YAPSS Quick Summary and Free 10 Years Financial Data of Kuala Lumpur Kepong Berhad:
https://www.yapss.com/post/kuala-lumpur-kepong-berhad-klk-2445

Top Ten Oil Palm Companies:

1. SIMEPLT
2. FGV
3. BKAWAN
4. KLK
5. SOP
6. BLDPLNT
7. GENP
8. UTDPLT
9. KMLOONG
10. TSH

Did KLK overpay for Boustead Plantation?

KLK acquired Boustead Plantation for RM 1.55 per share. This is valuing the whole of BPlant at RM 3.47 b.  Given that BPlant has 73,200 ha of planted land, this works out to be about RM 48,000 per ha.

Now if you look at KLK, it has about 297,983 ha of planted land. Its plantation segment net assets work out to be about RM 9.87 b. This is equivalent to RM 33,000 per ha.

Now why would KLK pay RM 48,000 per ha when its own plantation only has a book value of RM 33,000 per ha?

I am of course illustrating the danger of looking at one point estimate when analysing companies. No two companies are the same and in the context of KLK and BPlant there are differences not only in where the estates are located, but also operating efficiencies.

As a retail investor, you can only rely on the annual reports and other industry reports for your fundamental analysis. That is why margins of safety and having a sense of the sector performance is important.

To help me in my analysis, I compile the base rates for many sectors that I invest in. For the base rates of plantation companies refer to my video “How the Malaysian plantation sector performed over the past 10 years” 

Whenever I hunt for Bursa Plantation companies to invest in, I screen them by comparing their performance with my 2 reference companies – KLK and BPlant. These are companies where I have detailed fundamental analysis. The relative performance will give me a good sense on whether to dig deeper into them.

KLK – one for the contrarian

Bursa plantation company, KL Kepong (KLK) returns over the past decade has shown a declining trend. And it currently falls into the Turnaround quadrant in the Fundamental Mapper. The Fundamental Mapper gives you a first-cut picture. You probably would not consider KLK looking at just the Fundamental Mapper.

But digging deeper, the main reason for the declining return is because KLK has been expanding into the manufacturing sector (oleo and related chemicals).This expansion enabled KLK to capture additional value but with lower returns. So while it got bigger, the returns declined.

I suspect that as the Group improves its efficiencies, we will see a turnaround in its return. The current market price of KLK reflects a significant discount compared to estimated intrinsic values. That is why I think this picture is good for the contrarian investor