FY19 Core Net Loss (CNL) came in at RM198m, below our expectation of net loss of RM41m, due to higher-thanexpected losses from heavy industries and plantation. However, we are keeping our FY20E forecast unchanged as the group is expected to continue seeing volatile quarters judging by past quarterly trend, swinging back and forth between profitability and losses. Our target price is lowered from RM1.00 to RM0.80 as we attach a discount of 20% to our SOP-TP. Maintain MP.

Below forecasts. FY19 Core Net Loss (CNL) came in at RM198m compared to our net loss forecast of RM41m due to higher-thanexpected losses from heavy industries and plantation. No dividend was declared in this quarter and for FY19 as expected.

Results’ highlights. QoQ, 4QFY19 registered a CNL of RM205m compared to a core net profit of RM6.2m in 3QFY19. The weaker performance was due to losses at Heavy Industries. The Heavy Industries registered a loss the due to LCS project recording a loss in the 4QFY19 on variations in milestone achieved and adjustments to project cost pursuant to changes in MFRS15 on its existing shipbuilding projects. The other divisions mitigated further losses to the group. The Trading & Industrial division was lower due to a stockholding loss recorded by BPM. The Plantation division’s turnaround registered an operating profit compared to a loss in 3QFY19 due to higher CPO and PK prices by 21% and 24%, respectively.

YoY, FY9 recorded CNL of RM198m excluding: (i) gains from sale of a plantation land (effectively amounting to RM68.6m) from 57.42%- owned Boustead Plantations, (ii) one-off impairment on PPE (RM310.5m), (iii) impairment of goodwill (effectively amounting to RM626m from 82%-owned Boustead Naval Shipyard), and (iv) a writeoff in effectively 5%-owned Pharmaniaga amounting to RM138m due to revision in useful life of the rights to supply and provision of stock writeoff related to the voluntary Ranitidine product recall compared to a CNL of RM292m in FY18, no thanks to losses at Heavy Industries and Plantation. However, the losses narrowed due to better contribution from Trading & Services. Plantation was lower due to lower CPO and PKO prices. The Heavy Industries division posted a deficit on the back of weaker results from its operating units. BNS incurred heavier losses mainly due to revision of margins and variation of milestones achieved for the LCS project, though partially offset by higher gross profit from ship repair activities and the LMS project. Boustead Heavy Industries Corporation was impacted by lower contribution from maintenance, repair and overhaul activities and reduced share of profit from jointventure companies. MHS Aviation was also impacted by a lack of projects as well as costs to maintain its fleet of aircrafts.

Outlook. The group is expected to continue seeing volatile quarterly results based on its historical volatile earnings trend. All in, we expect plantation earnings to anchor the bulk of earnings, and since 91% of its plantation estates are already matured, this hinges largely on CPO price movements of which the outlook over the short-term looks cloudy. The Heavy Industries division remains volatile with quarterly earnings oscillating between profits and losses. We expect the trading and manufacturing as well as pharmaceutical divisions to show pedestrian growth but deliver sustainable recurring incomes.

Maintain MP. Our target price is lowered from RM1.00 to RM0.80 as we attached a discount 20% to our SOP-TP. Maintain MP

Source: Kenanga Research - 2 Mar 2020