Rosy outlook for BLD Plantation

notice: acquisition on wawasan sedar was waived.
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PETALING JAYA: BLD Plantation Bhd’s earnings prospects remain rosy with the buoyant crude palm oil (CPO) prices that are seen to be sustainable in the next couple of years. The stock’s valuations are compelling. Based on Standard & Poor’s (S&P) earnings per share (EPS) estimate of 44.9 sen for fiscal year (FY) ending Dec 31, 2007 and yesterday’s closing price of RM3.08, the shares are trading at a price-to-earnings ratio (PER) of 6.9 times. Based on S&P’s EPS forecast of 67.3 sen for FY08, this indicates a PER of 4.6 times. A number of other plantation companies are already trading at high double-digit PERs. Furthermore, BLD’s share price has only appreciated 18.5% year-to-date. It is timely or the counter to play catch up with its peers. According to its 2006 annual report, the group has some 131,037 acres of oil palm plantations in Sarawak, of which 25,451 acres are matured palms.
S&P, in its initial coverage, noted that BLD’s plantation age profile was attractive, with about 41% below seven years old, 48% in prime-mature stage and 11% between 16 and 20 years old.
BLD said in its annual report: “Our plantations will progressively have more matured crops in the coming year, which augurs well for the group to sustain the FFB (fresh fruit bunches) production, thus enhancing revenue.” FFB production increased 4% in 2006 compared with 2005 while oil extraction rate achieved was close to 22%, it added. While many of its peers have developed most of their plantation and are facing difficulties in securing more land bank in Malaysia, BLD still has a vast undeveloped plantation land of 76,601 acres.
Interestingly, BLD has one of the highest acreage of plantation land per 1,000 shares. Based on its 85 million issued shares, owning 1,000 shares is almost like owning 1.542 acres of plantation land. BLD is also becoming a bigger integrated oil palm group. It currently operates a mill in Miri with an hourly capacity of 380,000 tonnes.
The 2006 annual report said a palm oil refining plant and dry fractionation factory at Tanjung Kidurung Industrial Estate in Bintulu were anticipated to commence operations in the last quarter of this year. The two plants will produce refined bleached and deodorised palm oil, palm olein, palm stearins and palm fatty acids distillate catering primarily for exports.
In a recent report, BLD indicated plans to set up a kernel crushing plant in the same area that will commence operations next year. Its proposal to buy almost 50% in Wawasan Sedar Sdn Bhd, which is involved in oil palm plantations, milling and sales of related products and logs trading, is still pending approvals. If successful, the acquisition would increase its core plantation holdings by 42,007 acres while increasing internal source of CPO supply for refinery and milling processing capacity. Meanwhile, as the land bank is solely in Malaysia, BLD is not affected by Indonesia’s move to increase export tax on CPO to 6.5% from 1.5% previously. The plantation company continues to affirm its financial strength. During the first quarter ended March 31, it reported a 27% jump in net profit of RM5.6mil, translating into an EPS of 6.57 sen. Net tangible asset stood at RM4.11 as of end March while net gearing ratio stood at a healthy 0.25 times. It has declared a final dividend of 10 sen per share for FY06, which would go ex on Aug 13.