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Boustead Plantations Bhd
(Feb 26, RM1.47)
Maintain buy call with a lower target price (TP) of RM1.68:
The financial year ended Dec 31, 2014 (FY14) results were disappointing due to higher-than-expected cost of production, low fresh fruit bunch (FFB) output and high taxes. We cut FY15 estimates (E) and FY16E earnings per share (EPS) by 28% and 22% on imputing lower FFB output and higher cost of production expectations.

Rich land value, however, caps the downside of the counter. We maintain “buy” with a revised sum-of-parts (SoP) TP of RM1.68 (previously RM1.93).

Boustead Plantation’s FY14 core profit after tax and minority interests of RM63 million (-1% year-on-year [y-o-y]) met 77% of our FY14 estimates; below our expectations. Disappointments came from a drop in FFB output in the fourth quarter of FY14, which resulted in 2014 FFB output meeting just 97% of our full-year forecast, higher-than-expected cost of production, and a higher effective tax rate of 42% (versus our forecast of 22%).

Operationally, FY14 FFB output was flattish year-on-year (y-o-y) at 1.036 million tonnes and so was the crude palm oil average selling price achieved at RM2,401 per tonne (+2% y-o-y), but operating profit fell 10% y-o-y to RM129 million. We estimate its all-in cost of production for FY14 was at RM1,992 per tonne (+3% y-o-y).

A third interim dividend per share (DPS) of two sen was declared (ex-date: March 3, 2015), bringing year-to-date DPS to six sen, representing an unsustainable payout ratio of 168%. Our forward DPS payout ratio is unchanged at 60%.

We cut our FY15E and FY16E EPS forecasts by 28% and 22% respectively as we cut our FFB output projection by 4.8% for each year as extreme dry and wet weather conditions in parts of Sarawak and Peninsular Malaysia in 2014 are likely to affect its production with a lag impact, impute higher production costs.

Despite our earnings cut, we believe Boustead Plantation’s share price downside is limited as the stock currently trades at an attractive enterprise value per planted hectare of  around RM43,000 even before adjusting for its property development potential; and is backed by its SoP value of RM2.61 per share or RM4.17 billion. The catalyst is unlocking part of its strategic land bank via disposal or joint development. — Maybank IB Research, Feb 26

Bousteadfd_27Feb2015_theedgemarkets

This article first appeared in The Edge Financial Daily, on February 27, 2015.

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