Results

• 2015 core net losses of RM17.8m came in way below our expectation.

Deviations

• Weaker-than-expected performance from all divisions.

Dividend

• Declared 4th single-tier interim DPS of 4sen, bringing YTD DPS to 20 sen. This translates into total net dividend yield of 4.9%.

Highlights

• Boustead reported net losses of RM74.3m in 4Q15 (3Q15: profit of RM31.9m; 4Q14: profit of RM208.7m) mainly dragged by losses in heavy industries of RM83.7m (due to liquidated ascertained damages (LAD) charges, additional project cost and impairment of chemical tankers and receivables) and weaker performance from pharmaceutical division (due to higher amortization for its Pharmacy Information System (PhIS).
• For 2015, Boustead recorded net losses of RM17.8m mainly due to the provision and higher project cost in heavy industries and weaker performance from other divisions. Plantation division’s 2015 operating profit was down 53.2% yoy due to lower palm product prices while pharmaceutical division’s performance was affected by decline in government orders and higher amortization for its Pharmacy Information System (PhIS). Besides, contribution from Affin has declined significantly due to loan loss provisions and higher overhead costs.

Risk

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

Forecasts

• FY16-17 core net profit forecasts cut by 34-38%, largely to account for weak set of 2015 performance.

Rating

• CEASE COVERAGE, TP: RM4.00

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

• We are ceasing coverage with a lower Target Price to RM4.00 (previous TP: RM4.07) based on SOP due to its continuous set of disappointing results and unexciting outlook across divisions.

Source: Hong Leong Investment Bank Research - 1 Mar 2016