9M18 Core Net Loss (CNL) came in at RM29.4m compared to our full-year forecast of RM160.3m due to lower-thanexpected contribution from Plantations and Heavy Industries divisions. We are cutting our FY18E/FY19E earnings by taking into account the lower contribution from both divisions. Correspondingly, we downgrade our SoP-TP from RM2.05 to RM1.50.

9M18 Core Net Loss (CNL) came in at RM29.4m compared to our full-year forecast of RM160.3m due to lower-than-expected contribution from Plantations and Heavy Industries division. A 3rd interim DPS of 1.5 sen was declared, bringing 9M18 DPS to 5.0 sen which is within our expectation.

Result Highlights. QoQ, 3Q18 CNL narrowed to RM4.9m excluding gains from disposal of PPE (RM12.3m) compared to CNL of RM27.6m in 2Q18, largely helped by lower losses at Plantations, a strong turnaround in Property and Heavy Industries divisions. The Plantation division registered a lower deficit, mainly due to better FFB production. Average CPO price for 3Q18 was RM2,249 per MT, a drop of RM172 from RM2,421 per MT in 2Q18. The property segment achieved a higher EBIT (>100%) due to better contribution from property development activities in Taman Mutiara Rini, Johor. In addition, hotel operation incurred lower loss during the quarter. The Heavy Industries division the Heavy Industries Division was helped by profits recognised upon finalisation of the submarine's EISS 2 contract with the Royal Malaysian Navy.

YoY, 9M18 CNL widened to RM29.4m excluding gains from sale of PPE (RM15.2m) compared to a core net profit of RM40.6m (excluding gains from sale of a plantation land effectively amounting to RM318.6m from 57.42%-owned Boustead Plantations) no thanks to weaker contributions from Plantation, Property and Heavy Industries divisions. The Plantation division revenue fell 21% due to lower palm product prices and FFB production. The Heavy Industries division revenue fell 50% due to lack of ship repair activities. The Property division’s revenue decreased by 7%, mainly as a result of lower contribution from property development activities in Taman Mutiara Rini, Johor and hotel operations.

Outlook. The group is expected to continue seeing volatile quarterly results based on several past quarters’ volatile trend. All in, we expect plantation earnings to anchor the 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 cloudy. 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.

Downgrade FY18E/FY19E net profit by 35%/37% taking into account the lower contribution from plantations and heavy industries.

Maintain MP. Correspondingly, our SoP-TP revised down from RM2.05 to RM1.50 due to lowered target price attached to Boustead Heavy Industries (from RM2.21 to RM1.40) and Boustead Plantations (from RM1.60 to RM0.87).

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

Source: Kenanga Research - 3 Dec 2018