Period  4Q13/FY13

Actual vs. Expectations Boustead Holdings (Boustead) reported core net profit of RM342m (-17% YoY) which came in below both our expectations and consensus. The negative variance from our forecast is due to higher-than-expected losses in its heavy industries division.

Dividends  A fourth interim single tier DPS of 7.5 sen was declared. This brings its FY13 total dividend to 30 sen.

Key Results Highlights QoQ, the 4Q13 net profit came in at RM220m (+>100% QoQ). However, stripping out gains from the disposal of Al-Hadharah Boustead REIT (RM136.8m), 4Q13 core net profit is 14% lower at RM83.4m. The poor set of results was due to losses suffered in the heavy industries division which was hit by cost overruns from ship repair projects and

impairment of long outstanding trade receivables. The losses suffered in the heavy industries more than offset positive contribution from the pharmaceutical and plantation divisions. The plantation division was largely helped by higher FFB crop, which rose 7% and marginally higher average CPO selling price; while improvement from the pharm ceutical division was driven by higher sales volume and new tenders awarded during the current quarter for both concession and non-concession business.

 YoY, FY13 core net profit fell 17% to RM342.8m due largely to the weaker plantation earnings and losses suffered in heavy industries division. Plantation was hit by both lower palm product prices and FFB crop production. The heavy industries division was hit by cost overruns from ship repair projects and impairment of long outstanding trade receivables which was more than offset by MHS Aviation’s pre-tax profit of RM26.4m.

Outlook  Boustead’s prospects are expected to be mixed.

 We expect the trading & manufacturing, and pharmaceutical divisions to show growth and deliver 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 is likely to be flat in the absence of 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 5.6% dividend yield.

Risks to Our Call Further weakness in CPO prices.

 Delays in the delivery of LCSs and cost escalations.

Source: Kenanga