KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research is bullish on Kuala Lumpur Kepong Bhd's (KLK) RM276.8 million cash offer to acquire two companies in Indonesia, which it believes to be a reasonable offer price.
KLK and its Singapore-incorporated wholly owned subsidiary, KLK Plantations and Trading Lte Ltd have entered into conditional shares sale agreements to acquire PT Satu Sembilan Delapan (SSD) and PT Tekukur Indah (TI).
Both companies have a combined planted landbank of 6,371 hectare in East Kalimantan Province, Indonesia, a RSPO certified six tonnes per hour palm oil mill, and a biogas plant with capacity of 700 KWh/month (which is expected to be commissioned by July 2025).
The firm said based on its estimates, the proposed acquisitions translated to an earning valuation (EV) of RM49,600/hectare, assuming the palm oil mill is valued at RM60 million.
"While the acquisition price seems higher than its previous brownfield acquisition in 2020, we believe the price tag is fair, given the synergies mentioned as above," it said in a note.
Meanwhile, HLIB said the acquisition will have an immaterial impact to KLK's balance sheet and earnings, given its strong balance sheet and large earnings base.
The bank has maintained its earnings forecast on KLK, pending completion of the acquisition.
It has a "Buy" rating on KLK, with an unchanged sum-of-parts target price of RM24.05 a share.