Public Investment Bank (PublicInvest) Research said it is positive on KLK’s unsuccessful bid to acquire a 33% stake in BPlant from the Armed Forces Fund Board (LTAT) and its wholly owned subsidiary, Boustead Holdings Bhd (BHB).
“Generally, we are positive on this unsuccessful acquisition. The proposed acquisition not only involves a pricey valuation, there will be hefty replanting costs involved for the entire ageing planted area of 33,253ha.
“In short, the collapse in the acquisition of BPlant could potentially save more than RM2.85 billion for KLK. Despite a promise of RM2 billion allocation from the ministry of finance to help ease BPlant’s burden, the most crucial question is how to turn around its core plantation business,” PublicInvest said in a note yesterday.
It said KLK’s fresh fruit bunch (FFB) yield would have been dragged by BPlant’s weak FFB yield over the gestation period if the acquisition had materialised.
PublicInvest has maintained its “hold” call on KLK with a slightly reduced target price (TP) of RM21.39.
Under the deal, KLK had planned to extend a mandatory general offer at RM1.55 per share for BPlant to raise its shareholding to 65% and subsequently delist the company. Upon conclusion of the exercise, LTAT and Boustead Holdings would retain the remaining 35% stake.
In an unexpected about-turn, LTAT is now seeking to buy out BPlant at RM1.55 per share. LTAT holds a direct 10.59% stake in BPlant while BHB controls 57.42%, for a combined 68% stake in the plantation group.
Paring down stake in BPlant
PublicInvest noted that prior to the termination of the pact, KLK had already amassed a total direct and indirect interest of 36% in BPlant, worth RM1.1 billion via several related parties.
“Following the unsuccessful marriage, KLK may need to dispose of BPlant shares in the open market which could trigger weakness in its share price,” it cautioned.
Meanwhile, Kenanga Research said the collapse of the deal was not “a total surprise” as the signing of the agreement had been postponed twice, initially from Sept 11 to Sept 22, and then again to Oct 6.
“The impact on KLK is mildly positive in the near term as weak BPlant earnings is expected over FY2023-24 and KLK would have to bear additional borrowing costs,” it said.
The research house believes the setback does not hamper KLK’s long-term expansion plan as it will continue to look for upstream and downstream opportunities.
Kenanga has maintained its “outperform” call along with a TP of RM24.50.
AmInvestment Bank is another research house that views the termination of KLK’s proposed strategic collaboration with Boustead Holdings and LTAT as a positive for KLK.
“The acquisition of BPlant would have reduced KLK’s net profit by 3%-5% due to BPlant’s high costs of production and low FFB yields.
“KLK’s net gearing would have also gone up to almost 60% if the takeover of BPlant had gone through,” it said.
AmInvest maintained its “hold” call with an unchanged fair value of RM23.85 per share.
KLK’s share price slipped 6 sen or 0.28% to RM21.42 yesterday, giving it a market capitalisation of RM23.16 billion.