PETALING JAYA: Kuala Lumpur Kepong Bhd
’s (KLK) proposed acquisition of a 33% stake in Boustead Plantations Bhd (BPlant) is expected to be slightly earnings dilutive over the short term.
Nevertheless, the deal would still be beneficial for the plantation giant over the long term, given BPlant’s asset-rich status, says Maybank Investment Bank (Maybank IB) Research.
As such, the brokerage said it was “short-term neutral” but “long-term positive” on the purchase.
Last week, KLK proposed to buy 33% and one share in BPlant for a total of RM1.15bil or RM1.55 per share, with plans to take the company private via a mandatory general offer (MGO) later.
Maybank IB Research said the offer price worked out to an expensive 66 times forward price-earnings ratio. This would make the purchase slightly earnings dilutive for KLK if BPlant stopped its practice of monetising land to supplement its core income.
“Based on our back-of-the-envelope calculation, this acquisition can cause up to 3.5% in earnings per share dilution for KLK,” Maybank IB Research said.
“However, KLK has the option to monetise some of BPlant’s strategic land via land disposal should there be a need to supplement its core income, or even to deleverage,” it added.
Separately, Maybank IB Research cut its earnings forecasts for KLK for the financial year ending Sept 30, 2023 (FY23) by 22% after a disappointing performance in the third quarter. It, however, raised its FY24 and FY25 forecasts for KLK by 4% and 2%, respectively.
Maybank IB downgraded KLK to a “hold” from a “buy” previously. It also cut its target price (TP) for the counter to RM23 a share from RM23.90 previously.
Meanwhile, TA Research also lowered its FY23 earnings forecast for KLK by 18.3% after factoring in lower contributions from the manufacturing division and associates, as well as higher production costs.
However, it raised its FY24 and FY25 earnings forecasts for KLK by 2.3% and 1.6%, respectively, on anticipation of better yield and crude palm oil production.
TA Research maintained its “sell” call on KLK, with a TP of RM21.28 a share.
The brokerage said KLK’s proposed acquisition of a 33% stake in BPlant would unlikely be earnings accretive in the short term factoring in the finance cost and based on BPlant’s ageing oil palm age profile with 46% past prime trees at its planted area.
“Assuming 80% debt financing and 20% from internal funds, our back-of-the-envelope calculation reveals that the acquisition would increase KLK’s net gearing to 0.6 times, which is still manageable, in our view,” TA Research said.
Hong Leong Bank Investment (HLIB) Research said it was “neutral” on KLK’s investment in BPlant, as it did not expect the acquisition to be earnings accretive at least in the near-to-medium term, given BPlant’s low earnings, and interest expense from the acquisition.
Besides, it noted that about 45% of BPlant’s planted areas were aged above 20 years, which would be due for replanting in the near-medium term.
HLIB Research maintained a “hold” call on KLK with a TP of RM22.68 a share.
It cut its FY23 core net profit forecasts for KLK by 14.3%, 4.2% for FY24 and 4.3% for FY25, mainly to account for lower fresh fruit bunch yield assumption at the plantation segment and lower margin assumption at the manufacturing segment.
