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 Analysts wary about Golden Hope’s RM767.5m deals

Kuala Lumpur , 21 January, 2002 (Business Times) - TWO major deals worth atotal of RM767.5 million in three months has put the spotlight on GoldenHope Plantations Bhd, as investors factor in the effects of those deals onwhat had been a solid, dependable counter.Analysts say prior to the deals, investors have always been comfortablewith the plantation group’s net cash reserve of between RM400 million andRM500 million.“Previously, they knew that they can get their returns by investing inGolden Hope shares.“But now with the acquisitions, its cash reserve will be depleted for sureand fund managers will wonder whether the company can maintain itsperformance,” said an analyst with a local research firm.Golden Hope, a unit of national fund management entity Perbadanan NasionalBhd, has been in the limelight for the past several months with thesuccessful acquisition of the world’s second largest edible oil refineryin the Netherlands two weeks ago.On January 9 this year, after negotiations started in November 2 lastyear, Golden Hope bought the Unimills edible oils refinery fromBritish-Dutch food and consumer products giant Unilever Plc for 60 millioneuro (1 euro = RM3.38).The Unimills refinery which employs 210 workers is located in Zwijndrecht,near the vicinity of the world’s fourth largest port, Rotterdam.The refinery has annual sales of its products to third parties of 130million euro in central and north-western parts Europe alone with anannual capacity to process 450,000 tonnes of palm kernel, coconut,soyabean, rapeseed and sunflower oils.Prior to that, Golden Hope, through its wholly-owned subsidiary GoldenHope Properties (Pahang ) Sdn Bhd, had also bought the 800ha Haron Estatefrom Kumpulan Guthrie Bhd for RM565.28 million.The analyst said with the cash gone, in purchasing the refinery and lockedup in the Haron estate deal, questions remain whether Golden Hope couldmaintain good dividend payments for the current financial year.“We have been quite negative with the land purchase right from the verybeginning in which we feel the pricing is a bit too high.“Golden Hope should have negotiated for a lower price and it is nothealthy for any company to have their cash locked up in an estate,”shesaid.Under the deal, Golden Hope is required to make annual payments of RM113million for the first four years and RM156. 5 million to Guthrie in thefifth and final year.Meanwhile, another analyst said the Unimills refinery deal lacks financialdetails in its previous performance such as net sales, overhead cost,operational cost and and turnover.“No one is really sure how much cost Golden Hope has to incur annually inrunning the refinery.“Until we get more details it is still not fair to comment whether therefinery purchase was a fair deal for Golden Hope or not, and investorswill continue to remain in the dark,” he said.The analyst added that Golden Hope’s international divisions such asrubber trading was also not doing well and would put a dent in itsperformance this year.“Investors have always associated Golden Hope as one of the top fourplantation stocks together with Kuala Lumpur Kepong Bhd (KLK), IOI CorpBhd and Kumpulan Guthrie Bhd.“However, their cash is now gone, locked up in the deals, and at thisjuncture I would go for IOI or KLK,” she concluded.For the financial year ended June 30 2001, Golden Hope registered aRM20.45 million net profit compared with RM163.65 million in 2000 andRM439.72 million in 1999.Multex Global Estimates, which compiles forecasts from 17 research houses,projects Golden Hope to make a net profit of RM139 million on the back ofa RM1.58 billion turnover with earnings per share of 13.72 sen.For the first three months ended September 30 2001, the company made a netprofit of RM9.28 million compared with RM27.37 million in the samecorresponding period last year.At the Kuala Lumpur Stock Exchange (KLSE), from a period of between July16 last year to January 14 this year, Golden Hope shares depreciated 4.95per cent and only managed a 3.46 per cent in total returns.Its share traded from RM3.64 on July 16 last year to RM3.46 last Friday.Its share price dipped to as low as RM3.08 during the September 11 attacksbut managed to climb back to RM3.50 a share within a week.As a comparison, the KLSE’s Composite Index, during the same period,registered a 11.31 per cent appreciation and recorded 12.89 per cent intotal returns.KLSE’s sub-plantation index, meanwhile, registered a 4.60 per centappreciation with total returns of 5.66 per cent.However, not all the analysts contacted were pessimistic with the deal.“Bear in mind, Golden Hope is almost a hundred years old and the companyis one of the most cost-efficient plantation companies in the country withhigh yields and low cost of crude palm oil production.“Coupled with good management practises the company can put in place goodwork ethics which can bring returns to the refinery,” said the analyst.He added the deal in Europe has also placed the company at the centre ofthe world’s edible oils market which can result in a bigger market shareas far as refining and processing oils were concerned,“The refinery not only can process palm oil but it can also processrapeseed, soyabean and sunflower oils.”He added that competition in Europe was stiff, where all the foreign-ownedrefiners would vie for sales to process edible oils and Golden Hope has anadvantage if it charges more competitive rates to multinationals in thefood and consumer products business that use edible oil as their basematerials.“The returns may not be immediate but over time it will be well worth it,”he said.He added that the move was also in line with diversification plans urgedby the Government which stressed plantation companies to expand theirearnings base.As a comparison, other plantation companies such as United Plantations Bhdhas palm oil operations in Mexico, the US and the UK.Sime Darby Bhd, meanwhile, owns a refinery in Egypt and the Kwok Group hasa refinery in China.Golden Hope currently has a landbank of over 170,000ha comprising mainlyof palm oil, cocoa, rubber, coconut and fruits. Golden Hope alsomanufactures glycerine or fatty alcohol, fruit juices, food, rubber baseproducts and also owns several property developments.It is also an investment holding company with activities in ownershipmanagement, processing, marketing and research activities.Golden Hope’s overseas operations are in Vietnam, Germany and China.The Vietnam and China operations are in the business of refining edibleoil. In Indonesia Golden Hope is in the midst of developing its firstoverseas oil palm plantation including a processing complex.

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