Lembaga Tabung Angkatan Tentera (LTAT) will replace Kuala Lumpur Kepong (KLK) in making an Mandatory General Offer (MGO) to take BPLANT private at RM1.55 per share. This follows the termination of the strategic collaboration agreement (SCA) between LTAT/Boustead Holdings Bhd (BHB) and KLK which originally entailed KLK making the MGO under the SCA. We maintain our call to ACCEPT OFFER at RM1.55 per share.

KLK’s MGO for BPLANT. On 24 Aug 2023, KLK announced that it has entered into an SCA with the controlling shareholders of BPLANT, namely Boustead Holdings Berhad (BHB) and Lembaga Tabung Angkatan Tentera. A highlighted aim of the collaboration was to enhance the “operational efficiencies” of BPLANT. The SCA would also entailed KLK buying a 33%+1 share stake in BLANT from BHB for RM1,146m (RM1.55 per share). KLK will then trigger a Mandatory General Offer (MGO) for the remaining BPLANT shares. In the event BPLANT is taken private, KLK would end up with a 65% controlling block leaving LTAT/BHB with their remaining 35% stake in BPLANT. As BPLANT reported losses for 1HFY23, the consideration was largely arrived at based on asset values rather than earnings driven. At RM1.55 per share, BPLANT was valued at 1.3x P/NTA (which is at a premium to sector PBV) or more likely at RM56K per planted Ha, which is within the sector valuation given the size, quality and prospects of BPLANT, As about half of its estates are pending replanting, the RM1.55 MGO price for BPLANT is around the replacement value for Malaysian plantation land if replanting cost of RM25K per Ha for half the estates is taken into consideration.

Termination of KLK strategic collaboration agreement. BPLANT was informed by BHB and LTAT that the strategic collaboration agreement has been terminated on 4 Oct 2023. KLK also announced likewise. The reason given was the “Condition Precedent under the SCA will not be satisfied by the Cut Off date” of 6 Oct 2023. This did not come as a total surprise as the signing of the agreement had been postponed twice, initially from 11 Sept to 22 Sept and then to 6 Oct.

BPLANT also announced that LTAT is now undertaking the MGO instead of KLK. In a separate announcement, BPLANT stated that LTAT will now step in and continue with the MGO to take BPLANT private at the same offer price of RM1.55 per share as before.

Valuation. On earnings basis, the MGO price of RM1.55 rates BPLANT at 82x FY24F PER which is high. Even on PBV basis, RM1.55 rates BPLANT at 1.3x which is still at a premium to the plantation sector, albeit just not as high as premium as on PER basis. As explained above, the offer price is based closer to current value for plantation land which is reasonable.

Maintain our call to ACCEPT OFFER at TP of RM1.55 which is also the MGO price. We welcome the MGO as it allows BPLANT shareholders to exit at a better valuation than the equity market would have been ready to offer. Many smaller plantation groups typically trade at discounts to even their NTA.

Risks to our call include: (i) abortion of the deal, (ii) lower-thanexpected CPO prices, and (ii) higher-than-expected rise in costs.

Source: Kenanga Research - 5 Oct 2023