Boustead Heavy Industries Corp Bhd (Dec 19, RM3.16)
Maintain buy at RM3.15 with target price of RM4: BHIC announced last Friday that its 21%-owned associate, Boustead Naval Shipyard (BN Shipyard), has received a letter of award from the Ministry of Defence to design, construct and deliver six units of second generation patrol vessels littoral combat ships (frigate class) with a ceiling price of RM9 billion. The delivery of the first vessel is estimated in 2017 with the other vessels to be delivered every six months thereafter. Each vessel weighs 2,400 tonnes and can transport one EC275 helicopter made by Eurocopter, a subsidiary of EADS.
We had expected the contract to come by end-2011. The major surprise was the higher than expected contract value of RM9 billion as opposed to our initial forecast of RM7 billion. We believe the earnings impact on BHIC will not be confined to its associate company level given its leading role in weaponry, combat systems, vessel design, naval electronics and so on, which could be undertaken on a sub-contract basis from BN Shipyard. With the massive contract, it has expunged concerns over BHIC earnings visibility.
We maintain our earnings forecast and target price for now pending details on the contract’s implementation schedule and higher than expected ceiling. BHIC is a clear bargain, trading at only 9.5 times FY12 earnings per share despite its enviable monopolistic position in naval vessel construction and maintenance for the Royal Malaysian Navy. We expect BHIC to be re-rated following this news, which has been long overdue. — HwangDBS Vickers Research, Dec 19
This article appeared in The Edge Financial Daily, December 20, 2011.
Maintain buy at RM3.15 with target price of RM4: BHIC announced last Friday that its 21%-owned associate, Boustead Naval Shipyard (BN Shipyard), has received a letter of award from the Ministry of Defence to design, construct and deliver six units of second generation patrol vessels littoral combat ships (frigate class) with a ceiling price of RM9 billion. The delivery of the first vessel is estimated in 2017 with the other vessels to be delivered every six months thereafter. Each vessel weighs 2,400 tonnes and can transport one EC275 helicopter made by Eurocopter, a subsidiary of EADS.
We had expected the contract to come by end-2011. The major surprise was the higher than expected contract value of RM9 billion as opposed to our initial forecast of RM7 billion. We believe the earnings impact on BHIC will not be confined to its associate company level given its leading role in weaponry, combat systems, vessel design, naval electronics and so on, which could be undertaken on a sub-contract basis from BN Shipyard. With the massive contract, it has expunged concerns over BHIC earnings visibility.
We maintain our earnings forecast and target price for now pending details on the contract’s implementation schedule and higher than expected ceiling. BHIC is a clear bargain, trading at only 9.5 times FY12 earnings per share despite its enviable monopolistic position in naval vessel construction and maintenance for the Royal Malaysian Navy. We expect BHIC to be re-rated following this news, which has been long overdue. — HwangDBS Vickers Research, Dec 19
This article appeared in The Edge Financial Daily, December 20, 2011.
