Journey to Wealth
KL Kepong - To sell Crabtree & Evelyn for US$155mil Buy
- Kuala Lumpur Kepong Bhd (KLK) has proposed to dispose ofCrabtree and Evelyn for US$155mil or RM465mil to Khuan Choo InternationalLtd.
- According to the Bursa Announcement, Khuan ChooInternational is an investment holding company incorporated in Hong Kong.
- However upon checking, we gather that there is also aKhuan Choo Group, which is part of the Malton Group of Companies.
- We view the proposed disposal of Crabtree and Evelynpositively as it would allow KLK to exit the business, which is not part of itscore activities of plantations and oleochemicals.
- The retailing business has been challenging. The U.S unitof Crabtree and Evelyn came out of Chapter 11 bankruptcy in January 2010.
- The unit restructured by closing down 35 stores in U.S.and launching an e-commerce website.
- Since then, Crabtree and Evelyn had turned around. Thedivision swung from losses of RM77.5mil in FY09 to EBIT of RM31.2mil in FY10and RM22.9mil in FY11. We believe that most of the division's earnings aredriven by its stores in Asia Pacific.
- The selling price of US$155mil or RM465mil for Crabtreeand Evelyn translates into a P/BV of 1.3x. This is based on the division's netasset value of RM353.3mil as at end-September 2011. In PE terms, the disposalprice of US$155mil (RM465mil) would be about 37x FY11 earnings.
- For FY12F, we had forecast the division's EBIT atRM23.9mil. The interest income from the disposal proceeds of Crabtree andEvelyn would partly mitigate the loss of earnings from the division.
- KLK would enjoy a one-off gain of RM123mil from thedisposal of Crabtree and Evelyn.
- We maintain a BUY on KLK as it is a proxy to rising CPOprices. We expect CPO prices to remain resilient underpinned by slower supplygrowth of palm oil and soybean in 2012F.
Source: AmeSecurities
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