KUALA LUMPUR: The mergers and acquisitions (M&A) in the plantations sector are expected to continue, underpinned by the high crude palm oil prices and undervaluation of small and mid (SMID) caps.

       "Undervalued SMID caps such as BPLANT (BUY) and HAPL (Not Rated) will continue to be potential M&A and/or privatisation targets," said Maybank Investment Bank Research in a note.

       It noted that there is currently a valuation gap between the transacted physical prices and the equity values of many SMID caps.

       "The SMID caps that we observe trade at implied unadjusted EV/ha of just

       MYR17,000-38,000, which are at or below replacement costs. 60% of KL

       Plantation Index members trades below 1x PBV (as at 1 Sept)," added the research house.

       Maybank IB has a positive outlook on the plantations sector with its preferred "buy" picks being Kuala Lumpur Kepong, Sarawak Oil Palms and Boustead Plantations .

       According to Maybank IB, Boustead Plantations could be a privatisation candidate as it trades at just 0.55x price-book value, 0.3x P/RNAV and EV per planted ha of RM34,400.

       The company is 57.4% owned by Boustead Holdings and 12.1% owned by LTAT.

       Hap Seng Plantations could also be a privatisation target as it trades at an attractive EV per planted ha of RM37,800, price-book value of 0.9x and has a net cash of 32 sen per share, said Maybank IB.

       It added that Hap Seng Consolidated last week raised its stake in Hap Seng Plantations to 74.9% by acquiring an additional 120 million shares from Innoprise Corp Sdn Bhd via a direct business transaction for RM264mil.

       The research house also cited media reports that Malaysia's pilgrimage fund Lembaga Tabung Haji is considering taking its 74%-owned TH Plantations Bhd private.

       Year to date, the M&A activities in the sector have surpassed the RM3bil transacted values recorded in 2020.

       According to Maybank IB, at least six transactions worth a combined RM3.56bil M&A deals have been announced so far this year.

       These include Kuala Lumpur Kepong Bhd 's ongoing general offer to buy IJM Plantations Bhd worth up to RM2.73bil, Felda's unsuccessful attempt to privatise FGV although it successfully raised its equity stake by 44% to 78% for RM2.1bil, and the successful privatisation of Kwantas for RM200,000 by its major shareholder.