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June 14, 2021

The ‘Buy’ Recommendation Remains For This Counter

 MIDF Research maintained a 'buy' rating on Kuala Lumpur Kepong Bhd (KLK) with an unchanged target price (TP) of RM27.01 after construction group, IJM Corporation Bhd (IJM Corp) received a cash offer of RM1.53 billion for its entire shares in the oil palm plantation business last week.

The research firm stated that the offer price of RM3.10 per share was a reasonable price and the deal could lead to an increase in KLK's income.

"Downside risks to our recommendations include a significant drop in crude palm oil (CPO) prices, lower -than -expected demand as well as the implementation of stricter Movement Control Order rules," he said in a post today.

Bernama reported that last week, KLK planned to acquire IJM Corp's entire stake of 494.87 million shares in IJM Plantations (IJMP) which represented 56.2% equity interest with RM3.10 per share on June 9.

According to MIDF Research, after the acquisition, the total cultivation area of ​​KLK will increase by 28.6% to 274,377 hectares, much larger than its counterparts such as IOI Corporation and Genting Plantations.

“Looking at the strong CPO price momentum, we expect KLK's upstream plantation business to continue to support the group's earnings.

"However, with the resurgence of COVID-19 cases worldwide as well as higher palm kernel prices, we think the performance of the manufacturing division will be slightly affected and the prospects will continue to be challenging," the firm said.

For IJMP, MIDF Research felt the deal was fair and attractive enough to be accepted by IJMP's minority shareholders.