Boustead Plantations Maintains a Healthy Balance of Plantation Assets

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BOUSTEAD Plantations Bhd (BPlant) is rebalancing its plantation assets through an aggressive replanting programme and consolidating its holdings through joint ventures or outright sales.

Zainal Abidin Shariff, the group’s recently appointed managing director, stated during an investor conference that the group will replant more than 18,700ha over the next five years to increase future revenues.

BPlant owns 73,453 hectares of planted estates in Peninsular Malaysia, Sabah, and Sarawak, as well as 24,756 hectares of unplanted land.

“BPlant’s primary obstacle is the structural age profile issue. A sizable portion of our plantations are fairly old. Around 40% of our age profile is on the older side, and as you can see, production is declining year after year.

“I am working diligently to rebalance the portfolio. One solution is to implement an expedited replanting programme. We need to convert those plantings with yields less than 10MT (metric tonne) per ha to higher yielding plantations, but it would take time, perhaps three to four years,” Zainal said during the briefing.

The average yield of fresh fruit bunches (FFBs) per hectare of BPlant has decreased from over 16MT per hectare in 2014 and 2015 to 13.9MT per hectare in 2019. It grew to 15MT per hectare in 2020, owing to higher production from the group’s Sabah plantations from 2018.

BPlant will replant approximately 25% of its overall plantation area over a five-year period beginning this year. Zainal believes that the project will cost approximately RM20,000 per hectare.

BPlant intends to invest RM100 million next year on replanting and automating its operating processes. The business plans to replace 3,400 hectares of its plants, largely in Sabah, next year.

The programme to replant and automate its operations will require a large investment. BPlant is convinced that it has sufficient finance sources for that purpose, including internal cash flow and an unutilized bank credit line.

BPlant reduced its net gearing to 45 percent in the second quarter ended June 30, 2021 (2QFY2021), down from 55 percent in FY2019.

Apart from the replanting initiative, the group intends to acquire younger age-profile plantations in order to rebalance existing plantations. To finance the acquisitions, it intends to sell some of its plantation assets with an older age profile, according to Zainal.

“The overall objective is to rebalance the assets through accelerated replanting, and the strategy is to shift the bell curve of the age profile toward plantations that can provide more palatable, sustainable production in the future,” says Zainal, who was appointed managing director of BPlant on July 9. Between April 1, 2019 until November 27, 2020, he served as the CEO of TDM Sdn Bhd.

The replanting exercise is critical to BPlant’s continued growth. As of 2QFY2021, the age profile of its palms is biassed toward past prime or greater than 20 years, accounting for 39% of its planted area.

BPlant’s plantations in Sarawak have the highest average age profile of all the regions. As of 2QFY2021, 78 percent of Sarawak plantations were planted with palms that had reached the end of their useful life.

This has fueled speculation that BPlant may sell its Sarawak plantations. This is one possibility, but the group will also consider joint ventures and plantation integration.

Plantation integration refers to the use of plantations to cultivate crops other than oil palm, such as pineapples and chilies, as well as cattle raising. Apart from that, BPlant is considering combining unplanted land to produce alternative crops or leasing or selling these regions for solar farms, according to Zainal.

BPlant stated on September 10 that it has agreed into a Conditional Land Lease Agreement (CLLA) with Next Generation Oil Sdn Bhd (NGOSB) for between 1,040 and 1,286 acres of land in Johor’s Telok Sengat Estate.

For a term of 30 years, the land will be leased at a monthly rate of RM1,210 per acre. This will result in an annual lease rental payment to BPlant of between RM15.1 million and RM18.7 million, depending on the actual location and size of the land to be decided prior to the agreement’s execution date.

The CLLA with NGOSB demonstrates one method via which BPlant intends to consolidate its unplanted acreage. Across the country, the organisation has 24,756ha of unplanted land, or roughly 25% of its total land bank. Sarawak accounts for 16,240ha of this total.

On the operational side, BPlant, like other plantation companies, benefited from the second quarter’s high crude palm oil (CPO) prices. BPlant’s net profit increased 295.9 percent to RM48.3 million in 2QFY2021, up from RM12.2 million in the preceding quarter.

BPlant profited by RM60.6 million in the first half of the year, compared to a loss of RM2.5 million in the same period previous year. The company’s strong performance enabled it to distribute first-half dividends of 2.6 sen per share.

However, this year’s improved performance was virtually entirely due to higher CPO prices. BPlant reported reduced fresh fruit bunch (FFB) production of 411,867MT in 1HFY2021 compared to 480,240MT in the prior year.

Due to lower FFB output, the FFB yield per ha was lower in the first half of the year compared to the same period previous year. BPlant’s FFB yield per ha was only 5.9MT in 1HFY2021, down from 7.2MT in the previous equivalent quarter.

This was owing to rainy weather in 1QFY2021 compared to the previous corresponding quarter, a lengthy drought in 2019 that impacted production in 2021, and a labour scarcity caused by Covid-19 restrictions.

Nonetheless, BPlant’s FFB production and yield per hectare have increased quarter over quarter. Zainal is sure that BPlant will sustain its current level of FFB output in 2020.

Maybank Investment Bank Research analyst Ong Chee Ting has a “buy” recommendation on BPlant with a target price of 81 sen per share, based on a sum-of-the-parts valuation.

“While details are sparse, we feel a greater willingness to monetise and/or sweat existing assets in order to accelerate BPlant’s transition while also rewarding shareholders,” Ong writes in a Sept. 12 report.

“Despite management’s flat year-over-year FFB output target for FY2021E, we are maintaining our conservative -11 percent year-over-year FFB output prediction. Nonetheless, our sensitivity analysis indicates that if FY2021E output remains constant with FY2020, BPlant’s core PATMI will increase by RM61 million,” he observes.

Maybank IB Research expects BPlant to have a core net profit of RM101 million in FY2021. It forecasts a net dividend per share of 3.6 sen in fiscal year 2021, based on an 80 percent dividend payout ratio of core net profits.

BPlant ended at 61 sen per share on Wednesday, valuing the firm at RM1.366 billion. Maybank IB Research’s target price of 81 sen per share implies a possible capital gain of 32.8 percent based on Wednesday’s finish.

Published by Zack Baharum

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