Highlights

Background. Boustead Plantations Bhd (BPB) is involved primarily in the oil palm plantation business, which owns, coowns and leases a total of 41 oil palm plantation estates (measuring a total of 83,635.9 ha of land bank) and 10 palm oil mills in Malaysia. As at end Dec 2013, BPB’s oil palm plantation assets have an average age of ~14 years, with majority (59%) of its total planted land bank at prime mature stage.

Key investment highlights: (1) our long-term positive outlook on the oil palm plantation sector; (2) BPB’s 246.8ha of land bank in Balau estate has potential to be developed into a property township, given its close proximity to the Semenyih town centre; and (3) BPB’s replanting programme, coupled with the use of new planting materials will improve BPB’s overall yield over the longer term.

Future plans & strategy: (1) expansion of plantation assets; (2) improve estate management systems; (3) implementation of biogas systems for renewable energy production; and (4) improve operating efficiency through greater use of new planting materials.

Utilisation of proceeds. Majority of the IPO proceeds will be used for the acquisition of plantation land (45.3% of the total proceeds) and repayment of amounts owing to Boustead Holdings (42% of the total proceeds).

We are projecting BPB’s core net profit in 2014 to jump by 74.7% to RM119.9m, mainly on the back of higher average CPO price assumption RM2,700/mt (vs. RM2,353/mt achieved in 2013), while core net profit in 2015 to remain flattish at RM116.4m (largely on the back of a slightly higher production cost assumption).

We project BPB to pay DPS of 4.5 sen (equivalent to ~60% of our 2014 projected core net profit), and this translates into a dividend yield of 2.8% (based on indicative IPO price of RM1.60).

Catalysts

• Successful in acquiring earnings accretive plantation assets; and
• Further improvement in FFB and oil yield.

Risks

• Sharp decline in CPO prices, which would in turn weigh down on BPB’s plantation earnings;
• Unfavourable weather conditions, which may affect FFB output;
• Labour shortage;
• Sharp increase in production costs, in particular, labour and fertilizer costs.

Valuation

We value BPB at RM1.63/share, based on sum-of-parts valuation.

Source: Hong Leong Investment Bank Research - 4 Jun 2014