KLK, Boustead Holdings (BHB) and Lembaga Tabung Angkatan Tentera (LTAT) are jointly extending a Mandatory General Offer (MGO) to take BPLANT private at RM1.55 per share. This follows KLK’s proposed acquisition of a 33% stake in BPLANT from BHB for RM1,146m or RM1.55 per share. Separately, BPLANT reported a loss for 1HFY23. We rationalise our TP for BPLANT to RM1.55 (from RM0.68) and call to ACCEPT OFFER from MARKET PERFORM.

MGO for BPLANT shares at RM1.55. KLK is acquiring a 33% stake in BPLANT from BHB for RM1,146m or RM1.55 per share pursuant to a deal described as a “strategic collaboration agreement” with BHB and LTAT with the “long-term objective of enhancing the operational efficiencies and crude palm oil yields” of BPLANT’s estates”. After selling down their 33% to KLK, BHB and LTAT will still collectively own 35% of BPLANT. The three parties will jointly extend an MGO for BPLANT shares held by the remaining shareholders at RM1.55 per share.

BPLANT is a pure upstream oil palm player with 97,399 Ha in Malaysia, out of which 72,291 Ha (74%) are planted, 53% is in Sabah, Peninsula (32%) and Sarawak (15%). Six of its 10 mills and 21 of its 44 estates are Roundtable on Sustainable Palm Oil (RSPO) certified. BPLANT has also been collaborating with KLK since 1986 through a 50:50 JV, Applied Agricultural Resources Sdn Bhd which produces high yielding planting materials and agronomic consultancy.

KLK is a plantation multinational based in Malaysia with 355,485 Ha of land. About 297,987 Ha are planted - 97% with oil palm and are spread over Malaysia, Indonesia as well as Liberia in Africa. In manufacturing, the group is involved in refining, oleochemicals, derivatives and specialty chemicals across Malaysia, China, Indonesia, Switzerland, Germany, the Netherlands and Belgium. The group also develops property and its current projects include Bandar Seri Coalfields at Sg Buloh and Caledonia at Ijok, both of which are in Selangor

Valuation. The MGO price of RM1.55 per share rates BPLANT at 82x FY24F PER which is high. However, plantation sector earnings are undergoing a down-cycle due to rising cost and flattish selling prices. Under such scenario, price-to-book (P/NTA or P/BV) is often a better valuation guide. Importantly, this proposal involves buying not just a controlling stake but taking BPLANT private, hence a valuation premium is common under such circumstance. Moreover, asset-based valuations such as P/NTA or EV/Area are often adopted within the sector when it comes to buying or selling physical estates. At RM1.55 per share, BPLANT is rated at 1.3x P/NTA which is fair given the long-term, cross commodity cycle, and P/NTA of 1x-2x NTA for the Malaysian plantation sector. At RM1.55 per share, BPLANT is also valued at RM56K per planted Ha which is reasonable given that KLK acquired IJM Plantations back in 2021 for RM50K per planted Ha.

1HFY23 results disappointed. Separately, BPLANT reported a 1HFY23 core net loss of RM0.3m due to a confluence of poorer 2QFY23 FFB harvest of 0.181k MT which exacerbated the already high costs compounded by softer CPO prices. No interim dividend was declared. Better harvest and easier costs are expected for the coming quarters but we cut our FY23-24F net profit by 56-16%.

Rationalise to ACCEPT OFFER from MARKET PERFORM with a higher TP of RM1.55 in-line with the MGO price (from RM0.64 which was based on PER basis). We welcome the proposal as it allows BPLANT shareholders to exit at a better valuation than the equity market would have been ready to offer. Many smaller plantation groups typically trade at discounts to even their NTA. Risk to our call include: The privatisation deal falls through.

Source: Kenanga Research - 25 Aug 2023