Did KLK overpay for Boustead Plantation?

[i4value]

KLK acquired Boustead Plantation for RM 1.55 per share. This is valuing the whole of BPlant at RM 3.47 b.  Given that BPlant has 73,200 ha of planted land, this works out to be about RM 48,000 per ha.

Now if you look at KLK, it has about 297,983 ha of planted land. Its plantation segment net assets work out to be about RM 9.87 b. This is equivalent to RM 33,000 per ha.
Now why would KLK pay RM 48,000 per ha when its own plantation only has a book value of RM 33,000 per ha?

I am of course illustrating the danger of looking at one point estimate when analysing companies. No two companies are the same and in the context of KLK and BPlant there are differences not only in where the estates are located, but also operating efficiencies.

As a retail investor, you can only rely on the annual reports and other industry reports for your fundamental analysis. That is why margins of safety and having a sense of the sector performance is important.

To help in my analysis, I compile the base rates for many sectors that I invest in. For the base rates of plantation companies refer to the video “How the Malaysian plantation sector performed over the past 10 years”

[i4value]

LTAT announced that it will proceed with the GO of Boustead Plantation (BPlant) at RM 1.55 per share following the failure to sell to KLK.

The NTA of BPlant as of the end of Dec 2022 was RM 1.21 per share.

The offer price is 1.3 times the NTA. You may think that this is low when considering that the price to NTA for Sime Plantation is 2.0

If you compare BPlant’s ROE over the past 10 years with those of the Bursa plantation sector, you may think that this is a good performance. So why a low offer price for such a good performance?



But don’t be misled. The EBIT from 2013 to 2022 was RM 2.1 b. During this period, the gain from the disposal of land and securities amounted to RM 1.5 billion. The significant land sales (> RM 50 million gain) were carried out in 2013, 2015 to 2017, and 2019 and 2022

Without these gains, the returns in these years would have been much lower. BPlant did not make much from its plantation operations. I am sure the company is aware and has been trying to address this.

The historical performance showed that it was not successful. Are you going to wait for another decade ie reject the GO or should you take what is offered and look elsewhere?

For more insights into BPlant go to “Is BPlant one of the better Bursa Malaysia stocks?”

[i4value]

I recently received the Offer Notification for my BPlant shares.

I bought the shares years ago and started selling in middle of the year when the share price started to go up.

At that juncture, I did not have any idea that it was going to be taken over by KLK. Anyway, by the time KLK announced the takeover at RM 1.55 per share, I already had sold off more than 90% of them. Yes, I left lots of money on the table.

Then came the termination of the sale and the subsequent offer by LTAT to buy the shares at the same price of RM 1.55 per share.

I am of course accepting the offer. It is not just because the offer price is above BPlant NTA or that the listing status would not be maintained.

It is because it is a fantastic price given the earnings power of BPlant. If you look at the history of BPlant, a very significant part of the earnings was from land sale and not the plantation operations.

• From 2013 to 2020, the Group achieved RM 1.1 billion of PAT. Over this period the gain from the disposal of land and securities amounted to RM 1.2 billion. The plantation operations incurred cumulative losses for the period.

• Of the 2022 PBT of RM 729 million, RM 459 million came from asset sale.

Assuming a PE of 15, the company would have to generate an EPS of RM 0.10 per share yearly from the operations to justify the price.

Do you think that the company would be able to do so give the poor track record over the past 10 years. They will have to work very hard or find another buyer. I think we shareholders are very lucky to have this offer.

For my insights into BPlant refer Is BPlant one of the better Bursa Malaysia stocks?