Boustead Plantations announced the signing of a Document of Understanding (DoU), via subsidiary Boustead Agro Plantations Sdn Bhd, with Pertubuhan Peladang Kawasan Hulu Langat (PPKKL) to cooperate in the development of a commercial crop project, namely the planting of chilli and ginger. It represents the group’s first venture into other crops as well as being a potential ESG venture via cooperation with a government body and local community. We make no adjustments to our estimates and maintain OUTPERFORM with a TP of RM1.00. We make no adjustments based on its 3-star ESG rating as appraised by us.

A technical cooperation. Boustead Plantations, under their “Reinventing Boustead” framework, has outlined the integration of sustainability as well as ESG principles into its business. Currently, the group is involved in the upstream and midstream of CPO production, cultivating palm oil and refining CPO for commercial sale. This DoU represents their first venture into other commercial crops via a technical cooperation with members of PPKKL. The DoU entails the development of a commercial crop project, namely chilli and ginger, seemingly on the group’s existing land. The project aims to assist the government in addressing issues with food security as well as developing technologically integrated farming practices such as smart fertiliser application via the integration of Internet of Things.

Background on PPKKL. Lembaga Pertubuhan Peladang, of which PPKKL is a branch of, is a government institution established to improve farmers’ economic and social standing via improving the skills and knowledge of members and presenting a more integrated community. Established under the Akta Pertubuhan Peladang 1973 (Akta 109), PPKKL’s role in this is to provide technical expertise as well as guidance and training to ensure the success of the venture.

Overall, we think the DoU will have minimal impact on the group. The land utilised by the project is expected to be a small portion of the group’s land bank in the area and the project seems to be more of an early step towards achieving goals under their ESG framework via engaging with local communities through the training and guidance. We do not expect any major effects on earnings as investment into the project is expected to be minimal. While the collaboration with PPKKL is an encouraging step towards their long-term sustainability goals, the project seems to be the group’s experimenting with other crops rather than an indicator of a major change.

We maintain our OUTPERFORM rating with a TP of RM1.00 based on an FY23E PER of 13x, a 20% discount to the 16x FY23E PER we ascribe to its larger and more integrated peers. We continue to like the stock for its generous estimated dividend yield of 17.4% for FY22 and 9.9% for FY23.

Risks to our call include: (i) lower-than-expected CPO prices, and (ii) higher-than-expected rise in costs.

Source: Kenanga Research - 11 Aug 2022