BPlant’s shares closed at RM1.40 today after two days of suspension from Tuesday, valuing the group at RM3.14 million while KLK was at RM21.44, giving it a market capitalisation of RM23.18 million.
Earlier, Kenanga Research maintains its recommendation for BPlant to “ACCEPT OFFER” at a target price of RM1.55, which coincides with the Mandatory General Offer (MGO) price.
BPlant has recently announced a change in the party responsible for MGO.
Instead of KLK, The Armed Forces Fund Board (LTAT) will now be overseeing the MGO process and will continue to offer BPlant shares at the same price of RM1.55 per share as previously stated.
This development is welcomed by the research house as it provides BPlant shareholders with an opportunity to exit at a better valuation than what the equity market would likely offer.
Many smaller plantation groups often trade at discounts to their Net Tangible Assets (NTA).
From an earnings perspective, the MGO price of RM1.55 values BPlant at a high multiple of 82 times 2024 financial year’s price-to-earnings (P/E) ratio.
Even on a Price-to-Book Value (PBV) basis, RM1.55 values BPlant at 1.3 times, which is still at a premium compared to the plantation sector, although not as high as the premium based on (P/E) ratio.
As mentioned earlier, the offer price is closely aligned with the current value of plantation land, making it a reasonable proposition.
Risks associated with this situation include the possibility of the deal falling through, a lower-than-expected CPO (Crude Palm Oil) price, and higher-than-expected increases in costs.
Key considerations for investors, addressing aging trees and LTAT’s acquisition
Another significant aspect of this deal pertains to approximately 46% of BPlant’s planted hectarage, which spans 72,291 hectares and contains aging trees. The replanting of these trees is estimated to require an annual expenditure of RM150 million, totaling RM1 billion over the course of six years.
However, with the KLK deal now abandoned, LTAT has assumed control and is poised to invest RM1.11 billion to acquire the remaining 31.99% stake, equivalent to 716.66 million shares in BPlant, which it currently does not hold.
KLK’s strategic moves
KLK has already made a substantial investment of RM350 million to gain control of Temix Oleo, a specialised company in natural and bio-based chemicals, including bio-lubricants.
The proposed acquisition of BPlant underscores KLK’s eagerness for significant acquisitions, even as it assumes a net gearing ratio ranging from 55% to 60%.
KLK demonstrates a willingness to endure short-term earnings dilution as it adopts a long-term perspective, spanning five to 10 years, for its upstream and downstream businesses.
The research house maintains its core earnings per share projections of 118.3 sen and 156.0 sen for the 2023 and 2024 financial years, respectively.
However, it has adjusted the 2024 net profit downward by RM60 million to account for potential impairments related to the BPlant shares held by KLK.
Additionally, it maintains a Net Dividend per Share (NDPS) of 50 sen for the financial years 2023 and 2024.
It is important to note that certain risks persist, including the impact of adverse weather conditions on edible oil supply, fluctuations in commodity prices that may not favor KLK, and potential increases in production costs.
Controversial deal
While KLK announced that the strategic collaboration agreement was mutually terminated as the conditions precedent would not be satisfied by an twice-extended Oct 6 deadline, the deal was a point of contention in Parliament, as a number of opposition leaders claimed it was not in line with the government’s aim of achieving the Bumiputera corporate equity target of 30% by 2025, as outlined in the 12th Malaysia Plan.
Elaborating on LTAT’s viewpoint on the deal, Defence Minister Datuk Seri Mohamad Hassan said that Boustead, which was privatised by LTAT earlier this year, needed RM800 million by year end to meet its debt obligations.
Now, LTAT will need to look at an alternate avenue to raise the required RM800 million, as it is further burdened with the RM1.11 billion buyout of BPlant.
The proposed deal has been shrouded in controversy since it was announced.
Opposition members of Parliament (MPs) have used the proposed deal to criticise the unity government over the approval for KLK to purchase the 33% stake, arguing the deal may adversely affect Bumiputera interests.
Bersatu MP Wan Ahmad Fayhsal Wan Ahmad Kamal urged the government to explain the rationale for the proposed disposal to KLK.
The strong opposition to the proposed disposal may well have prompted a rethink by the various parties involved as well as in the corridors of power in Putrajaya.
Prime Minister Anwar Ibrahim announced on Monday that the ministry of finance has allocated RM300 million to assist LTAT address its liquidity challenges and is looking for a total of RM2 billion by end this year to save LTAT.
This funding is aimed at preventing further losses for LTAT, he was quoted as saying during the launch of the Felda Segalanya event in Teriang, Pahang.
The BPlant-KLK proposal came just months after LTAT took BHB private to accelerate the latter’s debt restructuring.
