- We maintain our HOLD call on Boustead Heavy Industries
Corp (BHIC), with a reinstated sum-of-parts-based fair value of RM2.90/share.
Our fair value implies a rolled-forward FY13F PE of 15x – a 25% discount to
Singapore Technologies Engineering Ltd’s (STE) 20x.
- We are positive on the Court of Appeal’s decision on 2
January 2013 which dismissed Meridien's appeal against the High Court's similar
judgement on a legacy suit against BHIC’s 21%-owned Boustead Naval Shipyard Sdn
Bhd (BNS). Recall that BNS had been served with a Writ of Summons back in
January 2011 by the liquidator of Meridien Shore Sdn Bhd for specific damages
of RM50mil, including interest at 8% annually. This was due to losses suffered
from the foreclosure of several parcels of Meridien’s land in Johor by Bank
Kerjasama Rakyat Malaysia Bhd.
- Back in July 2008, Meridien claimed that Bank Rakyat had
foreclosed and auctioned off the Johor land because BNS had defaulted on its
repayment obligations to the bank. This is a civil action from the past when
Tan Sri Amin Shah Haji Omar Shah (TSAH) was the chairman and major shareholder
of Penang Shipyard Corporation, which was subsequently relisted as BHIC. We
understand that TSAH had arranged for BNS’ predecessor PSC-Naval Dockyard Sdn
Bhd to secure a RM15mil loan from Bank Rakyat which was collateralised with
Meridien’s land. But management indicated that the loan proceeds were remitted
to Meridien.
- As we had not made any provisions for this legal suit in
our assumptions, our FY12FFY14F earnings are unchanged. We maintain our
conviction that 2012 may prove to be a watershed year for the group, which
would have cleaned out its loss-making commercial projects and turned to a
fresh page for the only military yard in the country.
- In the pipeline, there are multiple military and
commercial orders which could materialise in 1HFY13. These comprise contracts
worth RM1bil for two patrol vessels and RM330mil for 25 additional fast
interceptor craft for the Malaysian Maritime Enforcement Agency. But for any
significant re-rating on the stock to materialise, the group will need to
demonstrate a sustainable earnings turnaround, coupled with a consistent
execution record for timely delivery.
- The stock currently trades at a fair FY13F PE of 12x –
against the stock’s historical range of 8x-16x.
Source: AmeSecurities
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