9MFY19 Core Net Loss (CNL) came in at RM70.4m compared to our full-year Net Profit forecast of RM76.8m, way below our expectation due to lower-than-expected contribution from heavy industries and plantation. We now forecast net loss of RM40.5m/RM40.7m instead of net profit of RM76m/RM76m for FY19/FY20. Our target price is lowered from RM1.05 to RM1.00 based on a revised SoP. Maintain MP.

Below forecasts. 9MFY19 Core Net Loss (CNL) came in at RM70.4m compared to our full-year Net Profit forecast of RM76.8m, way below our expectation due to lower-than-expected contribution from heavy industries and plantation. No dividend was declared as in this quarter.

Results’ highlights. QoQ, 3QFY19 CNP came in at RM6.2m compared to a loss of RM44.3m in 2QFY19. 3QFY19 CNP excluded one-off impairment on PPE (RM123m) and impairment of goodwill (RM38.1m). The better performance was due to Heavy Industries, Plantation and Trading. The Plantation division’s operating losses narrowed due to higher CPO and PK prices by 2% and 4%, respectively. The Heavy Industries surprisingly registered a small operating profit compared to a loss in 2QFY19 excluding a one-off impairment of aircraft and goodwill in MHS Aviation totalling RM119m. On the positive note, BNS recorded a better contribution on the back of increased gross profit from the LCS and LMS projects. The Trading & Industrial division was higher due to a stockholding gain recorded by BPM and better contribution from UAC Berhad.

YoY, 9MFY9 recorded CNL of RM70.4m excluding: (i) gains from sale of a plantation land (effectively amounting to RM68.6m) from 57.42%- owned Boustead Plantations, (ii) one-off impairment on PPE (RM123m); and (iii) impairment of goodwill (RM38.1m), compared to a CNL of RM29.4m in 9MFY18, no thanks to losses at Heavy Industries and Plantation. Plantation was lower due to lower CPO (-16%) and PKO (-39%) prices. The Heavy Industries division posted a deficit on the back of weaker results from its operating units. BNS incurred heavier losses mainly due to revision of margins and variation of milestones achieved for the LCS project, though partially offset by higher gross profit from ship repair activities and the LMS project. Boustead Heavy Industries Corporation was impacted by lower contribution from maintenance, repair and overhaul activities and reduced share of profit from joint-venture companies. MHS Aviation was also impacted by a lack of projects as well as costs to maintain its fleet of aircrafts.

Outlook. The group is expected to continue seeing volatile quarterly results based on its historical volatile earnings trend. All in, we expect plantation earnings to anchor the bulk of earnings, and since 91% of its plantation estates are already matured, this hinges largely on CPO price movements of which the 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 and manufacturing as well as pharmaceutical divisions to show pedestrian growth but deliver sustainable recurring incomes.

Maintain MP. Our SoP-derived target price is lowered from RM1.05 to RM1.00. Reiterate MP.

Source: Kenanga Research - 2 Dec 2019