TA Securities

COMPANY UPDATE
TA Securities
Wednesday, April 22, 2015
FBM KLCI: 1,862.80
Sector: Trading/Services
A Member of the TA Group
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
TP: RM5.45 (+20%)
Boustead Holdings Berhad
Last traded: RM4.55
Positioning to Deliver Growth
Buy
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*
James Ratnam
Tel: +603-2167 9602
[email protected]
We met up with the management of Boustead recently. Some key takeaways
are, 1) construction phase of the LCS project will begin in May, 2) Jalan
Cochrane project is on track, with the residential units launch by late
2015/early 2016, 3) some estates with property development value could
be monetised, 4) recent O&G venture taking a back seat due to the lower
crude oil price, and 5) bright outlook for the pharmaceutical business,
tempered by downside risk from increased competition. All in, we have
adjusted FY15/16 earnings forecasts by -14.7%/-10.9%, after taking into
account the loss making AES and lower contribution from the property and
plantation segments. Target price reduced slightly to RM5.45 from RM5.65
previously. Key investment risk is lower dividends, given that the listing of
the plantation unit will reduce free cash flow to the holding company. We
estimate dividend/share of 20 sen each in FY15 and FY16 (FY14: 26 sen).
www.taonline.com.my
Share Information
Bloomberg Code
Stock Code
Listing
Share Cap (mn)
Market Cap (RMmn)
Par Value
52-wk Hi/Lo (RM)
12-mth Avg Daily Vol ('000 shrs)
Estimated Free Float (%)
Beta
Major Shareholders (%)
BOUS MK
2771
Main Market
1034.2
4,705.5
0.50
5.61/4.38
765.0
24
0.63
LTAT - 57.92
KWAP - 8.96
Forecast Revision
LCS Project Gaining Momentum
The LCS project is expected to reach another milestone in May, when the first
welding of the well of the first ship is scheduled to commence. Management
expects construction job on the second vessel to begin by end of 2015. We are
positive on this development as the initial delays had been resolved, and likely
to be key earnings driver for Boustead going forward. The first vessel is
scheduled for delivery in 2019. Moreover, the completion of legacy commercial
contracts, except for the chemical tankers which currently being rented out,
means little risk of earnings drag ahead. The chemical tankers are presently
being rented out but management still intends to dispose the assets. Some
negotiations on this are still ongoing but the soft market condition is a hurdle to
securing appropriate pricing. Management, however, indicated that the book
value of the assets have been depreciated to close to the market value.
We understand that any financial damage resulting from the KD Perantau,
which sank in Nov 2014 while undergoing maintenance work, will be covered
by insurance, and will only have a small impact on P&L. Current order book in
the heavy industries segment is about RM10bn, with the LCS project
contributing the large chunk of it. So far, the group had recognised RM3.2bn
from the LCS project, mostly for procurement and design work.
Property to Receive a Boost from Jalan Cochrane Project
As highlighted in news report, IKEA mall will open by end-2015. It will be
roughly 20% bigger than the existing IKEA Damansara. The 1.1mn sq. ft.
MyTOWN Shopping Centre, which is 50%:50% owned by Boustead and Ikano is
scheduled for completion by end of 2016. Management also targets to launch
the Mutiara 482 condo project in end-2015 or early-2016. The project will also
comprise a hotel and Soho units. What is still pending is the land acquisition
(about 30 acres in total) from LTAT.
Forecast Revision (%)
Net profit (RMm)
Consensus
TA's / Consensus (%)
Previous Rating
Financial Indicators
Net debt/equity (%)
CFPS (sen)
P/CFPS (x)
ROA (%)
NTA/Share (RM)
Price/ NTA (x)
FY15
85.2
(24.1)
(18.9)
1.8
4.6
1.0
Share Performance (%)
BOUSTEAD
Price Change
1 mth
(1.5)
3 mth
(1.3)
6 mth
(11.7)
12 mth
(17.4)
FY16
91.1
7.0
65.1
1.9
4.8
1.0
FBMKLCI
3.3
4.5
3.7
(0.2)
(12-Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
Page 1 of 6
FY15
FY16
-14.7
-10.9
306
337
339
361
90
93
Buy (Maintained)
TA Securities
22-Apr-15
A Member of the TA Group
The Jalan Cochrane project is expected to revitalise the property development
segment, as the only major ongoing project is Mutiara Rini in Johor. At this
juncture, we are yet to include any contribution from this project into our
earnings forecasts. Other pending new property development projects are
Bukit Raja (approvals from the relevant authorities) and Jalan Ipoh (finalisation
of land acquisition).
