Period  4Q14/FY14

Actual vs. Expectations  Boustead Holdings (Boustead)’s FY14 core PATAMI excluding fair value gain on investment properties (RM93m) came in at RM315m (-27% YoY) which beat both our and market consensus expectations by 12% and 13%. The positive variance from our forecast is due to higher-than-expected contribution in its associate joint venture Boustead Ikano.

Dividends  A fourth interim single tier DPS of 5.0 sen was declared. This brings its FY14 total dividend to 27.5 sen which is in line with our expectation.

Key Result Highlights

 QoQ, 4Q14 core net profit came in at RM209m (+>100% QoQ) due to the stronger contributions from pharmaceutical and property and higher-thanexpected contributions from associate , Boustead Ikano which more than offset weaker contributions from plantation and trading & services. Property division (+>100% EBIT) due to higher fair value gain on investment properties coupled with a higher contribution from a joint venture, Boustead Ikano Sdn Bhd. The positive growth in Pharmaceutical was due to higher volume sales, lower expenses arising from the absence of amortisation and provision for doubtful debts. Trading and manufacturing was negatively impacted by stockholding loss arising from the sharp decline in fuel prices. In the plantations division, the weaker results were due to lower sales volume and softer palm product prices.

 YoY, FY14 PATAMI fell 26% 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 heavy industries divisions. The heavy industries division better performance was due to the absence of cost overruns and better performance in MHS Aviation as a result of lower operating cost. 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 which outlook over the medium -term looks less promising.

 The heavy industries division is expected to remain stable but risk lies in potential future cost overruns from its legacy commercial projects.

Change to Forecasts  We are raising our FY15E and FY16E net profits by 6-7%, following the good set of results after taking into account higher contribution from associates.

Rating & Valuation  With a total upside of 13%, we upgrade the stock from

Market Perform to Outperform. Maintain our SoP target price of RM5.01. At current price, the stock offers a 6% dividend yield.

Risks to Our Call  Further weakness in CPO prices and delays in the delivery of LCSs and cost escalations. 

Source: Kenanga