KL Kepong : Responds to MP Evans’ valuation BUY

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KL Kepong : Responds to MP Evans’ valuation    BUY

In response to MP Evans' recent statement that it is worth GBP10.82/share, KL Kepong (KLK) said that MP Evans' valuation is illusory as it was not supported by the market's reaction.  KLK urged MP Evans' shareholders to accept its offer of 740 pence/share. The first closing date of the offer is 9 December 2016 and there is no certainty that this will be extended. KLK said that it continues to support its offer price of 740 pence/share, which implies a value of US$14,100/ha for MP Evans' planted areas of 26,600ha in Indonesia.

KLK disputed MP Evans' valuation. KLK said that MP Evans did not use precedent sales of Indonesian plantations as comparables in arriving at its offer price of GBP10.82/share. Instead, MP Evans used precedent sales of Malaysian and Papua New Guinean plantations, which are of higher value. Precedent sales of majority stakes in Indonesian plantations indicated an EV of US$10,285/ha. KLK laid out six market transactions in Indonesia this year, which included Genting Plantations' acquisition of 3,127ha of land in West Kalimantan for US$11,630/ha. KLK added that the land attributable to the Indonesian smallholder co-operative schemes belonged to co-operatives and not to MP Evans. In addition, the value of US$81mil attributed to MP Evans' Malaysian properties is almost double the market value in MP Evans' FY15 annual report.

KLK's EV/ha of US$14,100 for MP Evans would translate into RM62,745, which is on par with the value of some of the oil palm estates in Peninsular Malaysia. KLK's EV/ha of US$14,100 would also be lower than Felda Global Ventures' purchase price of US$17,400/ha for Eagle High Plantations back in June 2015. At 740 pence/share and assuming a 100% take-up rate, MP Evans is not expected to contribute significantly to KLK's net profit in the short-term due to the increase in the interest expense. KLK's borrowings are anticipated to climb from RM4.6bil to RM6.9bil as the group secures financing for the acquisition of MP Evans.  Maintain Buy on KLK with a fair value of RM26.75/share.

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