Kuala Lumpur Kepong : U-turn Land Sale

January 16, 2009 at 4:34 am Leave a comment

· Sale of 809ha in Perak for RM51,890 per ha
Yesterday KLK announced that they were selling 809.4ha of land in Perak to S.B.S.K Plantations Sdn Bhd for a sum of RM42m. The freehold land came into KLK’s possession through the purchase of LPF last year and they had reportedly bought the land for a sum some 5% below the current selling price. To note, S.B.S.K Plantations used to be a major shareholder of LPF (owned by LPF director Dato’ Shamsul Bahari Salleh Khir) before selling its stake to KLK. Hence, the move to sell back some land could be seen as a little puzzling.
· KLK’s reasons behind the sale
From KLK’s perspective, they state that the “properties are of an awkward shape and prone to floods” hence in terms of easier maintenance, it is logical to sell that parcel of land. The sale would be of minimal impact to KLK given the selling price is only slightly higher then their original purchase price. It is still odd that the original owner would want back some land which is problem prone despite that trees on the land are at 8 years of age and hence going into its prime production years. Hence, we deduce that it could be for some possible commercial development given the property’s proximity to Setiawan and Lumut.
· But what can we postulate from this?
We try to postulate what kind of CPO price assumption the sale of this land could be based on since we are ever interested to know the industry’s forward view on CPO price. Assuming that SBSK either keeps the land as plantations or perhaps doesn’t get to develop it due to unforeseen circumstances, the price paid for the land has to be then justified in some other way. Using some basic parameters, we see that in the 12 years of prime production years left in the trees, profit made per MT would amount to RM1,005. Adding this with average cost per tonne of RM1100, that would give a price of RM2105. We don’t conclude this to be the indication of a fair CPO price or that it reflects fully the industry’s expectation, but we do feel that it does point in a direction of prices to be >RM2000 or at least not at the base case of RM1500.
· Continued Hold Call.
We maintain our call on KLK at this juncture with no changes to estimates. We believe that the stock for now has priced in the recent rise in CPO prices and we look out for trading opportunities in the future. To note, KLK from a dividend perspective could yield a possible 3.7% in FY09.

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16 January 2009 Newz Bits 19 January 2009 Newz Bits

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