KL Kepong (KLK) has  entered into  an unconditional agreement to dispose of its 100% stake in personal careretail chain Crabtree & Evelyn (C&E) for USD155m. The disposal willresult in a one-off gain of USD41m in FY12.

We are not surprised by this move  as management has hintedseveral years ago that it intends to sell C&E, but not at bargain prices.Some two years ago, KLK revamped C&E's operations globally in an attempt toshore up its profitability before selling it. We applaud management for bitingthe bullet and exiting a non-core business, as well as the patience to do whatwas necessary to maximize value from C&E.

The  group said  it will deploy the proceeds to expanding itsplantation operation  and/or oleochemicalssegment. Separately, KLK also announced last night that it is buying a 90% stakein PT Global Primatama Mandiri (GPM) for RM3.6m. GPM holds izin lokasi(location rights) for 7,400 ha in East Kalimantan. Assuming a cost of plantingto maturity of USD6,000 per ha, the project will cost KLK some USD45.6m. Hence,the USD115m proceeds from C&E will allow KLK to add some 18,500 ha of oilpalm plantation to its stable over time, if developed from green field.

Maintain Neutral onKLK as the stock is trading near our fair value.

Source: OSK188