KLK has proposed to acquire TensaChem SA, a surfactant manufacturer which operates on a 10ha site on the outskirts of Liege, Belgium, for MYR70.4m. As there were no details on the size and profitability of the plant, we find it hard to gauge if the price is reasonable. Nonetheless, we think the outlay is relatively small and the impact is unlikely to be significant.  
 
Acquiring Belgian surfactant manufacturer.  Kuala Lumpur Kepong (KLK) has entered into an agreement to acquire the entire stake of Belgium-based TensaChem SA for EURO16.2m (MYR70.4m) from four parties. TensaChem is a surfactant supplier for the home-care and personal care sectors, with the manufacturing of alcohol ether sulphates, alcohol sulphates and sulphonic acids comprising approximately 96% of its business. TensaChem’s operations are based on a 10ha site on the outskirts of Liege, Belgium. This acquisition will be funded by KLK’s internally-generated funds and is expected to be completed within two months.  

No details on size/profitability of plant.  As there were no details on the size and profitability of the plant, we find it hard to gauge if the price paid is reasonable. According to the announcement, the acquisition price was based on the current and projected earnings of the TensaChem Group. We understand that the company has been operating on the same site for 40 years, which could mean that this is a sustainable business.  

No funding issues. KLK should have no issues funding this acquisition, given its net marginal net gearing of 16.9% as at end-March 2014. We make no changes to our forecasts at this juncture until we get a clearer picture of potential earnings contribution from this acquisition. While KLK remains a solid, well-focused plantation company with good growth prospects from its new downstream facilities – which should continue to come onstream in FY14-15 – coupled with higher CPO prices, we deem its valuations a bit rich. We maintain our SOP-based FV of MYR26.00 and our NEUTRAL recommendation.

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Source: RHB