Period     2Q13/1H13

Actual vs.  Expectations   For 1H13, Boustead Holdings (“Boustead”) reported net profit of RM161m, which was generally in line with  our expectation at 45% of our full-year forecast. However, the result was below street consensus at only 40% of the street’s full-year forecast. This brings its 1HFY13 total dividend to 15.0 sen.

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

Key Result Highlights    QoQ, the 2Q13 net profit came in lower at RM61m (-39% QoQ) largely dragged down by the plantation, pharmaceutical and heavy industries segments. Plantation earnings were hit by: (i) lower FFB crop output and higher estate costs particularly manuring; and (ii) lower  average CPO price. Pharmaceutical division was also hit by provisions for obsolete and soon-to-expire stocks due to a slowdown in orders from the concession business. In the heavy industries division, earnings were dragged down by the air transportation and support services segment under MHS Aviation on lower revenue but higher depreciation and funding cost on two new aircrafts. 

YoY, 1HFY13 net profit fell 14% to RM161.1m due to the weaker plantation and pharmaceutical divisions. Plantation was hit by both lower palm product prices and FFB crop production.  ASPs for FFB, palm oil and palm kernel fell 31%, 27% and 39%, respectively. In the case of pharmaceutical division, lower concession sales, provision for doubtful debts and a lower manufacturing profit due to a drop in production volume dragged down earnings. Property division was the only star performer underpinned by gains from disposal of an investment property and higher progress billings. (For a more detailed explanation, please refer to the table overleaf.)

Outlook    Boustead’s prospects are expected 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 market from Boustead Petroleum Marketing Sdn Bhd, which conducts marketing and distribution of petroleum products under the BHPetrol retailing brand. Its 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 have 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 launching of late. 

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 with a SOP target price of RM5.52. Their saving grace is a 5.0% dividend yield.

Risks    Further weakness in CPO prices.

Delays in the delivery of LCSs and cost escalations.

Source: Kenanga