Period     1QFY13

Actual vs. Expectations   The core 1QFY13 net profit of RM99.9m came in within expectations at 27% and 24% of ours and the market consensus full-year net profit forecasts. 

Dividends    A first interim single tier DPS of 7.5 sen was declared.

Key Result Highlights    The 1QFY13 net profit came in at RM99.9m (-33.6% QoQ, -30.9% YoY). The weaker results were largely dragged down by the plantation and pharmaceutical segments and a lower contribution from 21%-owned Affin Holdings. A pleasant surprise was the heavy engineering division’s return to the black due to the absence of cost overruns from its past legacy jobs  and higher progress billings on its littoral combat ship project. 

YoY, Plantation’s EBIT fell 71% hit by the lower average crude palm oil price, which fell 26% as well as a 6% drop in its crop production. The Pharmaceutical’s EBIT fell 14% due to a provision for doubtful debts and higher direct overheads cushioned by the better showing from the manufacturing division.

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 will be 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 will be more volatile and will hinge largely on CPO price movements. The outlook of the division’s growth prospect is not too promising since 91% of its plantation lands 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 stable. However, we are uncertain whether there will be any potential future cost overruns for its legacy commercial projects. 

Change to Forecasts   No changes in our forecasts. 

Rating         Maintain MARKET PERFORM. The saving grace is a 4.8% dividend yield.

Valuation     We have raised our SOP value to RM5.52 from RM4.70 previously. Our SOP revision took into account of the following 1) a roll-forward in our base-year  valuation from FY13 to FY14; 2) the rise in our in-house target price for Affin Holdings Bhd from RM4.40 to RM5.20 and 3) its listed entities being valued based on their  latest consensus target prices. 

Risks    Further weakness in CPO prices.

Delays in the delivery of PVs and cost escalations.

Source: Kenanga