KLK to buy surfactant manufacturer in Netherlands for RM187.2 million

KUCHING: Kuala Lumpur Kepong Bhd (KLK) has announced its intention to acquire Elementis Specialties Nether B.V (ESN), a surfactant manufacturer in the Netherlands, for a total consideration of 39 million euros or RM187.2 million.

The group made the announcement on Tuesday in a Bursa filing where they stated that their rationale for the acquisition is to expand their existing non-ionic surfactant manufacturing business in Europe in terms of product range and market coverage.

“The use of ESN’s Delden site as another hub for KLK Group’s market penetration strategy will further accelerate growth in the group’s downstream chemical specialties business in Europe.

“The Delden production site is serviced by good rail and road links and is located strategically close to key customers and raw material supply routes,” said the group in a statement.

Commenting on this move, research house TA Securities Holdings Bhd (TA Research) was not surprised as KLK’s management has guided previously that they would be actively looking for potential merger and acquisitions (M&A) after their unsuccessful RM2.3 billion bid to take over plantation business MP Evans Group Plc in 2016.

With an acquisition price of circa 19 per cent lower than that of ESN’s previous acquisition price back in July 2004, TA Research has determined that the proposed acquisition price to be fair and reasonable.

If all goes to plan, the expected completion date of the deal is by the first half of 2018 (1H18) and its funding is not expected to be an issue as MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that KLK is currently sitting on a cash reserve of RM2.04 billion and low net gearing of 0.21 fold.

While the acquisition of ESN should strengthen KLK’s downstream chemical specialties business in Europe, MIDF Research maintained neutral on the deal for now as they do not expect any significant earnings impact in both FY18 and FY19 arising from the deal.

“The primary driver for downstream segment profitability is still raw material costs,” explained the research arm.

With that said, MIDF Research guides that they will be maintaining their FY18 and FY19 core net income for KLK at RM1.15 billion and RM1.33 billion respectively.

Similarly, TA Research also maintains its earnings estimates – pending finalisation of the acquisition of ESN.