Period

2Q15/1H15

Actual vs. Expectations

Boustead Holdings (Boustead)’s 1H15 PATAMI of RM3m came in way below expectations compared to our and consensus full-year forecast of RM265.0m and RM232.0m, respectively. The negative variance from our forecast is due to lower-than-expected contributions from plantations, trading & industrials and losses from heavy industries.

Dividends

A second interim single-tier DPS of 5.0 sen was declared, which brings 1H15 DPS to 10.0 sen which is within our expectation. Key Result

Highlights

QoQ, 2Q15 net profit was RM2.9m compared to RM0.1m in 1Q15 due to better contributions from Plantation, Finance & Investment and Trading & Industrial Divisions. At EBIT level, plantations rose >100% due to higher FFB production (+27% QoQ) which more than offset lower average CPO prices. Average palm oil price realised for the current quarter of RM2,181 per MT was 2% weaker QoQ. Average PK price of RM1,535 per MT was 8% lower QoQ. Trading & Industrials was stronger (>+50%) due to higher sales volume and stockholding gain recorded by Boustead Petroleum Marketing. However, Heavy Industries Division incurred a loss of RM34.0m compared to a surplus of RM3.6m in 1Q15, mainly due to deficits from Boustead Naval Shipyard.

YoY, 1H15 PATAMI collapsed due largely to lowerthan- expected contributions from plantations, losses at heavy industries and trading & industrials, and further dragged by dismal performances from plantations and lower associates’ contribution, while a higher effective tax rate further exacerbated the overall bottomline. Plantations division was hit by unfavourable effects from the decline in FFB production and bearish palm product prices, which negated the gain on disposal of land. Trading and industrial division was lower due to stockholding loss arising mainly from the decline in volume and fuel prices. Heavy Industries division went into the red due to a provision for foreseeable loss for the restoration of KD Perantau and additional costs on certain ship repair projects.

Outlook

Boustead’s prospect is 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 estates are already matured of which outlook over the medium term looks less exciting.

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 37-41%, following the weak set of results after taking into account lower contributions from plantations, financials and trading & industrials.

Rating & Valuation

Correspondingly, our SoP target price is cut from RM4.40 to RM4.10. Maintain Market Perform.

Risks to Our Call

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

Source: Kenanga Research - 25 Aug 2015