ALREADY a diversified group with six core businesses, do not be surprised if Boustead Holdings Bhd will look at delving further in the lucrative oil and gas (O&G) sector.
The group, which has a history close to two centuries, is currently involved in plantation, pharmaceuticals, property, trading and manufacturing, finance and investment and heavy industries.
While concrete plans are already in the pipeline for these existing businesses, deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin reveals to StarBizWeek that big plans into the oil and gas business is very much at a preliminary stage for now.
“I did mention it to shareholders that we see the big potential to go in this sector and we intend to be involved this industry through a few ways.
“First, we have our subsidiary, Boustead Heavy Industries Corp Bhd (BHIC) that has the expertise and know-how to build various types of supporting equipment and services catering to the O&G sector.
“We are looking at the construction of anchor-handling tug and supply (AHTS) vessels, various types of offshore support vessels (OSVs) as well as floating, offloading, storage and production (FPSO) facility as we are already a licensed O&G fabricator with Petronas.
“We have embarked on the construction of OSVs but in a very small way,” he says.
Banking on oil companies' plans to increase their capital expenditure, Lodin expects the O&G industry to flourish well as the demand for energy increases and oil price stays at healthy level around US$100 per barrel.
It was reported in the middle of last month that the Petronas is slated to award as many as more than 30 OSV contracts worth some RM3bil and analysts expect this will only the first out of three waves.
OSV charter rates has also been steadily improving to the current US$2.20 per brake horse power (bhp) from US$1 per bhp in 2010.
Beyond this, Lodin also seems excited for the company to go into the production of marginal oil fields and enhanced oil recovery.
“But we have to be extra cautious on this as it is big money' we are talking about here. We will need a partner to go into this part of O&G sector,” he says.
Currently, the group is also providing equipment and services to the O&G industry through its 51%-owned unit Atlas Hall Sdn Bhd.
Lodin says that currently, via Atlas, the group supplies multi-faceted pumps to enhance oil extraction.
Additionally, he adds that Boustead is providing helicopter transportation to Petronas.
MHS Aviation Bhd, a subsidiary of Boustead Holdings Bhd, sealed a RM3bil contract in 2011 to provide helicopter services for 10 years to Petronas Carigali Sdn Bhd, ExxonMobil Exploration and Production Malaysia Inc and Newfield Peninsular Malaysia Inc.
So what's Boustead major shareholder's, Malaysian Armed Forces Fund Board (LTAT) with over 60% stake in the company, view on this?
“LTAT has been quite flexible in allowing Boustead to decide on what type of investment we want to get into.
“The six core business are actually the sectors that are identified by the board and management which we believed could give a good sustainable return to all shareholders,” he said.
Boustead, through its banking subsiadiary, Affin Holdings Bhd, has been in the limelight recently as the latter is awaiting the greenlight from Bank Negara to start talking to Hwang-DBS (M) Bhd.
Affin is among the four banking institutions that are interested suitors to acquire the standalone investment banker.
Lodin says if “everything goes well”, Hwang-DBS would help Affin to grow its stockbroking and fund management business “substantially”.
With a smile, Lodin believes that the group stands a good chance.
“We want to go in for the right reason, which is for us to grow our market share; with the combined strength of the two banks, we can be among the major (equity) players in the industry.”
Affin's major shareholders are LTAT (35.2%), The Bank of East Asia Ltd (23.5%) and Boustead Holdings Bhd (20.7%).
Sources confirm that the frontrunner for the deal is Affin Holdings Bhd, although other contenders include Alliance Finance Group Bhd, AMMB Holdings Bhd and K&N Kenanga Holdings Bhd.
Affin Holdings delivers a record result in 2012, registering a pre-tax profit of RM834mil, an 18% increase over the previous year. The financial services group contributed RM130mil to Boustead last year, a 23% rise over 2011.
Besides banking, Lodin says Pharmaniaga Bhd has been another star performer of the group last year and it is about to get better with an Indonesian acquisition in the pipeline.
On April 4, Pharmaniaga announces it has entered into a memorandum of understanding (MoU) with Glenn Rahyu Adli Ariff to buy 100% of PT Errita Pharma, a privately-held manufacturer of generic pharmaceutical products based in Bandung, for US$28mil (RM86.5mil).
