17/10/2011 (Borneo Post) - Boustead Holdings Bhd (Boustead) is projected to deliver stronger earnings in the second half of financial year 2011, owing to stronger plantation earnings and lucrative land deals.

“Financial year will be a record year for Boustead’s plantations business because of buoyant crude palm oil (CPO) prices and improving yields at its Indonesian estate,” said HwangDBS Vickers Research Sdn Bhd (HwangDBS), seeing that the earnings before interest and tax for the first half of 2011 amounted up to RM145 million was on track to meet the full-year forecast of RM276 million.

The research house understood that the company had locked 95 per cent of its production at an average CPO price of RM3,350 per tonne. Boustead’s Indonesian estates had also turned around and increase in profitability this year, with better security and management in place as it planned to plant an additional 9,000 hectares.

“Lower fresh fruit bunch (FFB) production and higher costs might offset the impact of higher average CPO prices,” said HwangDBS as it expected FFB product growth to decline by 7.1 per cent in financial year 2011 though growth was projected to be 2.4 per cent in its financial year 2012 forecast.

Contributions from Boustead’s six new offshore patrol vessels (OPV) worth RM8 billion were not expected this year. Boustead Naval Shipyard Sdn Bhd’s projected order wins amounted up to only RM300 million for the financial year 2012 as compared to a previous RM600 million, signifying a slowdown for Boustead’s 60 per cent-owned shipping arm in the coming year.

HwangDBS was optimistic regarding the OPVs, justifying its stance by stating that, “This contract is important to Lumut economy with 3000 workers and 600 local vendors. Given the impending general election, it may be in the government’s interest to expedite the rollout.”

The property sector saw Boustead working on two of its lucrative deals, namely Jalan Cochrane’s 60 acres and Batu Cantonment army base with its 245 acres. Boustead’s land prices were projected to be higher, leveraging its strategic location near a Mass Rapid Transit (MRT) station.

HwangDBS projected its gross development value at RM13 billion, seeing that Sunway Velocity’s project located nearby was fully sold at similar price levels despite being less prime.

The Mutiara Damansara developer planned to perform the final land transfer for Jalan Cochrane at end 2011, as issues on the land bank had been resolved. Financing for the development might have been sourced from an agreement with the government to build residences to replace those cleared previously.

HwangDBS further estimated a higher interest expense for Boustead, anticipating higher borrowings for the financing of its key projects. Thus, the research house pegged a reduced target price of RM7 per share for Boustead.