Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: ECMLIBRA

Boustead Holdings Bhd
(Dec 23, RM5.39)
Maintain buy at RM5.41 with target price of RM5.96: On Wednesday, Boustead announced that they had entered into a Memorandum of Understanding (MoU) with Drire Equities Sdn Bhd and Tulus Sejagat Sdn Bhd with the intention to acquire 10.2m shares in MHS Aviation Bhd (MHS) representing 51% equity interest therein and 51% equity interest in a special-purpose vehicle (SPV) that shall purchase all the helicopters and aircrafts owned by the subsidiaries of Drire. Under the terms of the MoU, the parties have agreed that total purchase price for the acquisition shall not exceed RM100 million subject to result of the due diligence where RM60 million shall be for the payment of the shares in MHS and RM40 million shall be payment for the aircraft SPV company. The due diligence process will take one month from the date of the MoU and if all goes well, the SPA will be completed within three months

We are neutral on the news for now, given the lack of financial details on MHS. Boustead notes that MHS has some RM3.1 billion in contracts which includes a 10-year contract from Petronas Carigali. This then indicates that the company would have revenue per annum of at least RM300 million. Boustead is typically conservative, we believe and generally not willing to pay more than their own PE (currently at 14 times for FY10F) for an acquisition.

Under the MoU, Boustead is purchasing the stake from shareholders Ma'som Mahadi and Mohsein Ma'som, a father-and-son team which also act as the chairman and executive director of MHS. Our view is that the sellers' motives are to get access to funding through Boustead. There will be fund raising needed for the SPV company which is to buy new aircraft, likely to service the Petronas Carigali job. We continue to have a buy call on Boustead with an unchanged target price of RM5.96. This is based on FY11 EPS pegging a 12 times PE (+1 standard deviation above historical average). To note, the key catalysts for Boustead going into 2011 is the formalisation of their contract with the government to build six navy vessels which we estimate could be worth in excess of RM6 billion. Besides that, their plantation division should also be seeing strong earnings given the current strength in CPO prices. ' ECM Libra Research, Dec 23







This article appeared in The Edge Financial Daily, December 24, 2010.