This article first appeared in The Edge Financial Daily on May 16, 2018
Boustead Plantations Bhd
(May 15, RM1.34)
Maintain hold with a target price (TP) of RM1.29: While Boustead Plantations Bhd has yet to complete the Dutaland estate acquisition, it has proposed another Sabah land acquisition for MYR433 million cash. Details are scant at the moment. Our preliminary estimates value the deal at around RM69,000 per (gross) hectare (ha), which does not appear to be attractive at first glance. We believe Boustead Plantations will need to monetise more of its existing estate to fund this deal. Pending details, we make no changes to earnings estimates. We maintain “hold” and an RNAV-based TP of RM1.29.
Subject to a 60-day due diligence exercise, Boustead Plantations has proposed to acquire 5,531.25ha of plantation land (inclusive of a 60 tonnes per hour [tph] mill) in Sandakan, Sabah, from Sit Seng & Sons Realty SB (via share sales). The indicative market value of the plantation assets inclusive of the mill is around RM433 million cash. Boustead Plantations paid a RM7.6 million refundable deposit. No other details were made available in the announcement.
Assuming the 60tph mill is worth RM50 million, Boustead Plantations will be paying around RM383 million or around 69,000 per (gross) ha for the plantation land. On a net basis, the enterprise value per actual planted or plantable area will be higher. It is also not known if Boustead Plantations is buying an existing well-run mature estate with decent fresh fruit bunch (FFB) yields or one that requires further capital for redevelopment.
We believe Boustead Plantations will likely monetise more of its prime estate to fund this proposed acquisition and support high dividend payouts in the future. Otherwise, Boustead Plantations will need to raise more borrowings to fund this acquisition. By our estimate, this proposed acquisition will likely raise Boustead Plantations’ proforma net gearing (as at Dec 31, 2017) to 43% (from 5%) after considering the completion of the Dutaland estate acquisition (-RM750 million cash), disposal of Penang land (+RM136 million), 2017’s fourth interim dividend (-RM64 million) and this acquisition (-RM433 million). — Maybank IB Research, May 14