If I am given a choice between Kuala Lumpur Kepong Berhad (KL Kepong) and Batu Kawan Berhad (Batu Kawan), which of the two would I invest today?


First and foremost, this is an age-old question often asked by investors who are into plantation stocks. This question arises because Batu Kawan is a substantial shareholder of KL Kepong with 47% shareholdings and earns most of its income from it. In other words, there are two stocks which are profiting from almost, if not all, the same plantation assets.

Second, before picking, I believe we must first understand their similarities. For instance, Tan Sri Dato’ Seri Lee Oi Hian and his brother, Dato’ Lee Hao Hian are major shareholders and key directors of both KL Kepong and Batu Kawan. They remain at the helm of leadership for both companies.

Prior to 2013, Batu Kawan has accounted for KL Kepong’s financial results as an associate company. Starting in 2014, Batu Kawan had adopted a new reporting standard under FRS10 where KL Kepong’s financial results would be accounted for as a subsidiary of Batu Kawan. As such, if I want to decide between the two, I would first study KL Kepong. Soon after, understanding Batu Kawan is as easy as a walk in the park. There is no need to do ‘double-work’.

Thus, here are 5 key things to know about KL Kepong before deciding between the two.

#1: KL Kepong’s Plantation Assets

KL Kepong is an integrated palm oil conglomerate with assets in both upstream and downstream sectors.

Its upstream segment has 223,296 hectares of plantation estates where 95% of these estates are oil palm estates. The balance 5% consists of rubber estates. It operates a total of 25 palm oil mills, 4 refineries and 3 kernel crushing plants.

Its downstream segment runs 14 manufacturing facilities which produce a wide range of oleochemicals such as fatty acids, fatty alcohols, and fatty esters. They have a total production capacity of 3 million metric tonnes (MT) per annum.

#2: KL Kepong’s Production

KL Kepong had achieved steady growth in fresh fruit bunches (FFB) productions for the past 10 years. It has increased from 2.8 million MT in 2008 to 3.9 million MT in 2017. This is due to the management’s efforts in increasing the size of its oil palm estates steadily during the period.

Out of which, KL Kepong had maintained a steady production of crude palm oil (CPO) and palm kernel (PK) for the past 5 years. It had recorded a little short of 1.0 million MT in CPO and a little more of 200,000 MT in PK per year from 2013 to 2017. This is because KL Kepong had reduced its purchase of FFB from other third party suppliers for the processing of CPO and PK during the period.

Source: Annual Reports of KL Kepong

#3: KL Kepong’s Profitability

KL Kepong has proven itself to be a highly profitable company. On average, the conglomerate has made RM 1 billion in shareholders’ earnings per year despite operating in an environment where palm prices are volatile.

Batu Kawan’s profit pattern has mirrored KL Kepong’s profit figures for the last 10 years. It made on average RM 569.6 million a year in shareholders’ earnings.

Source: Annual Reports

#4: KL Kepong’s Balance Sheet Strength

As at 30 June 2018, KL Kepong has reported non-current liabilities totalling RM 3.99 billion. Thus, its gearing ratio is 32.9%. KL Kepong has as much as RM 3.53 billion in net current assets and a current ratio of 2.19.

#5: KL Kepong’s Future Prospects

Recently, KL Kepong has completed two acquisitions. They are as followed:

PT Putra Bongan Jaya (PBJ)

On 3 September 2018, KL Kepong has completed its acquisition of 95% stake in PBJ for RM 296.4 million. It owns the Hak Guna Usaha (HGU) for a total area of 11,602 hectares of land at Kalimantan Timur and Izin Lokasi (IL) for a total area of 4,460 hectares of land which is also located at Kalimantan Timur. The terrain of these lands are flat and are suitable for cultivation of oil palm plantations.

This acquisition would add 16,062 hectares of plantation estates to KL Kepong, 7.5% of its oil palm estate size of 214,825 hectares in 2017.

Elementis Specialties Netherlands B.V. (ESN)

On 28 February 2018, KL Kepong has completed its acquisition of 100% interest in ESN for RM 187.2 million. It includes ESN’s plant & machinery, storage, plant & machineries, working capital, list of customers, intellectual properties and all other tangible assets & inventories at its 16.2 hectares site in Delden, Holland.

As a result, KL Kepong would expand its clientele base and product range for its oleochemical business in the Netherlands.

#6: Valuation for KL Kepong

As I write, KL Kepong is trading at RM 24.90 a share.

In 2017, KL Kepong has made earnings per share (EPS) of RM 0.944. Hence, KL Kepong’s current P/E Ratio is 26.38. On 30 June 2018, KL Kepong has reported net assets a share of RM 10.55. Thus, its current P/B Ratio is 2.36. In 2017, the company had paid out RM 0.50 in dividends per share (DPS). Thus, its dividend yield is 2.01% a year if KL Kepong maintains its DPS at RM 0.50 a year.

