• Boustead Plantation Berhad (BPB) is now helmed by a new CEO, Encik Izaddenn Daud, who was previously the deputy group MD, who is  responsible to continue with the Group initiative to bolster their prospects, riding on operational excellence and field efficiency, which  in our view, would support its plantation performance improvement  program.

• Nonetheless, we are cautious on BPB’s long-term performance should  it unable to dispose the Sarawak landbank including lack of new  acquisition as that may hamper BPB strategy to rebalance its assets  according to bell-curve (current age profile ~ 17years), and hence, hurt  its FFB production potential.

• Given their earnings are highly correlated to palm products price and  production, added with challenging business outlook with increased operational costs and a likely pullback in palm products price, we  trimmed lower our FY22F/23F core earnings forecast to RM220.2mn(- 16%) and RM119.7mn(-21%) respectively.

• Maintain a HOLD call with new TP of RM0.67 (RM0.69 previously), based on 3-year average P/B of 0.5x and FY23F BV/share of RM1.34 against RM1.38 previously estimated. We advise investors to take any  stock price rally as an opportunity to lock in their profit.

BPB Strategy Framework (FY2022-2026) on track.

We view positively the appointment of Encik Izaddeen Daud as a new group  CEO effective December 1, 2022 as this will ensure the continuity of BPB’s strategy framework – given that he was also responsible in steering the  group back to black in FYE 2021. To recap, prior to the appointment, he was  Boustead’s deputy group managing director who also served as an acting  CEO for Boustead Properties from July 2022 to February 2021. Given BPB  aspiration to become a sustainable technology-based plantation company,  the group would continue to focus, among others on 1) Asset Rebalancing  programme and Plantation Performance Improvement programme (PIPP) initiatives i.e., by improving yield, estates efficiency and effective cost  management measurement through best practices and certification, 2)  growing the business through plantation integration i.e., diversifying to  alternative crops and optimizing unutilised land, 3) digitalisation and  technology based operation and management process, and 4) focusing on  capital and/or asset management i.e., by strengthening balance sheet,  finance CAPEX, land expansion, collaborative investment and minimizing  interest expenses.

Earnings outlook is appealing – backed by gain on assets disposal.

We believe higher CPO price realised and gain on disposal of plantation  assets will amplify the company’s revenue and earnings growth in FY22. We  are looking at a record year in 2022 and project more than 100% YoY growth  in headline net profit to RM588mn. We are convinced of BPB’s ability to  grow its earnings on long-term basis, provided that the Group is able to  increase its productivity by improving FFB yield and operational efficiency.

Dividend potential may fall short of our expectation

BPB has thus far paid a total of 11.15sen DPS for FY22, translationto circa 49% pay-out ratio. We are of the view that dividend payment may fall short of our expectation (FY22F  DPS: 12.9sen) given an expected slowdown in core profitin line with a pullback in CPO  price and an increase in operational costs (RM2mn LBT in 3Q22). We assume the Group  to preserve their cash (including some proceeds from the disposal of plantation assets)  for CAPEX i.e., replanting programme to speed-up the plantation performance  improvement program to increase productivity and its palm age profile.

Trimming FY22F earnings by 7%.

In view of lower FFB production in FY22 (-3.5% YoY to 891k tonnes), a pullback in CPO  prices realise (from RM5,000/MT-RM6,600/MT to RM3,500/MT-RM4,500/MT)) and  higher operating cost including higher manuring costs (that rose more than 3-fold to  RM21.2mn in 3Q22 against RM6.2mn in 3Q21) due to a jump in fertiliser price – we  trimmed our FY22/23 earnings forecast to RM588mn (-7%) and RM119.7mn (-21%) respectively. If not for a gain on disposal of plantation assets,we are projecting a 9% YoY  drop in FY22 core net profit to RM220.2mn (RM262.1mn previously). Moving forward,  we see a potential downside risk to our FY22/23 earnings forecast owing to 1) low  productivity due to lower yield and prolonged labour shortage issue especially for  harvester, 2) higher operating costs, and 3) lower than-expected CPO prices which could  put a drag on BPB earning – given their earnings are highly correlated to ASP of palm  products and production. We are cautious on BPB’s long-term performance should it fails to dispose the Sarawak landbank or embark on any new acquisition that this may  hamper BPB strategy to rebalance its assets according to bell-curve (current age profile  ~ 17years), and therefore, a drag on FFB production and consequently earnings in the  near to medium term.

Maintain ‘HOLD’ call and new TP of RM0.67

Maintain a HOLD recommendation with new TP RM0.67 from RM0.69 previously. Our  TP is based on a 3-year average P/B of 0.5x and FY23F BV/share of RM1.34 – implying  12.5x FY23F P/E which is above its close peer’s average P/E of 8.1x and industry peer’s  average P/E of 11.0x (stocks under our universe). We think this is fair given its Asset  Rebalancing and Plantation Performance Improvement programme initiatives that  would continue as plan andmay bring improvement to the Group’s overall performance  in the long run. We advise investors to take any stock price rally as an opportunity to  lock in their profit.

Source: BIMB Securities Research - 8 Dec 2022