9M17 core PATAMI of RM57.3m came in within expectation compared to our full-year forecast of RM93.6m. We consider the result to be within our expectation due to the volatile quarterly results swinging back and forth between profitability and losses. The market consensus is unavailable as the stock is not widely tracked by analysts. Maintain UNDERPERFORM and sum-of-parts TP of RM2.20.

9M17 came in within our expectation. 9M17 core PATAMI of RM57.3m came in within expectation compared to our full-year forecast of RM93.6m. We consider the result to be within our expectation due to the volatile nature of its quarterly results. A third interim DPS of 3.0 sen was declared bringing 9M17 DPS to 8.5 sen which is within our expectation.

Result Highlights. QoQ, 3Q17 entered into the red with core LATAMI of RM6.2m (excluding gains from disposal of Plantation land effectively amounting to RM318.6m from 57.42%-owned Boustead Plantations) compared to core PATAMI of RM59.3m in 2Q17, no thanks to losses suffered at the Heavy Industries Division. In 3Q17, Heavy Industries division incurred a pre-tax loss of RM22.7m compared to a pre-tax profit of RM96.5m in 2QFY17 on weaker performance from all operating units. This was further exacerbated the provision for LAD made on certain ship repair projects as opposed to a write-back on provision for LAD in 2Q17. The better performance from plantation and property divisions helped mitigate further losses suffered at Heavy Industries. Pharmaceuticals division was dragged down by lower off-take from government hospitals and temporary closure of certain production lines for preparatory works to facilitate the commercialisation of new products, which resulted in lower production.

YoY, 9M17 core PATAMI of RM57.3m (excluding gain from disposal of Plantation land effectively amounting to RM318.6m from 57.42%-owned Boustead Plantations) compared to core LATAMI of RM113.8m in 9M16 thanks to higher contribution from plantations and a turnaround to profitability at Heavy Industries. The Heavy Industries division recorded a PBT of RM23.2m, which was an improvement from the deficit of RM133.8m recorded in 9M16. This was achieved on better result from Boustead Naval Shipyard (BNS). However, property and pharmaceuticals divisions dragged down overall performances. The losses at the property division was due to impact from higher share of losses in a joint-venture due to start-up cost of MyTOWN, the newly opened shopping centre and lower earnings from property development activities in Taman Mutiara. Pharmaceutical division registered a lower PBT due to lower production from manufacturing.

Outlook. We expect plantation earnings to anchor bulk of earnings, and since 91% of its plantation estates are already matured, it will hinge largely on CPO price movements of which outlook over the short-term looks positive. The Heavy Industries division remains volatile with quarterly earnings oscillating between profits and losses. 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 captive market from marketing and distribution of petroleum products under the BHPetrol retailing brand.

Reiterate UNDERPEPRFORM. Maintain UNDERPERFORM and sumof-parts TP of RM2.20.

Risk to our call is higher-than-expected earnings at Heavy Industries.

Source: Kenanga Research - 4 Dec 2017