The proposed acquisition of a 33% stake in Boustead Plantations (BPlant) from Boustead Holdings at RM1.55/share has fallen through despite the Group having accumulated 36% stake via a series of open market transactions. As a result of the termination, a deposit of RM229m will be refunded to KLK. The trading in KLK shares will be resumed today. There will be no changes to our forecasts as we have not factored in the deal in our earnings projection. Maintain Neutral with unchanged SOP-based TP of RM21.39.

• To recap. Under the deal, KLK had planned to extend a mandatory general offer at RM1.55/share for BPlant in order to raise it shareholding to 65% and to subsequently delist the company. LTAT and Boustead Holdings would have held the remaining 35% upon completion of the exercise.

• A boon or a bane? Generally, we are positive on this unsuccessful acquisition of BPlant. The proposed acquisition not only involves pricey valuation, there will be hefty replanting costs involved for the entire ageing planted area of 33,253ha. In addition, the group’s FFB yield will also be dragged by the weak FFB yield in BPlant over the gestation period. In-short, the collapse in the acquisition of BPlant could potentially save up more than RM2.85bn for KLK. Despite a promise of RM2bn allocation from the Ministry of Finance to help ease BPlant’s burden, the most crucial question is how to turnaround its core plantation business.

• Paring down stake in BPlant. Before the announcement of the termination of the proposed strategic collaboration between KLK, Boustead Holdings and Lembaga Tabung Angkatan Tentera yesterday, KLK has already amassed a total of 36% stake worth RM1.1bn in BPlant via several related parties. However, the fillings did not reveal the identities of any of the sellers. Following the unsuccessful marriage deal, KLK may need to dispose of BPlant shares in the open market, which could trigger weakness in its share price.

Source: PublicInvest Research - 5 Oct 2023