Kuala Lumpur Kepong - Expands plantation landbank by 21%

News   Kuala Lumpur Kepong (“KLK”) has announced the acquisition of a 51% stake in Collingwood Plantations (“CP”) for US$8.7m (RM26.9m).

 CP (via its wholly owned subsidiary) owns in total 44,342 ha of greenfield oil palm plantation landbank in Papua New Guinea (“PNG”).  (See Page 2 for details on the landbank).

 The justification for the deal is that KLK intends  to develop new oil palm plantations in PNG in view of the increasing difficulty and expenses required to source for suitable lands in Malaysia and/or Indonesia. 

  

Comments   We are positive on the deal as it effectively raised KLK plantation landbank significantly by 21% to 252,658 ha. 

 The effective pricing of RM1,188/ha for the PNG greenfield land also seems fair as KLK may need to invest more than RM15,000/ha until the tree starts to produce FFBs in the third year of planting. We gather that the latest transaction here was done in Feb-2010 at US$8670/ha for brownfield land acquisition that was producing FFBs at a yield of 17-20 mt/ha.

  

Outlook  Its long term FFB growth is now more secured with this acquisition.

  

Forecast  Maintaining our FY12-13E earnings of RM1.25bRM1.39b. Any earnings impact will only kick in by FY16E as oil palm trees need at least 3 years before they start producing FFBs.

  

Rating Maintain MARKET PERFORM

 In the near term, KLK share price should be affected by the current CPO price volatility.

  

Valuation   Maintaining our Target Price of RM24.86 based on an unchanged 19.0 times forward PER on FY13E EPS of 130.85 sen. Our 19.0x Forward PER is based on +1SD above the 5-year mean of Forward PER Band, implying a premium to its peers which only command a +0.5SD. This is due to KLK attractive average age profile among big caps at 11 years and its status as a “Consistent Performer”. Other big cap planters age profile are at 13-14 years old.

  

Risks  Sustained low CPO prices.

Source: Kenanga