KLK
KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Kuala Lumpur Kepong (KLK) and sum-of-parts based target price of RM27.15 per share.
KLK is buying 95% of PT Putra Bongan Jaya (PT PBJ) from REA Holdings’ (RE LN) subsidiary, PT REA Kaltim Plantations.
PBJ is an Indonesian company which owns oil palm plantations in East Kalimantan, Indonesia.
At the completion of the sale, it is projected that 7,482 ha of land will have been planted by PBJ for its own use, of which 810 ha will be mature and the balance immature. The proposed acquisition is expected to be completed in 3Q18.
The purchase consideration is arrived at based on valuation of US$80m (RM312m) for PBJ’s land and plantation on a 100% basis.
This puts the acquisition price for its 95% stake at RM296.4m, but this will be adjusted on completion based on PBJ’s working capital, borrowings and other balance sheet items
“We expect the acquisition to dilute KLK’s earnings by 1%-2% for FY19 but are keeping our earnings forecasts unchanged pending the completion of the deal.
“We view the acquisition price for the planted estates, which we estimate to be US$10,692 per ha, to be fair as it is only marginally higher compared to the valuation of US$10,500 per ha of planted area that PT Dharma Satya Nusantara paid in 2016 when it acquired a 15% stake in REA Kaltim,” said the research house.
CIMB Research said the acquisition price of US$10,000 per ha may appear low relative the enterprise value/ha of US$12,000 that Genting Plantations paid to acquire 12,900 ha of estates in Indonesia in 4Q17.
“We attribute this to the higher immature ratio for the total planted area of 89% for this acquisition vs. the estates acquired by Genting Plantations of only 10.4%.
“The estates posted losses of US$200,000 in 2017 and given that the bulk of the estates are immature, we do not expect the estates to contribute positively to KLK in the near term.
“KLK should have no problem funding the acquisition as it has a comfortable net gearing ratio of 20.8% as at 30 Sep 2017.
“The acquisition will raise the group’s combined planted oil palm area by 3.6% to 218,541 ha and planted oil palm area in Indonesia by 6.7% to 119,246 ha,” said CIMB Research.
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