Investment Highlights

• We maintain HOLD on KL Kepong (KLK) with an unchanged fair value of RM23.85/share. Our fair value of RM23.85/share is based on a FY24F PE of 18x, which is the 5-year mean for big cap planters. We ascribe a 3-star ESG rating to KLK.

• There are no changes to our earnings forecast for KLK as we did not account for the acquisition of Boustead Plantations (BPlant).

• We positively view the termination of KLK’s proposed strategic collaboration with Boustead Holdings and LTAT.

• The acquisition of BPlant would have reduced KLK’s net profit by 3%-5% due to BPlant’s high costs of production and low FFB yields. BPlant recorded net losses of RM5.5mil in 2QFY23 and RM0.3mil in 1HFY23.

• KLK’s net gearing would have also gone up to almost 60% if the take-over of BPlant had gone through.

• Yesterday, KLK announced that the conditions under the proposed strategic collaboration would not be met by the cut-off date on 6 October.

• As a result of the termination, Boustead Holdings will return the deposit of RM229.2mil to KLK.

• Recall that KLK proposed to acquire a 33% equity stake and 1 share in BPlant from Boustead Holdings for RM1.1bil or RM1.55/share. Following this, there would have been a MGO for all remaining shares in BPlant not owned by KLK.

• The take-over price of RM1.55/share for BPlant would have implied an EV of RM57,591/ha. The market price of a prime oil palm estate ranges from RM70,000 to RM100,000/ha.

• KLK is currently trading at a FY24F PE of 16x, which is marginally higher than its 2-year average of 15x.

Source: AmInvest Research - 5 Oct 2023