Journey to Wealth
KL Kepong - To acquire 7,400ha of land in East Kalimantan Buy
- Kuala Lumpur Kepong Bhd (KLK) has proposed to acquire a90% shareholding in PT Global Primatama Mandiri for Rp10.8bil or RM3.6mil.
- PT Global holds a 'Hak Izin Lokasi' to develop 7,400ha ofland in East Kalimantan into oil palm estates.
- We view this development positively as it would expand thegroup's plantation landbank.
- It appears that Malaysian companies have not faced anyproblems expanding in Indonesia in spite of the two-year moratorium on newpermits to clear land.
- Recall that the moratorium was signed in Indonesia in May2011 but took effect retrospectively from 1 January 2011.
- This means that the moratorium would expire at the end ofthis year.
- The proposed acquisition of the landbank would increaseKLK's plantation landbank in Indonesia from 139,126ha to 146,526ha.
- Currently out of KLK's 139,126ha of landbank in Indonesia,about 69% or 96,110ha have already been planted with oil palm trees.
- There would not be any earnings contribution from the newlandbank as it takes about three years for oil palm trees to bear fruits.
- Presently, KLK's operations in Indonesia account for abouta third of its plantation revenue.
- KLK's acquisition price of RM3.6mil translates intoRM486/ha, which is fair. In February 2012, CBIP had proposed to acquire22,754ha of land in Central Kalimantan at an estimated price of RM703/ha.
- We maintain a BUY on KLK as it is a proxy to rising CPOprices. KLK's plantation production cost is also efficient at RM1,100/tonne toRM1,200/tonne.
Source: AmeSecurities
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