KULIM (FV RM5.47 - BUY) Corporate News Flash: Johor Corp Buys Over QSR's Busines

THE BUZZ

StarBiz reported that the buyout of KFC Holdings and QSR Brands by a Johor Corp-led consortium is coming closer to fruition, with the Johor Corp board now finalizing the sale and purchase agreement.

OUR TAKE

Taking longer than expected. The sale of QSR by Kulim to its parent company, Johor Corp, was to be completed in April  and  hence, it is taking longer than expected. However, we remain confident that the transaction will be completed in due time.

Special dividend in store? From our understanding, Kulim has not identified any asset to acquire using the proceeds from the sale of QSR, which increases the likelihood that Kulim will return the cash to shareholders in the form of a special dividend, much like what it did with the  proceeds from sale of Natural Oleochemicals. To recap, Kulim stands to receive RM1.1bn from sale of its QSR stake, which if fully paid out as dividend, will result in a special dividend of 87 sen per share.

Acquisition of Johor Corp’s estates. Of the two parcels of oil palm plantation assets amounting to 13k ha in total which Kulim is acquiring from Johor Corp, one parcel was completed at end-2011 with the second parcel of 7k ha still outstanding. The additional 6k ha has helped boost Kulim’s 1Q production by 4.7% over last year.

New Britain Palm Oil no longer a subsidiary. Kulim’s 50.7% stake in London Stock Exchange-listed New Britain Palm Oil (NBPO) has been watered down to 49.5% following the issue of 3.3m new NBPO shares for the acquisition of the remaining 20% stake in Kula Palm Oil. With that, NBPO ceases to be a subsidiary of Kulim. We believe the impact on Kulim’s bottom-line will be negligible, though revenue will fall substantially as NBPO will now be equity-accounted only.

Maintain Buy on Kulim. We continue to like Kulim, being the cheapest large-scale plantation company in of Malaysia. Kulim is the 4^th largest plantation company by planted hectarage with 118.6k ha of oil palm planted area. However, unlike the other big names, Kulim only trades at forward PERs of 10.0x and 8.9x based on FY12 and FY13 earnings. Our FV remains at RM5.47, which still includes QSR’s contribution, but could be adjusted downwards should there be a special dividend after the completion of  the QSR sale.

Source: OSK188