UPDATE 1-Boustead Plantations climbs in debut on firm palm oil outlook

Wed Jun 25, 2014 9:50pm EDT

* Boustead Plantations up 2.5 pct after $326 mln IPO

* Investors bet strong palm oil prices will boost earnings

* Aims to expand planted area to 100,000 hectares by 2017 (Recasts on outlook for company, adds analyst comment)

By Yantoultra Ngui

KUALA LUMPUR, June 26 (Reuters) - Malaysian palm oil company Boustead Plantations Bhd rose 2.5 percent in its market debut, helped by prospects for firm palm oil prices due to biodiesel initiatives in Malaysia and Indonesia and as unfavourable weather threatens crops.

The likely emergence of the El Nino weather pattern this year has prompted analysts to forecast palm oil prices could rise to 3,000 ringgit a tonne after June and possibly 3,500 ringgit later in the year if crops are hit.

Malaysian crude palm oil prices closed at 2,483 ringgit per tonne on Wednesday.

"Given the current hot weather experienced in (Malaysia's) Klang Valley, expectations of an El Nino remain high and this should be a boost to the IPO," said Chris Eng, head of research at Etiqa Insurance & Takaful, which manages some $7.2 billion worth of assets.

"We remain positive on the outlook for the plantation sector," he said.

Boustead Plantations was trading at 1.64 ringgit on Wednesday morning, up from its IPO price of 1.60 ringgit, and giving it a market value of 2.6 billion ringgit. That is, however, just a fraction of the size of domestic market leader Sime Darby Bhd which has a market cap of 57 billion ringgit.

The broader market declined 0.1 percent, while the plantations index fell 0.3 percent.

Malaysia is the world's No.2 grower of palm oil after Indonesia. Palm oil is used as a feedstock option for biodiesel as well as an ingredient in edible oils, soaps and cosmetics.

Indonesia last year set an ambitious target of 10 percent minimum bio content in diesel, up from levels of 3-10 percent while Malaysia is aiming for 5 percent.

Boustead Plantations, which is 55 percent owned by financial-to-defence conglomerate Boustead Holdings Bhd , plans to use the bulk of its $326 million in IPO proceeds to buy more land, aiming to expand its planted area to 100,000 hectares by 2017 from around 71,000 hectares currently.

It posted a 36 percent jump in first-quarter net profit to 30.1 million ringgit ($9.4 million) from the same period a year earlier on higher palm oil and palm kernel prices, with revenues climbing 3 percent.

The company garnered an average selling price of 2,629 ringgit per tonne in the first quarter, a 12 percent rise over the same period a year ago.

The industry saw prices of crude palm oil improve in the first quarter as dry weather cut into output and tightened supply though they have dropped back in the second quarter.

Affin Investment Bank, Credit Suisse and Maybank Investment Bank were the global coordinators of the IPO. ($1 = 3.2170 Malaysian Ringgits) (Additional reporting by Anuradha Raghu; Editing by Edwina Gibbs)