Boustead Holdings MARKET PERFORM Price: RM4.85 Mixed Prospects but Offers a Good Dividend Yield Target Price: RM4.90

KENANGA RESEARCH Initiating Coverage

05 February 2013

Boustead Holdings MARKET PERFORM Price: RM4.85 Mixed prospects but offers a good dividend yield Target Price: RM4.90

Boustead Holdings is a GLC-linked conglomerate with a well- Share Price Performance diversified portfolio of assets, which include businesses in 5.50 plantations, property, finance & investment, trading & 5.30 manufacturing, heavy industries and pharmaceutical. We believe its prospects are bound to be mixed due to the 5.10 different business models employed in its respective diverse segments. However, the saving grace is the group’s current 4.90

dividend yield of 5.4%. We are initiating coverage on 4.70 Boustead Holdings with a MARKET PERFORM recommendation and a sum-of-parts (SOP) based target price of RM4.90. 4.50 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13

Prime investment properties which can be monetised. Boustead’s KLCI 1,634.55 property investment division has four office buildings under its belt namely YTD KLCI chg -3.2% Menara Boustead Penang, Menara Affin, Menara Boustead KL and Wisma YTD stock price chg -6.7%

Boustead. In the retail segment, it has The Curve and its annexe, e@Curve, Curve NX and a luxury condominium development known as 183 Ampang. It Stock Information also has a portfolio of hotels which carries the brand name of Royale Bintang. Bloomberg Ticker BOUS MK Equity These hotels are The Royale Bintang Curve, The Royale Bintang Kuala Lumpur, Market Cap (RM m) 5,015.8 and The Royale Bintang Resort & Spa in Seremban. Based on our RNAV Issued shares 1,034.2 estimates, these investment property assets are worth RM1.7b. 52-week range (H) 5.77 52-week range (L) 4.82 Prospects are expected to be mixed. For the remaining of FY12 and 3-mth avg daily vol: 804,249 looking ahead into FY13, Boustead prospects are expected to be mixed. We Free Float 37% expect its trading & manufacturing, and pharmaceutical divisions to show Beta 0.8 growth and sustainable recurring incomes. Growth for trading & manufacturing is underpinned by their solid captive income from Boustead Petroleum Major Shareholders Marketing Sdn Bhd’s marketing and distribution of petroleum products from LTAT 61.4% retailing via a network of more than 300 service stations under the BHPetrol DIMENSIONAL FUND ADV 0.9% brand. Earnings from the pharmaceutical division are led by Pharmaniaga CAPITAL DYNAMICS ASS 0.7% Logistics' concession-driven agreement with the government. Meanwhile, the plantation earnings are expected to hinge largely on CPO price movements, the Summary Earnings Table outlook of which is not looking promising since 91% of its plantations have FYE Dec (RM m) 2012E 2013E 2014E already matured and there have been no increases in the past few years. In Turnover 9660.3 10303.4 11292.7 the property division, the earnings growth here is likely to be flat as no new EBIT 601.0 657.1 722.8 large-scale property projects were launched. PBT 565.2 628.9 692.9 Net Profit (NP) 349.2 389.1 425.4 Selling low yielding Indonesia plantation to unlock value. Boustead Core Net Profit 349.2 389.1 425.4 has at end-Dec 2012 sold off its remaining 14,800 ha of Indonesian plantations Consensus (NP) 347.4 426.4 439.3 for RM104m (about US$34m), which works out to 10 sen/Boustead share, due Earnings Revision N.A. N.A. to the difficulties in managing those plantations. This removed a drag on its EPS (sen) 33.8 37.6 41.1 plantation business bottom line earnings as the Indonesian plantations had EPS growth (%) (42.8) 11.4 9.3 been loss-making (at the operating level) over the last few years. The sale NDPS (sen) 28.0 26.0 29.0 rationale was also to enable the group to focus on improving its FFB yields in BVPS (RM) 4.4 4.5 4.6 Malaysia, where the overall group’s yield had been dragged down by PER (x) 14.3 12.8 11.7 Indonesia’s extremely low single digit MT/ha yields. PBV (x) 1.1 1.1 1.0 Net Gearing (x) 0.7 0.7 0.7 Saving grace is 5.4% dividend yield. Boustead has declared a single tier Net Div. Yield (%) 5.8 5.4 6.0 DPS of 10 sen in 3Q12, bringing its 9M YTD DPS to 25 sen, which is in line with our FY12 net DPS forecast of 28 sen. we expect FY13 and FY14 net DPS numbers of 26 sen and 29 sen respectively, translating to an average yield of >5%. The Research Team [email protected] We are initiating coverage on Boustead Holdings with a MARKET Tel: 603-2713 2292 PERFORM recommendation and a sum-of-parts (SOP) based target price of RM4.90.

