- Kuala Lumpur Kepong Bhd (KLK) announced that it has subscribed for 153.8mil new shares in Equatorial Palm Oil PLC (EPO) at a price of 5 pence/share. Due to this, KLK’s shareholding in EPO has increased from 20.1% to 54.8%.

- Pursuant to the share subscription, KLK will be required to make an offer to acquire all EPO shares not owned by it at a price of not less than 5 pence/share. EPO closed at 5.25 pence/share on the London Stock Exchange yesterday. KLK will make an announcement in due course.

- The 100% ownership of EPO would cost KLK about 17.7 million pounds or RM92.3mil based on the purchase price of 5 pence/share.

- This is not expected to be an issue for KLK as it has gross cash of RM1.8bil as at end-Sept 2013 (FY12: RM2.4bil). Net gearing was 7.7%.

- Based on KLK’s current equity interest of 54.8% in EPO, KLK’s effective interest in Liberian Palm Developments Ltd (LPD) would be 77.4%. EPO holds a 50% stake in LPD presently while KLK owns the balance 50%. Hence if KLK were to own 100% of EPO, KLK would completely own LPD in the future.

- As mentioned in our previous report, LPD has a landbank of 25,547ha in Liberia. Out of these, about 3,750ha are already planted with oil palm.

- Apart from the 25,547ha, LPD has earmarked another 61,111ha for future joint expansion with the local community under a proposed training and out-grower programme.

- We affirm our view that operating conditions in Liberia are challenging due to intense scrutiny from environmental organisations and protests from villagers. As such, we are neutral on KLK’s venture into Liberia.

- We maintain HOLD on KLK. Valuations are no longer compelling as reflected in the group’s FY14F PE of 24x. 

Source: AmeSecurities