Plantation – Of Revitalizing Land Bank
As per the plan, the plantation division targets to expand land bank by 10k ha in
the first 3 years (from IPO), and another 10k ha in the following 2 years.
Including the IPO proceeds, we estimate the group could potentially raise
RM1.9bn (equity + debts) to fund the expansion drive. In the more immediate
term, some existing estates with property development potential might be
disposed. The key candidates are Balau Estate at Semenyih (247 ha), Bukit
Mertajam Estate (2,165 ha) and Malakoff Estate at Seberang Prai (1,379 ha).
The most promising candidate is the Balau estate. Management indicated that
the group had not done any replanting there and even outsourced the
operations to a third party, indicating any disposal can be done quickly.
On the NCR land issue, there has been no major development. Two JVs that
were affected are Boustead Pelita Kanowit (800 ha) and Boustead Pelita Tinjar
(3k ha). The legal suit on Kanowit is presently pending hearing from the
Federal Court. According to the Annual Report, in the even Boustead lose the
legal suit, potential loss to the group is about RM15mn. We understand that the
3,800 ha is still inaccessible as the natives had block outsiders (including estate
workers) from entering the land. Hence, no harvesting works have been carried
out. Management indicated that extremely low FFB yield in Sarawak (16.1
tonnes per ha in FY14 vs. state average of 16.1 tonnes per ha) is attributable to
these estates. Based on track records of other NCR land disputes, we do not
think a solution could be reached anytime soon.
Going Slow on O&G
The correction in the crude oil price appears to have slowed the group’s
ambition to aggressive expansion in the O&G sector. To recap, the group
acquired a total of 70 acres of land in Port Klang in July last year, which is to be
converted into a fabrication yard. In Aug 2014, the group announced the
acquisition of 80% stake in PFC Engineering for RM20.0mn, primarily intended
to build its human capital in the sector. Since then, the PFC acquisition had fell
through. Management also indicated that the development of the fabrication
yard is being put on a slow progress, in view of the capex reduction throughout
the sector. The Port Klang assets, which also includes a cruise terminal, are
profitable. The group intends to increase the assets’ utilisation by refurbishing
part of the terminal into a boutique hotel and attract port calls by foreign
navies.
Pharmaceutical – Opportunities & Threats
The pharmaceutical business had performed credibly, especially since the
acquisition of Pharmaniaga. It recently secured contracts to supply
pharmaceutical products to 3 university hospitals, UKM, USM and UM. The
announcements did not specify the value of each contract. All 3 contracts will
expire on Nov 30, 2019. We understand that on aggregate basis, the contracts
could contribute revenue of c. RM200mn to Pharmaniaga. In the immediate
term, management foresee heightened competition if the Trans-Pacific
Partnership Agreement (TTPA) is implemented. However, management intends
to partly counter this by expanding into products where the patents have
expired. Meanwhile, the Indonesian operation is still loss making, partially due
to intense competitions. As highlighted previously, the group targets to focus on
the niche halal products segment.
Page 2 of 6
TA Securities
22-Apr-15
A Member of the TA Group
Earnings Trimmed. TP Cut to RM5.45
We have updated the earnings model after the release of the FY14 Annual
Report, including the RNAV of the property assets. In addition, we have also
incorporated earnings decrease arising from the acquisition of AES, assuming
Beta Tegap too will be acquired before end of May. We have also tweaked
revenue recognition from the LCS project to be in line with management’s
guidance. All in, we have downgraded FY14/15 earnings forecasts by
14.7%/10.9%, mostly on the back of losses incurred by AES, higher interest
cost and lower earnings from the property and plantation segments. Target
price revised to RM5.45 (RM5.65 previously). Note the smaller impact on our
TP. This was because the increase in RNAV value of the land bank (includes
revaluation of the Jalan Cochrane land) and the rally in Pharmaniaga’s share
price. Maintain Boustead as Buy. Key investment risk is lower dividends, given
that the listing of the plantation unit will reduce free cash flow to the holding
company. We estimate dividend/share of 20 sen each in FY15 nad FY16 (FY14:
26 sen).
