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Analysts: Batu Kawan shares attractive (14 Feb 07)

By Yeow Pooi Ling

PETALING JAYA: Analysts think Batu Kawan Bhd shares are attractive and offer a cheaper entry for exposure to associate company, Kuala Lumpur Kepong Bhd (KLK). 

Batu Kawan owns 46% of KLK, a stake worth RM5.2bil based on the latter’s market closing price of RM15.80 yesterday. In comparison, Batu Kawan’s market value is RM3.6bil. 

Yesterday, Batu Kawan shares closed 10 sen higher at RM12.30 while KLK gained 20 sen. 

An analyst with Aseambankers estimated Batu Kawan’s revised net asset value (RNAV) at RM5.5bil based on the surplus of RM3.2bil in the market value of its KLK stake over its book value, and Batu Kawan’s shareholders’ funds of RM2.3bil as at end-September 2006.

This would translate to an RNAV per share of RM18.90 for Batu Kawan. Assuming a liquidity discount of 20%, the analyst arrived at a fair value of RM15.10 for Batu Kawan, which still provided a substantial upside potential from the current share price level. 

“A cheaper exposure to KLK is via its immediate holding company, Batu Kawan,” he said in a report. 

Another bank-backed brokerage in a recent report said KLK was expected to benefit from the upturn in crude palm oil (CPO) prices, given the supply risks from El Nino and sub-par rainfall conditions in key palm oil regions in Indonesia, coupled with firmer demand from India. 

“On top of that, there are potential earnings upside for KLK from improved capital management practices,” the research house said.