Saturday October 30, 2004 - ALTHOUGH Kulim (M) Bhd recently joined theexclusive club of listed Malaysian plantation companies with more than100,000 ha of land each, it has yet to gain the kind of attention amonginvestors that the others do.

Much of this has to do with Kulim's less-than-spectacular numbers in thelast several years. It recorded net losses in 2000 and 2001.

Last year, its net profit growth fell short of 4%. And this was a yearthat the company describes, in the annual report 2003, as a bumper yearfor crop output and crude palm oil (CPO) prices.

With the CPO market expected to continue softening next year, observerssay it will be harder for Kulim to rise to prominence.

Says a plantation analyst with a foreign stockbroking firm, In the past,investors normally noticed a counter like Kulim when the plantation sectorwas hot, such as when the CPO prices were soaring. That was when theperformance of the large-cap plantation stocks would bring the secondliners into focus as well.

However, Kulim can now count on other factors to drive its performance.For one thing, it has a far larger plantation division after finalising acouple of purchases last July.

In May last year, the company announced its plan to acquire EPA ManagementSdn Bhd and a 62% stake in Kumpulan Bertam Plantations Bhd for RM95.06milin cash and shares. The vendor is Johor Corp (JCorp), Kulim's majorityshareholder.

When explaining the rationale for the deal, Kulim said the acquisitionswould increase its core plantation holdings from 86,234 ha to 148,460 ha.

Most of the additional land is in Indonesia and is owned by EPA. Kulimpointed out that because it already had estates in Indonesia, the purchaseof EPA would bring about economies of scale.

In addition, there would be cost savings because Kulim no longer needed topay for EPA's consultancy services.

The larger plantation area the other estates are in Malaysia and PapuaNew Guinea translates into a larger earnings base for Kulim. This willcertainly help boost the company's bottomline.

Another reason for the lack of interest in Kulim is the relativeilliquidity of its shares.

As at April 23, JCorp had over 52% equity interest in Kulim. Otherinstitutional investors also had significant stakes. For example, theEmployees Provident Fund owned 9.52%, while Lembaga Tabung Haji had 2.35%.

The acquisition of EPA and Kumpulan Bertam did not ease the situationbecause JCorp received more Kulim shares as part of the consideration.

Furthermore, the deal was bundled with a rights issue on the basis of onerights share and one free warrant for every four shares held.

According to filings with Bursa Malaysia, JCorp picked up over 48 millionKulim shares (including about 756,000 rights shares that othershareholders did not subscribe for) from the disposals and the rightsissue.

JCorp's current stake in Kulim is roughly 58%.

There is talk that JCorp plans to pare down its shareholding in Kulim.Such a move should enhance the counter's appeal, but the window ofopportunity may have closed, given that CPO prices appear to have peakedearlier this year.

Some analysts believe that JCorp is unlikely to loosen its grip on Kulimby much because JCorp relies on the cash flow from the plantation company.

As part of the rights issue, Kulim issued 47.3 million warrants, whichwere quoted on Bursa Malaysia on July 13 along with the rights shares andthe shares paid to JCorp for EPA and Kumpulan Bertam.

The warrants expire on June 30, 2009, and have an exercise price ofRM2.56. The warrants ended last Wednesday at 70 sen.

Based on the mother share price of RM2.59 the same day, the warrants carrya premium of almost 26% and a gearing of 3.7 times.