DutaLand unit too expensive?

RM750mil may be too much for Boustead Plantations to pay for underperforming estates, say analysts

BOUSTEAD Plantations Bhd could be paying an expensive price for the proposed acquisition of Sabah oil palm plantations owned by a unit of DutaLand Bhd, say analysts.

The pure upstream planter had proposed to buy 11,600 ha of plantation land from DutaLand’s Pertama Land & Development Sdn Bhd (PLDSB) for RM750mil.

What’s interesting about the deal is that the PLDSB plantation land was previously sought by plantation giant IOI Corp Bhd back in 2011. The deal failed to materialise due to non-compliance reasons.

IOI Corp had proposed to acquire a bigger plot at 11,977.91 ha of the Sandakan estates from PLDSB at RM830mil.

In comparing the enterprise value (EV) per ha for the two deals, analysts have pegged IOI’s proposed acquisition then at RM69,299 per ha for the Sandakan estates versus Boustead Plantations’ RM64,772 per ha. Maybank Investment Bank Research in its report says Boustead is paying a high purchase price for the underperforming estates in Sabah.

“Back then, when IOI tried to purchase the land, the estate was already underperforming - yielding 11 tonnes per ha despite the palm age profile of eight years.

“Now after six years, the estates should be at its prime age profile of 14 years,” the research unit points out. But based on DutaLand’s annual report 2016, its plantation division generated just RM2.3mil in pretax profit.

Maybank IB Research is also concerned with the purchase of 11,600 ha Sandakan estates for RM750mil or EV at RM64,772 per ha.“At 441 times historical price earnings ratio (PER), the deal is expensive” it added.

Pending an update, Maybank IB Research has downgraded Boustead Plantations to a “hold” from a “buy” call given the low visibility for Boustead to sustain high dividend payouts in FY2017-FY2018.

On the other hand, an industry expert says the purchase price for the Sandakan estates by Boustead Plantations is fair.

Of late, oil palm estates in Sabah are experiencing record high EV per ha as many big planters prefer to invest domestically rather than in Indonesia due to policy uncertainties.

Back in 2011-2013, the transacted oil palm plantation land hit a record high of RM70,000 to RM80,000 per ha.

The most prominent was in the second half of 2013 namely; the RM1.2bil acquisition of Pontian United Plantations Bhd by Felda Global Ventures Holdings Bhd, Boustead Holdings Bhd’s RM184.6mil acquisition of Uniglobal Sdn Bhd and IOI Corp Bhd buying over Unico Desa Plantations Bhd for RM1.2bil.

Analysts say IOI Corp in 2013 had set a new benchmark pricing for estates in Sabah by paying RM88,252 per ha to take over 13,660ha from Unico Desa.

According to industry expert MR Chandran, many big companies with both plantation and property units under their stable are snapping up “estate” land bank as part of their long term strategic plan.

“Initially it will be planted with oil palm but the company might convert to property development should the land bank has close proximity to the town area,” he adds.

In the case of Boustead Plantations, it has been on the prowl to acquire plantation land bank for quite sometime. Furthermore, it is sitting on a healthy cash pile of RM420mil, which allows significant financial flexibility to seize the opportunity to acquire viable plantation assets in Malaysia or Indonesia.

The company’s vice chairman Tan Sri Lodin Wok Kamaruddin recently said the proposed acquisition was an ideal opportunity for Boustead Plantations to expand its land bank with viable plantation land to complement its existing operations in Sabah.

It was also part of the group’s ongoing strategy to strengthen earnings potential and enhance its prospects, he added.

Of the group’s 64,468 ha total planted area, some 27,221ha is located in Sabah.

Boustead Plantations says if this acquisition materialises, then the payment of the purchase consideration is expected to be made in 2018 upon completion of the exercise, which will be funded through internal funds and/or bank borrowings.

“The group raised total gross proceeds of RM928mil through its recent initial public offering , of which RM420mil was allocated for the acquisition of plantation land. As disclosed in our prospectus, if the total amount allocated was not utilised within 36 months from listing, the unutilised amount would go towards repayment of the group’s existing bank borrowings.” Yesterday, Boustead Plantations’ share price closed unchanged at RM1.63 with a market capitalisation of RM2.64bil.