Stock Name: BHIC
Company Name: BOUSTEAD HEAVY INDUSTRIES CORP
Research House: AMMB
Boustead Heavy Industries Corp Bhd (BHIC) (June 4, RM3.73)
Maintain hold at RM3.69 with lower fair value of RM4.40 (from RM5.10): We maintain our hold rating on BHIC, but with a lower fair value of RM4.40 per share based on a FY10F PE (price-to-earnings) of 12 times (from 13.5 times earlier) at a lower premium of 10% to the stock's three-year average of 11 times. This implies a 20% discount to a revised sum-of-parts (SOP) valuation of RM5.50 per share.
The lower SOP valuation stems from a 19% cut in FY11F earnings as we have halved its fabrication revenue contribution from the next batch of six patrol vessels of which commencement is likely to be delayed. However, FY10F earnings are unchanged, as we have not factored in any contributions from the next generation of patrol vessels.
While we believe the group's long-term prospects remain bright given the potentially huge pipeline of new military contracts, a re-rating at this juncture is premature given the group's weak earnings deliverance over the past three quarters.
BHIC's wholly owned BHIC Defence Technologies Sdn Bhd has signed a joint-venture (JV) agreement with Prestige Pillar Sdn Bhd and Eurocopter Malaysia Sdn Bhd to undertake maintenance, repair and overhaul services for the government's rotary and fixed wings aircraft. The JV company has not secured any contracts from the government at this juncture.
But we understand that potential maintenance contracts could encompass the proposed 12 Cougar 725 helicopters worth '500 million (RM2 billion) from Eurocopter, which was earlier shelved after the global financial crisis. The first helicopter is expected to be delivered in 2012.
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 its three-year PE of 11 times. ' AmResearch, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
Company Name: BOUSTEAD HEAVY INDUSTRIES CORP
Research House: AMMB
Boustead Heavy Industries Corp Bhd (BHIC) (June 4, RM3.73)
Maintain hold at RM3.69 with lower fair value of RM4.40 (from RM5.10): We maintain our hold rating on BHIC, but with a lower fair value of RM4.40 per share based on a FY10F PE (price-to-earnings) of 12 times (from 13.5 times earlier) at a lower premium of 10% to the stock's three-year average of 11 times. This implies a 20% discount to a revised sum-of-parts (SOP) valuation of RM5.50 per share.
The lower SOP valuation stems from a 19% cut in FY11F earnings as we have halved its fabrication revenue contribution from the next batch of six patrol vessels of which commencement is likely to be delayed. However, FY10F earnings are unchanged, as we have not factored in any contributions from the next generation of patrol vessels.
While we believe the group's long-term prospects remain bright given the potentially huge pipeline of new military contracts, a re-rating at this juncture is premature given the group's weak earnings deliverance over the past three quarters.
BHIC's wholly owned BHIC Defence Technologies Sdn Bhd has signed a joint-venture (JV) agreement with Prestige Pillar Sdn Bhd and Eurocopter Malaysia Sdn Bhd to undertake maintenance, repair and overhaul services for the government's rotary and fixed wings aircraft. The JV company has not secured any contracts from the government at this juncture.
But we understand that potential maintenance contracts could encompass the proposed 12 Cougar 725 helicopters worth '500 million (RM2 billion) from Eurocopter, which was earlier shelved after the global financial crisis. The first helicopter is expected to be delivered in 2012.
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 its three-year PE of 11 times. ' AmResearch, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
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