KLK has signed a JV with AME Elite Consortium Bhd ("AME": Non- Rated) to develop its Ijok estate in Selangor into industrial properties. KLK is getting a decent price for the land and its own nearby township development should stand to benefit as the industrial park matures. We welcome this development but no direct earnings impact is likely until FY26, at the earliest. Maintain our FY24-25F forecasts, TP of RM21.00 and MARKET PERFORM call.

Land price of RM35psf is fair. KLK has entered into a JV agreement with AME on a 40:60 basis, respectively. The JV will pay RM238.5m for 178 acres of freehold land to KLK. The land is still planted with oil palm but is already zoned for property development which is reflected in the higher land price of RM35psf. Typical agriculture land price is priced closer to RM2.00 psf to RM10.00 psf depending on location, access and size.

Near to KLK's existing property developments. Located at Ijok, Selangor and next to the LATAR expressway, the JV land is within KLK's new township development, Caledonia. The JV land is also about 10km to the north (<15min drive) of its older Sg Buloh township, Bandar Seri Coalfields. Launched in 2011, the 1,001-acre Bandar Seri Coalfields is still growing with the ongoing residential launches as well as the opening of Coalfieds Retail Park in early FY26. As such, both Caledonia and Bandar Seri Coalfields should be able to enjoy some spillover gains as the JV's industrial park develops.

More industrial development is likely. The current Ijok JV is likely the start of more industrial property projects ahead for KLK. Earlier, in June 2024, it exercised an option to buy 40% of a JV with UEMS (Not Rated) for RM386m. As the other 60% of the JV already belongs to KLK, the buy-out gives KLK full control over 2,500 acres along the Senai-Skudai corridor in southern Johor which is primed for industrial property.

Regardless of whether KLK will develop the entire 2,500 acres on its own or it will partner with others such as AME, it appears likely that industrial property contribution will become more prominent in KLK's earnings from FY26 onwards.

Forecasts. With the JV land acquisition expected to conclude in late CY25, there is no direct impact on FY24-25 core earnings. However, FY26 should enjoy a one-off disposal gain from the land sold to the JV of RM110-130m, recognising only the 60% portion sold to AME.

No change to FY24-25 earnings estimates.

Valuations. We also maintain our TP of RM21.00 based on 16x FY25F PER and a 5% premium for its 4-star ESG rating.

Investment case. KLK's track record has been good with a defensive balance sheet, and the group is still in expansionary mode. However, its downstream earnings have been facing more headwinds than usual.

Maintain MARKET PERFORM.

Risks to our call include: (i) Western hostility towards palm oil on sustainability and bio-diversity issues, (ii) impact of weather and labour shortages on production, (iii) weak CPO and PK prices, and (iv) cost inflation particularly fertilisers.

Source: Kenanga Research - 1 Nov 2024