KL Kepong - Proposes RM1bil Islamic MTN BUY

- Kuala Lumpur Kepong Bhd (KLK) has proposed a 10-year multi-currency Islamic mediumterm notes programme (MTN) of up to RM1bil. 

- RAM has rated KLK’s Islamic notes at preliminary AA1, which is the second highest investment grade.

- We think that KLK would use proceeds from the MTN programme for acquisitions and working capital for the downstream operations. 

- KLK’s downstream operations comprise mainly oleochemical and refining activities. KLK has oleochemical operations in Malaysia and Europe. Oleochemical division accounted for 11% of KLK’s pre-tax profit in FY11.

- We estimate the production capacity of KLK’s oleochemical operations in Europe at 250,000 tonnes/year. In view of the debt crisis in Europe,  we believe that KLK’s oleochemical division in Europe could be facing challenging operating conditions.

- KLK’s new palm oil refinery in Indonesia, which would command capacity of 672,000 tonnes/year would also be completed by the end of this year or early next year.

- In terms of acquisitions, we would view any investment in plantation landbank positively.

- Presently, KLK has 250,729ha of plantation landbank. Out of these, about 55% are located in Indonesia while the balance 44% is in Malaysia.  

- KLK’s Islamic MTN programme would build up the group’s cash reserves. As at end-Sept 2011, KLK had gross cash of RM1.7bil. The group’s net gearing stood at a low 5.9%. 

- We maintain a BUY on KLK as it is a sector proxy. KLK is also one of the more efficient producers of palm oil in the country. Furthermore, the group is an indirect beneficiary of the development of the Rubber Research Institute’s landbank in Sungai Buloh.   

Source: AmeSecurities