Highlights

• Boustead Holdings has proposed to dispose its 30% stake in Jendela Hikmat Sdn Bhd (JHSB) to Cascara Sdn Bhd (which currently owns 40% stake in JHSB) for a total consideration of RM180m. At the same time, Lembaga Tabung Angkatan Tentera (LTAT) is also selling its 30% in JHSB to Cascara. Post the disposals, Cascara will own 100% of JHSB.
• JHSB is principally involved in property development and owns five parcels of land, measuring 577.58 acres. Three parcels of the land are located in Bukit Raja, Selangor, one parcel in Klang and the remaining parcel is located in Kuching. The company has been loss making for the past 3 years.

Comment

• The disposal is deemed to be fair as its sale consideration represents a premium of approximately RM90m or 100.14% to the effective net assets of JHSB. It also allows Boustead to realise its investment in its loss making JHSB. Boustead will recognise a net gain on disposal of approximately RM194.46m (net of taxation and estimated expenses) which translates into net gain of 18.80sen/share. The proceeds will be used for working capital.
• The disposal is expected to be completed in 3Q16 and this will result in a one-off contribution to 2016 earnings.

Risk

• Lower than expected revenue contributions from different 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 - 30 Dec 2015