• Kuala Lumpur Kepong (KLK) has proposed to acquire a 95% equity interest in PT Putra Bongan Jaya for US$80mil or RM312mil cash.

• PT Putra Bongan has: (1) the HGU (Hak Guna Usaha) land title for 11,602ha of oil palm land at Kutai Barat, East Kalimantan; and (2) Hak Izin Lokasi for the development of 4,460ha of land into oil palm plantations also at Kutai Barat, East Kalimantan.

• The two parcels of land are generally flat, and the soil and climate conditions are suitable for oil palm plantations. The two parcels of landbank are also located about 165km west of Samarinda and 260km northwest of Balikpapan.

• According to the Bursa announcement, about 7,500ha of land at the two areas will be planted by 3Q2018. The landbank have been partly planted with oil palm since 2009.

• We are positive on this development as the pricing of land is reasonable and the landbank would help contribute to KLK’s net profit in the long term.

• In the immediate term however, we believe that earnings contribution would be negligible due to the small size of the land and young age of the trees. The exact breakdown of the age profile of the oil palm trees was not disclosed in the Bursa announcement.

• Based on the planted area of 7,500ha and assuming there are no borrowings, we estimate that the purchase consideration would come up to US$10,667/ha.

• We believe that this is fair. MP Evans paid about US$13,200/ha for 7,400ha of planted area in East Kalimantan in August 2017. Genting Plantations paid an EV (enterprise value) of US$15,196/ha for 12,893ha of planted land in South Kalimantan in August 2017.

• Maintain HOLD on KLK with a fair value of RM25.50/share.

Source: AmInvest Research - 26 Apr 2018