-  The Press reported that Felda Global Ventures Holdings Bhd (FGV) may be interested in acquiring New Britain Palm Oil Ltd (NBPOL), which is 48.97% held by Kulim Bhd.

-  Depending on pricing, we believe that the proposed acquisition would be positive for FGV and negative for Kulim.

-  Excluding the one-off gain on disposal, Kulim’s earnings would fall by more than 30% in FY15F if it were to dispose NBPOL.

-  On the upside, Kulim will be flushed with cash. We think that the group would most likely declare special dividends, which would benefit its parent company, Johor Corporation.

-  If FGV were to acquire Kulim’s 48.97% stake in NBPOL, it would cost the group about 299.4mil pounds or RM1.6bil based on NBPOL’s closing price of 407.50 pence.

-  We estimate that FGV’s earnings would rise by 5%-10% in FY15F. NBPOL is currently trading at an FY15F PE of 11.5x while FGV’s PE is 17.6x.

-  FGV’s planted area would increase from 373,375ha to 451,717ha if it were to consolidate NBPOL. NBPOL would also help reduce the average age of FGV’s oil palm trees, which stands at 16.7 years currently. As at end-FY12, average of NBPOL’s oil palm trees was 10.6 years in Papua New Guinea and 13.5 years in Solomon Islands.

-  We are unsure if FGV would be able to privatise NBPOL even if it succeeds in buying over Kulim’s stake in the company. In 2013, Kulim’s proposed takeover of NBPOL was met with hostility from the directors of NBPOL and the PNG government.

-  Although Kulim had received acceptances for its takeover offer, the Securities Commission of PNG issued a restraining order on Kulim from acquiring any shares in NBPOL.

-  In addition, the PNG government issued an amendment to the Takeovers Code preventing a takeover of a company where the takeover is deemed to be contrary to the national interest of PNG.

-  Maintain HOLD on FGV and SELL on Kulim.

Source: AmeSecurities