Maybank IB Neutral On KLK’s Deal For KSN’s Stake; Keeps HOLD Call

Maybank Investment Bank (Maybank IB) is neutral on Kuala Lumpur Kepong Berhad’s (KLK) latest deal to buy up the remaining 4.57% equity shares in KLK Sawit Nusantara (KSN, formerly IJM Plantations Bhd) as the small investment is immaterial to KLK’s assets size and financials.

“While it is at a 10.3% premium to the last offer price in 2021, the new offer price is actually lower on price-to-book value ratio (PBV) and enterprise value per planned hectare (EV/ha) basis relative to 2021.

“By our estimate, the deal will cost KLK up to RM137.6 million assuming 100% acceptance in cash, which is a small outlay relative to its RM30.1 billion asset size.

“KLK will fund this deal via internal cash reserves. By our estimate, this will only marginally raise KLK’s proforma FY23 net gearing to 47.8% from 46.9%,” it said in its research note today (Feb 7).

It kept its earnings forecasts, HOLD call with an unchanged target price (TP) of RM21.30 on 17x FY24E PER, its -0.75SD of 5Y mean.

“We prefer First Resources Ltd (FR SP) (BUY, CP: SGD1.49, TP: SGD1.82).”

Elaborating further on the proposed acquisition, Maybank IB said it is undertaking an unconditional voluntary take-over offer to acquire
the remaining 4.57% equity shares in KSN at a cash consideration of RM3.42 per share or RM137.6 million.

“This represents a 10.3% premium to the previous offer price of RM3.10 per share undertaken by KLK in 2021, and a 67.6% premium to KSN’s audited net assets of RM2.04 per share.

“A minority shareholder, Citadel Multi-Asset Master Fund Ltd, who holds 4.13% equity share in KSN, has given its irrevocable undertaking to accept the offer,” it said.

Meanwhile, the research house lamented that little was shared about KSN since it was delisted on 6 December 2021.

“According to the announcement, this offer price represents an implied price-to-book Value (PBV) of 1.7x and implied EV/ha of RM48,074.

“These financial matrixes appear to be at discounts to the offer made back in 2021 whereby the privatization offer price of RM3.10 per share implied a PBV of 2.02x, and EV/ha of RM53,074.

“Besides the above, no other operational or financial performances such as yields and net profits were provided or made available on KSN since de-listment).”

Maybank IB said key risks to its call on the palm oil sector and KLK are weather anomalies, lower-than-expected CPO price, negative policies imposed by import countries, unfriendly policies imposed by the Malaysian and Indonesian governments, sharply lower crude oil prices and weaker competing oil prices.

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