Boustead Holdings : 3QFY08 : Fears priced in
• Slightly above expectations.
Boustead’s reported annualised 3Q08 results came in some 10.4% above our estimates and 17.7% above consensus estimates. The quarter got a boost from a CPO average selling price of RM3046 and sale of several
corporate lots in Mutiara Damansara by their property segment. Causing drag on earnings during the quarter was the petrol retail segment as it suffered depressed margins due to retail selling price being adjusted
down several times during the quarter. Besides that the finance and investment division (includes general insurance and investing activities) saw higher claims and write down of quoted securities.
• Tough quarter ahead.
As the economic landscape has changed drastically going into 4Q, we expect a lukewarm showing going forward. First the plantations segment would take a hit, likely followed by the properties segment and petrol retail again. We hence maintain our year end estimates at this juncture despite that 9M earnings have come in above expectations. We expect that by year end, the Group should be able to achieve a CPO average price for the year at RM2900 on their matured hectarage of 62, 853 ha. To note, FFB yield of Boustead is estimated to be 20mt/ha.
• Of estimates and expectations.
Looking forward, we maintain our view that CPO prices will recover slightly on the premise of declining production figures as the trees go into a down cycle. Our CPO price estimates for 2009 and 2010 for the plantations segment remain as RM2300. Besides this, for the properties segment, we believe there could be weakness in rentals of office buildings in KL and due to the poor economic conditions also hotels may see reduced occupancy. Also, sale of corporate lots may slow and new launches in Skudai and Semenyih might be held off for a while. The petrol retail segment should see stabilised numbers once petrol prices stabilise as well and UAC is expected to have a tough 2009 and 2010 as well given reduced activity in the construction segment. Do refer to separate notes on BHIC (12 Nov 2008) and Affin Holdings (19 November 2009).
• Maintain BUY. New TP at RM4.00
We have changed our valuation to a sum-of-parts methodology and derive a new TP of RM4.00 (see figure 2) from RM5.60 before. Despite that, the Group will not have as strong a FY09 as FY08 will be; we see that
concerns on the earnings have been overpriced in. We believe the large change in TP is reasonable especially with weak market conditions. Besides, it takes into account the Group’s high borrowings level which give a 0.95 net gearing as of 9M08 results.