INVESTMENT HIGHLIGHTS

• Subscribing to a 75% stake in PTPSS for RM48.8m

• PTPSS will build palm refinery and palm kernel crushing plant

• We are neutral on the news

• Maintain BUY with TP of RM29.00

Subscribing to a 75% stake in PTPSS for RM48.8m. Kuala Lumpur Kepong Berhad (KLK) has subscribed to a 75% stake in PT Perindustrian Sawit Synergi or “PTPSS” for Rp. 165.0b (approximately RM48.8m). For the remaining stake, 20% will be subscribed by IJM Plantations subsidiary and the remaining 5% to be subscribed by individual shareholders.

PTPSS will build palm refinery and palm kernel crushing plant. PTPSS will build, own and operate an integrated oil palm refinery complex which comprises a new oil palm refinery plant and a new palm kernel crushing plant.

We are neutral on the news. We expect limited near term earnings impact as it should take up to 2 years to build oil palm refinery plant. We gather that the palm kernel crushing plant is likely to be built after 2 years. Hence, we maintain our earnings estimate for FY18 and FY19. Net gearing impact is minimal as we expect it to stay at 0.23x.

Aiming for 5% FFB growth in FY18. Separately, we gather that KLK is aiming for 5% Fresh Fruit Bunch (FFB) growth in FY18 in our meeting with the Company on 23-March. For the first 5 months of FY2018, KLK FFB production has increased 1% yoy to 1.66m tonnes. Looking ahead, FFB production should continue to improve due to its young estate in Indonesia. Other key points from the meeting are included in Page 2.

Maintain BUY with TP of RM29.00. Our TP is based on Forward PE of 26.8x (+1.0SD Valuation). Maintain BUY on KLK for its earnings resiliency and decent dividend yield of 2.5%.

Source: MIDF Research - 27 Mar 2018