KUALA LUMPUR: Kuala Lumpur Kepong Bhd's (KLK) acquisition of a 33 per cent stake and one share of Boustead Plantations Bhd (BPlant) and the subsequent privatisation of the latter through a mandatory general offer are a sound investment opportunity, say analysts.
Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan said it would benefit BPlant as it needed the cash at this moment to service its loans.
He said investors' confidence in BPlant had surged, which was evident from the recent uptick in its shares over the past few days.
However, for KLK, he said, there was scepticism about whether this was a sound investment.
"Considering that the price of palm oil is currently low due to weather conditions, I believe that once these conditions have stabilised, palm oil prices will rise.
"So, in the next few years, when KLK takes BPlant private, I believe KLK's shares will recover," he told the New Straits Times.
Azmi added that there were questions about whether this was a fair price, whether KLK could afford it and whether it was financially sound.
However, he noted that KLK had vast experience in dealing with plantations.
On KLK's falling share prices, Azmi said it only correlated with current poor palm oil prices.
"But as I mentioned, the future price of palm oil looks promising. It's not bleak, but promising. The reason for the current price drop is the weather, but in the future, demand will be higher, and supply will be limited.
"This will inevitably increase the price of palm oil, making it a good prospect for KLK as it acquires BPlant today.
"So, I believe the drop in KLK's share price is temporary. Once everything settles down, it will rise again."
Tradeview Capital Sdn Bhd fund manager Neoh Jia Man said the proposed acquisition was a good deal for BPlant shareholders, but only a fair one for KLK.
He said at RM1.55 per share, the acquisition valued BPlant at 1.2x price-to-book, which is above the plantation sector average of around 1x.
He added that given BPlant's low earnings base, the transaction will be earnings-dilutive to KLK in the near term.
"Furthermore, as KLK will only gain control of 33 per cent of BPlant via the transaction with Boustead Holdings, there is a risk that KLK will be unable to secure a controlling stake of more than 50 per cent from its mandatory takeover offer.
"As the price-to-book multiple of the offer price is already at a premium to the industry average and much above BPlant's own historical average of 0.6 times, the offer looks attractive to us," he told the NST.
On KLK's share price, Neoh believed that the market was just being concerned with the high valuation multiple that KLK was paying for BPlant and the low fresh fruit bunch yield of BPlant's estates, which will take time to turn around.
Nonetheless, he said, certain land banks that BPlant owned could be suitable for property development, and there could be long-term upsides from this angle.
The Armed Forces Fund Board (LTAT), Boustead Holdings Bhd and KLK yesterday signed a tripartite strategic collaboration agreement (SCA) in relation to the acquisition of BPlant.
Under the SCA, the three parties will jointly undertake a mandatory takeover offer to acquire all the remaining BPlant shares not already owned by the joint offerors at cash offer price of RM 1.55 per BPlant share.
The offer is triggered as a direct outcome of the acquisition by KLK of a total of 739.2 million ordinary shares in BPlant, representing 33 per cent, and one share of the total issued shares of BPlant from BHB, for a cash consideration of RM1.15 billion or RM1.55 per ordinary share in BPlant.
The offer price values BPlant at RM 3.47 billion.
Currently, Boustead holds a 57.42 per cent stake in BPlant, while LTAT holds a 10.59 per cent stake.
The strategic partnership with KLK aims to improve the long-term operational efficiency and crude palm oil yields of BPlant for the benefit of both companies.
This collaboration was expected to have a positive impact on BPlant's financial position in the long run.
As part of the value creation exercise under the collaboration, Boustead and LTAT are granted the first right of refusal to deal with two plantation estates, namely Balau and Bukit Mertajam (Mayfield Division) estates, with a total acreage of 1,800 acres, for the purpose of development of the land, hence providing added value to Boustead.
LTAT chief executive Datuk Nazim Rahman said the timely strategic collaboration marked the beginning of the "reset" strategy for BHB, which will result in significant value enhancement to the group.
"We firmly believe that this strategic collaboration with its synergies will unlock greater value for all stakeholders within the business value chain.
"We are confident that this will put both Boustead and LTAT on a firm footing towards a sustainable future," he said in a statement.
KLK chief executive officer Tan Sri Lee Oi Hian said this strategic collaboration will not only strengthen the existing cooperation between KLK and Boustead, but also provide a major boost to the long-term growth strategy of KLK Group's plantation business.
"We are humbled to be entrusted as a partner to cooperate and deliver improvements to BPlant's estates, in synergy with our own estates.
"We are optimistic that this corporate exercise will bring positive benefit for Malaysia's palm oil industry as a whole," he added.
The collaboration was expected to strengthen the existing partnership between these prominent entities and contribute positively to the Malaysian palm oil industry.