KLK has entered into a conditional share sale and purchase agreement to acquire a 60% stake in PT Pinang Witmas Sejati (PWS, which owns 14,160 ha of oil palm plantation land and a 90mt/hr palm oil mill in South Sumatera) for RM341.55m, Upon completion (expected by 3Q 2020), the acquisition will increase KLK’s planted land bank by 6.6% to 227,537 ha. We note that the estimated price tag of RM34k/ha for its planted landbank is lower than its previous brownfield land acquisition in 2018 (at circa RM40k/ha for the planted landbank). Maintain earnings forecasts, SOP-derived TP of RM22.82 and BUY rating on KLK.

KLK (through its wholly-owned subsidiary, Taiko Plantations Pte. Ltd) entered into a conditional share sale and purchase agreement with Ladang Lekir Sdn. Bhd. to acquire a 60% stake in PT Pinang Witmas Sejati (PWS) for RM341.55m.

PWS has planted area of 14,160ha and a 90mt/hr palm oil mill. PWS is involved in the operation of oil palm plantation business, and has been granted 2 Hak Usaha Guna (HGU) titles for total land bank of 14,980 ha at Desa Mangsang, Kecamatan Bayung Lencir, Kabupaten Musi Banyuasin, South Sumatera, Indonesia. Of the total HGU land title, 14,160 ha of HGU land is planted, and there is also a 90mt/hr palm oil mill. The land is located approximately 167 km by road northwest of Palembang (the capital of South Sumatera Province). The terrain of the land is mostly flat to undulating, and the soil (with proper drainage/water management systems) and climate conditions are suitable for oil palm cultivation. Upon completion (expected by 3Q 2020), the acquisition will increase KLK’s planted land bank by 6.6% to 227,537 ha.

HLIB’s VIEW

Price tag wise. Based on our estimates, the latest acquisition translates to a price tag of RM34k/ha for the planted landbank (assuming the unplanted area is valued at RM2,000/ha and palm oil mill is valued at RM90m). we note the price tag is lower than its previous brownfield land acquisition in 2018 (at circa RM40k/ha for the planted landbank).

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 to 0.28x (from 0.25x as at 31 Dec 2019).

Forecast. Maintained pending completion of the acquisition.

Maintain BUY, TP: RM22.82. Maintain BUY rating, with unchanged SOP-derived TP of RM22.82 (see Figure #1).

Source: Hong Leong Investment Bank Research - 27 Apr 2020