Saturday 20 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on June 19, 2023 - June 25, 2023

SOON to be delisted Boustead Holdings Bhd is believed to be preparing to dispose of its interest in Boustead Plantations Bhd (BPlant). According to sources, an exercise to invite proposals on the sale of the group’s stake in the plantation company started about two weeks ago and has attracted several big names.

The Edge has learnt that YTL Group, Wilmar International Ltd, IOI Corp Bhd and Kuala Lumpur Kepong Bhd are among the bidders, all of which are established players in the plantation industry, except for YTL.

Boustead has a 57% interest in BPlant while the ultimate holding company, Lembaga Tabung Angkatan Tentera (LTAT), holds 10.8%.

YTL Group’s interest in the sale may stem from an acquisition in January 2022, where subsidiary YTL Power International’s 70% unit, SIPP Power Sdn Bhd, acquired five parcels of land totalling 664ha in Kulai Young Estate from BPlant for RM429 million, or an estimated RM646,084 per hectare.

As for Singapore-based Wilmar, it has always shown interest in expanding its plantation interests. IOI and KLK, both plantation giants, have the resources and proven track record to turn around plantation companies such as BPlant.

Asked to comment, Boustead declined to respond to The Edge’s queries.

BPlant is a mid-sized plantation company with sizable plantation assets in Peninsular Malaysia with estates near Seberang Perai in Penang, and in Johor. The estates in both these states are fast being converted into industrial developments.

According to BPlant’s 2022 annual report, the company has a total land bank of 97,400ha, of which 72,300ha, or 74%, is used for oil palm cultivation. The oil palm cultivated land comprises 20,600ha of mature oil palm areas in Peninsular Malaysia, 34,600ha in Sabah and 10,300ha in Sarawak. In FY2012, the estates collectively produced 871,287 tonnes of fresh fruit bunches (FFB).

BPlant’s estates in the peninsula yield 17.3 tonnes of FFB per hectare while its estates in Sabah and Sarawak yield 12.2 and seven tonnes per hectare, respectively.

In comparison, the national average for plantations in the peninsula is 16.4 tonnes per hectare while in Sabah and Sarawak it is 15.4 and 14.1 tonnes per hectare respectively.

“Boustead’s plantations are not performing as well as those of its peers, especially in Sabah and Sarawak. However, BPlant has land that is ripe for property development in the peninsula, which makes it an attractive asset,” says a source.

BPlant’s plantations that are ripe for property development include its estates in Kedah, northern Perak and Johor. Also worth noting is the fact that BPlant’s plantations in Perak are located near Seberang Jaya Utara, which is fast becoming a favoured destination for electronics factories.

“The company’s plantations in Johor are also ripe for non-agri­cultural development,” says the source, pointing out that YTL’s acquisition of Kulai Young Estate, for instance, was to build a renewable energy plant there to tap growing demand for RE.

A source says Boustead started calling for expression of interest more than a week ago and that the closing date was last week.

“Although the submissions were due last week for bidders, the process will take some time to conclude. Finalisation should take about a month as the group undergoes due process for the sale exercise.”

According to BPlant’s 2022 annual report, the planter generated positive cash flow for the year, recording a net increase in cash and cash equivalents to RM83 million, up from RM38 million in the previous year.

However, the improved financial performance was largely due to the disposal of estates. For example, BPlant gained a total of RM459 million from the disposal of land, primarily from the sale of its Kulai Young Estate land for RM364 million, the partial disposal of its Bukit Mertajam Estate for RM91 million and the sale of Telok Sengat Estate to the government for RM4 million.

According to its chief financial officer Mohamad Mahazir Mustaffa in the annual report, “Contributing to [the group’s higher cash flow] was the higher collection from customers due to higher palm product prices, as well as the proceeds from the disposal of the Kulai Young land. This allowed us to fund our working capital internally and pare down borrowings, whilst cushioning the impact of our lower net cash inflow from operations for the year, which reduced to RM320 million, owing to increased operating expenses and higher taxation and zakat paid.”

Analysts are confident that the performance of BPlant’s plantations will improve when the manpower shortages are resolved.

“With the gradual return of foreign workers, we believe BPlant’s FFB output/yield will play catch-up and improve sharply in the second half. Hence, we maintain our 5% year-on-year FFB output growth estimate for FY2023E.

“As we highlighted previously, BPlant’s key trading catalyst has always been more land sales (given its large tract of strategic land) to boost its dividend payouts,” Maybank Investment Bank Research analyst Ong Chee Ting says in a May 24 report.

Ong has a “hold” call on the stock with a target price of 72 sen.

BPlant’s share price has now exceeded Ong’s target, as it shot up 34% to 89 sen apiece last Friday — a level not seen since a year ago — valuing the company at RM1.94 billion.

For the first quarter ended March 31, 2023, BPlant’s net profit plummeted to RM5.2 million from RM435 million a year ago on revenue of RM199.7 million, down 38.4% year on year.

In a filing with Bursa Malaysia, the group attributed the lower profitability to a significant drop in palm product prices and the adverse impact of FFB valuation.

“Average CPO [crude palm oil] price for the first quarter was RM4,017 per tonne, down (33%) from that in the previous corresponding quarter. PK’s [palm kernel] average price of RM2,126 per tonne was lower by RM2,529 per tonne.

“[In addition], higher rain interference hampered efforts by harvesters to perform daily harvesting, thus resulting in lower production and yield,” BPlant says.

That the debt-laden conglomerate is looking to sell BPlant is not surprising. Among the companies in the group, plantation assets are the most sought after and the easiest to dispose of.

Boustead also controls Pharmaniaga Bhd and Boustead Heavy Industries Corp Bhd, but both these companies are financially distressed and categorised as Practice Note 17.

Saddled with debts of close to RM7 billion, Boustead is currently in the process of being taken private by its parent company LTAT. The Armed Forces Board Fund already has acceptances of 97.6% from Boustead’s shareholders and is in the final stage of privatising the conglomerate.

Boustead also has a significant stake in Affin Bank Bhd, but this cannot be sold easily, given stringent shareholding rules set by the central bank.

Recently, it was reported that Boustead was mulling over the divestment of its petrol stations in Malaysia. Bloomberg last Thursday quoted sources as saying that Boustead is seeking as much as RM2 billion for the assets and is working with an adviser to sell Boustead Petroleum Marketing Sdn Bhd (BHPetrol).

However, Boustead has flatly denied the sale. 

 

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