• Kuala Lumpur Kepong (KLK) has proposed to acquire two companies with planted areas of 6,371ha in East Kalimantan for RM276.5mil. The seller of the companies is Batu Kawan, which owns 47.2% of KLK.

• The planted areas are located close to KLK’s oil palm estates in East Kalimantan. The proximity to KLK’s estates will boost operational efficiencies of the group’s operations in East Kalimantan.The acquired oil palm estates will also provide feedstock to KLK’s new refinery and oleochemical plant in East Kalimantan.

• KLK will be assuming borrowings of RM99.9mil pursuant to the proposed acquisition. Apart from oil palm estates, one of the acquired companies also owns a RSPO-certified palm oil mill, which has a processing capacity of 60 tonnes/hour.

• We are neutral on the proposed acquisition as the size of the landbank is small. We think that the proposed acquisition would improve KL’s FY25F net profit by 1%. KLK’s planted areas would expand by 2% to almost 300,000ha.

• Based on the planted areas and attaching a value of RM60mil to the palm oil mill, we estimate that KLK is acquiring the landbank at RM53,492/ha. KLK said an independent valuer had valued the land at US$12,400/ha or RM57,660/ha.

• In November 2023, MP Evans acquired 8,350ha of planted land in East Kalimantan for RM35,855/ha. The details of MP Evans’ landbank were not disclosed.

• The proposed acquisition is expected to be completed in 4Q2023. KLK is not expected to face issues financing the acquisition as it has cash reserves of RM2.5bil.

• We maintain BUY on KLK with a fair value of RM25.20/share. Our fair value of RM25.20/share is based on a FY24F PE of 18x, which is the 5-year mean for big-cap planters. KLK is currently trading at a FY24F PE of 15x, which is its 2-year average.

Source: AmInvest Research - 15 Dec 2023