Hot Stock Boustead falls 3.4% after disappointing 2Q results

Hot Stock
Boustead falls 3.4% after disappointing 2Q results

KUALA LUMPUR (Aug 25): Boustead Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) fell 3.4% in early trades, after the group reported a significant drop in its net profit for the second quarter ended June 30, 2015 (2QFY15), due to lower oil palm plantation and fuel-trading revenue.
At 10.55am, Boustead (fundamental: 0.65; valuation: 2.0) fell 13 sen or 3.2% to RM3.97, with some 180,400 shares exchanged. Its market capitalisation was RM4.24 billion.
Earlier, the counter saw a 14 sen or 3.4% decline, touching a low of RM3.96.
In a statement yesterday, the group said its 2QFY15 net profit fell 92% to RM2.9 million, from RM34.6 million in the previous year. Meanwhile, revenue fell 15% to RM2.21 billion, from RM2.59 billion.
Despite the weaker results, Boustead announced a dividend payment of five sen per share for the period.
Hong Leong Investment Bank Bhd (HLIB) ([You must be registered and logged in to see this image.] Financial Dashboard) said core net profit fell 91% to RM4.3 million for the quarter, due to heavy losses in Boustead’s heavy industries segment due to cost overruns for certain ship repair projects, which had offset the improved earnings by the plantation division and Affin Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (fundamental: 1.1; valuation: 2.25).
For the first half of the financial year (1HFY15), net profit dropped 96% to RM3 million from RM91 million a year earlier, while revenue was 19% lower at RM4.1 billion, from RM5.09 billion.
The research house said core net profit for 1HFY15 was significantly below expectations at RM21.6 million, accounting for only 11.4% of the research house’s forecast.
It said the deviation was due to weaker-than-expected performance at Affin and the group’s heavy industry segment, as well as higher-than-expected effective tax rate of 38.5%, versus expectations of 25%.
Looking forward, HLIB had cut core net profit forecasts by 19.4% to 39.5% for FY15 to FY17.
“FY15–17 core net profit forecasts cut by 19.4% to 39.5%, largely to account for lower earnings forecasts for Affin, lower earnings assumption at the heavy industries segment, and higher effective tax rate of 32%,” it said.
Despite the lower forecasts, HLIB kept its “hold” call on Boustead, as the stock is seen as undervalued given the group’s deep embedded values, which have not been priced in by the market, and the relatively high quarterly net dividend yield.
However, the research house lowered its target price (TP) for the stock to reflect its lower TP for Affin and the latest market prices for Boustead Plantations Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) and Boustead Heavy Industries Corp Bhd ([You must be registered and logged in to see this image.] Financial Dashboard).
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)