BHIC expands foothold in European market

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KUCHING: Boustead Heavy Industries Corporation Bhd (BHIC) is gradually expanding its foothold into the European defense sector with the signing of a contract with European Aeronautic Defence and Space’s  (EADS) defence and security company, Cassidian Airborne Solutions GmbH (Cassidian) last week.

The research arm of Hong Leong Investment Bank Bhd (Hong Leong Research) in a report said the contract is for the manufacturing and supply of 140 chipsets for Airbus A400M mission systems, spares and logistics utilisation.

The research firm is optimistic that the contract will enable BHIC to penetrate the European market and become less dependent on its Littoral Combat Ships (LCS) programme which is the company’s bread and butter business.

Hong Leong Research noted that Cassidian is a major provider of global security solutions, lead system integration and joints system for aerial, land, naval in the defence sector.

Thus, the contract which will be implemented over a period of several years is expected to support and enhance BHIC future earnings.

Meanwhile, Hong Leong Research was also confident about BHIC’s ability to implement the contract from Cassidian as BHIC is currently on stronger financial footings.

The research firm noted that BHIC had in the past three quarters recorded profits, staging a turnaround from six consecutive quarters of losses previously.

It observed that the strong financial performance shows that the company is on the right path to recovery.

On the other hand, the research firm said BHIC had finished the basic design for the LCS programmes and is working out on the detail design which is expected to be completed by the end of 2014.

It noted that the physical construction of the LCS programme is likely to be ready by the first quarter of 2015.

The research firm also noted that BHIC is expected to deliver its first combat ship in 2018.

In the meantime, Hong Leong Research noted that the formal agreement for LCS programme is going to be signed by the end of this year.

It said once the agreement is signed, BHIC is able to accelerate the recognition of works involved in the mobilisation of LCS contract.

The research firm believed that a stronger quarterly financial results from the first quarter of financial year 2014 onwards will provide a re-rating for the company.

It noted that BHIC, being one of seven Petroliam Nasional Bhd’s (Petronas) licensed fabricators could be awarded contracts in the oil and gas industry if the company is able to execute its existing jobs well and maintain its margins.

Therefore, Hong Leong Research is confident that BHIC could derive more earnings contribution from the spill over effect of the offshore oil and gas fabrication works in the future.

The research firm is also upbeat about BHIC’s propsects given that the company is Malaysia’s leading naval defence contractor with a strong orderbook.