Timely for KLK to acquire MP Evans

PETALING JAYA: PublicInvest Research views Kuala Lumpur Kepong Bhd’s (KLK) proposed takeover of UK-based plantation company M.P. Evans Group Plc as an opportune one for it.
KLK yesterday closed 0.17% lower at RM24.20 per share with 724,700 shares traded.
The offer price of 640 pence (RM3.25), which is valued at enterprise value of RM52,865 per planted hectare, is 51% higher to the previous closing price of 426.25 pence a share. It is also 38% higher compared with the company’s latest net asset value of US$334 million (RM1.39 billion) and an upside of 5% from the consensus target price.
“We think that it is a timely entry for KLK considering the weak pound currency, which has dropped more than 20% year to date. It is also a good opportunity for MP Evans’ existing shareholders to exit given the low liquidity in the company’s share trading,” PublicInvest said in a report yesterday.
The research house said the recent crude palm oil (CPO) price rally coupled with its young age profile and potential property value in Malaysia also justify the decision for KLK to acquire MP Evans.
“The acquisition will expand KLK’s planted area in Indonesia by 19% to 163,762ha and help lower its existing age profile,” said PublicInvest.
Though the offer price is a staggering premium of 51% to the previous closing price, the MP Evans board has rejected the offer, citing it as wholly inadequate and substantially undervalues the company.
“We believe the deal might drag for a period of time depending on the number of shares they manage to secure throughout the period. Pending more updates on the takeover development, we maintain our neutral call with an unchanged target price of RM23.46,” said PublicInvest.
RHB Research Institute said while it expects earnings accretion to be minimal in the beginning (4-5% for FY17), it expects this to improve as the trees age and new areas come into maturity.
“Overall, we are fairly positive on this acquisition and believe it is highly likely to go through. We believe this move is strategic for KLK, given that its fresh fruit bunch growth is in the low single-digits and that it does not really have any new landbank to plant up (other than a small area in Liberia). We are not imputing this acquisition into our forecasts until it has been completed. There is no change to our ‘buy’ call on KLK with an unchanged target price of RM26.40,” said RHB.