KL Kepong - To sell Crabtree & Evelyn for US$155mil Buy

- Kuala Lumpur Kepong Bhd (KLK) has proposed to dispose of Crabtree and Evelyn for US$155mil or RM465mil to Khuan Choo International Ltd. 

- According to the Bursa Announcement, Khuan Choo International is an investment holding company incorporated in Hong Kong.

- However upon checking, we gather that there is also a Khuan Choo Group, which is part of the Malton Group of Companies. 

- We view the proposed disposal of Crabtree and Evelyn positively as it would allow KLK to exit the business, which is not part of its core activities of plantations and oleochemicals.

- The retailing business has been challenging. The U.S unit of Crabtree and Evelyn came out of Chapter 11 bankruptcy in January 2010. 

- The unit restructured by closing down 35 stores in U.S. and launching an e-commerce website.

- Since then, Crabtree and Evelyn had turned around. The division swung from losses of RM77.5mil in FY09 to EBIT of RM31.2mil in FY10 and RM22.9mil in FY11. We believe that most of the division’s earnings are driven by its stores in Asia Pacific.

- The selling price of US$155mil or RM465mil for Crabtree and Evelyn translates into a P/BV of 1.3x. This is based on the division’s net asset value of RM353.3mil as at end-September 2011. In PE terms, the disposal price of US$155mil (RM465mil) would be about 37x FY11 earnings.

- For FY12F, we had forecast the division’s EBIT at RM23.9mil. The interest income from the disposal proceeds of Crabtree and Evelyn would partly mitigate the loss of earnings from the division. 

- KLK would enjoy a one-off gain of RM123mil from the disposal of Crabtree and Evelyn.

- We maintain a BUY on KLK as it is a proxy to rising CPO prices. We expect CPO prices to remain resilient underpinned by slower supply growth of palm oil and soybean in 2012F.

Source: AmeSecurities