12M16 Core Net Loss at RM48.6m compared to our full-year forecast net loss of RM43.3m is within expectations after excluding: (i) one-off gain on disposal of plantation land (RM174.6m), (ii) one-off gain on disposal of an associate (RM209.6m), and iii) gain from disposal of a subsidiary (RM33.4m). The market consensus is unavailable as the stock is not widely tracked by analysts. Maintain UNDERPERFORM. SOP TP raised from RM1.72 to RM2.09.

Key Result Highlights

QoQ, 4Q16 headline pre-tax profit rose 100% to RM261.2m mainly due to better performance from Trading & Industrial and volatile-led Heavy Industries divisions as well as gain on disposal of Boustead Sedili (RM33.4m), gain from disposal of properties (RM29.3m), gains from disposal of BPM’s assets (RM11.3m) which was partly negated by the impairment of biological assets (RM24m). Trading and Industrial division was led by stock holdings gain and higher volume from Boustead Petroleum Marketing. Heavy industries register a small profit due to better contribution from Boustead Heavy Industries Corporation. However, pharmaceutical division was hit by losses in the Logistics and Distribution division as a result of higher finance costs. Stripping out exceptional items, 4Q16 core net profit shows a marked improvement of RM70.7m compared to RM44m in 3Q16 due to heavy industries returning to profitability. A 4th single-tier interim DPS of 5.0 sen was announced, bringing 12M16 to 19.0 sen which is within our expectation.

YoY, 12M16 Core Net Loss at RM48.6m compared to our net loss of RM43.3m is within expectation after excluding: (i) one-off gain on disposal of plantation land (RM174.6m), (ii) one-off gain on disposal of an associate (RM209.6m), and (iii) gain from disposal of a subsidiary (RM33.4m). 12M16 core net losses were due largely to lower contributions from pharmaceutical and property divisions and further exacerbated by heavy industries losses. The pharmaceutical division was hit by losses in the Logistics and Distribution division as a result of higher finance costs. Heavy Industries division was hit by the variation orders for LCS project, additional cost to completion for KD Perantau as well as lack of new ship repair and shipbuilding projects.

Outlook. We expect plantation earnings to anchor bulk of earnings, and since 91% of its plantation estates are already matured, will hinge largely on CPO price movements of which outlook over the short-term looks positive. 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. The heavy industries division, however, is expected to remain volatile.

Maintain UNDERPEPRFORM. Forecasting FY17E net profit of RM69m from a loss of RM37m to take into account higher contribution from plantations and heavy industries. Upgrade our SoPbased target price from RM1.72 to RM2.09. Maintain UNDERPERFORM.

Source: Kenanga Research - 1 Mar 2017