Fair valuation on KLK’s Indonesian purchase
KOTA KINABALU: Analysts pegged a fair outlook on Kuala Lumpur Kepong Bhd’s (KLK) latest move to acquire a 95 per centstake in Indonesia’s PT Putra Bongan Jaya (PBJ) for a price of US$76 million in cash (about RM296.4 million).
The expected completion date is by the third quarter of 2018.
To note, PBJ owns in total 16,062 hectares (ha) of landbank out of which 7,50 ha has been planted. Note that PBJ own 11,602ha of plantation land with Hak Guna Usaha (HGU) or the right to cultivate and 4,460ha of plantation land with ‘Izin Lokasi license’ or location permit.
Both lands are located at Kutai Barat, East Kalimantan. Upon completion of the deal, it is estimated that 7,500ha of the land has been planted with oil palm.
The valuation was fair in MIDF Amanah Investment Bank Bhd’s (MIDF Research) view, as estimates come out to be US$4,981 per hectare which was acceptable in MIDF Research’s estimates.
“Note that 7,500ha (or 47 per cent of the total land of 16062 ha) has been planted with its earliest planting since 2009. Additionally, 72 per cent of the land is already with HGU or cultivation right,” MIDF Research said in a note recently. “There’s also scarcity of sizeable landbank in the market.
“As the deal should complete by the 3Q, core earnings of its financial year 2018 (Fy18) is unchanged as KLK’s financial year is September. For FY19, we estimate that core earnings impact to be at least RM10 million or about one per cent to our FY19 forecast.
“Pending the completion of the deal, we maintain our earnings estimates at this juncture.”
Kenanga Investment Bank Bhd (Kenanga Research) was eqally unsurprisedbytheannouncement, as management has previously signaled interest in expanding its plantation landbank.
“Given that the bulk of the acquired area is immature, we expect minimal earnings contribution in the near term,” it said on the update. “However, the acquisition should be longterm earnings positive with low additional planting investment as more than 50 per cent of the acquired area will be planted by the time the acquisition is completed.
“Valuation-wise, we estimate a price per hectare of US$5,000 -slightly higher than the historical transaction average, although we think this is fair given that bulk of the area holds planting rights (HGU) which have become increasingly difficult to secure.
“Assuming an 80-20 debt-equity ratio, we expect FY19E net gearing to increase slightly to 0.18 times from 0.14.”
Kenanga Research maintained its earnings expectations as it estimate marginal earnings decrease from the acquisition after including incremental interest cost.
It reiterated a market perform call on KLK with an unchanged target price of RM25.75 per share for the group.
“We believe this is fair as we expect stronger downstream performance to offset weaker CPO prices and moderate FY1819E fresh fruit bunch growth,” it explained.
“Overall, we maintain our market perform call on KLK with good long-term growth prospects as the company continues on its steady inorganic expansion track.”
Similarly, MIDF Research maintained its buy call with a target price of RM28.50, liking the stock for its earnings resiliency and decent dividend yield of 2.5 per cent.