- Kulim Bhd has proposed to acquire a 75% equity interest in PT Wisesa Inspirasi Nusantara (PT Win) for US$43.4mil (RM141.6mil).

- PT Win owns four parcels of greenfield landbank measuring up to 40,645ha in Central Kalimantan. The parcels of landbank are adjacent to one another.

- The landbank has Hak Izin Lokasi and plantation business permit.

- We view the proposed acquisition positively as the expansion of landbank would help sustain Kulim’s long-term profitability. Kulim’s landbank would grow by 22% to about 224,741ha in total.

- However, earnings contribution from the new landbank would not be immediate as it takes about three years for oil palm trees to bear fruits.

- Back in 2008, Kulim disposed its plantation assets in South Sumatra, Indonesia due to poor returns and challenging operating conditions. Kulim’s planted landbank in Indonesia was about 21,227ha then.

- It appears that the group is now venturing back to Indonesia. This is not surprising given the scarcity and high price of palm oil land in Malaysia.

- Based on the shareholding of 75% equity interest, we estimate that the purchase consideration of PT Win’s landbank would translate into US$1,425/ha (RM4,645/ha).

- This is slightly higher than Felda Global’s estimated purchase price of RM3,330/ha for 8,193ha of land in Landak, West Kalimantan in July 2013.

- Financing the acquisition is not expected to be an issue. Kulim’s net gearing stood at 45.5% as at end-June 2013. Cash and cash equivalents amounted to RM424.3mil. Planting cost until maturity is estimated at RM18,000/ha to RM20,000/ha.

- We maintain a HOLD on Kulim. The group is currently trading at a FY14F PE of 21.3x.

Source: AmeSecurities