This article first appeared in The Edge Malaysia Weekly on October 9, 2023 - October 15, 2023

BOUSTEAD Plantations Bhd (BPlant) has underperformed compared to its peers, in terms of profitability and yields. Will its takeover by Lembaga Tabung Angkatan Tentera (LTAT) be able to offer it the help it needs?

With Kuala Lumpur Kepong Bhd’s (KLK) bid for the company having lapsed, it’s now back to the drawing board for LTAT to work on a business strategy for the plantation group to improve its efficiency and performance, Datuk Ahmad Nazim Abdul Rahman, chief executive of LTAT, tells The Edge.

A plantation analyst with a non-bank-backed research house whom The Edge spoke to says the immediate task is to enhance BPlant’s financial strength before turning around the operations. But this requires a huge injection of funds because close to half of BPlant’s planted area is due for replanting in the near and medium term.

“If you look at the ageing profile, 46% of the planted area is aged more than 20 years and it has to go for replanting. The replanting cost has been increasing over the years. It’s about RM22,000 per hectare, so you’re talking about more than RM700 million for replanting.”

“With replanting, you won’t be able to get any yields, so this will affect its performance, and it will probably only improve after seven or eight years. So, this is one of the considerations for the government. It’s not easy to bail out the company. If the private sector wants to help, it’s better to leave it to them as they’re more professional,” the analyst explains.

Currently, BPlant has a land bank of 97,400ha, of which the area under oil palm is 72,300ha, comprising 23,300ha in Peninsular Malaysia, 38,700ha in Sabah and 10,300ha in Sarawak.

The analyst says another option is for bumiputera-owned plantation companies to take over Boustead Plantations. “Unfortunately, there are not many of them in Malaysia. Sime Darby Plantation Bhd is already a conglomerate with a sizeable land bank, so it does not have to acquire another company,” she adds.

It is worth noting that Sime Darby did not submit a bid for BPlant in the last tender in which KLK participated and emerged the winner. It is understood that Sime Darby’s largest shareholder, Permodalan Nasional Bhd (PNB), was not keen on BPlant from the start because it did not want to be seen as bailing out the company.

Another plantation analyst with a bank-backed research house highlights the fact that a revamp is required without much political interference if LTAT is serious about strengthening BPlant’s financials. “It has to be run by professionals.”

For the first six months ended June 30, 2023 (1HFY2023), BPlant incurred a net loss of RM304,000 compared with a net profit of RM508.38 million in the same period a year ago. The company attributed the decline in profitability to a substantial drop in palm product prices.

According to the Malaysian Palm Oil Board, crude palm oil prices averaged RM3,921 per tonne in 1HFY2023, a 38% decline from RM6,301.50 per tonne in the same period last year. CPO prices have been hovering around RM3,500 a tonne over the past few months.

BPlant’s realised CPO price in its six months ended June 30, 2023 was RM3,971 per tonne, 37% lower than the RM6,327 seen in the same period a year ago.

In FY2018, BPlant slipped into the red with a net loss of RM51.8 million as CPO prices fell 20% to RM2,261 per tonne from RM2,810 per tonne a year ago. The drop in its FY2018 performance was also due to the absence of a plantation asset disposal gain of RM554.9 million in 2017.

The group’s net loss widened to RM144 million in FY2019 as the realised CPO price fell 6% to RM2,134 per tonne.

It is worth noting that the fresh fruit bunch (FFB) yield from BPlant’s Sarawak estates was only 7 tonnes per hectare in FY2022 while the oil extraction rate (OER) recorded was 18.1%. Its estates in the peninsula and Sabah performed better, recording FFB yields of 17.3 tonnes per hectare and 12.2 tonnes per hectare respectively, while the OERs stood at 20.8% and 21%.

As at June 30, 2023, BPlant had cash and cash equivalents of less than RM100 million. With gross borrowings of RM840.16 million, this put the group in a net debt position of RM744.1 million.

Since its relisting on Bursa Malaysia in June 2014, BPlant has undertaken multiple land deals with the disposal sums amounting to nearly RM1.2 billion.

“If you want to improve the yields, there will be a long gestation period because you need to replant. In the meantime, if they want to sustain the operations, they have no choice but to sell their land,” the analyst with the bank-backed research house opines.

The most recent transaction by BPlant was carried out in January 2022 involving the sale of its 663.98ha Kluang Young estate to YTL Power International Bhd for RM428.77 million.

In April 2019, BPlant had disposed of 138.89ha of land in Seberang Perai, Penang, for RM136.04 million. In September 2017, it had sold 677.78ha, also in Seberang Perai, for RM620.1 million.

With the disposal gain and better results in FY2022, BPlant declared a 14.45 sen dividend with a total payout of RM323.7 million. This was followed by a dividend payout of RM96.3 million in 1HFY2023, or 4.3 sen per share.

Underpinned by the takeover offer, BPlant’s share price has more than doubled year to date to close at RM1.39 last Friday, giving the company a market value of RM3.11 billion.

LTAT and Boustead Holdings Bhd own 68% of BPlant. Boustead was taken private by LTAT earlier this year.

BPlant was incorporated as a public limited company under the name of The Kuala Sidim Rubber Company, Ltd in 1946 and was listed in both Malaysia and Singapore in 1973. From the late 1970s through to the 1980s, it expanded its land bank reach to Sabah.

In 1982, BPlant was acquired by Boustead from its shareholders, including LTAT, Lembaga Tabung Haji, FELDA and members of the Barlow family, after which it became the wholly-owned subsidiary of Boustead. It was delisted in Singapore in 1990.

In 1986, BPlant co-founded Applied Agricultural Resources Sdn Bhd, an agricultural research and advisory services unit, in a joint-venture partnership with KLK.

In the 1990s, it expanded to Sarawak via a joint-venture agreement with the Land Custody and Development Authority of Sarawak or Pelita.

BPlant, then known as Kuala Sidim, was delisted from Bursa Malaysia in 2003 following a takeover offer by Boustead. 

BPlant’s plantation assets were listed via a REIT in 2007, making Al-Hadharah REIT the first plantation trust on Bursa Malaysia. However, it was privatised in 2013 with the assets making a comeback on Bursa under BPlant in 2014. 

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