Market reaction to the proposed move to make New Britain Palm Oil Limited (NBPOL) a subsidiary of Malaysian company Kulim (Malaysia) Berhad has been generally positive, although one observer questions why PNG-based investors aren’t taking advantage of the fall in NBPOL’s share price.

Credit: NBPOL

Last week, Kulim announced it would seek to acquire up to 30 million shares in NBPOL, thereby lifting its stake from 49% to 69% and giving it majority ownership of the POMSoX- and London Stock Exchange-listed palm oil producer.

NBPOL produces palm oil exclusively in Papua New Guinea and the Solomon Islands and has processing operations in the United Kingdom.

Kulim is offering US$8.49 (K19.07) per offer share, putting the cost of its bid at US$254 million (K570 million).

Established Malaysian company

Kulim (Malaysia) Berhad primarily engages in the oil palm plantation business but has interests in logistics and support operations for plantations. As well, it has investment holdings and invests in property in Malaysia.

The company was founded in 1933, is listed on the Bursa Malaysia and has 48,000 employees. Its annual report for the 2012 calendar year shows the company profit was US$315 million (K707 million).

Core business

Kuala Lumpur-based analyst with RHB-OSK Investment Bank, Alvin Tai, says the timing is right for Kulim to lift its stake in NBPOL, after management said several years ago it would raise its NBPOL stake at the right price.

Since selling off its restaurant business earlier this year, Kulim has made known its intentions to make plantation its core business.

‘Kulim have been a good investor. They’ve stuck to it, provided the extra capital as needed over the course of time. And you really couldn’t fault them.’

‘They want to acquire more plantation assets but have not been successful in doing it,’ says Tai. ‘They also had bad experience in Indonesia, hence will not venture there.

Why now?

‘Since last year, NBPOL’s stock price has suffered as its earnings plunged due to unusually heavy rainfall. As the weather effect is temporary, this creates an opportunity for Kulim to buy cheaply,’ said Tai.

The price of palm oil has slumped 35% to US$748 (K1,680) per tonne over the past year. While Tai expects prices to change little, other analysts expect it to drift lower.

A year ago, NBPOL’s share price was US$13.28 (K29.85). Its share price as at 24 June 2013 was US7.64 (K17.18)—a 42.5% drop.

But Tai expects Kulim’s revenue to increase by as much as eight per cent in fiscal 2014.

Likely impact

Tai doubts much will change in NBPOL’s operations if Kulim succeeds in taking virtually total control.

‘Kulim had a controlling stake in New Britain before but New Britain always operated independently.

‘There’s a commitment to the PNG Government that it’ll remain listed on PNG’s stock exchange, which is why they didn’t delist in PNG even though it’s hardly traded there. But I’m not sure if they’ll delist from the London Stock Exchange.’

Paul Barker, Director of the Port Moresby-based Institute of National Affairs, sees the move as positive for NBPOL, but says he’d like to see local investors stepping up to provide capital.

‘Kulim have been a good investor,’ he told Business Advantage PNG. ‘They’ve stuck to it, provided the extra capital as needed over the course of time. And you really couldn’t fault them. They’ve helped ensure the company has performed well and have been generally very responsible in their corporate manner.

‘On the other hand, you’d like to see PNG—which is obviously gaining as a resource rich country and is getting strong current and future revenues from the extractive industries—putting more of its own capital into the renewable resources sector, as a diversification for the future. Obviously, oil palm is a part of that.’

Neither Kulim nor NBPOL’s executives have made themselves available for comment so far, although its statement ot the Bursa Malaysia notes that ‘the future revenue and profitability of NBPOL is expected to record good growth in view of the maturity profile of the trees, NBPOL’s exposure to the downstream operations and the favourable prospects of the palm oil industry in PNG and the Solomon Islands.’

In a statement, NBPOL’s Chief Executive Officer, Nick Thompson, said he would not be commenting until a formal offer was made by Kulim.