BOUSTEAD PLANTATIONS BHD’S (BPlant) one-year performance since its June 2014 listing on Bursa Malaysia does not seem to offer much reason to celebrate. But some are saying the counter is worth a second look, and one reason for that is the commercial promise of its vast landbank.
The planter, one of the few purely upstream players in the country, saw its share price sink to its lowest level of RM1.31 on June 10, 2015, after its listing, and has been hovering near that since then. It has shed 18.12% from its initial public offering price of RM1.60 a share and lost 9.66% year to date.
Further, if BPlant’s (fundamental: NA; valuation: NA) latest quarterly results are any pointer, the potential for any improvement in its share price also seems limited. But despite that, some analysts say the commercial promise of its landbank is now slowly starting to emerge.
Last month, the company announced that it would sell two freehold tracts in Kulai, Johor, measuring a total of 88.17ha, for RM48.99 million cash to third parties. BPlant will be pocketing a post-tax disposal gain of RM38 million or 2.4 sen a share.
Maybank IB Research calls the sale “a positive surprise” as BPlant is “effectively monetising 185 years of future plantation earnings into one transaction”, given the blended average selling price of RM555,631 per ha.
This is the company’s first land sale since its listing.
Says a bank-backed analyst, “If BPlant starts to unlock the value of its landbank, especially parcels with property development potential, its cash levels and balance sheet will start to look very good. That will be a real catalyst. At the current price level, BPlant is definitely worth a look.
“Even without that, for investors looking for yield, the company gave above 4% in the financial year ended Dec 31, 2014 (FY2014). The yield is not super attractive but it is very stable. I don’t think dividend yields will vary too much from that.
“In terms of its share price, we believe the downside is limited, with negative news flow surrounding the industry already priced into the stock. The upside would, of course, depend on the CPO price. We think the CPO price will rebound in the second half of the year and plantation firms will see better earnings.”
BPlant’s ability to monetise its valuable landbank features high on the list of its long-term value proposition. At the time of its listing, analysts agreed that BPlant shares were worth more than its IPO price, considering the potential value of its landbank.
Hong Leong Investment Bank Research valued the stock at RM1.63 apiece while Public Invest Research gave it a fair value of RM1.74. Maybank IB Research, which initiated coverage on the company two months after its listing, had a “buy” call with a target price of RM2.16, representing a 37% upside at that point. After several downward revisions, Maybank Research said in its latest note on May 20 that it is keeping the “buy” call but with a lower target price of RM1.65.
After the sale of the two tracts in Kulai, Maybank IB Research’s analyst Ong Chee Ting expects more land sales in the near future, given the current low CPO price, which generates less than RM3,000 per ha in operating profit a year for BPlant.
“I believe there are several reasons for BPlant to monetise its land. Some of the parcels have been in the books for a few decades and are prime for unlocking of value. Plantations such as Bahau Estates in Semenyih, Selangor, are small, far away from BPlant’s other estates and no longer economically viable to be managed on their own. Such land will eventually be monetised,” he says.
“By disposing of highly valued estates that are prime for development and reinvesting part or all the proceeds to acquire greenfield or brownfield estates elsewhere, BPlant is actually being more capital efficient.”
As at end-FY2014, BPlant had landbank totalling 83,360ha. Of this, about 11,000ha, with a book value of RM800 million, comprises parcels that analysts consider to have property development potential and commercial significance because of their proximity to existing townships or developments.
They include a 247ha tract near University of Nottingham in Semenyih, a 1,176.3ha freehold parcel near the Kulai interchange in Iskandar Malaysia and 1,379ha in Malakoff Estate, Seberang Perai Utara, Penang.
“If BPlant continues to do small disposals every year, it can help boost the bottom line in a big way. Downside for its share price is now limited by the steep land value. Upside will largely depend on CPO’s price performance and how aggressive the company unlocks the value of its landbank,” says Ong.
When contacted, BPlant tells The Edge, “We will continue to divest assets that are non-core to BPlant in order to realise further value in our investments. Any further disposal of land will be announced at the apporpriate juncture in line with disclosure requirements.”
It is worth noting that its parent, Boustead Holdings Bhd, has a property arm, with most of its projects located in the Klang Valley.
BPlant recorded a noticeable fall in revenue and profit in the first quarter ended March 31, 2015 (1Q2015) due to lower fresh fruit bunch production and bearish palm product prices — issues that have afflicted the entire industry. The quarter is known to be seasonally the weakest for plantation companies, and BPlant’s revenue slid 33.6% to RM131.88 million, while net profit deteriorated 75.6% to just RM7.35 million.
If the lower earnings trend persists in the coming quarters, it is clear that disposal of its land will go a long way towards softening the impact of weaker earnings and make the stock attractive to investors again.
Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.
This article first appeared in The Edge Malaysia Weekly, on June 15 - 21, 2015.
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