Period  3Q13/9M13

Actual vs. Expectations For 9M13, Boustead Holdings (Boustead) reported net profit of RM258.6m (-3% YoY) which came in within expectations, at 70% of our and consensus full-year net profit forecasts.

Dividends  A third interim single tier DPS of 7.5 sen was declared. This brings its 9M13 total dividend to 22.5 sen.

Key Result Highlights QoQ, the 3Q13 net profit came in higher at RM98m (+59% QoQ) thanks to better CPO prices, higher crop production, solid improvement in the heavy industries division and better performances in the pharmaceutical division. Plantation earnings were driven by higher FFB output, which rose 19% to 226,952 MT and marginally higher average CPO prices. In the heavy industries division, solid improvement in earnings was led by profit contribution from LCS project and MRO related where activities had improved. The air transportation and support services segment under MHS Aviation produced a better set of results on lower operating cost. The Pharmaceutical division was driven by contribution from manufacturing which more than offset the losses suffered in logistics and distribution division.

 YoY, 9M13 net profit fell 3% to RM258.6m due to the weaker plantation and pharmaceutical divisions but mitigated by property and heavy industries. Plantation was hit by both lower palm product prices and FFB crop production. 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 contribution was led by gain from disposal of an investment property and higher progress billings. The heavy industries segment was not affected by legacy shipbuilding projects, which had led to cost overruns. Elsewhere, better progress was achieved on the Littoral Combat Ship (LCS) project and better performances from MHS Aviation.

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. A saving grace is the 5.0% dividend yield.

Risks to Our Call Further weakness in CPO prices.

 Delays in the delivery of LCSs and cost escalations.

Source: Kenanga