Boustead Plantations Bhd (BPB) 1Q23 PATAMI of RM5.2mn (QoQ: - 94%, YoY: -99%) was below ours and consensus expectations, accounting for only 4% and 5% of full year forecast respectively.  Looking ahead, it is anticipated that core earnings will experience  further decline in the second half of the year due to an expected decrease in palm products price on the back of rising cost, unless  this impact is offset by additional gains from land disposals. Following the earnings result, we downgrade our call from a HOLD to a SELL with a new TP of RM0.65 versus RM0.69 previously.

• Below expectations. 1Q23 net profit of RM5.2mn (QoQ: -94%, YoY: - -99%) was below ours and consensus expectations accounting for 4%  and 5% of full year estimates respectively. The difference between  reported earnings and core earnings is a gain on disposal of Kulai  Yong land of RM364.1mn in 1Q22 and a gain on partial disposal of  Bukit Mertajam land of RM91mn in 4Q22.

• Dividend. The Board declared an interim DPS of 1sen for FY23 (1Q22:  7.3sen). This translates into a DY of 1.3% at current market price.

• QoQ. BPB’s 1Q23 revenue and PATAMI declined by 24% and 94%  QoQ respectively to RM199.7mn and RM5.2mn. The drop in earnings was as a result of a pullback in revenue, no thanks to lower FFB  production, yield and OER caused by heavy rainfall that hampered  harvesting and logistics activities.

• YoY/ YTD. On the YoY basis, earnings came in lower following a 38%  YoY drop in revenue, dragged by 1) lower average selling prices (ASP)  realised of palm products, 2) lower production of FFB (-3%), CPO (- 4%) and PK (-5%), and 3) 3% increase in operating cost to RM35.8mn and finance cost to RM9.8mn (-12%). As such, core PBT margin was  less-than-inspiring or at 6.7% vs 44.9% in 1Q22.

• Outlook. Looking ahead, it is anticipated that BPB’s earnings will  potentially experience further decline in the second half of the year due to an anticipated decrease in palm products price and cost pressures, unless this impact is offset by additional gains from land disposals. As such, we reiterate our view of BPB’s upside risks for earnings for this year would materialise if 1) production continues to be below potential due to lower yield, 2) a huge pullback in palm  product price, and 3) higher operational costs, and 4) fail to monetise plantations landbank in Sarawak.

• Our call. In view of current challenging business outlook, we revised  lower our FY23 and FY24 earnings forecast to RM56mn and RM32mn  respectively from RM119mn and RM47mn previously. Downgrade our call from a HOLD to a SELL with new TP of RM0.65 versus RM0.69 previously based on 3-year average P/B of 0.5x that is pegged to  FY23F/24F BV/share of RM1.30. Hence, we advise investors to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 24 May 2023