Journey to Wealth
Kuala Lumpur Kepong - Acquires land in PNG Buy
- Kuala Lumpur Kepong Bhd (KLK) has proposed to acquire a 51% equity interest in a company, which has plantation land in Papua New Guinea (PNG).
- The purchase consideration for the 51% shareholding is US$8.7mil (RM26.9mil). Batu Kawan, KLK's holding company will also own an 18% equity interest in the acquired company.
- Collingwood Plantations Pte Ltd owns about three parcels of land measuring 44,342ha in PNG. Two of the parcels are contiguous while the third parcel is about 10km away.
- We view the proposed acquisition positively as it would expand KLK's plantation landbank. In the Bursa Announcement, KLK said that the proposed acquisition presents an opportunity to develop new plantations in PNG in view of the difficulty in sourcing suitable land in Malaysia and Indonesia.
- Grossing up the purchase consideration to 100% ownership, we estimate that KLK would be paying about RM1,188/ha for the greenfield plantation land in PNG. In Malaysia, the acquisition cost of greenfield land is between RM5,000/ha and RM7,000/ha.
- Two parcels of the land measuring 38,350ha are subleased from natives customary groups.
- Assuming a planting cost of US$6,000/ha, we estimate that it would cost KLK RM91.5mil to develop 5,000ha of land every year.
- Generally, most of plantation land in PNG is fertile. In FY11, Kulim Bhd's PNG plantation division recorded an FFB yield of 25.5 tonnes/ha and an oil extraction rate of 22.9%. Average age of Kulim's oil palm trees in PNG is about 11-12 years old.
- We maintain a BUY on KLK as it is a big-cap plantation proxy. It is also one of the more efficient producers of palm oil as reflected in its operating cost of RM1,300/tonne.
Source: AmeSecurities
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