Boustead Holdings - Mixed prospects but offers a good dividend yield

Boustead Holdings is a GLC-linked conglomerate with a welldiversified portfolio of assets, which include businesses in plantations, property, finance & investment, trading & manufacturing, heavy industries and pharmaceutical. We believe its prospects are bound to be mixed due to the different business models employed in its respective diverse segments. However, the saving grace is the group’s  current dividend yield of 5.4%. We are initiating coverage on Boustead Holdings with a MARKET PERFORM recommendation and a sum-of-parts (SOP) based target price of RM4.90. 

Prime investment properties which can be monetised. Boustead’s property investment division has four office buildings under its belt namely Menara Boustead Penang, Menara Affin, Menara Boustead KL and Wisma Boustead. In the retail segment, it has The Curve and its annexe, e@Curve, Curve NX and a luxury condominium development known as 183 Ampang.  It also has a portfolio of hotels which carries the brand name of Royale Bintang. These hotels are The Royale Bintang Curve, The Royale Bintang Kuala Lumpur, and The Royale Bintang Resort & Spa in Seremban. Based on our RNAV estimates, these investment property assets are worth RM1.7b.  

Prospects are expected to be mixed.  For the remaining of FY12 and looking ahead into FY13, Boustead prospects are expected to be mixed. We expect its trading & manufacturing, and pharmaceutical divisions to show growth and sustainable recurring incomes. Growth for trading & manufacturing is underpinned by their solid captive income from Boustead Petroleum Marketing Sdn Bhd’s marketing and distribution of petroleum products from retailing via a network of more than 300 service stations under the BHPetrol brand. Earnings from the pharmaceutical division are led by Pharmaniaga Logistics' concession-driven agreement with the government. Meanwhile, the plantation earnings are expected to hinge largely on CPO price movements, the outlook of which is not looking promising since 91% of its plantations have already matured and there have been no increases in the past few years.  In the property division, the earnings growth here is likely to be flat as no new large-scale  property projects were launched.

Selling low yielding Indonesia plantation to unlock value.   Boustead has at end-Dec 2012 sold off its remaining 14,800 ha of Indonesian plantations for RM104m (about US$34m), which works out to 10 sen/Boustead share, due to the difficulties in managing those plantations. This removed a drag on its plantation business bottom line earnings as the Indonesian plantations had been loss-making (at the operating level) over the last few years.  The sale rationale was also to enable the group to focus on improving its FFB yields in Malaysia, where the overall group’s yield had been dragged down by Indonesia’s extremely low single digit MT/ha yields.

Saving grace is 5.4% dividend yield.  Boustead has declared a single tier DPS of 10 sen in 3Q12, bringing its 9M YTD DPS to 25 sen, which is in line with our FY12 net DPS forecast of 28 sen. we expect FY13 and FY14 net DPS numbers of 26 sen and 29 sen respectively, translating to an average yield of >5%.

We are initiating coverage on Boustead Holdings with a MARKET PERFORM recommendation and a sum-of-parts (SOP) based target price of RM4.90.  

Source: Kenanga