Kuala Lumpur Kepong (KLK) announced that it has established a 40:60 joint-venture (JV) company with industrial park specialist AME Elite to make an inroad into industrial property development in Ijok, Selangor with a net development area of 151.2 acres. Under the deal, KLK is expected to recognize a lucrative one-off gain of more than RM200m from the land disposal. We deem the collaboration a synergistic move for both parties, as they can ride on each other's strengths to unlock the asset value. It also helps to broaden its property contribution. Separately, the 4QFY24 results are expected to be released on 26th Nov 2024. Maintain Neutral with an unchanged SOP-based TP of RM21.33.

• Salient details of the proposed JV. Under the deal, the 60:40 JV company named Oasis Innovation S/B, is jointly owned by AME Elite and KLK, respectively. The JV company will acquire two parcels of land in Ijok with a net development area of 151.2 acres from KLK for RM230.54m or RM35 psf. The land, previously used for oil palm plantations, is located along Latar Expressway near its existing Bandar Seri Coalfields project in Sungai Buloh, Selangor. The JV industrial development project will involve the construction of ancillary facilities and buildings and may include worker dormitory development and/or commercial development components.
• Expecting to recognise lucrative land disposal gain. The land disposal deal, expected to be completed by 3Q 2025, could see a lucrative gain given that the land has been sitting on an estimated book value of RM0.37 psf. Based on our preliminary calculations, it could book a one-off gain of more than RM200m, which is nearly an astonishing gain of 100-fold. After taking into account the establishment of JV, KLK is set to pocket RM138.3m in proceeds, which will help to lower its net gearing level to 0.53x.
• A win-win deal. We deem the collaboration a synergistic deal for both parties, as they can rely on each other's strengths to unlock the full potential value of the land assets without forking out huge capital. As for KLK, we believe the huge project could contribute significantly to its property segment in the next decade and reduce the high dependency on Bandar Seri Coalfields residential projects. Given that it is a maiden industrial project for the company, it can ride on AME Elite's expertise in the industrial project development.
• Anticipating a boost in performance during the final quarter. Despite seeing a dip of 5.1% YoY in the 3Q 2024 FFB production, we think the weaker production would be offset by stronger CPO price, which averaged at RM4,000/mt up 5.2% YoY. 

Source: PublicInvest Research - 1 Nov 2024