Saturday, October 06, 2007


Oops, looks like I now have found a favourite stock. LOL!

Posted on Star Bizweek.

  • Boustead Heavy Industries Corp Bhd (RM as at Oct 4)

    Comment by ECM Libra: BHIC was borne after the former PSCI went through a restructuring scheme and debt settlement. It emerged as the major shareholder with a 65% stake. Financials are stronger after the restructuring while order book and business activities are increasing.

    It owns four shipyards and commands virtual monopoly in shipbuilding and ship repair for the Royal Malaysian Navy (RMN) and other counterparts in the maritime defence sector.

    BHIC is now on a clean slate after its restructuring exercise in August this year. Financials are stronger with minimal debt, and it is in a net cash position.

    Group performance is set to turnaround in FY07. Net profits are expected to soar by 132% to RM30mil, further surging by 335% to RM130.7mil in FY08, through its share from associated company and operating profits.

    Its catalyst would come from increased business activities from maintenance/repairs, shipbuilding, oil and gas, and other key defence-related industries.

    The Group's principal activities include heavy engineering construction, ship repair and shipbuilding, contractor and commission agent, supplying equipment and machinery in relation to naval ships and property holding.

    BHIC’s most prestigious assets are the four main shipyards within the Boustead Holdings group. Its other main businesses are defence-related activities relating to weapons, missile maintenance and repair, naval and defence communications system, telecommunications products and services.

    The businesses are held under BHIC Defence Technologies Sdn Bhd, a wholly-owned subsidiary. Through the previous privatisation agreement, BHIC is assured of securing new contracts to build another 21 patrol vessels for RMN. It also stands to benefit from maintenance and repair jobs for RMN. These jobs can amount to RM150mil a year and net margins are generally higher than shipbuilding, in the region of 20%-30%.

    As the group targets to raise the local content on shipbuilding to 50% (minimum requirement is 30%), we expect net margin to rise above 15% as more parts and supplies will be manufactured within the group of companies.

    Overall margins are expected to rise with better utilisation of resources and cost optimisation measures. For example, from 16% in FY07, EBITDA margin is projected to jump to 29% in FY08.

    We expect BHIC to eliminate its accumulated losses of RM177mil (as at Aug 13 2007) by 2009 or even earlier. Given the huge amount of losses in its books (BHIC and Boustead Naval Shipyard Sdn Bhd), the group is unlikely to pay taxes in the next few years.

    While management has not disclosed any dividend policy, we believe it will be announced in future when earnings flow through.

    There are some risks involved however for the company. One of them is cost overruns. The other is the rapid changes in construction technology, oil and gas fabrication requirements and increases in labour cost and raw materials. A third is delays in securing government contracts.

    Recommendation: Overall comparison with domestic and international peers reveals that BHIC is grossly undervalued. Given its smaller size compared with larger local and international peers, we ascribe a 25% discount to industry average and arrive at a fair value or target price of RM6.65 (PER: 12.6x) FY08 earnings. A BUY.

Keeping it real here. :P

ECM Libra expects BHIC fair value to be at rm6.65 which is based on PER12.6x FY08 earnings.

Keeping it real again.

  • Net profits are expected to soar by 132% to RM30mil, further surging by 335% to RM130.7mil in FY08, through its share from associated company and operating profits

So their FY12.6x FY08 is based on net profits which is expected to surge 335% to rm130.7 mil.

That's ECM Libra expectation and reasoning.

So far, BHIC has reported one set of quarterly earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

  • A quarterly earnings of 1.502 million out a revenue of 27.548 million.

So what do you think of ECM Libra expectation?

For me, there is way too little data for me to pass any judgement.


ps: I hope this posting is NOT too negative. After all, ECM Libra has now boldly stated that it expects a fair value of rm6.65 for BHIC. :P

This blog posting is focused on one and only one issue. ECM Libra has boldly stated that it expects BHIC to earn 130 million by next fiscal year. Issue is what do you think of ECM Libra bold expectation? Way too optmisitic or do you think it is reasonable?

BHIC stock price? I have no idea how it will perform. And neither will it matter to me if it goes up, down or sideways. Sorry but it's none of my concern. Just keeping it real man.

And.. I would like to revisit this posting again in six months time.