9MFY20 Core Net Loss (CNL) widened to RM198.6m. The variance from our forecast was due to lower contribution from Pharmaceutical and losses at heavy industries. Due to the lack of investors’ interest and losses over the past several quarters we are ceasing active coverage on BOUSTEAD. The stock is now assigned Not Rated (from MARKET PERFORM), with our last last SoP-TP of RM0.66.

Results’ highlights. QoQ, 3QFY20 core net loss narrowed to RM51.8m compared to RM73.7m in 2QFY20. The improvement is driven by Property & Industrial, Plantation and Trading, Financial & Investment divisions. Plantation division performed better with higher average CPO price (by 17% to RM2,772/tonne) and FFB production (+1%). Trading, Finance & Investment division turned around at the EBIT level on reduced stockholding loss due to improved fuel price and higher sales volume. Property and Industrial division recorded positive EBITs compared to operating losses in 2QFY20 due to easing of COVID-19 restrictions in June 2020.

YoY, 9MFY20 CNL widened by 78% no thanks to Trading and Heavy Industries divisions but was cushioned by Pharmaceutical and turnaround in Plantation. The Trading, Finance & Investment division recorded an operating loss of RM24m against a surplus of RM130m in 9MFY19 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 the MCO period. The Heavy Industries deficit was due to BNS which recorded higher foreign exchange loss and finance cost. In addition, the contribution from LCS, LMS and ship repair projects was also weaker.

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 though delivering 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.

Ceasing coverage. Due to the lack of investors’ interest and losses over the past several quarters, we are ceasing active coverage on BOUSTEAD. The stock is now assigned Not Rated (from MARKET PERFORM), with our last last SoP-TP of RM0.66.

Source: Kenanga Research - 1 Dec 2020