- We maintain our BUY call on Boustead Heavy Industries Corp (BHIC), with an unchanged fair value of RM3.80/share, based on a 20% discount to our sum-of-parts valuation of RM4.75/share. This implies an FY14F PE of 9x – 60% below Singapore Technologies Engineering Ltd’s (STE) 21x currently.

- BHIC’s 51%-owned BHIC Aerospace Services (BAS) was awarded a contract by the Chief Secretary to the Government of Malaysia to provide Integrated Maintenance and Logistic Support Services for 3 Malaysian Maritime Enforcement Agency Dauphin AS365N3 Helicopters at a ceiling contract value of RM65mil over 3 years. A formal contract between the Government of Malaysia and BAS will be signed later.

- This contract is not a surprise to us given that the group was earlier awarded a RM32mil contract in March this year by the Ministry of Defence to provide installation, service and supply parts to 6 Fennec helicopters of the Royal Navy. In January this year, BHIC entered into a Maintenance, Repair and Overhaul (MRO) Centre Agreement with Eurocopter to mutually agree to the appointment of BAS as the Approved MRO Centre of Eurocopter. The MRO Centre provides for maintenance needs for Fennec, Dauphin and EC725 helicopters and other potential Eurocopter products.

- Recall that the Eurocopter group is 100%-owned by EADS (European Aeronautic, Defense and Space Company), one of the largest aerospace groups in the world. Back in mid-2010, BHIC formed BAS with Prestige Pillar S/B – a marketing consultant – with the latter having a 30% effective stake, while Eurocopter Malaysia S/B has 19%.

- Assuming a pre-tax margin of 10%, this fresh helicopter contract will contribute additional earnings of RM2mil or 2% of FY14F net profits. Hence, we maintain FY13F-FY15F earnings as the group’s earnings recovery largely hinge on the progress of the massive RM9bil littoral combat ship contract.

- We retain our conviction that 2012 was a watershed year for the group, which has mostly cleaned out its loss-making commercial projects and turned to a fresh page for the only military yard in the country with a gross and net order book of RM10bil and RM3bil, respectively. The stock currently trades at a fair FY13F PE of 13x – against the stock’s historical range of 8x-16x.

Source: AmeSecurities