- According
to Bloomberg, Kuala Lumpur Kepong Bhd’s
(KLK) RM1bil 10-year Islamic Medium-Term Notes (MTN) will be priced at 4%.
- We
believe that the coupon rate of 4% is an attractive rate of funding for
KLK.
- In June
2012, IOI Corporation sold US$600mil guaranteed senior notes due 2022 at
4.375%.
- In the
same month, Genting Bhd issued RM2bil 20-year medium-term notes. The first tranche
of RM500mil was priced at 4.42% while the second tranche was priced at
4.86%.
- As
mentioned in a previous report, we reckon that KLK would be using proceeds from
the Islamic MTN as working capital for the manufacturing division and for
investment opportunities.
- We
estimate that KLK has an oleochemical production capacity of 250,000
tonnes/year in Europe. In Malaysia, the group’s oleochemical production
capacity is about 1.2mil tonnes/year.
- Apart
from this, KLK’s new refinery in Indonesia is expected to be completed at the
end of this year or early next year. The refinery is anticipated to have a
production capacity of 672,000 tonnes/year.
- In terms
of financial impact, we estimate that the coupon rate of 4% would reduce KLK’s FY13F
net profit by 2%.
- The group
would swing from net debt to a net cash position. KLK’s net gearing stood at 5.9%
as at end-Sept 2011.
- We
maintain a BUY on KLK as it is a sector proxy. The group is one of the most
efficient plantation companies in the country. KLK is also an indirect
beneficiary of the development of the Rubber Research Institute’s landbank in
Sungai Buloh.
Source: AmeSecurities
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