Investment Highlights

• Acquiring ESN for Euro 39.0m (or RM187.2m)

• Neutral on the deal

• Earnings estimate maintained

• Maintain BUY with TP of RM29.00

Acquiring ESN for Euro 39.0m (or RM187.2m). Kuala Lumpur Kepong (KLK) has proposed to acquire Elementis Specialties Netherlands B.V. (ESN) for Euro 39.0m (or RM187.2m). Note that ESN is mainly involved in the manufacture of surfactants. We gather that surfactant is one of the chemicals in detergent which in turn is an oleochemical product. Expected completion date of the deal is 1HCY2018.

Neutral on the deal. KLK intends to use ESN’s site located at Delden, Netherlands as another hub for the Group’s market penetration strategy. This should strengthen KLK’s downstream chemical specialties business in Europe. We are neutral on the deal as we do not expect significant earnings impact in both FY18 and FY19 as the primary driver for downstream segment profitability is still the raw material costs. Funding is not an issue as KLK has cash of RM2.04b with low net gearing of 0.21x.

Earnings estimate maintained. Our FY18 CNI is maintained at RM1.15b. We also maintain our FY19 CNI forecast of RM1.33b.

Maintain BUY with TP of RM29.00. The TP is based on Forward PE of 26.8x (+1.0SD Valuation). Maintain BUY on KLK due to its high exposure to palm oil business and good track record of earnings delivery.

Source: MIDF Research - 13 Dec 2017