Boustead Heavy Industries Corp Bhd (Nov 16, RM2.80)
Maintain buy at RM2.84 with revised fair value of RM4.30 (from RM5.20): We maintain our “buy” call on Boustead Heavy Industries Corp (BHIC) with a lower fair value of RM4.30 per share (against an earlier RM5.20), based on a 20% discount to our revised sum-of-parts value of RM5.39 per share. Our fair value implies an FY12F price-earnings ratio (PER) of 13 times, a 35% discount to its four-year average of 20 times.
We have cut FY11F earnings by 85% due to further provision of RM50 million for cost overruns and late delivery charges in the delivery of two accommodation crane barges to Swire Pacific Offshore Operations and two 7,000 deadweight tonne oil carriers to Sealink International. BHIC’s 9MFY11 net profit of RM9 million (-85% year-on-year) came in below expectations, accounting for only 14% of our FY11F earnings of RM67 million and 50% of street estimate’s RM18 million.
We have cut FY12F/FY13F earnings by 14% and 48% respectively on potentially slower recognition of the next generation of six patrol vessels (with a potential value of over RM8 billion). This is likely to be awarded soon, possibly during the Langkawi International Maritime and Aerospace exhibition on Dec 6 to 10. The sixth and final patrol vessel (KD Selangor) of the first generation batch was delivered on Dec 28, 2010 and BHIC received a letter of intent for the second generation in October last year. The delay in the letter of award stemmed from prolonged technical evaluations with overseas parts and equipment suppliers.
Assuming 30% of the second generation patrol vessels are subcontracted to the group’s wholly-owned Boustead Penang Shipyard, this could raise the estimated net order book from RM1.2 billion to RM4 billion, five times FY11F revenue. Other contracts could be: (i) new maintenance contracts for the first two patrol vessels; (ii) two new patrol vessels worth RM1 billion for the Malaysian Maritime Enforcement Agency; and (iii) commercial charters for three novated Gagasan chemical carriers, one secured last week with a Japanese charterer.
Despite a 24% increase in revenue to RM150 million, BHIC suffered a RM2 million loss in 3QFY11 largely due to RM30 million in additional cost overruns and late delivery charges from Swire Pacific Offshore Ltd’s two accommodation crane barges, which are expected to be completed in March and June 2012, and Sealink’s two oil carriers (one delivered last month and another this month).
The stock currently trades at an FY12F PER of eight times, 57% below its four-year average, a bargain for the sole military yard in the country with massive order book prospects. — AmResearch, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
Maintain buy at RM2.84 with revised fair value of RM4.30 (from RM5.20): We maintain our “buy” call on Boustead Heavy Industries Corp (BHIC) with a lower fair value of RM4.30 per share (against an earlier RM5.20), based on a 20% discount to our revised sum-of-parts value of RM5.39 per share. Our fair value implies an FY12F price-earnings ratio (PER) of 13 times, a 35% discount to its four-year average of 20 times.
We have cut FY11F earnings by 85% due to further provision of RM50 million for cost overruns and late delivery charges in the delivery of two accommodation crane barges to Swire Pacific Offshore Operations and two 7,000 deadweight tonne oil carriers to Sealink International. BHIC’s 9MFY11 net profit of RM9 million (-85% year-on-year) came in below expectations, accounting for only 14% of our FY11F earnings of RM67 million and 50% of street estimate’s RM18 million.
We have cut FY12F/FY13F earnings by 14% and 48% respectively on potentially slower recognition of the next generation of six patrol vessels (with a potential value of over RM8 billion). This is likely to be awarded soon, possibly during the Langkawi International Maritime and Aerospace exhibition on Dec 6 to 10. The sixth and final patrol vessel (KD Selangor) of the first generation batch was delivered on Dec 28, 2010 and BHIC received a letter of intent for the second generation in October last year. The delay in the letter of award stemmed from prolonged technical evaluations with overseas parts and equipment suppliers.
Assuming 30% of the second generation patrol vessels are subcontracted to the group’s wholly-owned Boustead Penang Shipyard, this could raise the estimated net order book from RM1.2 billion to RM4 billion, five times FY11F revenue. Other contracts could be: (i) new maintenance contracts for the first two patrol vessels; (ii) two new patrol vessels worth RM1 billion for the Malaysian Maritime Enforcement Agency; and (iii) commercial charters for three novated Gagasan chemical carriers, one secured last week with a Japanese charterer.
Despite a 24% increase in revenue to RM150 million, BHIC suffered a RM2 million loss in 3QFY11 largely due to RM30 million in additional cost overruns and late delivery charges from Swire Pacific Offshore Ltd’s two accommodation crane barges, which are expected to be completed in March and June 2012, and Sealink’s two oil carriers (one delivered last month and another this month).
The stock currently trades at an FY12F PER of eight times, 57% below its four-year average, a bargain for the sole military yard in the country with massive order book prospects. — AmResearch, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
