Kuala Lumpur Kepong - Buying Out Johor Property JV Partner

Price Target: 
Price Call: 
Last Price: 
-0.36 (1.69%)

KLK is buying out the remaining 40% stake in a property development JV in Johor with UEMS (Not Rated) for RM386m. We believe the valuation is undemanding. With full control, KLK will have greater flexibility in rolling out the project. Given the immaterial earnings impact of c.1%, we maintain our forecasts, TP of RM21.00 and MARKET PERFORM call.

KLK has exercised an option to buy the remaining 40% in Aura Muhibah Sdn Bhd (AMSB) from JV partner UEMS for RM386m. UEMS and KLK initially entered into a 60:40 JV to develop Fraser Metropolis in Feb 2014. Located in the Senai-Skudai area of southern Johor, Phase 1 of the project was to cover 2,500 acres with an estimated GDV of RM15b over 15-20 years. In Oct 2020, UEMS sold a 20% stake in the JV to KLK for RM186m. As at end-FY23, KLK carried AMSB’s 2,500 acres (1,012 Ha) at RM901m (based on a 2016 valuation).

At RM9 per sq ft (psf), the valuation appears to be undemanding as compared with RM13.50 psf Senibong Island Sdn Bhd (reportedly linked to tycoon Tan Sri Syed Mokhtar) paid SPSETIA (UP; TP: RM0.85) for a piece of 959.7-acre land in neighbouring Tebrau recently. The acquisition will increase KLK’s net gearing to 0.59x (from 0.56x) that is still manageable.

KLK owns 20,106 Ha in Johor including an operating oil palm estate in Kulai, Ladang Fraser (1,915 Ha), near to AMSB land. As such with full control over AMSB, KLK will have much more flexibility over the future of AMSB’s land, be it for property development as intended, solar farming or even for agriculture purposes.

Forecasts. Maintained given the immaterial earnings impact, i.e. c.1%.

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 - 19 Jun 2024

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