Kenanga Research & Investment

Boustead Plantations Bhd - Accept MTO of RM1.55/share

Publish date: Thu, 23 Nov 2023, 10:49 AM

BPLANT’s 9MFY23 results beat our forecast but met market expectations. Its 3QFY23 core net profit improved QoQ on steady CPO prices and easier costs. 3QFY23 core net profit recovered QoQ thanks to better margins on steady CPO prices and easier costs. We raise our FY23F net profit forecast by 45% and keep our ACCEPT OFFER recommendation at RM1.55 per share.

Its 9MFY23 core net profit came in at 75% of our full-year forecast but we regard the results as above our expectation as we expect a stronger 4Q. Based on the same rationale, while the number came in at only 50% of the full-year consensus estimate, we deem it within market expectations. The variance against our forecast came largely from better FFB output, easier production costs and slightly firmer CPO prices.

9MFY23 earnings turned around with an accumulated core net profit of RM14.9m from RM0.3m of net loss in 1HFY23 but was still down by 89% YoY on exceptionally strong CPO prices last year.

3QFY23 core net profit soared to RM15.2m from a loss of RM5.5m in 2QFY23. Its 3QFY23 margins improved on seasonally higher FFB harvest of 0.218k MT (+216% QoQ, -4% YoY) and a 20%-30% drop in fertiliser prices that helped to contain 3Q’s unit cost while CPO price of RM3,861 per MT was relatively flat (-2% QoQ, -6% YoY). Its 3QFY23 net gearing of 26% was steady QoQ. No dividend was declared for the third quarter.

Profits should improve but environment still challenging. Global edible oil supply growth in 2024 is debatable at the moment due to dry weather affecting Brazilian soya planting while ageing oil palm trees are dragging down fruit yields even without any serious El Nino. Yet, demand is set to persist with a 3%-4% YoY trend line growth after staging a good recovery this year. As such, relatively steady CPO prices of RM3,800 per MT over 2023-24 are expected. Cost should also ease compared to 1HCY23 and lastly, harvest should normalise as workers shortfall has more or less been addressed.

MTO at RM1.55 per shares. Since 1986, BPLANT and KLK have been collaborating through a 50:50 JV, Applied Agricultural Resources Sdn Bhd, to provide high yielding planting materials and agronomic consultancy. On 24 Aug 2023, KLK agreed to buy 33% of BPLANT’s equity for RM1,146m or RM1.55 per share from Boustead Holdings Berhad (BHB). As this was part of a strategic collaboration with BHB and BHB’s parent Lembaga Tabung Angkatan Tentera (LTAT). KLK together with BHB and LTAT have jointly triggered a Mandatory Take-over (MTO). However, the agreement was mutually terminated on 4 Oct as certain conditions cannot be met before the expiry date. LTAT then indicated on 5 Oct it wished to pursue the MTO and formalised this on 10 Nov with an agreement to buy the 33% stake from BHB and continue with the MTO at RM1.55 per share.

Forecasts. We raise our FY23F net profit forecast by 45%.

Valuation. The MGO price of RM1.55 per share rates BPLANT at a generous FY24F PER of 59x and a fair P/NTA of 1.1x given the sector 10-year cross cycle P/NTA of 1-2x. At RM1.55 per share, BPLANT is also at RM56K per Ha based on enterprise value per planted area (EV/PA) which is reasonable as: (a) 53% of its planted area are in Sabah and 14% in Sarawak where land price is lower than West Malaysia, (b) about half of BPLANT’s oil palm are above 20 years of age hence replanting is pending soon, and (c) in 2021, KLK bought IJM Plantations at RM50K per Ha.

ACCEPT OFFER of RM1.55 per share as the plantation sector is trading at only 16x and 0.9x PBV for the smaller to mid-cap plantation companies. The offer price of RM1.55 values BPLANT above both these ratings.

Risk to our call include: The privatisation deal falls through.

Source: Kenanga Research - 23 Nov 2023

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