Period    4Q12/12MFY12

Actual vs. Expectations   The core 12MFY12 net profit of RM319m came in 8% below ours and the consensus full-year net profit forecasts. The variance from our result is due to higherthan-expected losses at the heavy industries division and lower-than-expected CPO ASPs. The core net profit excludes 1) net fair value gain on investment properties (RM61.5m); 2) gain on disposal of properties (RM70m); 3) forex gain (RM12.3m); 4) fair value loss on derivatives (RM11.7m); 5) impairment of assets (RM24.4m); 6) gain on disposal of investments (RM11m); and 7) receivables and inventories written off (RM20.7m).

Dividends    A single tier DPS of 7.5 sen was declared in 4Q12, bringing the total FY12 DPS to 32.5 sen.

Key Result Highlights    QoQ, the 4QFY12 core net profit came in at RM64.4m (-17.3% q-o-q; +15% y-o-y). The weaker results were largely dragged down by the pharmaceutical and heavy industries but these were mitigated by the earnings from trading & manufacturing and 21%-owned Affin Holdings. Trading & manufacturing's EBIT rose 42% due to gain from the disposal of a property and also higher sales volume. Pharmaceutical's EBIT fell 74% due to the amortisation of goodwill arising from the acquisition of Idaman Phama S/B, an impairment of goodwill in respect of a subsidiary and seasonally slower manufacturing activities due to plant maintenance. (For a more detailed explanation, please refer to the table overleaf.)

Outlook    Boustead's prospects are bound to be mixed.

We expect the trading & manufacturing, and pharmaceutical divisions to show growth and sustainable recurring incomes. The trading & manufacturing division's growth is underpinned by its captive income from Boustead Petroleum Marketing Sdn Bhd's core business of the marketing and distribution of petroleum products under the BHPetrol retailing brand. The pharmaceutical division is supported by Pharmaniaga Logistics' government concession agreement.

The plantation earnings meanwhile are more volatile and hinge largely on CPO price movements, the outlook of which is not looking promising since 91% of its plantations are already matured.

In the property division, the earnings growth here is likely to be flat as there have been no new large-scale property projects launched.

The heavy industries division is expected to remain in the doldrums over the next few quarters plagued by potential cost incurred on delays in the delivery of vessels and uncertainty on the potential write downs on the sale of its chemical tankers.

Change to Forecasts Due to the lower-than-expected results, we have downgraded our FY13 and FY14 net profits by 6% after also factoring in a lower average CPO price.

Rating   Maintain MARKET PERFORM

Valuation  Correspondingly our SOP TP has been cut 4% from RM4.90 to RM4.70. At the current market price, the stock offers a total return of 6%.

Risks   Further weakness in CPO prices.

Delay in the delivery of PVs and cost escalation.

Source: Kenanga