Boustead Holdings - Strong Sequential Recovery

Results

3QFY13 core net profit of RM97.5m (+59.3% qoq and +25.2% yoy) took 9MFY13 to RM258.6m (+21.6% yoy) which accounted for 71.8% of HLIB (in line) and 70% of consensus (below) forecasts.

Deviations

Largely in line.

Dividend

Single-tier dividend of 7.5 sen (vs. 10 sen). Ex and payment dates are 17 and 30 Dec respectively. This is a payout of 79.5% or in line with the official dividend policy of 70%. YTD dividend of 22.5 sen net is already close to our projection of 24.4 sen.

Highlights

3Q earnings recovered sequentially due to continued improved profitability of the heavy industry division (mainly from BHIC) as well as EBIT turnaround of the plantation division due to slightly higher CPO price and higher production. These were complemented by sustained earnings from Affin as well as property, pharmaceutical and manufacturing & trading divisions. Partly offset by higher interest charges (higher gearing from working capital for the LCS project) and higher effective tax rate.
YTD core earnings grew at more than 20% due to sharp turnaround of the heavy industry division as well as improved contributions from the property division and Affin (associate). These more than offset sharply lower contribution from the plantation division (lower CPO and production) and lower contribution from Pharmaniaga as well as higher interest charges and higher effective tax rate.

Risk

Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing and dilution from potential cash call.

Forecasts

FY13-14 fined-tuned by +0.2% and -7.3%, respectively to reflect changes in our forecasts for Pharmaniaga (lowered) and BHIC (FY13 lowered but FY14 raised) post their respective results announcements.

Rating

BUY 
Positives – Still undervalued, privatization of Boustead REIT and subsequently list the plantation division could unlock values, relatively high and quarterly net dividend yield, decent earnings growth and market yet to fully appreciate the hidden values.
Negatives – Relatively high gearing and complicated group as well as quarterly fluctuation in earnings.

Valuation

Target price raised to RM6.72 (from RM6.61) based on unchanged 10% discount to estimated SOP of RM7.46 after incorporating our revised target prices for BHIC (which was raised) and Pharmaniaga (which was reduced) post their respective results announcements.