Highlights

• Boustead Holdings' indirect wholly-owned subsidiary, Johan Ceramic Berhad (JCB) has proposed to disposal three contagious leasehold lands located in Seremban, machinery and equipment as well as its trademark to Kim Hin Ceramic (Seremban) Sdn Bhd, a wholly-owned subsidiary of Kim Hin Industry for a total cash consideration of RM28m (RM26m for the lands and RM2m for the machinery and equipment as well as trademarks).
• JCB's main activity is manufacturing and sale of glazed ceramic wall and floor tiles. However, it has ceased operation since 1 Jul 15 after 3 years of unfavourable financial performance due to increased competition and declining operation performance.
• The contagious parcel of lands have with a combined land area of approximately 68,360 sq meter with 2 buildings that were used for the manufacturing activities and as offices of JCB while the trademark is a Class 19 trademark registered by JCB with the Intellectual Property Corporation of Malaysia in respect of ceramic wall and floor tiles, and roof tiles (not of metal) which is valid until 1 April 2022.

Comment

• The disposal consideration for the lands is deemed to be fair as it is in line with the market value of RM26m. Besides, the disposal is part of its progressive efforts to wind-down JCB. All the proceeds will be used to settle a substantial portion of its outstanding obligations and to undertake a members’ voluntary winding up.
• The disposal is expected to be completed in 1Q16 and this will result in a one-off contribution to 2016 earnings.

Risk

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

Forecasts

• No change in earnings forecast.

Rating

HOLD

Positives

• Relatively high and quarterly net dividend yield.

Negatives

• Relatively high gearing and complicated group, quarterly fluctuation in earnings and weak near-term earnings outlook.

Valuation

• Maintain HOLD recommendation with unchanged Target Price of RM4.07 based on SOP.

Source: Hong Leong Investment Bank Research - 18 Dec 2015