PP7004/02/2013(031762) KENANGA RESEARCH

Boustead Holdings Berhad 05 February 2013

1. SNAPSHOT OF FINANCIAL AND VALUATION METRICS Key financial data FY Dec FY10 FY11 FY12F FY13F FY14F

Revenue (RM m) 6,181.8 8,555.8 9,660.3 10,303.4 11,292.7 EBITDA (RM m) 700.8 778.5 781.7 852.8 933.7 Pretax profit (RM) 726.2 831.0 565.2 628.9 692.9 Reported net profit (RM m) 537.5 610.6 349.2 389.1 425.4 EPS (sen) 52.0 59.0 33.8 37.6 41.1 EPS growth (%) NM 13.6 (42.8) 11.4 9.3 P/E (x) 9.3 8.2 14.3 12.8 11.7 Net DPS (sen) 39.0 39.0 28.0 26.0 29.0 Dividend yield (%) 8.1 8.1 5.8 5.4 6.0 Net gearing (%) 58.3 76.0 72.0 66.3 66.4 BVPS (RM) 4.09 4.30 4.41 4.52 4.64 P/BV (x) 1.2 1.1 1.1 1.1 1.0

Source: Company, Kenanga Research

EBIT (RM m) Plantation 19.7 155.0 245.2 177.1 189.3 189.1 Heavy Industries 178.5 188.9 46.7 12.2 18.7 42.3 Property 80.5 103.0 102.7 119.6 122.0 132.9 Finance & Investment 31.7 (3.9) (8.0) 29.2 29.5 29.7 Pharmaceutical NA 25.5 92.0 130.5 149.2 162.6 Trading 95.1 113.5 130.7 132.5 148.4 166.2 Total 432.3 582.0 609.3 601.0 657.1 722.8

% Margin Plantation 3.1% 19.2% 23.8% 20.2% 21.8% 21.5% Heavy Industries 17.1% 16.2% 4.3% 0.8% 1.2% 2.5% Property 21.6% 25.8% 22.9% 27.2% 27.2% 22.7% Finance & Investment 11.2% -2.1% -7.6% 27.5% 27.5% 27.5% Pharmaceutical NA 27.3% 7.3% 7.8% 8.4% 8.4% Trading 3.1% 3.2% 2.8% 2.6% 2.7% 2.7%

Source: Company, Kenanga Research

9M 2012 revenue and EBIT breakdown 9M 2012 Revenue 9M 2012 EBIT 9% Revenue EBIT

25% Plantation 27% Plantation Heavy Industries Heavy Industries Property 16% Property Finance & Investment Finance & Investment Pharmaceutical Pharmaceutical Trading and manufacturing Trading and manufacturing

51% 2% 5%

18% 22% 24%

Source: Company, Kenanga Research 0%

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Boustead Holdings Berhad 05 February 2013

2013 revenue and EBIT breakdown 2013 Revenue 2013 EBIT 8% Revenue EBIT

Plantation 23% Plantation Heavy Industries 28% Heavy Industries 15% Property Finance & Investment Property

