Stock Name: BHIC
Company Name: BOUSTEAD HEAVY INDUSTRIES CORP
Research House: AMMB
Boustead Heavy Industries Corp Bhd (BHIC)
(June 15, RM3.76)
Maintain hold at RM3.76 with fair value of RM4.40: We maintain our hold rating on Boustead Heavy Industries Corp Bhd (BHIC) with an unchanged fair value of RM4.40 per share ' based on a FY10F PE premium of 10% to the stock's three-year average of 11 times.
This implies a 20% discount to its unchanged sum-of-parts valuation (SOP) of RM5.50 per share.
We have marginally adjusted FY11F-FY12F earnings as contribution ' from a RM131 million contract by the government of Malaysia to design, construct and commission 10 units of Fast Interceptor Craft for Malaysian Maritime Enforcement Agency (MMEA) ' has been mostly offset by our reduction in revenue estimates for the next patrol vessel package.
We have deferred recognition of a next batch of naval patrol vessels, estimated at RM7 billion, from 3QFY11F to 4QFY12F ' given delays in the announcement of a letter of award from the government.
Even if BHIC were to be awarded the next major naval contract in 4QFY10F, it may need a year to mobilise before recognition of revenues.
The MMEA contract, likely to be the first package, is for a period of 20 months from the effective date of the acceptance letter by BHIC, which means that the 10 vessels are scheduled for delivery by 1QFY12F.
While the management has indicated that contributions from the MMEA contract could begin in 4QFY10F, we have adopted a more conservative assumption with revenue commencement in FY11F given past execution delays.
We have not revised BHIC's SOP valuation of RM5.50 per share as valuation for the group's construction business is pegged at 10x FY10F earnings, which has not been changed.
While the group's long-term prospects remain bright given a potentially huge pipeline of new military contracts, we believe that a re-rating for the stock will only come from a significant recovery in earnings deliverance, which has been poor over the past three quarters.
The stock currently trades at a fair FY10F's PE of 10 times, at parity to the oil and gas industry's average valuations and just below BHIC's three-year PE of 11 times. ' AmResearch, June 15
This article appeared in The Edge Financial Daily, June 16, 2010.
Company Name: BOUSTEAD HEAVY INDUSTRIES CORP
Research House: AMMB
Boustead Heavy Industries Corp Bhd (BHIC)
(June 15, RM3.76)
Maintain hold at RM3.76 with fair value of RM4.40: We maintain our hold rating on Boustead Heavy Industries Corp Bhd (BHIC) with an unchanged fair value of RM4.40 per share ' based on a FY10F PE premium of 10% to the stock's three-year average of 11 times.
This implies a 20% discount to its unchanged sum-of-parts valuation (SOP) of RM5.50 per share.
We have marginally adjusted FY11F-FY12F earnings as contribution ' from a RM131 million contract by the government of Malaysia to design, construct and commission 10 units of Fast Interceptor Craft for Malaysian Maritime Enforcement Agency (MMEA) ' has been mostly offset by our reduction in revenue estimates for the next patrol vessel package.
We have deferred recognition of a next batch of naval patrol vessels, estimated at RM7 billion, from 3QFY11F to 4QFY12F ' given delays in the announcement of a letter of award from the government.
Even if BHIC were to be awarded the next major naval contract in 4QFY10F, it may need a year to mobilise before recognition of revenues.
The MMEA contract, likely to be the first package, is for a period of 20 months from the effective date of the acceptance letter by BHIC, which means that the 10 vessels are scheduled for delivery by 1QFY12F.
While the management has indicated that contributions from the MMEA contract could begin in 4QFY10F, we have adopted a more conservative assumption with revenue commencement in FY11F given past execution delays.
We have not revised BHIC's SOP valuation of RM5.50 per share as valuation for the group's construction business is pegged at 10x FY10F earnings, which has not been changed.
While the group's long-term prospects remain bright given a potentially huge pipeline of new military contracts, we believe that a re-rating for the stock will only come from a significant recovery in earnings deliverance, which has been poor over the past three quarters.
The stock currently trades at a fair FY10F's PE of 10 times, at parity to the oil and gas industry's average valuations and just below BHIC's three-year PE of 11 times. ' AmResearch, June 15
This article appeared in The Edge Financial Daily, June 16, 2010.
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