- We maintain our HOLD call on Boustead Heavy Industries
Corp (BHIC), with an unchanged fair value of RM2.20/share, based on a 20%
discount to our revised sum-of-parts value of RM2.80/share. This implies an
FY13F PE of 11x – half of Singapore Technologies Engineering Ltd’s (STE) 21x
currently.
- BHCI has secured a RM15mil contract from the Ministry of
Defence Malaysia to maintain, repair and supply spare parts for Oerlikon 35mm
guns and Skyguard radar to the Malaysian army for 3 years. A formal contract
between the government of Malaysia and BHIC will be signed later.
- As this contract is marginal compared to the group’s massive
gross and order book of RM10bil and RM3bil respectively, we maintain
FY13F-FY15F earnings.
- Looking forward, we expect the group’s earnings to
continue to be underpinned by the group’s military contracts, the bulk of which
stems from the second generation naval patrol vessel project under littoral
combat ships (LCS) programme. Currently, we estimate that BNS to-date has
awarded 25% of the LCS contract value to BHIC’s subsidiaries, which will enable
the group to consolidate the revenues of the subcontracted works.
- In the pipeline, there are multiple military and
commercial orders which could materialise this year. These comprise contracts
worth RM1bil for two patrol vessels and RM330mil for 25 additional fast
interceptor craft for the Malaysian Maritime Enforcement Agency. While BHIC’s
loss-making commercial projects have been mostly delivered to-date, we
understand that the group is still open to non-military-based projects given
the country’s huge oil and gas development prospects.
- We retain our conviction that 2012 was a watershed year
for the group, which has mostly cleaned out its loss-making commercial projects
and turned to a fresh page for the only military yard in the country with a
huge outstanding order book. But for any significant rerating on the stock to
materialise, BHIC will need to demonstrate a sustainable earnings turnaround,
coupled with a consistent execution record for timely delivery of projects.
- The stock currently trades at a fair FY13F PE of 10x –
against the stock’s historical range of 8x-16x.
Source: AmeSecurities
No comments:
Post a Comment