Results

Broadly inline: YoY 1QFY13 PATAMI swung from losses to a profit of RM5m, making up 9.2% and 9.8% of HLIB and consensus forecasts full year estimates.

Deviations

We expect stronger revenue recognition from the LCS work throughout the year while profitability will no longer be impacted by the cost overruns from the old commercial shipbuilding projects.

Dividends

None.

Highlights

YoY…1QFY13 Revenue increased by 14% to RM64.4m due to increasing chartering income which benefitted from improved utilization of the tankers coupled with better charter rates.

YoY 1QFY13 PAT swung from losses to a profit of RM5m as it is no longer impacted by the cost overruns from the old commercial shipbuilding projects. In future, the company will focus on smaller, less complex and more profitable projects.

The result is within our expectation as we have mentioned a potential return to the black in 1Q13 detailed in our ‘Running a Tight Ship report’ dated 26 Apr 2013. In addition, stronger operating cash flow of RM30m recorded in 1Q13 vs. negative operating cash flow of RM7.2m in 1Q12 also shows that the company is on the right path to recovery.

Speed of contract mobilisation of the LCS contract and the ability to translate the huge orderbook of RM10bn to bottomline are the critical factor in BHIC’s earning and valuation. Hence, we choose to be cautiously optimistic going forward and continue to monitor the situation closely.

We maintain that, being one of 7 Petronas licensed fabricators, future earnings could be enhanced by spill over jobs from offshore O&G fabrication work if it is able to show good track record in executing existing jobs and protect margins.

Risks

• Sacrificed profits while in technology transfer phase.
• Delays in contract disbursement.
• Potential write downs from selling chemical tankers.

Forecasts

Maintained.

Rating

HOLD

• Positives –
  • Sole Royal Navy yard with strong order book.
  • Located in a key naval strategic location and O&G yard.
• Negatives –
  • Earnings drag due to defence technology assimilation.
  • Uncertainty from operating chemical tankers.

Valuation

• We tweak our TP from RM2.10 to RM2.64 based on a higher P/E multiple to 12x (previously 10x) given that the company has finally delivered its promise of returning to the black, after six consecutive of quarters in the red.

Source: Hong Leong Investment Bank Research - 15 May 2013