Period

1Q15

Actual vs. Expectations

Boustead Holdings (Boustead)’s 1Q15 PATAMI of RM0.1m came in way below expectations compared to our and consensus full-year forecast of RM321m and RM325m, respectively. The negative variance from our forecast is due to lower-than-expected contributions from plantations and financial & investment.

Dividends

A first interim single-tier DPS of 5.0 sen was declared which came in within our expectations. Key Result

Highlights

QoQ, 1Q15 net profit plunged heavily to only RM0.1m compared to RM209m in 4Q14 due to the weaker-than-expected contributions across the board, lower associates and further exacerbated by a higher effective tax rate of 38% compared to 9% in 4Q14. At EBIT level, heavy industries (-64%) was hit by lower contribution from BN Shipyard as a result of variations in the milestone achieved for LCS and other projects. Property division (-68%) was lower due to the higher base effect from a fair value gain on investment properties in the previous quarter. Finance and investment division income was lower reflecting the decline in contribution from the Affin Group. The positive growth in Plantation was due to higher CPO price by 2% but was dragged down by lower FFB Crop production by 19%.

YoY, 1Q15 PATAMI collapsed due largely to lower contribution from Plantations and Trading and industrial, further dragged by dismal performances from plantations and lower associates’ contribution, while higher effective tax rate further exacerbated overall bottomline. Plantations division was hit by lower sales volume and softer palm product prices. Average CPO price was 15% lower to RM2,236 per MT while FFB crop production for the current quarter fell 16%. Trading and industrial division was lower due to stockholding loss arising from mainly on decline in volume and fuel prices. However, Heavy Industries division bucks the trend with a better performance due to better profit contribution from joint-venture companies namely Contraves Advanced Devices Group and BHIC AeroServices Sdn Bhd.

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.

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 downgrading our FY15E and FY16E net profits by 18%, following the weak set of results after taking into account higher lower contributions from plantations and financials.

Rating & Valuation

Correspondingly, we downgrade the stock from Outperform to Market Perform. Our SoP target price is cut from RM5.01 to RM4.40.

Risks to Our Call

Further weakness in CPO prices and delays in the delivery of LCSs and cost escalations.

Source: Kenanga Research - 26 May 2015