DIVERSIFIED conglomerate Boustead Holdings Bhd is a hidden gem with good prospects.
The asset-rich but “undervalued” government-linked company (GLC) is poised to enjoy healthier profit contributions from strategic streamlining of its core businesses, namely plantation, property, finance and investment, trading, manufacturing and heavy industries.
To date, the group has about 80 listed and non-listed subsidiaries and associated companies, including listed property arm Boustead Properties Bhd, 21% owned financial services company Affin Holdings Bhd, BHP Petroleum Marketing Sdn Bhd, listed manufacturer UAC Bhd, and heavy industries players PSC Industries Bhd (PSCI) and Boustead Naval Shipyard Sdn Bhd (BNS).
Industry analysts concur that Boustead is a long-term “buy” and suitable for investors seeking undervalued rich GLCs.
Of late, the group has aggressively embarked on strategic initiatives to enhance shareholder value.
These initiatives include the injection of selective plantation assets into Al-Hadharah Boustead REIT, the first Islamic plantation real estate investment trust, late last year.
Affin Holdings, which owns Affin Bank Bhd - the weakest local anchor bank in terms of asset quality - will also see a re-rating in the medium term following the long-awaited entry of a strategic foreign partner, with Bank of East Asia taking up a 25% stake in Affin Bank.
The Boustead group recently proposed a voluntary general offer to buy the remaining stake in cellulose cement fibreboard maker UAC.
However, the most controversial exercise is the group's move into shipbuilding and ship repair via acquisitions of additional stakes in PSCI and BNS. The latter has an existing offshore patrol vessel (OPV) contract with the Government to design, construct and deliver six OPVs valued at RM5.35bil to the Royal Malaysian Navy.
Group managing director Tan Sri Lodin Wok Kamaruddin said recently that the Boustead group did not intend to rest on its laurels.
“The group enters this year rejuvenated (from strategic initiatives) with new prospects and healthier profit contributions across the board,” he added.
iCapital, in its latest report, has recommended a “buy” on Boustead, saying that the main attraction lay in the group's ability to further unlock the value of its assets.
The research unit said Boustead had underlying assets in the form of associate companies and properties.
The group's stakes in Affin (21%) and UAC (39%) are valued at about RM740mil.
As for Royal and Sun Alliance Insurance (M) Bhd (R&S), Drew Ameriod (M) Sdn Bhd, Kao (M) Sdn Bhd and Cadbury Confectionary (M) Sdn Bhd, iCapital said: “Disposing Boustead's interests in these companies at net asset value will generate close to RM135mil.”
It will be interesting if Boustead can transform R&S into a subsidiary.
iCapital said Boustead's capital expenditure (capex) this year would amount to RM332mil.
It said the group's core capex was manageable. However, the group will need additional investments of about RM272mil for its associate companies as well as RM167mil to subscribe to PSCI's rights issue and acquire additional shares.
“We see the need to raise cash and believe this will motivate Boustead to re-look at its balance sheet management,” said iCapital.
To date, the group has managed to unlock the value of its plantation division. It still holds 33,813ha of oil palm estates in Malaysia and 22,582ha in Indonesia.
“The current favourable crude palm oil price provides a good opportunity to unlock the value of these estates,” it added. The Indonesian estates are valued at RM37mil in Boustead's book.
Meanwhile, a Singapore-based brokerage has recommended a “buy” on Boustead given its decent price-earnings ratio (PER) and attractive dividend yields.
Over the next two years, the group's prospective PER valuations are not demanding at about 6 to 7 times for the next two years while dividend yield looks attractive at 6%.
The brokerage said: “We believe there are hidden values in the Boustead group.”
As a GLC, Boustead has disclosed its 2007 key performance indicators, which include return on equity and gross dividend targets of 7.2% and 16 sen, respectively.
Over the next two years, the brokerage said, plantation, property and trading would continue to be the main drivers of profits.
Plantation, the main profit contributor to the group, will see significantly higher profits in the next two years, thanks to higher crude palm oil prices forecast at RM2,000 per tonne in 2007 and RM2,200 per tonne in 2008.
The group's property development projects in Selangor and Johor, under the Mutiara Home brand, are also poised to see better results. Investment properties like commercial development The Curve and office buildings would enjoy 90% occupancy while its four-star hotels - Royale Bintang Damansara and Royale Bintang Kuala Lumpur - are expected to have 80% occupancy.
However, it said, “the dark horse will be in heavy industries, whether Boustead can turn around PSCI and BNS in the next two years.”
For the current financial year ending Dec 31, Boustead is expected to make an exceptional gain of RM71mil, of which RM30mil will be from the increased stake in Boustead Properties and RM41mil from the impending injection of 2,038ha Lepan Kabu Estate in Kelantan into Boustead REIT.
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