DARK HORSE: Photo shows the main entrance of Menara Boustead in Kuala Lumpur. Boustead has remained undervalued despite having stoked investor interest over the past two years with a formal 70 per cent dividend payout policy and a slew of acquisitions.
KUCHING: Boustead Holdings Bhd (Boustead) has remained undervalued despite having stoked investor interest over the past two years with a formal 70 per cent dividend payout policy and a slew of acquisitions.
“The conglomerate’s market capitalisation has visibly increased by almost double to RM5 billion, and it has beaten internal key performance index for return on equity (ROE) and dividend per share (DPS),” according to a research report by HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers).
Boustead’s plantations division contributed 27 per cent of its financial year 2010 group gross profit with its total of 97,648 hectares of land of which 74,354 hectares was planted.
HwangDBS Vickers noted that Boustead was selling 95 per cent of its stake in its Indonesian plantation business to PT Agro Investma Gemilang (PT Agro) for US$38 million. There would also be a put and call option with PT Agro for the remaining five per cent at an exercise price of US$2 million, upon completion of the share purchase agreement to facilitate the sale.
The research house believed that the disposal was a good move because the 8,000 hectares of planted area in Indonesia had been dragging down the group’s blended fresh fruit bunch yield to 16.5 million tonnes per hectare.
“The total proceeds from the sale of its Indonesian estates – US$40 million or RM0.12 per share – will come in handy to reduce gearing levels,” the research house explained.
Boustead Heavy Industries Corporation (BHIC), the arm of the conglomerate involved in shipbuilding and fabrication of offshore structures, currently has an order book standing at RM800 million, comprising mainly an in-service support contract for two Malaysian submarines.
HwangDBS Vickers noted that a recently concluded RM9 billion second generation offshore patrol vessel was expected to provide long-term earnings visibility to BHIC.
Also, as one of six exclusive Petronas-licensed oil and gas fabricators, BHIC was expected to bid for more oil and gas contracts, riding on Petronas’ record high capital expenditure ofRM300 billion over the next five years.
“Boustead also has a strong property business under wholly-owned Boustead Properties, which is at the tail end of its successfully 360-acre Mutiara Damansara township development,” HwangDBS Vickers stated.
The company was noted to be targeting two key government land redevelopment projects, 60 acres along Jalan Cochrane and a 245-acre Batu Cantonment army base along Jalan Ipoh.
HwangDBS Vickers expected Boustead Properties to capitalise on both land deals to replicate its success with Mutiara Damansara.
HwangDBS Research maintained its positive stance on Boustead as a government linked company with strong growth prospects, noting that it had evolved into a more dynamic entity with lower execution risk. It went on to peg a higher target price of RM6.60 per share for the company.