An exercise towards this end would result in an “acquisition gain” for the latter, according to Maybank Investment Bank (Maybank IB) Research.
Floating this idea in a report, the brokerage said a potential privatisation could be self-funded by disposing some small parcels of land owned by Boustead Plantations.
It pointed out that Boustead Plantations owns 18,419 ha of freehold land in Peninsular Malaysia.
Its valuable freehold estates represented about 19% of Boustead Plantations’ total land bank in the country.
The plantation company is 57.4% controlled by Boustead Holdings, while another 12.1% is owned by Lembaga Tabung Angkatan Tentera (LTAT), which is the ultimate holding company.
Business-wise, a core earnings risk is on the upside if crude palm oil (CPO) average selling price (ASP) is higher than the brokerage’s forecasts of RM2,400 for FY20 and the estimated RM2,400 in FY21.
“Every RM100 a tonne change in CPO ASP impacts our FY20/FY21 estimated core profit after tax and minority interest by RM17mil/RM18mil as it is highly leveraged to CPO price movements, ” said Maybank IB.
According to the research firm, Boustead Plantations trades at an undemanding 0.43 times price-to-book value (PBV), and 0.26 times price/realised net asset value (P/RNAV).
It is maintaining its “buy” call with an unchanged discounted RNAV target price of 62 sen a share.
Shares of Boustead Plantations ended 2 sen lower to 53 sen yesterday.
Maybank IB Research offered few possible reasons for the potential privatisation exercise.
Firstly it said Boustead Holdings stands to record a huge accounting “acquisition gain” if it privatises Boustead Plantations at a significant discount to its book value (BV).
For instance, by its estimate, Boustead Holdings will likely record gains of up to RM389mil (subject to Boustead Holdings’ group consolidation adjustments, if any) for the remaining 30.48% equity stake not owned by Boustead and LTAT, the ultimate holding company) if it sets an offer price at 0.5 times Boustead Plantations’ BV.
The gains will reduce proportionately if a higher PBV is offered.
Secondly, assuming a 0.5 times PBV offer, Boustead would need to fork out up to RM389mil to take Boustead Plantations private.
Lastly, post-privatisation, Boustead Plantations can sell some of its vast tracts of land, recognise some disposal gains and pay higher dividends to cover for its parent’s privatisation cost.
Of its 18,419 hectares of freehold land, 10,412 hectares are prime land that are strategically located.
Based on Maybank IB’s latest estimate, Boustead Plantations’ RNAV is worth RM1.86 a share or RM4.164bil.
Even if Boustead Plantations is not privatised, a revival of its asset monetisation exercise would lead to further re-rating as earnings will be lifted by disposal gains, which in turn raises the possibility of higher dividend payouts, said the research firm.
It pointed out that since listing in 2014, Boustead Plantations has sold 2,164 hectare of land, raised RM1bil in gross proceeds, and recognised total disposal gains of RM900mil. It has also paid out RM1bil in total dividends since listing.
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