KUALA LUMPUR (April 26): Hong Leong Investment Bank Bhd said today Kuala Lumpur Kepong Bhd (KLK) is paying a fair price for a 95% stake PT Putra Bongan Jaya (PBJ) after taking into account the price per ha of PBJ's planted oil palm land in Indonesia.

Yesterday, KLK said it had signed a share purchase agreement with PT REA Kaltim Plantations to acquire 139,308 shares or 95% stake in PBJ, which runs oil palm plantations in Indonesia's East Kalimantan province. KLK said the valuation of PBJ's land and plantation on a 100% basis is US$80 million (RM312 million).

Today, Hong Leong wrote in a note: "Based on our estimates, the latest acquisition translates to a price tag of RM40,000/ha for the planted landbank (assuming the unplanted area is valued at RM2,000/ha). We believe KLK is paying a fair price for its latest acquisition, using Genting Plantations' acquisition in Jul-17 (which acquired brownfield oil palm plantation land for EV (enterprise value)/ha of US$10,400/ha, based on our assumptions) as a guide."

Hong Leong said it maintained its "hold" call for KLK shares with an unchanged target price (TP) at RM24.18. At Bursa Malaysia, KLK shares settled at RM25.52 at 12:30pm.

MIDF Amanah Investment Bank Bhd wrote in a note today that it maintained its "buy" call for KLK shares with an unchanged TP at RM28.50.

"As the deal should be completed in 3Q of 2018, FY18 core earnings is unchanged as KLK's financial year(-end) is September. For FY19, we estimate that core earnings impact to be at least RM10 million or about 1% to our FY19 forecast. Pending the completion of the deal, we maintain our earnings estimates at this juncture," MIDF said.