PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Oct 2020, 10:11 AM


Kuala Lumpur Kepong- Expanding Footprint in Indonesia

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Kuala Lumpur Kepong (KLK) announced yesterday that it is acquiring a 90% stake in PT Farinda Bersaudara (FB) and PT Teguh Swakarsa Sejahtera (TSS), which own a total plantation landbank of 22,375ha, from TSH for a total cash consideration of USD110.1m (RM459.1m). The proposed acquistion was valued at an EV/ planted ha of USD11,311/ha (RM47,167/ha), which is deemed fair after taking into the consideration of decent age profile and it comes with an oil palm mill. It is also in close proximity to the KLK’s existing estates of 10,000ha in Kutai Barat. Pending the finalization of this proposed acquisition, we maintain Neutral call with an unchanged SOP-based TP of RM24.34.

  • Salient details of the proposed acquisitions. FB, which is valued at USD76.7m (RM319m) has been granted Hak Guna Usaha (HGU) titles, which comprises approximately 12,093ha (expiring in 2045) with another 600ha pending issuance of HGU, located at Kutai Barat, East Kalimantan. A total of 7,842ha is planted, with another 2,838ha plantable area. TSS, which is valued at USD33.4m (RM139m) has been granted HGU, which comprises 10,282ha with another 600ha pending issuance of HGU, located at Kutai Barat, East Kalimantan. A total of 2,974ha has been planted, with another 3,956ha plantable.
  • Seeing the synergies. The proposed acquisition of the two plantation landbank is adjacent to KLK’s existing plantation landbank of 10,000ha in Kutai Barat. The enlarged plantation size will improve the productivity and economies of scale. Upon completion of the acquisition, KLK’s planted area in Indonesia will increase by 10,816ha or 9.3% to 126,116ha. Group’s planted landbank will rise by 5.2% to 217,723ha. However, we think earnings contribution from the proposed acquisition is negligible for the Group in the near-term as the additional FFB production from the proposed acquisition increases the Group’s FFB production by only 5.6% or 231,255mt to about 4.1m mt p.a.
  • Healthy balance sheet to undertake the proposed acquisition. The Group is sitting in a low net gearing position of 0.22x with cash level of RM3.9bn. KLK plans to fund the acquisition through a combination of cash and bank borrowings. Given its healthy gearing position, we think there should not be any financial issue for the Group to gear up its balance sheet for the proposed acquisition.
  • Expected to complete in 1Q 2021. The proposed acquisition is expected to complete by 1Q 2021. As the total cost of the proposed acquisition only makes up 2.2% of KLK’s total assets, it is unlikely that it requires approval from shareholders. However, the proposed acquisition of FB shares and TSS shares are inter-conditional

Source: PublicInvest Research - 27 Aug 2020

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