About BStead Plantation

The “illustrative” retail price of RM1.60 per IPO share was based on an approximate 16 times price earnings multiple (P/E) on an earnings per share (EPS) of about 10 sen.

The EPS took into account Boustead Plantations’ after-tax profit of RM159.7mil for the financial year 2013 estimate.

The indicative offer price was at a discount to the prevailing valuations of comparable plantation firms such as Sarawak Plantation Bhd at a P/E of 18.24 times, IJM Plantations Bhd at 22 times and Hap Seng Plantations Holdings Bhd at 21 times.

It aims to provide a dividend payout ratio of at least 60% of its after-tax profit in the coming financial years.

BStead Plantations is the plantation arm of Boustead Holdings Bhd.

Boustead Plantations expects to raise up to RM1.05bil from its initial public offering (IPO) based on an indicative price of RM1.60 per share.

Boustead Plantations is offering up to 656 million shares to investors, out of which 163.57 million will be offered to institutional investors, while the remaining 492.43 million will be offered to retail investors, including unitholders of Al-Hadharah Boustead Reit, Boustead Holdings and eligible directors and employees. Only 64 million shares will be opened to the public.

Upon listing, the total enlarged and paid-up share capital of Boustead Plantations will be RM800mil, comprising 1.6 billion shares.

RM420mil or 45.3% of the total gross proceeds would be used to beef up Boustead Plantations’ landbank, RM390mil or 42% for the repayment related to Boustead REIT’s (BREIT) privatisation, and the rest for replanting and capital expenditure as well as to pay for the IPO expenses.

The company was looking to expand Boustead Plantations’ landbank, both greenfield and brownfield, mainly in Sabah and Sarawak. Boustead Plantations plans to grow its landbank by 20,000ha from its current (June 2014) total planted area of 71,092ha within five years.

A replanting exercise is critical for BStead Plantations as currently (June 2014) 59% of its oil palm trees are in the prime mature stage, which generates peak yields. Almost 16% are past prime, which another 17% are young mature palms that will enter the maturity stage beginning 2015.

A maturity profile of 77% peak or soon-to-be peak production trees implies that Boustead Plantations will soon have to scout for new green or brownfield landbank to stem any decline in its FFB output in the years to come.
Market observers opine that Boustead Plantations has to act fast, following on from its purchase of 2,400ha from Harn Lern Corp Bhd in Lahad Datu, Sabah, in 2013.

The group’s land bank expansion programme would be achieved through the acquisition of existing plantations and plantation reserve land, primarily in Malaysia.

Its priority is to focus on Malaysia, but if good opportunities emerge in Indonesia or Papua New Guinea, it will certainly consider them.

Boustead Plantations would allocate up to RM420mil from its IPO proceeds to acquire plantation land, and a further RM96mil for replanting exercise and capital expenditure. The remainder would be used for the repayment of bank borrowings and listing expenses

Besides being a large-cap proxy to the domestic plantation sector, Boustead Plantations is a pure upstream play, given that almost all of its revenue comes from crude palm oil (CPO) sales.

Boustead Plantations, which primarily sells CPO and palm kernel locally, is also exploring the export market. Nonetheless, it has no shortage of customers on home soil, with 54 palm oil refineries in Malaysia that buy CPO as feedstock for oleochemical and edible oil products.

Boustead Plantations’ operating statistics show that it not the most productive planter. While its overall FFB yields have improved from 16.6 metric tonne per ha (MT/ha) in 2010 to 17.5 MT/ha in 2012, Boustead Plantations consistently lags the national average FFB yield, which in 2012 stood at 18.9 MT/ha.

Notably, its FFB yield, a key measure of a planter’s efficiency, trails that of its blue chips peers on Bursa Malaysia.

IJM Plantations Bhd’s Malaysian operations deliver a FFB yield of 26.5 MT/ha, ahead of IOI Corp Bhd’s 24.5 MT/ha, Genting Plantations’ 23 MT/ha, KLK’s 22.5 MT/ha and Sime Darby Bhd’s 21.5 MT/ha.

Boustead Plantations’ FFB yield is weighed down by its Sabah and Sarawak estates, which saw only a yield of 17.2 MT/ha and 13.6 MT/ha in 2012 versus its Peninsular Malaysia FFB yield of 20.9 MT/ha. Its Sarawak estates have also had to contend with disputes from native customary rights landowners and unauthorised harvesting of its FFB.

On the flipside, its oil extraction rate from FFB processed to CPO is better than the Malaysian Palm Oil Board benchmark at 20.9% as at July 31, 2013.