Price: MYR4.78
12-Month Target Price: MYR7.00
Date: August 7, 2008
Market Value - Total: MYR3,006.8 mln
Siti Rudziah Salikin
Summary: Boustead is one of Malaysian oldest conglomerates with over 70 subsidiaries and associated companies. Its operations are grouped into six core businesses, namely plantation, property, heavy industries, finance & investment, trading, and manufacturing & services.
Recent Developments
Boustead is selling Malakoff estate and Bebar estate (the estates) to Al-Hadharah Boustead REIT (AHBREIT) (BIRTH MK, MYR1.15, Not Ranked) for MYR192.4 mln, which will be satisfied by cash and issuance of 60 mln new AHBREIT shares. Boustead will then lease the estates back from AHBREIT.
The estates, measuring 3,739.8 ha of oil palm plantations in Penang and Pahang, were previously sold to Golden Crop Returns Bhd (GCRB), which is a funding vehicle specifically set up for a plantation asset-backed securitization exercise undertaken by the group in 2005. The agreement with GCRB includes three call options (exercisable at the end of the lease periods in 2008, 2010 and 2012, respectively), allowing Boustead to buy back the oil palm estates at fair market value. Boustead first announced its intention to exercise the first call option and buy back the estates from GCRB for MYR112.9 mln in January 2008. It also indicated its plan of injecting the estates into AHBREIT, thus the current announcement basically provides some details of the pricing arrangement with AHBREIT.
The sale and leaseback arrangements have been practiced by Boustead over the past few years to realize the market value of its plantations assets while at the same time letting Boustead continue with the plantation businesses and raise funds to reduce its debts.
Recommendation & Investment Risks
We maintain our Strong Buy call with an unchanged 12-month target price of MYR7.00. We believe the stock is undervalued, trading at a 2008 PER of 6.2x. In spite of lower plantation earnings projected for 2009, we still expect Boustead to show recurring earnings growth of 6.4% for the year due to higher contributions from the heavy industries division.
The target price is derived using PER-based sum-of-parts method and add includes projected dividend. For each business division, we assign PERs that are at a discount to the multiples of listed peers (for plantations) and its own listed companies (for the property, finance and heavy industries divisions).
Risks to our recommendation and target price include cyclicality of palm oil prices, an economic slowdown and interest rate movements. There are also risks of executing the shipbuilding contracts within the stipulated time frame without excessive cost overruns.
Earnings Outlook
Boustead will realize a one-off gain of RM79.5 mln from the sale but the net impact on Boustead's recurring earnings is minimal. Similarly, we do not expect a significant reduction in group net gearing, which stood at 1.1x at end-2007. Assuming the new AHBREIT shares are issued at MYR1.15 per share, Boustead will receive MYR123.4 mln cash from the sale but it may also seek funding to acquire the estates from GCRB. We are keeping our forecasts pending completion of the exercise, which is targeted for 4Q08.
Key Stock Statistics
Per Share Data
Profit & Loss
Recommendation and Target Price History
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