Figure 1: Boustead’s SOP table
Segments
Target PER (x)
Heavy Industries
12.0
Property
O&G
Trading & others
10.0
Sub-total
Shareholding (%)
100%
100%
Value (RMmn)
755.2
3,342.5
310.0
963.1
5,370.8
Remarks
Assumed PER
20% discount to RNAV
Acquisition cost
Assumed 10x PER
Value (RMmn)
1293.3
1,023.6
943.2
3,260.0
Remarks
Market cap
Market cap
Based on TP of RM3.05
Listed Entities
Market cap
(RMmn)
Boustead Plantation
Pharmaniaga
Affin Holdings
Sub-total
2,192.0
1,812.3
4,558.5
Shareholding (%)
59%
56%
21%
Grand Total
Net Debts (holding co.)
SOP value
Share Cap (mn)
SOP/share (RM)
Holding co. discount
Adj. SOP/share (RM)
8,630.8
(2,371.0)
6,259.8
1,034.2
6.05
10%
5.45
Page 3 of 6
Implied FY15 PER of 16.0x
TA Securities
22-Apr-15
A Member of the TA Group
Figure 2: Breakdown of operating profit
i. FY14
ii.
FY15
Source: Annual Report, TA Research
Figure 3: LCS project - revenue and op. profit forecasts
Figure 4: EPS impact if LCS margin if 5% below base
case (20%)
Source: Annual Reports, TA Research
Figure 5: FCFF after adjusting for dividends to MI & net
interest but excluding changes in debts vs. dividend
forecasts
Figure 6: Expect debts to steadily rise, partly to fund
the LCS project, but net gearing is still within a
manageable range
Source: Annual Reports, TA Research
Page 4 of 6
TA Securities
22-Apr-15
A Member of the TA Group
Figure 7: EPS sensitivity to various CPO price
RM
2,000
2,100
FY15E
- current
29.6
29.6
- revised
24.1
25.1
Change
-18.6%
-15.2%
FY16F
- current
- revised
Change
32.1
23.4
-27.1%
32.1
24.7
-23.0%
2,200
2,300
2,400
2,500
29.6
26.1
-11.8%
29.6
27.1
-8.4%
29.6
28.1
-5.0%
29.6
29.1
-1.6%
32.1
26.1
-18.9%
32.1
27.4
-14.9%
32.1
28.7
-10.8%
32.1
30.0
-6.7%
Note: Base case: FY15: RM2,549/tonne, FY16: RM2,673/tonne
Source: TA Research
Earnings Summary (RMmn)
YE Dec 31 (RMmn)
Revenue
EBITDA
EBITDA margin
Pretax profit
Net profit
Core net profit
EPS
Core EPS - FD
Core EPS growth
PER
GDPS
Div yield
Core ROE
(%)
(sen)
(sen)
(%)
(x)
(sen)
(%)
(%)
2013
11,212.0
870.4
7.8
707.7
478.8
411.3
46.3
39.8
31.7
11.4
30.0
6.6
8.3
Page 5 of 6
2014
10,608.2
1,051.1
9.9
685.7
408.2
454.4
39.5
43.9
10.5
10.4
26.0
5.7
8.2
2015E
10,657.7
417.7
3.9
608.3
305.3
305.3
29.5
29.5
(32.8)
15.4
20.0
4.4
5.1
2016F
11,659.9
478.1
4.1
690.0
335.4
335.4
32.4
32.4
9.8
14.0
20.0
4.4
5.5
2017F
12,340.6
486.2
3.9
723.7
351.0
351.0
33.9
33.9
4.5
13.4
20.0
4.4
5.5
TA Securities
22-Apr-15
A Member of the TA Group
EARNINGS SUMMARY
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and
opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts.
We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may
have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD(14948-M)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
Kaladher Govindan – Head of Research
Page 6 of 6