Period

4Q15/12M15

Actual vs. Expectations

12M15 PATAMI of RM13.2m came in way below expectations compared to our estimate and consensus full-year forecast of RM119m and RM105m, respectively. The negative variance was due to lower-than-expected contributions from plantations, trading & industrial and heavy industries.

Dividends

A fourth interim single-tier DPS of 4.0 sen was declared which brings 12M15 DPS to 20.0 sen which is also below our full-year expectation of 27.0 sen. Key Result

Highlights

QoQ, 4Q15 EBIT fell 82% to RM10m dragged down by a RM84m loss at heavy industries and dragged down by Pharmaceutical. Heavy industries suffered losses due to LAD charges, additional project cost, as well as the impairment of chemical tankers and receivables. Pharmaceutical was hit by higher amortization of intangible assets and increased transportation cost was mitigated by reduced overhead expenses. Correspondingly, 4Q15 net profit fell 30% to RM4m.

YoY, 12M15 PATAMI collapsed due largely to lower-thanexpected contributions from plantation and heavy industries divisions, and further dragged down by dismal performance from pharmaceutical. The plantation division was hit by a decline in FFB production and bearish palm product prices, which negated the gain on disposal of land. Profit from Trading and Industrial division was lower due to stockholding losses arising mainly from decline in volume and fuel prices and further retrenchment cost of non-core operations. Heavy Industries division was mainly lower due to a provision for foreseeable losses for the restoration of KD Perantau and provision for liquidated ascertained damages (LAD) made for KD KASTUR. Pharmaceutical was hit by reduced Government orders and amortisation for the Pharmacy Information System during the year.

Outlook

We expect the Trading & Manufacturing as well as Pharmaceutical divisions to show pedestrian 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.

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 than promising.

The Heavy Industries division, however, is expected to remain volatile.

Change to Forecasts

We are downgrading our FY16E net profits by 28%, 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 RM3.50 to RM 3.30 (as we apply a 25% discount to its SoP valuation due to the erratic quarterly earnings). Maintain UNDERPERFORM.

Risks

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

Source: Kenanga Research - 1 Mar 2016