According to The Edge Weekly, it is believed that Boustead Holdings has called for an open tender to dispose of its 57% interest in Boustead Plantations and the submissions were due last week. Several big names who had participated in the bidding process were YTL Group, Wilmar International, IOI Corp and KL Kepong. Based on our estimate, Boustead Plantations could be at an enterprise value of RM2.5bn-3bn, given its vast landbank size in Malaysia with some located in strategic area that is suitable for property development. Maintain Neutral on the plantation sector.

• Salient details of Boustead Plantations. The Group has a total landbank of 97,400ha, of which 72,300ha or 74% is used for oil palm cultivation. The oil palm cultivated land comprises 20,600ha of mature oil palm areas in Peninsular Malaysia, 10,300ha in Sarawak and 34,600ha in Sabah. It owns 10 palm oil mills and runs 42 oil palm estates spanning across Malaysian region. In FY22, the estates collectively produced 871,287ha of FFB with an average FFB yield of 13mt/ha (Peninsular Malaysia: 17.3, Sarawak: 7mt/ha and Sabah: 12.2mt/ha) Its CPO production totaled 216,047mt (certified sustainable CPO: 59%) with an average OER of 20.6% (Malaysia: 20.8%, Sarawak: 18.1% and Sabah: 21%). Stripping out the gain on disposal of plantation assets amounting to RM458.7m, the Group posted net profit of RM130m. On the balance sheet, it is sitting in a net debt position of RM691m or net gearing level of 24.1%. Meanwhile, net asset stands at RM2.85bn or RM1.27/share.

• Hidden value. Despite the unattractive track record of having a low FFB yield, the plantation Group has some attractive landbank spanning across Peninsular region that can be unlocked for property development. We have identified several places, namely Balau (Selangor), Kuala Muda, Kedah Oil Palms and Ladang Bukit Mertajam (Kedah). In addition, such vast plantation landbank size in Malaysia makes it an attractive appetite for the big-cap plantation companies.

• Likely to trigger a general offer. Based on the last closing price, the Group’s market capitalization of RM2bn, suggesting a trailing core PE multiple of 13.3x or an EV valuation of RM37,219ha/planted area. In our opinion, this is deemed attractive given that majority of the plantation landbank are brownfield and some are located in strategic areas. In the event the entire 57% stake held under Boustead Holdings is transacted, it will likely trigger a general offer for other shareholders.

Source: PublicInvest Research - 19 Jun 2023