Source: Google Finance

#7: Valuation for Batu Kawan

As I write, Batu Kawan is trading at RM 16.88 a share.

In 2017, Batu Kawan has made earnings per share (EPS) of RM 1.452. Hence, its current P/E Ratio is 11.63. As at 30 June 2018, it reported  net assets a share of RM 16.18. Thus, its current P/B Ratio is 1.04. In 2017, Batu Kawan has paid out RM 0.60 in DPS. Thus, its dividend yield is 3.55% a year if Batu Kawan maintains its DPS at RM 0.60 a year.

Source: Google Finance

VIA’s Verdict

Back to the question above:

If I am given a choice between Kuala Lumpur Kepong Bhd (KL Kepong) and Batu Kawan Bhd (Batu Kawan), which of the two would I invest today?

Personally, I choose Batu Kawan due to a more attractive valuation considering that its stock price dropped by 15 – 16% from RM 20 levels at the start of 2018.

What’s your take? Please do share your verdict or thoughts below:


  1. Hi Ian,
    Great article to compare both companies.

    I done further research and find that it is way more appropriate to use “adjusted earnings and book value” to compare Batu Kawan’s PE and PB valuation.

    Let me explain what I mean. As you explained, Batu Kawan is a majority shareholder of KLK (47% shareholdings). Since KLK’s financials are consolidated under Batu Kawan’s financial. In my view, it is more accurate to use Profits Attributable to Equity holders of the Company instead of taking PAT in face value. This is because Batu Kawan should only be entitled to 47% of KLK’s earnings, but income statements do not do this adjustment. When you do that, the “Adjusted” PAT will roughly half of full PAT. Then your “Adjusted” PE will be double of 11x, where 22x is closer to KLK’s PE of 26x.

    Similar on the equity side, investors should take Total equity attributable to equity holders of the Company instead of The Total Equity Figure since Batu Kawan should only be entitled to 47% of KLK’s total equities/ networth. If you do this, the fair equity portion (in my view) will be less than half and you will have a “Adjusted” net assets per share of much lesser, with “Adjusted” PB ratio of more than 2x, which is pretty similar to KLK’s.

    I believe this is the way you should look at the valuation if you’re comparing in terms of PE and PB. Obviously even after the adjustments, it makes sense for Batu Kawan to have a slightly cheaper valuation (as compared to KLK’s) due to the holding company discount.

    Please let me know if I’m made sense. Thanks.

    • Hi Jason,

      There are two parts to my answer.

      Yes, it made sense in terms of earnings. If you noticed the graph on earnings for both companies, they are plotted based on its profits attributable to shareholders. This means, Batu Kawan Bhd’s earnings is based on 47% interest in KL Kepong, which effectively excluded profits to non-controlling interest (NCI) which is not related to Batu Kawan Bhd.

      No, when it comes to P/E Ratio. This is because the EPS figures for Batu Kawan Bhd is calculated based on the profits attributable to shareholders, not total profits after tax. In essence, P/E Ratio of 11x is correct, not 22x. The same goes with shareholders’ equity, which already is based on its 47% shareholdings in KL Kepong and eliminates the 53% non-controlling interest held by other people. P/B Ratio still stands at 1x and not 2x.


  2. Thank you for detailed and useful analysis above.
    I am a long term 50 year UK based shareholder in BatuKawan- the performance has been remarkable and management are to congratulated.
    I do have a concern that the continual buy back of shares has moved absolute control into the major shareholders potentially leaving minority shareholders with reduced “rights” .
    From a taxation point of view I much prefer to receive capital as opposed to dividend income.
    Should I be concerned? Are we protected in any way?
    What is the ultimate aim of the owners?
    It is a great family company- will successive family generations be as shrewd?

    • Hi John, thanks for reaching out. It is amazing to hear from a long term investor like yourself! I have to say I have never met an investor who has the discipline to hold a stock for 50 Years! My salute to you.
      Minority rights is always a concern for investors, especially in developing markets like Malaysia. However, I think since Batu Kawan has been listed for so long, they have demonstrated that they are relatively fair to investors.
      Succession planning is always very complicated. The family is large I am sure they will find talent within, however, I am not sure if there will be in-fighting for control of the company. And as they are more of a holding company now, holding large stake in Kuala Lumpur Kepong Bhd, it is possible that one of these two companies might be privatised in future to streamline management control.
      On top of that the company is still very exposed to the palm oil and property industry, so the future of the company will still be linked to the future of palm oil and property in this region in general.
      Since you have been investing in the company far longer, I am sure you have a much better idea than we have. Thanks for reaching out.


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