BUSINESS

RESEARCH HOUSES POSITIVE ON KLK, IJM CORP FOLLOWING LATEST DEAL

14/06/2021 12:35 PM

KUALA LUMPUR, June 14  -- MIDF Research is maintaining a “buy” call on Kuala Lumpur Kepong Bhd with an unchanged target price (TP) of RM27.01 after construction group IJM Corporation Bhd (IJM Corp) accepted its RM1.53 billion cash offer for its entire stake in its oil palm plantation business last week.

The research house said the offer price of RM3.10 per share is a reasonable price and the deal can lead to KLK’s earnings enhancement.

“The downside risk to our call includes a sharp decline in crude palm oil (CPO) prices, lower-than-expected demand, and implementation of stricter Movement Control Order rules,” it said in a note today.

To recap, KLK proposed to acquire IJM Corp’s entire stake of 494.87 million shares in IJM Plantations (IJMP), which represents 56.2 per cent equity interest, for RM3.10 per share on June 9. 

Post-acquisition, KLK’s total planted area will increase by 28.6 per cent to 274,377 hectares, which is way larger than its peers such as IOI Corporation and Genting Plantations, MIDF Research said.

“Given the strong CPO price momentum, we expect KLK’s upstream plantation business to continue to support the group’s earnings.

“Nonetheless, with resurgence of COVID-19 cases worldwide as well as higher palm kernel prices, we view that the performance of the manufacturing division could be negatively impacted and the outlook is expected to remain challenging,” it said.

For IJMP, MIDF Research opined that the deal is fair and is more likely to appear attractive enough for IJMP’s minority shareholders to accept.

“We do note that the group’s improvement in recent earnings has largely been contributed by the advancement in commodity prices. Nonetheless, due to the group’s earnings fluctuation in the past few years, we opine the offer by KLK presents a good opportunity for IJMP shareholders to exit,” it said.

Meanwhile, Maybank Investment Bank (Maybank IB) Research, in a note, also maintained its “buy” call on KLK with an unchanged TP of RM29.60 on the exercise.

KLK targets to complete the acquisition of IJMP by the fourth quarter of this year.

“We maintain our view that KLK’s offer to privatise IJMP is short-term neutral as earnings accretion is likely to be negligible in the short term.

“However, given the scarcity of land for future expansion, this acquisition is long-term positive,” it said. 

Maybank IB noted that besides adding 29 per cent to KLK’s existing oil palm planted area, IJMP is operating in the same region as KLK where the expected synergies include economies of scale through increased efficiency, optimisation of processing facilities and cost savings from logistics.

In a separate note, the research house also maintained a “buy” call on IJM Corp with an unchanged TP of RM2.18 a share.

“We are positive on this deal, which will enable IJM Corp to realise its investment in IJMP. IJM Corp is expected to post a RM699.9 million one-off gain from its sale of 56.2 per cent in IJMP to KLK.

“This deal will also free up capital for higher yielding assets. That IJM Corp is to distribute up to 52 per cent of the cash proceed back to its shareholders is also positive,” it added.

-- BERNAMA


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