CIMB Research Report
Results highlights
• Below. At 33% of our full-year forecast and 36% of consensus estimates, Boustead’s 1H11 core net profit, which excludes RM94.6m gain from the disposal of plantation assets, was below our and consensus estimates. The variance stemmed mainly from lower heavy industries profit. Factoring in higher cost and slower progress billings for heavy industries, we slash our FY11-13 core EPS by 10-31%.
Our RNAV-based target price falls from RM6.45 to RM6.33 as we update our RNAV for the current value of listed assets and reduce the target price for Affin (AHB MK, Underperform) from RM3.57 to RM3.40. We continue to rate Boustead a HOLD as there are no immediate catalysts. For big-cap exposure to conglomerates, investors should opt for Sime Darby (SIME MK, Trading Buy).
• Key surprises. 2Q core net profit fell 38% yoy and 19% qoq due to a plunge in heavy industries contribution. 1H heavy industries EBIT fell 49% yoy, mainly because of cost escalation for certain commercial shipbuilding projects and slower progress billings. Work on the six naval vessels remained at the preliminary stage as the company is still waiting for the government to finalise the value and duration of the project. Meanwhile, the finance division was negatively affected by higher interest expense.
• Cushioned by maiden contribution from Pharmaniaga. Pharmaniaga, which became a subsidiary of Boustead at the end of 1Q11, helped the pharmaceutical division to post a pretax profit of RM36.3m compared to a RM1.1m loss last year. 1H plantation EBIT almost doubled yoy as the 38% rise in CPO price more than
offset a 1% drop in FFB crop. Property EBIT rose 8% due to higher progress billings while earnings from manufacturing and trading gained 13%, thanks to higher sales volume and stockholding gains for petrol retailer, BH Petrol.
Recommendation
Maintain HOLD with lower target price. Factoring in higher cost and slower progress billings for heavy industries, we slash our FY11-13 core EPS by 10-31%. Our target price falls from RM6.45 to RM6.33 as we update our RNAV for the current value of listed assets and reduce the target price for Affin (AHB MK, Underperform) from RM3.57 to RM3.40. We continue to rate Boustead a HOLD as there are no
immediate catalysts. For big-cap exposure to conglomerates, investors should opt for Sime Darby (SIME MK, Trading Buy).
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