(FILES) This file photo taken on September 16, 2015 shows a worker handling palm oil seeds at a plantation area in Pelalawan, Riau province in Indonesia's Sumatra island. Multinational companies are selling consumer products containing palm oil from Indonesian plantations where workers suffer rights abuses, Amnesty International warned on November 30, listing problems including child labour and exposure to toxic chemicals. / AFP PHOTO / ADEK BERRY
KUALA LUMPUR: Kuala Lumpur Kepong Bhd
(KLK) disputes the asset valuation report presented by MP Evans Group PLC as proof that its revised offer undervalues the London-listed plantation firm and urges MP Evans shareholders to accept its offer “as soon as reasonably practicable”.
In a letter to MP Evans shareholders, which was also posted on Bursa Malaysia’s website on Thursday, KLK said there was no certainty that the closing date of Dec 9 would be extended.
KLK called MP Evans’ valuation, announced to London’s Alternative Investment Market on Monday, “unsubstantiated by relevant market data and current operating conditions.”
According to MP Evans, Khong & Jaafar valued the group’s land assets at US$665mil (RM2.97bil), which together with its other assets implied an equity value of £10.82 per share, 46% higher than KLK’s sweetened offer of £7.40 per share.
KLK pointed out that in relation to the Indonesian plantation interests of MP Evans, which constitute the majority of the value attributable to the company, MP Evans did not use precedent sales of Indonesian plantations as comparables in doing the valuation.
“Instead, (MP Evans) elected to use precedent sales of Malaysian and Papua New Guinean plantations, which are of an inherently higher value due to the differing operating environments/circumstances in those cpuntries compared to Indonesia,” it said.
KLK said the precedent sales of majority stakes in Indonesian plantation estates showed an average enterprise value per planted hectare of about US$10,285 (RM45,974), citing as examples six such transactions from March 2015 to June 2016.
KLK said its increased offer implied a value of MP Evans’ total planted area per hectare of about US$14,100 (RM63,028), a 37% premium to the selected precedent deals.
KLK noted that the land attributable to the Indonesian smallholder cooperative schemes belonged to the cooperatives and not to MP Evans.
“In general, once the loans advanced to cooperatives have been repaid, they may sell their produce to any company and may choose to be managed by any plantation operator,” it said.
On the value of US$81mil (RM362.1mil) attributed to MP Evans’ Malaysian properties, KLK said this was almost double the market value that MP Evans ascribed to them in its latest annual report and accounts for the financial year ended Dec 31, 2015.
KLK pointed out that the reported book value of MP Evans’ 40% equity interest in Bertam Properties Sdn Bhd was about US$15.1mil (RM67.5mil).
Furthermore, the Malaysian property market was currently weak and the outlook for the Penang property market - the location of MP Evans’ Malaysian properties - was expected to worsen in the short term, KLK said, citing a Knight Frank LLP report.
On MP Evans’ pledge to boost the annual dividend by at least 71% from 2015’s dividend, KLK said the promises to bolster shareholder value came too little too late.
Even based on the intended aggregate 15 pence dividend for 2016, KLK said, the implied dividend yield based on the MP Evans valuation was still only 1.4%.
KLK also noted that the valuation cited by MP Evans represented a high price-earnings (P/E) ratio of 79.2 times. “Notwithstanding improved performance based on crop increases and higher commidity prices, this P/E ratio would still be high,” it argued.
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