KL Kepong: Buy, target price RM24.02

MIDF Research views the acquisition of Germany's PolymerLatex Group by Kuala Lumpur Kepong Bhd's (KLK) (2445) 18.83-per cent-owned Yule Catto as a positive move.

This will pave the way for the company to further expand into the latex market for paint, construction, carpeting and adhesive industries.

The acquisition will also strengthen its position in Europe and Malaysia in the latex coated paper market, and at the same time add value to the nitrile latex market.

MIDF Research said the acquisition will be financed via rights issues and bank borrowings.
UK-based Yule Catto is undertaking a 4:3 rights issue at 116 pence (56 sen) a share to raise STG225 million (RM1.1 billion) to pay for the purchase, with KLK subscribing to all its portion.

KLK will acquire additional 36.55 million new Yule Catto shares that will result in total shares of 63.96 million.

KLK will cough out RM209 million of its internal funds to purchase the new shares, which MIDF Research feels will not be a strain, given its cash position of RM1.3 billion.