FY17 core PATAMI of RM143.4m came in within our expectation. The group is expected to continue to see volatile quarters judging by the past quarterly trend, swinging back and forth between profitability and losses. Maintain UNDERPERFORM and sum-of-parts TP of RM2.20.

FY17 came in within our expectation. FY17 core PATAMI of RM143.4m came in within our expectation. A 4th interim DPS of 2.5 sen was declared bringing FY17 DPS to 11.0 sen which is within our expectation.

Result Highlights. QoQ, 4Q17 entered into the black recording a core PATAMI of RM86.1m compared to a core LATAMI of RM6.2m in 3Q17 (excluding gains from disposal of Plantation land effectively amounting to RM318.6m from 57.42%-owned Boustead Plantations) thanks to the better performance in Heavy Industries division. In 4Q17, Heavy Industries division posted a positive EBIT of RM130.7m compared to a loss of RM4m in 3Q17 after accruing the compensation receivable from Petronas for the settlement of termination on a joint operation contract. In addition, BNS also registered better result for the quarter. However, Plantation division was hit by lower CPO and PKO prices. Average CPO price and PKO prices were lower by 1.3% and 13.3%, respectively. Property division performance was boosted by sale of bungalow lots in Mutiara Damansara, Selangor and higher earnings from property development activities in Taman Mutiara Rini, Johor.

YoY, FY17 core PATAMI recorded at RM143.4m excluding gains from disposal of Plantation land effectively amounting to RM318.6m from 57.42%-owned Boustead Plantations) compared to core LATAMI of RM47.6m in FY16 thanks to higher contribution from plantations and a turnaround to profitability at Heavy Industries. The Heavy Industries division recorded a PBT of RM73.2m, which was a turnaround from FY16 deficit of RM120m driven by stronger contribution from Boustead Naval Shipyard (BNS) thanks to contribution on Littoral Mission Ship project and reversal of provision for Liquidated Ascertain Damages (LAD) on a ship repair project. Pharmaceutical division’s better performance was driven by a positive turnaround in Indonesia, reduction in finance cost as well as compensation received in relation to a previous joint-venture company in China. However, the property division recorded a lower PBT of RM54.1m compared with RM323.5m in FY16 due to a one-off gain on disposal of an associate company.

Outlook. The group is expected to continue to see volatile quarterly results judging by the past several quarters trend, swinging back and forth between profitability and losses. All in, 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 - 1 Mar 2018