Boustead Holdings 'hold', Plantations 'neutral', MMHE 'buy',


  • Business
  • Thursday, 04 Jun 2015

Boustead Holdings Bhd

By Hong Leong Investment Bank Research

Hold

Target Price: RM4.44

HISTORICALLY, Boustead Holdings Bhd was regarded an undervalued play due to its rich embedded asset value with attractive dividend yield, said Hong Leong Investment Bank (HLIB) Research.

However, the research house believes that it is unlikely for Boustead to crystalise its asset value in the near term, as the performance of its healthcare division (56.4%-owned Pharmaniaga Bhd) will be negated by its plantation division’s weak property sentiment and slow loan growth.

HLIB explains that weak fresh fruit bunches (FFB) production and palm product prices would continue to drag earnings contribution from its property arm (57.4% stake in Boustead Plantations Bhd).

The weak property sentiment and low loan applications and approval rate may continue to drag earnings at the property development division, despite Boustead management’s plan to launch its mixed project in Cochrane by end-2015.

Affin’s earnings contribution to Boustead would be dragged by slower loan growth and weaker net interest margin.

HLIB said given the anticipated weaker contribution from most of Boustead business segments (with the exception of Pharmaniaga), it was unlikely for Boustead to maintain its generous dividend payment.

It estimates that Boustead total dividend per share in financial year 2015 (FY15) would decline to 18 sen per share from 26 sen in the past year, on assumption dividend payout ratio of 98.5% (vis-a-vis its historical average payout ratio of 90% for the past three years).

HLIB has trimmed its forecasts on Boustead’s FY15 and FY16 net profit by 1.8% and 6.4% respectively, due to slightly lower FFB yield assumption at the plantation division and lower earnings before interest and tax (EBIT) assumption at the trading division.

The research house downgraded its call on Boustead to “hold” from “buy”, with lower target price of RM4.44.

PLANTATIONS

By PublicInvest Research

Neutral

THE crude palm oil (CPO) price is expected to rebound to between RM2,400 and RM2,450 per tonne in the second half of the year, driven by better export demand and potential strength of the El Nino development, said PublicInvest Research.

It added that the current CPO price has hit the bottom and further downside is unlikely.

Nevertheless, PublicInvest said it had lowered its 2016 CPO expectations from RM2,550 per tonne to RM2,500 per tonne.

It noted that this a year was not a good year for commodities, particularly gold (-4.6%), crude oil (-40.3%), soybean oil (-17%), iron ore (-35.3%), coal (-16.8%) and steel bar (-28.4%) have shrunken drastically over the last one year.

CPO prices, dragged by softer prices in both crude oil and soybean oil, had dipped more than 7% to the current level of RM2,240 per tonne.

PublicInvest said CPO prices had been in the doldrums somewhat since Sept 2012, hovering below the 10-year average CPO price of RM2,400 per tonne, which is quite unexpected.

For this year, it said poor export data for Malaysia was mainly because of weaker demand from China (-32.4%), the European Union (-20.5%), Pakistan (-22.9%) and the US (-8.9%).

Apart from softer demand due to slowdown in China’s economy, CPO has been facing stiff competition from soybean oil, CPO’s closest substitute, which has had an unprecedented production-high since last year. The softer soybean oil prices arising from the oversupply situation has caused a switch of demand from CPO to soybean oil.

PublicInvest said despite numerous efforts launched by the Indonesian government recently such as increasing the biodiesel blending rate and raising biodiesel subsidies to promote domestic consumption of palm oil, it failed to lift CPO prices.

It conceded that the market is seemingly not overly optimistic over Indonesia’s implementations probably because of many disappointments over the years.

PublicInvest maintains its “neutral” outlook and continue to like Genting Plantations Bhd and Ta Ann Holdings Bhd.

Malaysia Marine & Heavy EngINEERING BHD

By CIMB Research

Target price: RM1.50

Add

MALAYSIA Marine & Heavy Engineering (MMHE) has been clinching new contracts since MISC’s former vice-president of offshore business Abu Fitri took over the helm on March 1.

As at March 31, 2015, the company had an order book worth RM1.2bil, the lowest since its listing on Oct 29, 2010.

However, MMHE has added several contracts worth totalling at least RM80mil to its order book, with three more valued at RM240mil combined almost in the bag.

“Management has adopted a new strategy of diversifying its geographical presence from the current domestic-oriented operations and reducing its reliance on the fabrication business by growing its marine repair business,” CIMB Research said.

“Although small, the new contracts add up and should be able to reverse the order book decline that has been plaguing MMHE since the first quarter of 2014.”

The research house said the potential contract pipeline was exciting, given the tender book of RM7.2bil, which has a 63:37 split between foreign and domestic projects.

In Malaysia, the company is gunning for a Kasawari central processing platform fabrication contract and Refinery and Petrochemical Integrated Development packages in Pengerang, Johor.

Outside Malaysia, MMHE is focusing on three key areas – Africa, Canada and the Middle East.

“This is the first time that we have an ‘add’ recommendation since we initiated coverage on the stock on Jan 16, 2012.

“The share price met our previous target price of RM1.20 after falling by 65% and underperforming the Kuala Lumpur Composite Index by 58% since Aug 5 2014, when we downgraded our call from ‘hold’ to ‘reduce’,” it added.

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