2QFY20 Core Net Loss (CNL) came in at RM73.7m. 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. TP is maintained at RM0.66. Maintain MP.

Results’ highlights. QoQ, 2QFY20 core net loss is marginally higher at RM73.7m. The better result from Trading, Financial & Investment, Heavy Industries and Plantation Divisions was negated by the weaker performance from Property & Industrial and Pharmaceutical Divisions. Plantation Division performed better with higher FFB production (+29%). Trading, Finance & Investment Division recorded a lower operating loss on reduced stockholding loss due to improved fuel price. Pharmaceutical Division registered a lower EBIT (-43%) on reduced demand from both concession segment and Indonesian operations.

YoY, 1HFY20 CNL widened by 25% no thanks to Trading cushioned by Pharmaceutical and Plantations. The Trading, Finance & Investment Division recorded a operating loss of RM34m against a surplus of RM89m in 1HFY19 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 a positive EBIT of RM37m against a loss of RM23m due to better palm products prices. Similarly Pharmaceutical Division EBIT rose 10% due to stronger contribution from government hospitals and lower operating costs.

Outlook. The group is expected to continue seeing volatile quarterly results based on its historical 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, its 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 RM0.66 after imputing a 20% holding company discount. 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 - 28 Aug 2020