A Look At Boustead Heavy (BHIC)

Published on Business Times: Boustead Heavy Q1 profit up sharply

• BOUSTEAD Heavy Industries Corp Bhd posted a significantly higher pre-tax profit of RM31.773 million for its first quarter ended March 31, 2008 compared with RM466,000 in the pervious corresponding quarter.
  
  Its revenue rose to RM100.981 million from RM14.69 million.
  
  The group’s deputy chairman, Datuk Seri Ahmad Ramli Mohd Nor, attributed the group’s improved performance to increased revenue arising from the completion of its projects.
  
  Higher share of profit from its defence-related shipbuilding associate company, Boustead Naval Shipyard Sdn Bhd, also contributed to the group, he said in a statement yesterday.
  
  “Our strategic objective is to strengthen our earnings potential by building on our core competencies to tap local and international opportunities.
  
  "Ultimately, we want to deliver sustained financial growth and enhanced shareholders value in a consistent and long-term basis,” he said.
  
  During the quarter under review, the group’s unit, Boustead Penang Shipyard Sdn Bhd, was awarded a contract from Sealink Sdn Bhd for the construction of two units of 7000DWT oil and chemical carriers for RM102 million.
  
  In January this year, BHIC Petroleum Sdn Bhd, another wholly-owned subsidiary, was awarded a contract from Carigali-PTTEPI Operating Company Sdn Bhd to provide engineering, procurement, construction and on-shore commissioning of the Muda Living Quarters Building for RM82.8 million.
  
  In terms of its defence-related business, the group’s unit, BHIC BOFORS Asia Sdn Bhd, executed a contract also in January with the Ministry of Defence Malaysia to supply and deliver BOFORS 57mm gun spare parts to the Royal Malaysian Navy worth RM9 million.
  
  “We intend to secure more business by broadening our market reach and catering to a wider clientele base in both the commercial and defence sectors of the maritime industry,” said Ahmad Ramli. — Bernama

It sounded very interesting so I decided to take some time and do some personal research.

Last Quarter BHIC reported the following set of earnings.

Link: Quarterly rpt on consolidated results for the financial period ended 31/12/2007

And this was said by the company:

"The BHIC Group recorded sharply improved results with turnover of RM117.1 million and profit before non recurring item (waiver by financial institutions pursuant to Restructuring Scheme) and tax of RM82.1 million for the financial year ended 31 December 2007, compared to revenue of RM80.5 million and a loss before tax of RM89.9 million in the previous year.

The turnaround is mainly due to a marked improvement in the contribution from ongoing businesses and the share of profit of associate companies. The non recurring item of RM392.8 million were due to the waiver of interest and principal outstanding from financial institutions arising from the corporate restructuring."

Ok, there is a waiver of interest and principal outstanding from financial institutions from BHIC's corporate restructuring. ( WOW rm392.8 million! - oh my, what generosity from its debtors!)

So BHIC's earnings were rather boosted by its restructuring.

This was BHIC's earnings last night.

The company said the following in its notes, "The BHIC Group recorded improved results for the financial period ended 31 March 2008 with a turnover of RM100.9 million and profit before tax of RM31.8 million, compared with a revenue of RM14.7 million and a profit before tax of RM0.5 million in the previous year corresponding period.

The turnaround is mainly due to a marked improvement in the level of business activity, a higher percentage of completion on ongoing contracts together with the share of profit of associates.

Included in the share of results of associates is the Group's share of utilisation of previously unrecognised tax losses by Boustead Naval Shipyard Sdn Bhd amounting to RM4.05 million."

So how?

Two issues on the article posted on Business Times from Bernama.

1. On a Q-Q basis, the earnings were actually lower.

2. On a Y-Y basis, the earnings comparison is rather meaningless for last year BHIC was still undergoing its restructuring exercise.

So I would take with a pinch of salt that BHIC earnings has improved since it's so early days still.

The following is some stats from BHIC earnings.

Some notes.

Cash has depreciated a lot but under the cash flow, BHIC has indicated that it has paid a huge chunk to its suppliers and employees.

At first look, it would difficult to fault them because under the balance sheet, the trade payables has indeed shrunk from 121.784 million the previous quarter to 85.2761 million, or trade payables decreasing by some 36.523 million. Hmmm.. but under BHIC stated some 98.522 million was paid to suppliers and employees..... oh, could I be wrong and does this mean that BHIC paid some 61.999 million to its employees?

Have a look at BHIC Balance Sheet below.

Now, would this depletion of cash be a concern from this perspective??

I wonder how much BHIC actually paid to its employees? Is it really that much? Could I be missing something here?

Lastly, the built-up in trade receivables is sticking out like a sore thumb! An increment of receivables by as much as 38.618 million compared to the previous quarter reported in February is rather a worry. And if not mistaken, during its pre-restructuring scheme, BHIC or PSCI during its better days in 2004, had a massive issue with their receivables too. If not mistaken, receivables were as high as 500 million!

How?

Yes, perhaps I am being too cynical and critical on BHIC considering that its still early days yet. However, I am indeed interested because whenever any company reports good earnings, it could represent an opportunity. However, since BHIC has had a poor history perhaps it's best to scruntise the stock much more in detail!

Anyway, most of the local investing community seems rather positive on this stock.

Back in March the following was posted. Speedy delivery to drive BHIC earnings, says TA

• Monday March 3, 2008
  
  Speedy delivery to drive BHIC earnings, says TA
  
  By SHANNEN WONG
  
  PETALING JAYA: Boustead Heavy Industries Corp (BHIC), which has successfully delivered on its contracts last year, is expected to continue riding on its capability for speedy delivery to improve its earnings, said TA Securities.
  
  In an update report, TA said: “We are increasing our target price to RM10.80 from RM9 to reflect our upbeat opinion.
  
  “This is largely based on the premise that the company is heading for an aggressive operation to ensure that all deliveries are on time, if not sooner.”
  
  BHIC had a proven record of delivering on time, it said.
  
  Its current order book stands at about RM540mil, and TA said the BHIC management had full confidence of achieving its target order book of RM1bil by year's end.
  
  “We share this confidence as we have been presented with constant good news of the company securing private contracts since the beginning of the year,” the brokerage added.
  
  TA, which maintains a “buy” call on the counter, has increased its estimates of BHIC earnings for financial years ending Dec 31, 2008 (FY08) and FY09 by 13.4% and 11.1% respectively.
  
  “We are bringing forward our FY09 estimates into FY08 as we believe that the company's speedy delivery is sustainable,” it said.
  
  Standard & Poor's (S&P) has also increased its forecast for BHIC's net profit for FY08 to RM140.8mil from RM136.2mil previously.
  
  For FY07, BHIC's core net profit of RM92.7mil was almost double S&P's forecast of RM52mil, it said.
  
  Revenue for the fourth quarter had increased 56% quarter-on-quarter thanks to shipbuilding and ship maintenance sectors, which grew by 64% over the period.
  
  BHIC's 20.7% owned associate Boustead Naval Shipyard recorded a strong performance with a net profit of RM273mil, of which BHIC has a share of RM56.6mil for FY07.
  
  Operating profit surged over 650% as work on shipbuilding and maintenance gathered steam following the completion of the group's restructuring scheme in August last year.
  
  S&P is maintaining a “buy” call on the counter with a higher target price of RM7.30

How now my dearest MooMooCow?