Pharmaceutical Finance & Investment

Trading and manufacturing Pharmaceutical

Trading and manufacturing 4% 55% 1% 3%

23%

17% 19% 4% Source: Company, Kenanga Research

Sum-of-parts valuation Listed entities no. of shares effective Current share price Value (RM m) Comments stakes (m) (RM/share) Affin Holdings 309.2 4.40 1,360 Based on house target price Boustead Heavy Industries 161.5 2.20 355 Mark to market UAC 74.4 4.30 320 Based on takeover price Al-Hadharah Boustead REIT 335.9 1.94 652 Mark to market Pharmaniaga 64.4 8.05 518 Mark to market

Property development Remaining land bank Market value psf Market Value (acres) (RM) (RM m) Mutiara Rini (Johor) 980 30 1,281 Mutiara Damansara 24 200 209 Mutiara Hills Semenyih 125 25 136 Bukit Raja (30% stake) 500 30 196 Jalan Chochrane 118 Bukit Rajah (Astacanggih) 160

Net lettable area (NLA) Market value psf Value (RM m) (RM) Property investments Curve 680,000 800 528 e@Curve 200,000 800 160 Curve NX 80,000 800 74 Menara Boustead KL & Wisma 277,174 700 195 Boustead Menara Affin 200,756 700 140 Menara Boustead Penang 210,083 350 74 Menara UAC 45 183 Jalan Ampang 142 43 units @ RM3m indicative pricing

Hotels No of rooms Estimated average price/room (RM) Royale Bintang Kuala Lumpur 400 400,000 160 Royale Bintang Curve 150 300,000 45 Royale Bintang Seremban 300 100,000 30 Royale Bintang Damansara 370 250,000 93

Plantation 2,130 Based on 15x FY13 earnings Trading and manufacturing (excl UAC) 920 Based on 10x FY 13 earnings Indonesian listed (PT Millenium Pharmacon International TBK) 12 Based on market price and 55% stake

Net debt as at 30 Sept 2012 (4,979) Total RNAV less net debt 5,072 no. of shares 1,034 SOP/share RM 4.90

Source: Company, Kenanga Research

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Boustead Holdings Berhad 05 February 2013

2. BACKGROUND Boustead is a conglomerate with six core divisions i.e. plantations, property, finance & investment, trading & manufacturing, heavy industries and pharmaceutical.

Listed entities

Boustead Holdings Berhad

Boustead Heavy Pharmaniaga Al- Hadharah Affin Holdings *UAC Berhad Industries (56%) Boustead REIT (21%) (65%) Corporation Berhad (54%) (65%)

*As per announcement on 21/5/2012, the proposed privatization of UAC Bhd is expected to be completed in end 2012 Source: Company, Kenanga Research

Group structure and key core business divisions

Lembaga Tabung Angkatan Tentera Other shareholders

BOUSTEAD HOLDINGS BERHAD

PLANTATION PROPERTY FINANCE & HEAVY PHARMACEUTICAL TRADING & INVESTMENT INDUSTRIES MANUFACTURINGNG

Boustead Boustead Boustead Properties Affin Holdings Boustead Pharmaniaga Petroleum Plantations (100%) (21%) Heavy Ind (56.4%) (42%) (100%) (65%) Pharmaniaga Boustead University of UAC Boustead Logistics Construction Nottingham Boustead (65%) Estate (63.5%) Agency (100%) (66%) Penang Shipyard Boustead Cadbury (65%) Pharmaniaga Engineering Boustead Boustead Weld Malaysia Biomedical (100%) Eldred Quay (25%) (63.5%) Boustead (100%) (100%) Naval Boustead Building KAO Malaysia Shipyard Idaman Matetrials Boustead (45%) Pharma Mfg (100%) Other Realty (100%) BHIC Defence (67%) subsidiaries Tech Boustead Shipping Other & associates (65%) (100%) subsidiaries & Boustead PT Pharmacon associates Curve (100%) International MHS Aviation (55%) Other subsidiaries (51%) & associates

Other subsidiaries & Other Other associates subsidiaries subsidiaries & & associates associates

Source: Company, Kenanga Research

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Boustead Holdings Berhad 05 February 2013

3. INVESTMENT MERITS Captive income from three key divisions. As at 9M2012, plantation, pharmaceutical and trading & manufacturing divisions accounted for 76% of the group’s EBIT and they have been consistently contributing to earnings over the past several quarters.

