1QFY20 Core Net Loss (CNL) came in at RM73.1m. We deemed the results to be in line with our expectation. We are keeping our FY20 forecasts unchanged on expected volatile quarters ahead, with the group swinging back and forth between profitability and losses, judging by past quarterly trend. However, our target price is lowered from RM0.80 to RM0.66 in line with house’s lower TP for Affin Holdings and Pharmaniaga. Maintain MP.

1QFY20 inline. 1QFY20 Core Net Loss (CNL) came in at RM73.1m, in line with our expectation. We are keeping our FY20 forecasts unchanged as the group is expected to continue seeing volatile quarters ahead based on near-term historical trend. No dividend was declared as expected.

Results’ highlights. QoQ, 1QFY20 registered a narrower CNL of RM73.1m compared to net loss of RM205m in 4QFY19. The losses narrowed due to better performance from Pharmaceutical and Plantation which more than offset higher losses at Heavy industries and Trading. The Pharmaceutical division recorded a surplus of RM29.4m compared to a loss of RM240.5m in 4QFY19 bolstered by stronger demand from government and private hospitals in Malaysia and Indonesia. Similarly, Plantation return to profitability marginally due to higher palm product prices. The Trading, Finance & Investment division incurred a loss of RM22.4m compared to PBT of RM50.1m in 4QFY19 mainly due to stockholding losses recorded by Boustead Petroleum Marketing as a result of sharp drop in fuel prices.

YoY, 1QFY20 CNL widened no thanks to higher losses at Heavy Industries and Trading but cushioned by Pharmaceutical and Plantations. The Heavy Industries division losses widened to RM36.5m compared to RM18.2m in 1QFY19 due to loss from Boustead Naval Shipyard (BNS) and higher losses at Boustead Heavy Industries Corporation. Similarly, The Trading, Finance & Investment division recorded a deficit of RM22m against a surplus of RM79.3m in 1QFY19 due to lower average fuel prices. The loss incurred was mainly due to stockholding loss suffered by Boustead Petroleum Marketing as a result of sharp drop in fuel price as well as lower sales volume during MCO period. The Plantation division registered an improved result with a PBT of RM1.3m against the loss before tax of RM14m in 1QFY19. This was mainly attributed to better palm products prices. FFB production for the quarter of 209,857 MT was 19% lower than 1QFY19 crop of 258,996 MT. Oil extraction and kernel extraction rates were also lower at 21.0% (1QFY19: 21.4%) and 4.3% (1QFY19: 4.5%) respectively. The Pharmaceutical division’s PBT rose 14% due to stronger contribution from Governments hospital and lower operating costs.

Outlook. The group is expected to continue seeing volatile quarterly results based on its historical volatile earnings trend. All in, we expect the trading and manufacturing as well as pharmaceutical divisions to show pedestrian growth but deliver sustainable recurring incomes. Meanwhile, plantation earnings rely on CPO movement since 91% of its plantation estates are already matured of which the outlook over the short-term looks cloudy. The Heavy Industries division remains volatile with quarterly earnings oscillating between profits and losses.

Maintain MP. Our target price is lowered from RM0.80 to RM0.66 after imputing a 20% holding co discount and lower TP for both Affin Holdings and Pharmaniaga in line with our house’s TPs. That said, downside to the share price may be limited by a yet to be finalised reported proposal that LTAT plans on taking Boustead private at RM0.80/share

Source: Kenanga Research - 22 Jun 2020