Al-Hadharah Boustead REIT in for more upside

Analysts are bullish of the oil palm plantation REIT as the future of palm oil remains bright due to its diverse applications


Despite uncertainties in the US economy, industry experts are bullish on plantation as palm oil supply is still tight and expect CPO prices to trade above RM2,500 per tonne – AFP

MOST analysts are upbeat on Al-Hadharah Boustead Real Estate Investment Trust (REIT), saying there should be further upside to the stock's performance.

A local analyst said while market sentiment remained weak, the Al-Hadharah Boustead REIT could continue to perform well in the medium to long-term.

“Our confidence in the REIT stems from the prevailing positive trend in the global commodities markets and buoyant crude palm oil (CPO) prices,” he told StarBiz.

Last Friday, the CPO price closed at RM3,543 per tonne and commodity price is expected toremain firm in the near-term.

Currently, Al-Hadharah Boustead REIT was the only oil palm plantation REIT listed on Bursa Malaysia and was shariah-compliant.

The analyst said: “The REIT manager plans to grow its asset base and expects to acquire at least two more plantations before year-end to add to its stable of eight palm oil estates and two palm oil mills in Peninsular Malaysia.”

“The new plantations should translate into better performance of the trust,” he added.

At the end of last year, Al-Hadharah Boustead REIT had a market capitalisation of RM665mil covering 12,000ha, making it arguably the second largest REIT listed on the exchange at that time.

Another local analyst said the REIT had a dividend policy that took account of performance based on profit sharing and rental income from plantations.

For financial year ended Dec 31, 2007, Al-Hadharah Boustead REIT registered RM55.2mil in revenue and RM49.8mil in net profit.

Due to the phenomenal rise in CPO prices over the last twelve months, the analyst said the trust had outperformed its forecast fixed dividend distribution of 7.38 sen by 48% in its fiscal year ended 2007.

“The performance-based dividend is the first of its kind in the domestic REIT market. In total, 10.91 sen is distributed to unit holders in its first fiscal year,” said the analyst.

She said the strong performance of the trust had attracted many local and foreign investors since the REIT's listing on Feb 8, 2007.

Boustead REIT Managers chairman Tan Sri Lodin Wok Kamaruddin said the timely listing of the trust on Bursa Malaysia and significant progress in CPO prices kept the REIT ahead of the pack in the local REIT market.

Tan Sri Lodin Wok Kamaruddin

Lodin said: “We are exceptionally pleased with the performance of the REIT, which can be directly attributed to soaring CPO prices”.

He said the management was of the opinion that further upside to the REIT's performance, including share price performance, was conceivable.

Most brokers are also positive on the REIT's performance, going forward.

A broker said stocks with exposure to oil palm plantations and oil and gas sectors were deemed to be more defensive in nature as global demand for such commodities remained strong.

“Since the REIT is a plantation-based stock that commands good demand, we are optimistic of its performance, especially if the REIT managers can expand its asset base to capitalise on the buoyant times of the sector,” he said.

Despite uncertainties in the US economy, industry experts are bullish on plantations as palm oil supply is still tight and CPO prices are expected to trade above RM2,500 per tonne.

“I'm sure at current CPO prices, they aren't complaining,” the broker said.

Palm oil futures (FCPO) prices have doubled in the past year, hitting a record high of RM4,486 per tonne on March 4.

A Singapore-based economist said demand for palm oil was expected to grow as the reduction in soy oil production in recent years had resulted in an increase in global demand for palm oil, especially from industrialised countries.

“We are seeing greater interest and regulatory mandates imposed on developed countries to use biofuel and biodiesel as an alternative form of energy due to environmental concerns and escalating fossil fuel prices,” she said.

She added that the future of palm oil remains bright due to its diverse applications.

Year-to-date, Al-Hadharah Boustead REIT share price reached a high of RM1.60 (Feb 5) and a low of RM1.39 (Jan 25) before closing at RM1.40 last Friday.

By The Star (by Danny Yap)