KLK  announced  that  its  wholly-owned  subsidiary,  KL-Kepong  Plantation Holdings  had  on  21  Nov14  entered  into  a  conditional  share  subscription agreement  to  subscribe  for  a  63%  equity  interest  in  PT  Industrian  Sawit Synergi  (JV  Co)  for  a  total  cash  consideration  of  IDR50.4bn  or approximately RM13.8m. The remaining 32% and 5% equity interest in JV Co  will  be  held  by  Gunaria  (for  a  cash  consideration  of  approximately RM6.9m),  a  wholly-owned  subsidiary  of  IJMP,  and  Mujib  Moosa  Modak respectively. KLK, IJMP and Mujib will collaborate via JV Co to establish a palm  oil  refinery  and  other  downstream  businesses  at  a  site  in  East Kalimantan.  The  proposed  transaction  is  expected  to  be  completed  in 4Q15.

Comment:  The  proposed  transaction  will  be  IJMP’s  first  venture  into  the refinery business. The JV will allow the group to leverage on the expertise of  the  KLK  Group  in  the  downstream  business  as  well  as  help  to  narrow CPO price discount and enhance value added. However, with the proposed transaction expected to be completed in 4Q15,  we maintain our forecasts for KLK and IJMP pending completion as well as guidance on total capex, capacity and production commencement.

Maintain ADD rating for KLK (TP RM23.04). Our ADD rating for IJMP  (TP  RM3.63)  is  under  review  pending  the  release  of  its 2QFY15 results tomorrow evening.

Source: Affin Hwang Capital Research - 24 Nov 2014