Recurring income EBIT (RM m) 2010 2011 9M 2012 2013F 2014F Plantation 155.0 245.2 107.4 189.3 189.1 Pharmaceutical 25.5 92.0 105.4 149.2 162.6 Trading & manufacturing 113.5 130.7 116.7 148.4 166.2 Total 294 467.9 329.5 486.9 517.9 Total Group EBIT 582.0 609.3 432.3 657.1 722.8 % of group EBIT 50 77 76 74 72

Source: Company, Kenanga Research

Prime investment properties which can be monetised to unlock value. Boustead has four office buildings as investment properties, namely; Menara Boustead Penang, Menara Affin, Menara Boustead KL and Wisma Boustead. In the retail segment, it also has The Curve and its annexe, e@Curve, Curve NX and a luxury condominium development known as 183 Ampang . The Curve NX houses the international award-winning indoor theme park known as Kidzania (a 80:20 JV between Khazanah and Boustead) with 595 parking bays and a re-modelled McDonalds Drive-Thru restaurant. Apart from the office buildings above, the group also has a portfolio of hotels, which carries the brand-name of Royale Bintang. These hotels are The Royale Bintang Curve, The Royale Bintang Kuala Lumpur and The Royale Bintang Resort & Spa in Seremban. Boustead only manages the The Royale Chulan, which is owned by Boustead Holdings’ parent company, Lembaga Tabung Angkatan Tentera. Its latest hotel is The Royale Bintang Damansara, the only hotel in the country with an ice-skating rink. Located in Mutiara Damansara and connected via covered walkways to The Curve, e@Curve and Surian Tower, its ballroom has a seating capacity of 1,000 and is large enough to host weddings and major conventions. This 400-room hotel will be able to capture the excess demand for hotel rooms in this vicinity. Elsewhere, work on the Royale Bintang Penang hotel is progressing well. This scaled-down 5-storey 4-star hotel will have 180 rooms when it is completed in 2013. Based on our RNAV estimate, these properties investment assets are worth RM1.7b. We expect Boustead to build up the value of its investment properties further before considering to spin these investment properties via a listing of REIT to realise the value of its investment portfolio.

Selling low yielding Indonesia plantation to unlock value. Boustead has sold off its remaining 14,800 ha of Indonesian plantations for RM104m (about US$34m) in end-Dec 2012 due to the difficulties in managing the plantations. The sale proceeds work out to 10 sen/Boustead share and it removed a drag on the group’s plantation business bottom line as the Indonesian plantations had been loss-making (at operating level) over the last few years. The group’s overall yield had also been dragged down by Indonesia’s extremely low single digit (measured in MT/ha) yields. With the sale, Boustead now intends to focus on improving its FFB yield in Malaysia. At this point, we do not have sufficient information yet to quantify the gain or loss from this plantation divestment.

Prospects are expected to be mixed. Looking ahead into FY13, Boustead prospects are bound to be mixed. We expect the trading & manufacturing, and pharmaceutical divisions to show growth and sustainable recurring incomes. The trading & manufacturing division growth is underpinned by its solid captive income from Boustead Petroleum Marketing Sdn Bhd’s core business of the marketing and distribution of petroleum products from retailing via a network of >300 service stations under the BHPetrol brand. Earnings for the pharmaceutical division meanwhile is led by Pharmaniaga Logistics’ government concession agreement to purchase, store, supply and distribute approved drugs and medical products to 148 government hospitals and 1,400 clinics and district offices nationwide. However, the plantation earnings are more volatile and hinge largely on CPO price movements, the outlook of which is not looking promising since 91% of its plantations are already matured and their yields have not been increasing over the past few years. In the property division, the earnings growth here is likely to be flat as there have been no new large-scale property projects launched. We believe earnings from the heavy industries division is expected to remain in the doldrums over the next few quarters plagued by potential cost incurred on delays in delivery of vessels, uncertainty on potential write downs on the sale of the chemical tankers and continued weakness in the commercial shipbuilding division. Saving grace is >5% dividend yield. Boustead has declared a single tier DPS of 10 sen in 3Q12, bringing its 9M YTD DPS to 25 sen, which is in line with our FY12 net DPS forecast of 28 sen. we expect FY13 and FY14 net DPS numbers of 26 sen and 29 sen respectively, translating to an average yield of >5%.

