9M16 Core Net Loss at RM68m, after excluding: (i) one-off gain on disposal of plantation land (RM117.8m), and (ii) one-off gain on disposal of an associate (RM198.3m). We consider the results to be within our expectation, assuming 4Q16 net profit mirrors that of 3Q16. The market consensus is unavailable as the stock is not widely tracked by analysts. Maintain UNDERPERFORM. SoP target price is RM1.72 (as we apply a 35% discount to its SoP valuation due to the erratic earnings performance).

Key Result Highlights

QoQ, 3Q16 EBIT rose 54%, thanks to plantations (>+100%) and property (>100%) divisions. The plantation division was helped by better average price of Palm Kernel Oil (+11%) and better volume from FFB crop (+23%). Property division was helped by erratic but higher quarterly progress billings. However, heavy industries suffered losses due to MHS Aviation, which posted a higher deficit mainly due to lower revenue. The pharmaceutical division was hit by lower offtake from the concession business. This brings 3Q16 core net profit of RM44m compared to a core net loss of RM90.3m excluding gain from sale of properties (RM117.8m), and (ii) gain from disposal of an associate (RM198.3m) in 2Q16. A 3rd single-tier interim DPS of 5.0 sen was announced, bringing 9M16 to 14.0 sen which is within our expectation.

YoY, 9M16 core net losses were due largely to lower contributions from pharmaceutical and property divisions and further exacerbated by widening heavy industries losses. The pharmaceutical division was hit by lower off-take from the concession business. Heavy industries division was lower mainly lower to Boustead Naval Shipyard recording a higher deficit arising from downward revision of margin for LCS project, additional cost to completion for the restoration of KD Perantau as well as lack of new ship repair and shipbuilding projects.

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 mixed. The heavy industries division, however, is expected to remain volatile.

Maintain UNDERPEPRFORM. We consider the results to be within our expectation, assuming 4Q16 net profit mirrors that of 3Q16. The market consensus is unavailable as the stock is not widely tracked by analysts. Maintain UNDERPERFORM. SoP target price is RM1.72 (as we apply a 35% discount to its SoP valuation due to the erratic earnings performance).

Source: Kenanga Research - 1 Dec 2016