Period  3Q14/9M14

Actual vs. Expectations Boustead Holdings (Boustead) reported 9M14 PATAMI of RM130m (-50% YoY) which came in below both our expectations and consensus’. 9M14 net profit accounts for 38% of our, and consensus’, full-year forecasts. The negative variance from our forecast is due to lower-than-expected contribution in its plantations and heavy industries.

Dividends  A third interim single tier DPS of 7.5 sen was declared. This brings its 9M14 total dividend to 22.5 sen which is in line with our expectation.

Key Result Highlights QoQ, the 3Q14 net profit came in at RM18m (-60% QoQ) due to the weaker contributions from plantation, heavy industries and pharmaceutical divisions. The poor set of results was on account of lower sales volume and softer palm product prices. Average palm oil price realised for the current quarter of was 14% lower to RM2,220 per MT while FFB crop production for the current quarter increased by 12% to 275,008 MT. In the pharmaceutical division, the weaker results were due to lower off-take for in-house products from government hospitals as well as higher operating expenses, including research and development expenditure. The heavy industries division was hit by cost overruns in the ship repair projects.

 YoY, 9M14 PATAMI fell 50% due largely to lower contribution from heavy industries and plantations divisions. Higher finances costs and lower associates’ contribution further dragged down overall bottomline. However, the star performers were from both pharmaceuticals and plantation divisions. Plantation was purely driven by higher CPO prices since >90% of its  creage are matured. Pharmaceutical was driven by the absence of amortisation charges from the novation agreement to supply pharmaceutical products and higher volume sales.

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 hinge largely on CPO price movements since 91% of its plantation lands are already matured of which outlook over the medium -term looks less promising.

 For 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 but risk lies in potential future cost overruns from its legacy commercial projects.

Source: Kenanga