- Kulim Bhd has requested for its shares to be suspended from 9.00 am until 12.30 pm today pending a material announcement.

- According to The Edge Financial Daily, Kulim may be increasing its stake in New Britain Palm Oil Ltd (NBPOL). However, the report said that it would not be privatised. In contrast, The Star reported that Kulim may privatise NBPOL.

- In the longer-term, a higher shareholding in NBPOL would allow Kulim to recognise more of NBPOL’s earnings. Currently, Kulim’s 48.97% stake in NBPOL only allows it to equityaccount the latter’s profits.

- The quality of NBPOL’s oil palm estates in Papua New Guinea (PNG) and Solomon Islands is decent. FFB yield of the trees in PNG was 23.6 tonnes/ha in FY12 while that of the trees in Solomon Islands was 25.7 tonnes/ha. Oil extraction rate recorded by the plantation division in PNG was 22.4% in FY12.

- In addition, NBPOL enjoys preferential duty treatment for its palm oil exports to the European Union (EU). Duty exemption for CPO exported from PNG is about 3.8%.

- However in the short-term, NBPOL’s earnings are expected to be unexciting. In 1QFY13, NBPOL was affected by extremely wet weather, which resulted in a 6.1% decline FFB processed. The group reported a pre-tax profit of US$4.8mil in 1QFY13 versus US$34.1mil in 1QFY12. NBPOL’s FFB production fell 8.6% in FY12 due to the same reason.

- Based on Bloomberg consensus estimates, NBPOL is currently trading at a FY14F PE of 14.4x compared with Kulim’s PE of 17.5x.

- Based on NBPOL’s current price of GBP4.80/share, we estimate that it would cost Kulim about GBP14.6mil (RM71.9mil) to increase its shareholding in NBPOL to 51%. If Kulim were to privatise NBPOL, then it would cost the group GBP367mil or RM1.8bil.

- As at end-March 2013, Kulim was in a net debt of RM1bil. Based on shareholders’ funds of RM4.3bil, this translates into a net gearing of 23.4%.

- We maintain a HOLD on Kulim pending more details of the announcement.

Source: AmeSecurities