Positive sentiment on BPlant despite failed deal

PETALING JAYA: Investors are positive on Boustead Plantations Bhd (BPlant) despite the failed takeover deal by Kuala Lumpur Kepong Bhd (KLK) after the Armed Forces Fund Board (LTAT) stepped in to buy out the plantation group at an offer price of RM1.55 per share.

The counter surged to an intraday high of RM1.42 on active trade, before closing at RM1.40 with 79.33 million shares changing hands yesterday.

In a filing with Bursa Malaysia, BPlant said it had received a letter from LTAT stating its intention to continue with the general offer, notwithstanding the termination of the proposed strategic collaborative agreement with BPlant announced a day earlier.

Trading in BPlant shares was temporarily halted on Oct 5 until 10am following LTAT’s announcement on Oct 4 of its intention to go ahead with the general offer for BPlant.

LTAT and its subsidiary, Boustead Holdings Bhd, currently own a 68.01% stake in BPlant.

According to Kenanga Research, the price tag of RM1.55 is reasonable, valuing the acquisition at 1.3 times price-to-net tangible assets, which is at a premium to the sector’s price-to-book value, and RM56,000 per planted ha.

Meanwhile, analysts remained positive on KLK despite the aborted deal.

Under the proposed deal, KLK wanted to buy a 33% and one share stake in BPlant from Boustead Holdings Bhd (BHB) for RM1.15bil cash.

According to Kenanga Research, the aborted deal was seen as short-term positive for KLK as it would have been dragged by BPlant’s weaker earnings expected in financial year 2023 (FY23)-FY24 and also, having to bear additional borrowing costs.

The research house believes this minor setback will not derail KLK’s plans as it will continue to look for upstream and downstream opportunities.

It added that the proposed acquisition of BPlant revealed KLK’s appetite for sizeable acquisitions, taking on a net gearing of up to 55%-60%.

“With forward crude palm oil (CPO) prices expected to stay rangebound, net gearing should continue to moderate further over FY24,” Kenanga Research said.

It added the plantation giant would also be able to absorb short-term dilution to earnings, as it takes a long-term (five to 10 years) view of its upstream and downstream businesses.

Kenanga Research has maintained its “outperform” call on the counter with a target price (TP) of RM24.50, derived from a 15 times FY24 price-earnings ratio (PER) and in line with the historical rating for integrated players.

It has also maintained KLK’s core earnings per share (EPS) of 118.3 sen and 156 sen and net dividend of 50 sen each for FY23 and FY24, respectively.

However, the research house lowered its forecast for KLK’s FY24 net profit by RM60mil to reflect potential impairment of the BPlant shares it held.

Similarly, MIDF Research said the termination did not have a material effect on KLK as its merger and acquisition plans are very much alive.

The research house identified notable privatisation candidates for KLK including Sarawak Oil Palms Bhd, Ta Ann Holdings Bhd, United Malacca Bhd and BLD Plantation Bhd, with the consolidation of year-to-date CPO price of RM3,862 per tonne coupled with attractive average sector enterprise value of RM39,163 per planted ha.

“Affordability is not a big issue since KLK’s balance sheet remains stable with a cash pile of RM2.78bil and net gearing about 40.6%,” MIDF Research added.

It maintained a “buy” call on KLK with an unchanged TP of RM24.60 based on its PER of 32 times on the FY24 EPS of 76.9 sen.