Boustead Plantations RM750 million land buy in Sabah

Falling crude oil prices aside, an RM750 million cash acquisition of 42 parcels of plantation land, a total of 11,579.31 acres in Beluran, Sabah contributed to the reason why Boustead Plantations Bhd recorded its first full-year loss since listing in 1973, and no quarterly dividends for the final quarter, also for the first time. 

Majority shareholder Boustead Holdings Bhd is currently amidst downturns in a number of its core business divisions, and has a new managing director joining in May. 

The Edge reports that the estates in question are now called the Boustead Pertama Estates, and have raised eyebrows due to far lower yields (by nearly half) than Boustead Plantations' other estates in Sabah. 

Satellite images depict that Pertama Estates are more sparsely planted than is typical, likely due to what looks to be hilly terrain. The 42 parcels are also non-contiguous, which seems efficiency in harvesting is probably low. 

Boustead Plantations' 2018 annual report show that costs of rehabilitating PEtama Estates in addition to finance costs dragged down earnings in what was a loss-making year.

The publication reports that the same estates had been eyes by IOI Corp Bhd, to the tune of RM830 million in 2011, but IOI Corp walked away "due to non-compliance of certain terms and conditions". A position that Dutaland later disputed, saying there had been no breach of terms and conditions.

Boustead Plantations recorded a net loss of RM51.78 million in FY2018 as revenue dropped 23.2% year-on-year to RM584.01 million. Finance costs for FY2018 stood at RM36.08 million, up 31% from FY2017, and are slated to increase to RM56 million this year, the company told the publication, though it added that the figure was manageable.

Boustead Plantations are also acquiring another 4,915.25ha in Sabah for RM397 million, which the company expects to conclude in the middle of this year. RM350 million of the RM397 million will comprise borrowings, which means borrowings and finance costs are poised to rise further this year. 

To the questions raised about the Pertama Estates acquisition, Boustead Plantations says the deal is viable.

In an email to the publication, they say: "We maintain that this is a viable acquisition, more so as the scarcity of plantation land continues to be a challenge for the sector."

"Given the strong management inputs and application of best agronomic and management practices, the potential returns from Boustead Pertama Estates, in terms of revenue and profit generation, should not be underestimated."

In response to the question of non-contiguous plots, Boustead Plantations say that the plots are in close proximity to each other, and the access to the main road is good, with a wide half chain gravel road connecting the various estates."

They also maintain the roads meet current operating requirements, and are accessible from the Sandakan/Kota Kinabalu main road. 

As to the lower planting density, they say that one of the estates has a low density due to "pest damage and hilly terrain.

When questioned about the value of the land, in relation to the lower yields, Boustead is quoted as saying: "We are of the view that this acquisition holds much value in terms of potential yield and efficiency improvement, which will subsequently contribute to profitability."

The company says that in the long term, it is confident that revenue and earnings from Pertama Estates will improve "substantially".