Sabah estates purchase expensive, say analysts

PETALING JAYA: Upstream oil palm company Boustead Plantations Bhd’s acquisition of estates in Sabah from DutaLand Bhd is expensive and unlikely to be profitable in the first couple of years.

Analysts said this adding that in the near term, Boustead Plantations would need to monetise more of its estates in Peninsular Malaysia to supplement its income and sustain its dividend payouts.

“Based on the newly available data, the acquisition price translates to an enterprise value of RM75,012 per ha, which is 16% higher than our earlier estimates,” Maybank Investment Bank Research (Maybank IB) told clients.

“For such an old estate with no mill, we deem the price to be expensive.”

However, the research house acknowledged the need for the company to replenish the estates it sold earlier.

Post-acquisition, Boustead Plantations’ landbank will increase by 14% to 93,417ha, it added.

On Monday, Boustead Plantations said it had entered into a sale and purchase agreement with DutaLand to acquire a total of 11,579ha of plantation land located in the districts of Labuk and Sugut for RM750mil.

It also said it would invest RM250mil over the next 10 years for replanting exercises and the building of new infrastructure at the estates in Sabah.

Notably, the fresh fruit bunch (FFB) yield from the targeted estates is significantly lower compared with the group’s average in Sabah.

Boustead Plantations plans to replant about 7,400ha out of the 9,998ha of plantable area of the estates over the next 10 years with improved high-yielding, semi-clonal and clonal oil palms, which is expected to boost the FFB yield and profitability.

It said the proposed acquisition was part of the group’s strategy to acquire more plantation land in Malaysia in view of the scarcity of suitable and sizeable land banks for oil palm cultivation.

It also said the purchase consideration represented a discount of RM10mil or 1.3% from the market value of the plantation land of RM760mil.

Recall, the plantation land in question was previously sought by IOI Corp Bhd back in 2011. That deal did not materialise reportedly due to non-compliance reasons.

To be sure, IOI Corp had proposed to acquire a bigger plot of 11,977.91ha at RM830mil or RM69,299 per ha.

At yesterday’s close, Boustead Plantations was lower at RM1.62.

“We are keeping our earnings forecasts for now, as we anticipate that Boustead Plantations will monetise more land to sustain dividends,” said Maybank IB.

For the six months to June 30, it reported a net profit of RM66.37mil against a net profit of RM140.14mil for the same period a year earlier. Proposed dividends for the period stood at 5.5 sen per share against six sen per share last year.