least, Sucrogen believes that there is great potential in the region for expansion of the cane-growing area.
Maintain HOLD with S$5.68 fair value. But even if Sucrogen is successful, we are unlikely to see any immediate boost; any meaningful impact will only be felt in mid-FY12. Nevertheless, we expect WIL to be able to comfortably finance the acquisition with internal resources and debt. Maintain HOLD with S$5.68 fair value. We would still be buyers closer to S$5.00.
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