KLK has proposed to acquire Emery Oleochemicals’ German assets and business for MYR62m. As there were no details given on the size of the plant and its profitability, it would be difficult for us to gauge if the pricing is fair. We keep our NEUTRAL recommendation and SOPbased TP of MYR22.00 (5% upside) at this juncture.

• Proposes to acquire Emery’s German assets. Kuala Lumpur Kepong (KLK) has entered into a conditional asset purchase agreement to acquire – for cash – Emery Oleochemicals GMBH’s (Emery) assets and business in Hotlhausen, Dusseldorf, Germany for EUR40.3m (MYR162m). Emery is owned by Emery Oleochemicals Malaysia, through Emery Oleochemicals UK Ltd, which is in turn held in equal share by Sime Darby Plantation SB and PTT Chemical International Private Ltd, which is a subsidiary of PTT Global Chemical (PTTGC TB, BUY, TP: THB73.20). KLK expects this acquisition to be completed in 3Q15.
• Adding to KLK’s existing oleochemicals operations in Germanuy. The rationale for this acquisition is to complement KLK’s existing fatty acids and glycerine business as well as allow it to diversify into the tallow -based market. KLK already has operations in Germany via Uniqema Germany, which it acquired in 2011.
• No details given. It is difficult to comment on pricing of this acquisition, as there were no details given on size of plant or historical profits. We understand that Emery Oleochemicals Malaysia is generally lossmaking, but are unsure if this applies to its German unit. We will be clarifying with management on further details of this proposed acquisition.
• Still NEUTRAL. Meanwhile, we maintain our SOP-based TP ofMYR22.00. We believe valuations are fair at this juncture and maintain our NEUTRAL stance on the stock. We also highlight that every MYR100/tonne change in CPO price could affect KLK’s net profit by 4-6% pa.