05/10/2012 (The Star) - Analysts are positive about Kuala Lumpur Kepong Bhd’s (KLK) plan to venture into oil palm cultivation in Papua New Guinea (PNG), saying this will benefit the company in the long term. However, they point out that the short-term impact is likely to be negligible.
KLK is acquiring a 51% stake in Singapore-incorporated Collingwood Plantations Pte Ltd for US$8.66mil (RM26.86mil), which has a huge 44,342 ha of greenfield land in PNG.
In filings with Bursa Malaysia, KLK said the proposed acquisition presented an opportunity to develop new oil palm plantations in PNG in view of the increasing difficulty and expense to source suitable land in Malaysia and Indonesia.
KLK conducted a preliminary feasibility study of the PNG land and found that although infrastructure and accessibility were currently difficult and development costs high, “these disadvantages are counterbalanced by the fertile soil and friendly terrain of the PNG land.”
The plantation giant is acquiring the 51% stake in Collingwood Plantations from Hii Eii Sing, a Malaysian.
In a separate statement, KLK’s major shareholder Batu Kawan Bhd acquired an 18% stake in Collingwood Plantations from Hii for RM9.77mil.
On KLK diversifying to PNG, OSK Research analyst Alvin Tai said: “Operating conditions could be different compared with places where the company has a presence right now. Looking at the location of the land, which is near the coast, setting up infrastructure would not have too much of logistics issue.”
In terms of valuation, he said KLK bought the land cheap on a per ha basis. He is positive about the company’s prospects and maintains a buy on the stock.
Another analyst echoed the view that it was increasingly difficult to acquire plantation land in Malaysia and Indonesia, especially large tracts.
“PNG has proven to be high-yielding for palm oil, with Kulim (M) Bhd’s 50%-owned New Britain Palm Oil Ltd, which has performed above expectations. I don’t think there will be aggressive expansion in the first few years (for KLK in PNG), and since this is a greenfield project, investment in infrastructure and planting would take up most of the capital expenditure,” she said.
Collingwood Plantations’ core activities are forestry, tug and barging services, and investment holdings. Its unit, Ang Agro Forest Management Ltd, has registered rights over several pieces of land in PNG.
Ang Agro has a 99-year state lease over 5,992 ha in the town in Oro Province, expiring in April 2110; a 49-year sublease over 21,520 ha in Northern Province, expiring in August 2061 and a 49-year sublease over 16,830 ha in Northern Province, expiring in August 2061.