• We believe the termination of LTAT’s BPlant and KLK strategic collaboration deal to be a substantial setback for BPlant.

• Failing to leverage KLK's expertise to enhance efficiency and productivity at BPlant's plantations, we anticipate a further decline in core earnings in the near term. This decline is expected due to the possibility of lower-than-expected production and ongoing pressure on operational costs, unless offset by additional gains from land disposals.

• Revert our TP to RM0.65 (from RM1.55 previously) with a SELL call; based on 3-year average P/B of 0.5x that is pegged to BV/share of RM1.30.

LTAT’s BPlant stake sale to KLK falls through. In separate official filings, BPlant and KLK have jointly announced that the condition precedent stipulated in the strategic collaboration agreement (SCA) between KLK, Boustead, and LTAT will not be met by the prescribed cutoff date of October 6, 2023. Consequently, all parties have mutually agreed to terminate the SCA with immediate effect as of October 4, 2023. As a result, Boustead is obligated to promptly refund the deposit, equivalent to the sum of RM229.15mn to KLK within a period of 14 business days from October 4, 2023, or any later date agreed upon by the parties. To recap, the deal would have seen LTAT and Boustead dispose of a 33% stake in BPlant for RM1.15bn or RM1.55 per share to KLK. Following this, KLK will undertake a mandatory general offer (MGO) and subsequently take BPlant private. The plan is for KLK to own 65% of BPlant, while LTAT and BHB will control the remaining 35%. Note that KLK currently holds a direct 3.09% stake in BPlant, having acquired 6.11mn shares as of September 29.

Our Comments. The termination of LTAT's BPlant and KLK strategic collaboration deal is considered a substantial setback for BPlant. This termination represents a missed opportunity to leverage on KLK's expertise in enhancing efficiency and productivity at BPlant's estates, and to deliver benefits for BPlant's minority shareholders. If the deal had materialized, it would have been viewed as a favourable proposition for BPlant's shareholders. 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. Revised our TP back to RM0.65 (from RM1.55 previously) with SELL call; based on historical 3-year average P/B of 0.5x that is pegged to BV/share of RM1.30.

Source: BIMB Securities Research - 4 Oct 2023