KL Kepong; Hold; RM23.40
Price Target: RM24.00; KLK MK

KL Kepong announced yesterday that it has proposed to dispose of its entire global Crabtree & Evelyn business via the sale of its 100% equity in CE Holdings for a purchase consideration of US$155m. CE Holdings is the investment holding company of KLK's retailing business which is involved in the manufacturing, retailing and distribution of personal care products under the brand name 'Crabtree &
Evelyn'.

The proposed disposal is expected to complete within 3 months and will be settled in cash. It will result in a gain on disposal of US$41m (11.5sen/share) in FY12. We are neutral on the proposed disposal given the minimal contribution of its retailing business (1% of FY11 EBIT). Nevertheless, the management will be able to focus on its core plantation and oleochemical businesses with the proposed disposal of its retailing business which yields lower returns.

In a separate announcement, KLK has proposed to acquire 90% of PT Global Primatama Mandiri (PT GPM) for RM3.6m. PT GPM holds certificate of Izin Lokasi for 7,400 ha in Kecamatan Kelay, Kabupaten Berau, Kalimantan Timur. The transaction translates into US$162/ha which is a relatively good deal for green field plantation land which typically ranges between US$300-500/ha in Indonesia. The proposed acquisition is subject to the procurement of the plantation business license (Izin Usaha Perkebunan) and is estimated to
complete within 12 months. While the proposed acquisition will increase its limited plantable reserves of 22,000 ha currently, KLK will still have relatively weaker FFB growth prospects in the near term due to its large base.

No change to our core earnings forecast. We maintain our Hold call and RM24.00 DCF-derived TP. Its oleochemical division is likely to post lackluster performance in the near term due to Indonesia's export tax structure which has severely affected Malaysian oleochemical players' competitiveness as their Indonesian peers currently enjoy c.15% lower raw material costs.

Source: HwangDBS Research 21 March 2012