Results

4QFY13 core net profit (excluding RM136.8m gain from deemed disposal of investment from privatization of Al- Hadharah Boustead REIT) of RM83.4m (-14.5% qoq and - 18.1% yoy) took FY13 to RM342m (+8.7% yoy) which accounted for 94.9% of HLIB and consensus forecasts (in line).

Deviations

Largely in line.

Dividend

Single-tier dividend of 7.5 sen (vs. 7.5 sen). Ex and payment dates are 13 and 31 Mar respectively. FY13 dividend of 30 sen (90.7% of core earnings) is higher than our projection of 24.4 sen (70%).

Highlights

4Q sequential earnings were hit by BHIC (upward cost revision of LCS project, ship building cost overrun and impairment of trade receivables). This coupled with lower contributions from the property and manufacturing & trading divisions more than offset better performance of the plantation and pharmaceutical divisions. Associate contributions were also higher due to reclassification of some companies under BHIC from subsidiaries to associates or joint ventures (with retrospective adjustment to 4QFY12 but not 3QFY13).

FY13 core earnings grew 8.7% yoy mainly due to the property division, associates and other income. The plantation division suffered from lower CPO price and production, BHIC was hit by cost overrun and LCS cost upward revision while Pharmaniaga was affected by lower margin and provision.

Risk

Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing.

Forecasts

FY14 fined-tuned by +0.7% after incorporating our latest forecasts for Affin, BHIC, Pharmaniaga and parameters of other divisions. Also introduced FY15 forecast.

Rating

BUY

Positives – Still undervalued, privatization of Boustead REIT and subsequently list the plantation division could unlock values, relatively high and quarterly net dividend yield, decent earnings growth and market yet to fully appreciate the hidden values.

Negatives – Relatively high gearing and complicated group as well as quarterly fluctuation in earnings.

Valuation

Target price raised to RM6.82 (from RM6.72) based on unchanged 10% discount to estimated SOP of RM7.58 after incorporating our revised target prices for Affin, BHIC and Pharmaniaga and roll forward valuation base year to 2015 for other divisions.

Source: Hong Leong Investment Bank Research - 28 Feb 2014