KLK is buying two plantation assets from its parent company at neutral PER. Overall, the purchase should be marginally accretive (+1%) and, more importantly, makes strategic sense. KLK already manages these estates which are near to its own estates.
Broking house Kenanga is nudging up its FY24-25F forecasts marginally but maintaining the target price at RM24.50 with an outperform call. The plantation company is buying from Batu Kawan Berhad two estates, and has entered into a conditional agreement with Whitmore Holdings Sdn Bhd for RM277m in cash. BKB holds 48% of KLK and 100% of WHSB. The two WHSB estates are located at Berau, East Kalimantan and are held by two subsidiaries: a) 92% PT Satu Sembilan Delapan( SSD)has planted 5,384 Ha out of the 5,676 Ha of land it owns.
The palm trees are in their prime, at 9-16 years of age. SSD is RSPO certified and operates a 60MT per hour palm oil mill as well with a bio-gas capture facility due for completion in FY25. Knight Frank has valued SSD’s land bank at RM312m based on RM58k per Ha of planted area. b) 90% PT Tekukur Indah owns 1,497 Ha of land, 987 Ha of which has been planted. All the trees are 1-2 years old, hence still immature and loss making but most of the upfront investment capex has been incurred. Hence, its land bank is valued at RM44m by Knight Frank based on RM45k per Ha of planted area.
KLK will be paying RM277m altogether for both assets. Compared to our estimated 12-month PATMI for SSD and TI combined of RM19m, the acquisition PER of 14.5x is comparable to KLK’s 14.5x FY24F PER. However, after adjusting out the 8% minority in SSD and 10% in TI, the estimated revalued PBV based on Knight Frank’s valuation of the two assets of RM328m (after deduction minorities) less RM92m of debts is about 1.2x. versus KLK’s 1.5x PBV. Earnings-wise, KLK is set to enjoy a slight uplift (<1%) in core net profit as it plans to use part of its RM2.5b cash holding to pay for the entire consideration.
More strategic and long term than immediate. Firstly, BKB has already engaged KLK to manage these estates, hence KLK is familiar with the estates. KLK also owns 15,000 Ha of oil palm plantations nearby so the acquisitions will just add scale for KLK’s operations in East Kalimantan. Lastly, the acquisition removes any potential conflict of interests as KLK’s soon to be completed integrated refinery and oleochemical complex nearby will eventually buy CPO and palm kernel from SSD and TI. Marginal upgrade to core EPS of 0.3% in FY24F to 147.5 sen and 1% to 165.9 sen for FY25F.
Given its good track record, defensive balance sheet and expansionary mode, Kenanga says KLK remains a sector pick.
