BPB earnings in 3Q to remain robust

With strong crude palm oil (CPO) prices and disposal gains, BPB has posted a profit after tax and minority interest (Patami) of RM435mil in its first quarter (1Q) ended March 31.

PETALING JAYA: Kenanga Research initiates coverage on Boustead Plantation Bhd (BPB) with expectation of a potential generous dividend as the company looks to set record earnings for its financial year 2022 (FY22).

The research house expects a dividend pay of 14 sen per share for FY22 compared with 8.4 sen per share in FY21, adding a special dividend cannot be ruled out.

With strong crude palm oil (CPO) prices and disposal gains, BPB has posted a profit after tax and minority interest (Patami) of RM435mil in its first quarter (1Q) ended March 31.

The group reported a core net profit (CNP) of RM111mil in the 1Q after excluding the disposals, almost half of the RM242.5mil CNP reported for its financial year 2021.

Kenanga Research expects BPB’s earnings in the coming quarter to remain robust, owing to the elevated CPO prices.

As a pure upstream plantation group, BPB is said to be a beneficiary of the firm palm oil prices.

“Therefore, a record FY22 would not be a surprise as CPO prices should continue to stay elevated,” it said.

“Although CPO prices appear toppish with some downward pressures as supply improves over the next six months, global supply still looks tight,” it added.

Despite some downside coming from seasonal supply upticks in the second half of this year (2H22), the research house expects CPO prices to remain strong.

The expected firm CPO prices are due to the tight global supply of edible oils, while meaningful supply recovery is more likely to be in 2023, according to the research house.

Meanwhile, the research house noted that the consumption of palm oil should also rise as Covid-19 has dampened the demand since 2020.

“High energy prices will prompt biofuel conversion if vegetable oil prices were to fall sufficiently,” it added.

The research house is positive towards BPB as the company addresses key headwinds such as rising costs and is committed to improving its production efficiency.

The research house said in its coverage initiation report: “A top most priority for BPB is field efficiency and it is conducting age reprofiling of its estates as nearly half comprises older trees.”

Besides being harder to harvest, the research house said harvesting older trees cost more.

“As only a certain portion can be replanted each year without disrupting operations, management is focusing on field efficiency to smooth out the transition and contain rising labour, fertiliser and fuel costs,” it added.

Kenanga Research initiates coverage on BPB with an “outperform” call and target price of RM1 per share, based on 13 times expected price-to-earnings ratio for the financial year 2023 as well as the abovementioned higher dividend per share.

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