KLK has entered into a share purchase agreement to acquire a 95% stake in PT Putra Bongan Jaya (which owns a 16,062 ha of oil palm plantation landbank in Kalimantan Timur, Indonesia) for RM312m. Upon completion, the acquisition will increase KLK’s total plantation landbank and planted landbank by 6% and 3.4% to 284,600 ha and 230,796ha respectively. We believe the pricing (RM40,000/ha for its plantaed landbank) is fair, using Genting Plantations’ acquisition in Jul-17 as a guide. Maintain earnings forecasts, SOP-derived TP of RM24.18, and HOLD rating on the stock.

NEWSBREAK

KLK has entered into a share purchase agreement to acquire a 95% stake in PT Putra Bongan Jaya (PBJ) from REA (an oil palm plantation company listed on the main market of London Stock Exchange) for RM312m.

PBJ holds to right to cultivate 11,602 ha of oil palm plantation land with Hak Guna Usaha (HGU) title and another 4,460 ha of oil palm plantation land with location permit (IL) in Kalimantan Timur, Indonesia, of which 7,500 ha will be planted with oil palm when the acquisition is completion (expected by 3Q18).

Upon completion, the acquisition will increase KLK’s total plantation landbank and planted landbank by 6% and 3.4% to 284,600 ha and 230,796ha respectively.

HLIB’s VIEW

Pricing wise. Based on our estimates, the latest acquisition translates to a price tag of RM40,000/ha for the planted landbank (assuming the unplanted area is valued at RM2,000/ha). We believe KLK is paying a fair price for its latest acquisition, using Genting Plantations’ acquisition in Jul-17 (which acquired brownfield oil palm plantation land for EV/ha of US$10,400/ha, based on our assumptions) as a guide.

Financial impact wise. Immaterial impact to KLK’s balance sheet and earnings, given its strong balance sheet and large earnings base. The latest acquisition will result in KLK’s net gearing increasing marginally to 0.26x (from 0.23x as at 31 Dec 17).

Forecast. Maintained pending completion of the acquisition.

Maintain HOLD, TP: RM24.18. Maintain HOLD with SOP-derived TP unchanged at RM24.18 (see Figure #1).

Source: Hong Leong Investment Bank Research - 26 Apr 2018