The company expects its latest Indonesian venture to yield some RM60mil of health products annually by 2014.
The pharmaceutical division reports a RM80mil or 18% increase in profit in 2012 from RM68mil in 2011. But it is important to note that Pharmaniaga's last year result is on a 12-month basis as compared to nine-month in 2011.
Lodin says despite the decline in plantation sector last year, it is still the biggest contributor to the group's bottom line.
It is a tough year for the plantation division in 2012 as the segment was hit by plunging crude palm oil (CPO) price as compared to the bull-run in 2011.
“The average CPO price for last year stands at RM2,800 per tonne as compared with an average of RM3,200 per tonne in 2011.
“To be frank, last year's average is not too bad and we still enjoy quite a good margin as the cost per tonne is still at RM1,500,” he explains.
On the outlook for this year, Lodin says the average CPO price in the first half is still quite weak due to high inventory level.
“But we are hopeful that by June or July, it will bounce back to RM2,500-RM2,700 per tonne as the high inventory level eases,” he says.
According to Hong Leong Investment Bank, the first-quarter average CPO price rebounded circa 15% from its low in December 2012 but still 17% below its assumption.
“Hence, there is a high possibility that it will average lower than our forecast of RM2,800 per tonne as it takes time for the current high stock level to diminish.
“Nevertheless, we are keeping our average CPO price forecast of RM2,800 per tonne for this and next year for now and will only revisit towards June, pending more certainties on fresh fruit bunches output and exports demand,” it says.
On its heavy industries that is involved in shipbuilding business via BHIC, Lodin anticipates the segment to turn around this year from its net loss of RM97mil last year.
“We are quite confident that this year, BHIC would turn around with work on six littoral combatant ships valued at RM9bil already having gained traction.
“We are also adopting a strategy to build smaller commercial ships to aid BHIC register better performance this year,” says Lodin.
On its trading and manufacturing division, Lodin says BHPetrol is poised to see further expansion this year as the group intended to establish 10 to 15 new petrol stations to add to its existing 350.
“We also want to expand our convenient stores at the stations and that could boost our revenue.
“Our focus will be on organic growth at this juncture as we believe there is sufficient upside to improve operational efficiency, strengthen productivity and review cost structures,” he said.
On property, Lodin is excited that Ikea is in a joint venture with Boustead to develop the Jalan Cochrane area in Kuala Lumpur. “To-date, we are the only Malaysian company that become a partner to the Swedish group,” he says.
One of the biggest developments in Jalan Cochrane would be IKEA from Sweden. Boustead Holdings has acquired 5.19ha of freehold land in Jalan Cochrane from LTAT.
As there are two big acquisitions in the pipeline in the pharmaceutical and banking segments - Lodin is asked on whether the group would be able to finance these without overstretching its balance sheet.
“I think we still have some rooms to go to the capital markets and raise funds. Our balance sheet is strong and we are looking to continue disposing of our non-core assets that also helps generate cash requirement and unlock the value of our assets,” he says.
As of 2012, Boustead's borrowings stood at RM3.9bil and it has assets totalling RM13bil.
According to TA Securities, Boustead says it has completed the debts raising exercise to fund the construction work (of BHIC projects) on March 15.
“The phase two of the loans facility will raise a total of RM2.84bil and recall that in March last year, the group secured the phase one of the loans facility worth RM2.06bil.
“The total loan amount works out to RM4.9bil, or about 54% of the total contract value,” it says.
TA Securities estimates the group's total borrowing will increase substantially to close to RM10bil by financial year 2015, but that amount only translates to a net gearing of 1.4 times.
“Note too that the RM4bil debts will be on a project financing basis. Moreover, with the counter party being the Federal Government, we see little risk of defaults,” it says.
Boustead posted a net profit of RM416.7mil for the financial year ended Dec 31 last year, lower than the RM610.6mil achieved in 2011, despite higher revenue. Revenue for 2012 stood at RM10.2bil against RM8.5bil in 2011.
The group paid out dividend of 32.5 sen, 6.3% yield on closing price for the financial year 2012.
Overall, this year, Lodin seems confident that the turnaround of two of its underperforming segments in heavy engineering and plantation will put the group on a stronger footing this year.
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