KL Kepong - To acquire 7,400ha of land in East Kalimantan Buy

- Kuala Lumpur Kepong Bhd (KLK) has proposed to acquire a 90% shareholding in PT Global Primatama Mandiri for Rp10.8bil or RM3.6mil. 

- PT Global holds a “Hak Izin Lokasi” to develop 7,400ha of land in East Kalimantan into oil palm estates. 

- We view this development positively as it would expand the group’s plantation landbank.

- It appears that Malaysian companies have not faced any problems expanding in Indonesia in spite of the two-year moratorium on new permits to clear land.

- Recall that the moratorium was signed in Indonesia in May 2011 but took effect retrospectively from 1 January 2011. 

- This means that the moratorium would expire at the end of this year.

- The proposed acquisition of the landbank would increase KLK’s plantation landbank in Indonesia from 139,126ha to 146,526ha.

- Currently out of KLK’s 139,126ha of landbank in Indonesia, about 69% or 96,110ha have already been planted with oil palm trees. 

- There would not be any earnings contribution from the new landbank as it takes about three years for oil palm trees to bear fruits. 

- Presently, KLK’s operations in Indonesia account for about a third of its plantation revenue.

- KLK’s acquisition price of RM3.6mil translates into RM486/ha, which is fair. In February 2012, CBIP had proposed to acquire 22,754ha of land in Central Kalimantan at an estimated price of RM703/ha.  

- We maintain a BUY on KLK as it is a proxy to rising CPO prices. KLK’s plantation production cost is also efficient at RM1,100/tonne to RM1,200/tonne.  

Source: AmeSecurities