Mixed views on MP Evan’s rejection of KLK new offer

RHB Research says its latest bid at 740 pence is expensive

PETALING JAYA: There is mixed reaction to London-listed MP Evans Group Plc’s rejection of plantation player Kuala Lumpur Kepong Bhd (KLK)’s offer to take the former private.

The offer by KLK amounted to £415.4mil (RM2.2bil) or 740 pence per MP Evans share. The offer was revised higher last Friday from 640 pence.

RHB Research did not advocate KLK raising the offer again as the revised price, which valued the estates at RM60,150 per ha, was already expensive.

“With the rejection of its 20% higher offer to acquire MP Evans, we believe KLK may abandon this merger and acquisition plan, given the costly price,” said RHB Research.

On the other hand, JF Apex Securities remained more positive, seeing possibility for the deal to go through as KLK reiterated the strategic merit in synergising MP Evans’ operations.

“We think that there is upside potential for the revised offer price of 740 pence per MP Evans share, which translates into a leading price-earnings ratio of 23 times, based on forecast financial year 2016 (FY16) earnings per share of 32 pence,” said JF Apex Securities.

Maybank Investment Bank also said the revised offer price was expensive, despite MP Evans being a relatively well-managed firm with decent growth prospects.

However, if KLK did fully acquire MP Evans, KLK’s net gearing ratio, which stood at 24% as of June 30, would rise to 45%.

Meanwhile, KLK registered net profit of RM220.9mil for the fourth quarter of FY16 ended Sept 30 (Q4FY16), bringing full year net profit to RM854.6mil.

Although revenue increased by 28.4% to RM4.5bil during the quarter, Q4FY16 net profit was down by 7.1% because of higher finance and crude palm kernel oil costs.

KLK’s Q4FY16 fresh fruit bunch (FFB) output declined 14% year-on-year, ending FY16 with 8.1% year-on-year decline.

The company’s FY16 net profit was down by 17.5% to RM854.6mil, mainly due to lower property contribution, higher finance cost and higher tax expense, though partially alleviated by better earnings from its plantation and manufacturing divisions.

Moving forward, RHB Research expected stronger recovery in FFB output in the first quarter of FY17, due to KLK’s large exposure to Indonesia.

Indonesia makes up 53% of KLK’s planted landbank, where output peaks in October.

In the offer document, KLK said that 740 pence per share would be the company’s final offer.

On Wednesday, close to 41% of MP Evans shareholders had rejected the improved offer, with chairman Peter Hadsley-Chaplin saying that the company is worth substantially more than 740 pence.

As of June 30, 2016, MP Evans has 26,550ha of majority-owned oil palm estates in Sumatra and Kalimantan, Indonesia, with trees averaging 7.9 years old.

By Maybank Investment Bank’s estimate, MP Evans FFB yield was 20.6 tonnes per ha in 2015.

It has 6,400ha of plantable reserves and a 40% associate stake in a private property development company based in Penang.

With the rejection of its 20% higher offer to acquire MP Evans, we believe KLK may abandon this merger and acquisition plan, given the costly price.