KUALA LUMPUR: Kuala Lumpur Kepong Bhd's (KLK) merger and acquisition plans are still in the air, despite its failed RM1.15 billion bid to take over Boustead Plantations Bhd (BPlant).
There are several notable privatisation targets amid the consolidation of crude palm oil (CPO) price so far this year and attractive average sector enterprise value.
They include Sarawak Oil Palms Bhd, Ta Ann Holdings Bhd, TSH Resources Bhd, United Malacca Bhd and BLD Plantation Bhd, according to MIDF Research.
The firm noted that CPO price has been consolidating to RM3,862 per tonne year-to-date, while the sector's average EV stood at an attractive RM39,163 per planted hectare.
"Affordability (for M&A) is not a big issue since KLK's balance sheet remains stable with a cash of RM2.78 billion and net gearing about 40.6 per cent," it added.
MIDF Research said the termination of strategic collaboration agreement (SCA) with BPlant parent Boustead Holdings Bhd and holding company the Armed Forces Fund Board (LTAT) does not have a material effect on KLK.
The SCA was terminated on Oct 4, and Boustead will return the deposit of RM229.2 million to KLK within 14 business days from Oct 4, or such other later date as may be agreed between the parties.
MIDF Research has maintained a "Buy" call on KLK with an unchanged target price of RM24.60.
Meanwhile, Affin Hwang Capital believes that KLK will continue to find other opportunities in acquiring brownfield oil palm plantation to further expand its oil palm plantation landbank.
The firm makes no changes to KLK's FY23 to FY25 earnings forecast as it has not imputed any earnings contribution from BPlant to its model.
"We maintain our 'Buy' recommendation on KLK with an unchanged target price of RM25," it said.
Kenanga Research said the proposed acquisition of BPlant previously reflects KLK's appetite for sizeable acquisitions, taking on net gearing of up to 55 to 60 per cent with tolerance for short-term dilution to earnings as it takes a five to 10-year view of its upstream and downstream businesses.
It noted that after acquiring IJM Plantations, KLK's net gearing rose to 54 per cent in the second quarter of financial year 2022 (2QFY22) but has since moderated to 47 per cent as of end 3QFY23.
"With forward CPO prices expected to stay rangebound, net gearing should continue to moderate further over FY24.
"KLK already paid about RM350 million to control Temix Oleo, a specialist in natural or bio-based chemicals including bio-lubricants," the firm said.
Kenanga Research said the failed 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 firm noted that the impact on KLK is mildly positive in the near term as weak BPlant's earnings are expected over FY23 to FY24 and KLK would have to bear additional borrowing costs.