Boustead Plantations, an upstream oil palm plantation company in Malaysia with over 50 years of oil palm plantation estate management experience, is slated for public listing on 26 June 2014. The company owns, co-owns and leases a total of 83,635.9ha in Peninsular Malaysia, Sabah and Sarawak with an annual FFB production of 1m mt. We have a fair value of RM1.74 for the company based on SOP valuations.

Mature age profile. Close to 93% of its total planted area are above 3 years old, with an average age profile of about 14.2 years old. 59.3% of its total planted area or 42,123ha are in the prime age category, which is between 10 to 20 years old. Due to its mature age profile, we believe the company’s FFB production growth will be in the mid-single digit growth in the next couple of years. To improve its yield performance, the company plans to replant 1,300-2,200ha p.a. over the next 5 years.

Expansion plans. The group also plans to increase its total planted area by 20,000ha from the current 70,991ha over the next 5 years. It will acquire 10,000ha plantation land in Malaysia within the next 3 years, which will be funded by the IPO proceeds of RM420m and/or external financing. It also targets to purchase another 10,000ha of plantation land within 2 years from its initial acquisition. Apart from that, it aims to capture methane generated from palm oil waste and turn the greenhouse gas into clean renewable energy by installing 6 biogas facilities in all mills by 2017, which helps reduce their electricity expense and also generate additional income by selling the excess electricity to the national power grid.

Riding on the positive industry outlook. We expect full-year average CPO price of RM2,750/mt for this year and next year. With the high possibility of an El Nino occurrence soon, it could heavily disrupt the FFB production in ASEAN region, which accounts for 88% of world palm oil production. Given the recent sharp correction in palm oil prices compared to soybean oil, which had widened from USD47/mt in Jan to USD106/mt today, we expect an imminent rebound banking on the increase of biodiesel consumption in Malaysia and Indonesia as well as the potential supply-side impact to palm production in the next 1-2 years.

Source: PublicInvest Research - 9 Jun 2014