Boustead Plantations Bhd (BPB) 1H23 LATAMI of RM0.3mn (>100%) was below ours and consensus expectations. Looking forward, it is expected that core earnings will undergo further decline in the near-term. This decline is projected to be driven by the possibility of lower-than-expected in productions, coupled with continued pressure in operational costs; unless the impact is mitigated by additional gains from land disposals. Following the earnings result, we cut our FY23 and FY24 earnings lower by 68%/56% to RM18.2mn and RM14.3mn respectively. Maintain SELL with unchanged TP of RM0.65.

• Below expectations. 1H23 LATAMI of RM0.3mn was below ours and consensus expectations. 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.

• QoQ. BPB’s recorded a LATAMI of RM5.52mn in 2Q23, despite a tad increase in revenue to RM201.2mn (+0.7%), mainly due to the decline in FFB, CPO and PK productions as well as elevated manuring cost resulting from higher fertiliser application and lower valuation of closing stock.

• YoY/ YTD. On YoY basis, the losses incurred was due to 42%/40% YoY drop in revenue, dragged by 1) lower average selling prices (ASP) realised of palm products, 2) lower production of FFB (-5%), CPO (- 9%) and PK (-12%), and 3) 25.6% YoY and 18.4% YTD increase in finance cost to RM9.6mn/RM19.5mn respectively.

• Outlook. We expect BPB's earnings in the near-term to remain subdued, primarily attributed to the projected moderation in palm product prices versus last year and costs pressure, unless these effects are offset by supplementary gains from land disposals. In light of this situation, we emphasize our concern about potential downward risks to BPB's earnings for the current year. These risks could materialize under the following circumstances: 1) continued suboptimal production due to lower yield, 2) a significant retreat in palm product prices, 3) escalation in operational costs, and 4) inability to capitalize on the monetization of plantations landbank, particularly in Sarawak.

• Our call. Following the result, we cut our FY23 and FY24 earnings forecast to RM18.2mn and RM14.3mn respectively from RM56mn and RM32mn previously. Maintain a SELL call with a new lower TP of RM0.65, based on 3-year average P/B of 0.5x that is pegged to BV/share of RM1.30.

Source: BIMB Securities Research - 25 Aug 2023