1Q17 PATAMI came in at RM4.2m compared to our full-year forecast of RM69m. We consider the results to be within our expectation on a seasonally slower quarter. The market consensus is unavailable as the stock is not widely tracked by analysts. A 1st single-tier interim DPS of 2.5 sen is declared. However, it is below expectation as opposed to 5.0 sen in 1Q16. Maintain UNDERPERFORM with an unchanged SOP TP of RM2.09.

Key Result Highlights QoQ, 1Q17 PATAMI of RM4.2m was dragged down by losses at i) Heavy Industries due to weaker performance from Boustead Heavy Industries and MHS Aviation; and ii) exacerbated by stockholding losses and higher base in 4Q16 due to gain on disposal at Trading and Industrial division and exacerbated by a higher effective tax rate of 43% compared to 29% in 4Q16. Only plantations performed well due to due to higher APSs for CPO (+9.8%) and PKO (+10.8%). Excluding one-off items, in 4Q16, including 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), 4Q16 core PATAMI is RM70.7m compared to 1Q17 PATAMI of RM4.2m . A 1st single-tier interim DPS of 2.5 sen (vs 5.0 sen in 1Q16) which is below our expectation. We conservatively cut our FY17 and FY18 DPS assumption to 16 sen/share (from 19 sen/share).

YoY, 1Q17 revenue rose 27% underpin by better contribution from plantation, finance & investment, Trading & Industrial divisions. Better performance from plantations were due to i) higher average CPO price (+40% to RM3,166/MT); ii) Palm Kernel Oil (+68% to RM3,204/MT) and higher volume from FFB crop (+13%). While, Trading & Industrial division was boosted by BH Petrol which registered a better contribution on lower stock holding loss as a result of better fuel prices and higher sales volume attained. UAC Berhad also contributed higher profit. However, losses at heavy industries, lower property and associates contribution dragged down 1Q17 PATAMI to RM4.2m compared to a loss of RM22m in 1Q16.

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. We maintain our FY17E and FY18E net profit forecasts. Maintain UNDERPERFORM and our sum-of-parts TP of RM2.09.

Source: Kenanga Research - 30 May 2017