• We initiate coverage on Boustead Plantation Berhad (BPB) with a HOLD recommendation given its continuous effort on operational excellence and field efficiency, which in our view, would support its plantation performance improvement program.

• The company is one of the cheapest proxies of rising CPO price with strong earnings growth potential of 49% CAGR for FY20-FY23F – on top of its large tract of freehold land in Peninsular Malaysia with property or infrastructure development potential.

• We value BPB at RM0.69 based on a 3-year average P/B of 0.5x and FY23F BV/share of RM1.38. This implies 10x FY23F P/E, offering a 7.8% upside potential and therefore, a HOLD call.

Earnings outlook is appealing – backed by sustainability.

We believe higher CPO price and gain on disposal of plantation assets will amplify the company’s revenue and earnings growth momentum in FY22. We are looking at a record year in 2022 and project more than 100% YoY growth in headline net profit to RM629.9mn (core profit: RM262.1mn, +9% YoY). We remain convinced of BPB’s ability to grow its earnings on long-term basis, provided the Group is able to increase its productivity by improving FFB yield and operational efficiency.

Production is expected to recover from 2023 onward

There could be a setback in FFB production for this year, estimated to drop by 3.5% YoY to 891k tonnes and averaging about 2.3% per annum over the next 2 years, though supported by improvement in yields, plus more planted areas come into maturity and harvesting due to better age profile. The company’s operational efficiency in estates is expected to rise due to good progress in addressing the labour shortage issue and the initiative on Asset Rebalancing programme. On this note, we are projecting a core PATAMI of RM262mn and RM151mn for FY22 and FY23 respectively, assuming an average CPO price realised of RM5,000/MT for FY22 and RM3,500/MT for FY23, and 2.5% growth in FFB production for FY23 –implying a 3-year CAGR PATAMI of 49% for FY20-FY23 period.

Attractive dividend yield

BPB adopts a dividend policy of distributing at least 50% of the Group’s profit to shareholders. For FY17-FY21, the group rewarded its shareholders with a higher payout ratio exceeding 50% of PAT ranging between 52% to >100% respectively. In this regard, based on our FY22 net profit projection of RM629.9mn, BPB may fork out a prospective dividend of 12.85sen/share, translating into an attractive dividend yield of 20.1% (after factor-in gain on disposal of plantation assets).

Initiate with a ‘HOLD’ call and TP of RM0.69

We initiate coverage on BPB with a HOLD recommendation and TP RM0.69. Our TP is based on a 3-year average P/B of 0.5x and FY23F BV/share of RM1.38 – implying 10x FY23F P/E which is above its close peer’s average P/E of 8.1x but below its industry peer’s average P/E of 13.8x (stocks under our universe). We think this is fair given its Asset Rebalancing programme and Plantation Performance Improvement programme initiatives that would improve the Group’s overall performance in the long run.

Source: BIMB Securities Research - 27 Sept 2022