BHIC II

Just for the record, RHB Research had also made a research report on the stock. However, they posted no ratings on the stock.

Here are excerpts from what they wrote on their report released today.

• ♦ FY07-08 earnings forecasts. Management appears confident of wiping out the accumulated losses of RM176.4m by FY12/08. However, there is no earnings track record – the company reported its first net profit of RM1.5m in the 2QFY07. We estimate around RM30-35m in net profit for FY07, mostly to be reported in the 4Q and entirely due to associate profit from BNS on delivery of two naval patrol vessels in Nov and Dec 2007. For FY08, in order to achieve management’s guidance of wiping out the accumulated losses, the company would have to report net profit of RM141m. Based on the current orderbooks we believe this may be difficult. However, we would not discount the possibility of associate BNS being awarded more naval patrol vessel contracts within the next few months, which could push up the associate contribution for FY08.
  
  ♦ More conservative assumptions for FY08. We would be more comfortable making the following assumptions for FY08:
  
  o RM400m revenue at BPS, including RM300m from existing orderbooks, and another RM100m from contracts to be secured within the next three months.
  o Net margin for BPS of around 10%.
  o Add RM18m profit from servicing and repair contracts.
  o Associate BNS to deliver two patrol vessels in FY08, and earn net profit of RM36m based on RM430m contract value per vessel and 20% margin.
  
  On this basis, we estimate net profit of RM94.2m for FY08 and EPS of 37.9 sen. we thus estimate a fair value of RM6.07 based on 16x FY08 PER, after imputing a 20% discount to our sector target PER of 20x to account for execution risk.