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Boustead Holdings Berhad 05 February 2013

4. KEY OPERATING DIVISIONS

Plantation 91% of its plantations have matured, outlook hinges on CPO price trend. Boustead has 74,184 ha of land planted with oil palms of which 26,572 ha (35.8%) is in Peninsular Malaysia, 23,841 ha (32.1%) in Sabah, 18,834 ha (25.4%) in Sarawak and the remaining balance of 4,937 ha (6.7%) being in Sumatra, Indonesia. Of the 74,184 ha, 48,873 ha is leased from Golden Corp Returns Bhd and 54%-owned Al-Hadharah Boustead REIT (see Figure 8) . Since 91% of its plantations have already matured and have not been increasing over the past few years, their earnings growth hinges purely on higher CPO prices, the outlook of which is not looking promising for now. Boustead’s average selling price (ASP) for CPO was RM3,076/MT (-8% y-o-y) in 9M2012 (9M2011: RM3,350/MT) while the YTD 2012 period has averaged about RM2,865/MT. We have assumed an average CPO price of RM2,850/MT and RM2,850/MT for FY13 and FY14 respectively in line with our in-house forecasts. Selling low yielding Indonesia plantation to unlock value. Boustead has at end-Dec 2012 sold off its remaining 14,800 ha of Indonesian plantations for RM104m (about US$34m), which works out 10 sen/Boustead share, due to the difficulties in managing the plantations. This removed a drag on its plantations bottom line as the Indonesian plantations had been loss-making (at operating level) over the last few years. Boustead wanted to sell its Indonesian plantations to focus on improving its FFB yields in Malaysia, where the overall group’s yield had been dragged down by Indonesia’s extremely low single digit MT/ha yields. Profit-sharing dilutes earnings. Boustead has sold and leased back 36,260 ha of its plantations with Golden Crop Returns Bhd and 12,680 ha of its plantations with 54%-owned Al-Hadharah Boustead REIT (AHB REIT). The arrangement with the latter also included a profit-sharing element, whereby the additional profit derived from CPO prices above RM2,200/MT after deducting incidental costs is split 50:50 between Boustead and AHB REIT. This dilutes the impact of high palm oil prices on Boustead’s plantation earnings as the lands above represented 25% of its total planted area. 2013 CPO outlook. Malaysia’s CPO inventory level for Dec-12 reached another record high of 2.63m mt, coming in higher than the consensus estimate of 2.53m mt and our estimate of 2.51m mt. Sabah’s production turned out to be stronger than expected and caused the production to decline only 6% MoM against our expectation of an 8% drop. Meanwhile, exports remained weak due to the decline in exports to China (-30% MoM to 349k mt) and Europe (-19% MoM to 160k mt). Looking forward, we believe that the stock level could reach another record high in Jan-13 to 2.66m mt. Although we are expecting Jan’s production to decline 11% MoM to 1.58m mt due to seasonal factors, exports are expected to drop by a similar rate of 10% MoM to 1.48m mt. Overall; we view the latest inventory data negatively as high stocks should keep CPO prices at distressed levels of below RM2500/mt for an extended period. Our plantation analyst is maintaining CY12-CY13 average CPO price forecasts of RM2,900/mt-RM2,850/mt but may revise it down further if the inventory level stays above 2.0m mt for another two months. Yield-increment programmes. In an effort to reduce operating costs and enhance yields, the plantation division has adopted suitable precision farming techniques such as the BAARMIS Map Management System, which aims to optimise input on the management of field upkeep and crop evacuation. In order to ease labour shortages, boost productivity and manage labour cost escalations in its harvesting operations, particularly for the taller oil palm trees, the group is set to extend the utilisation of the ‘Cantas’ mechanical harvesting tool in the coming year. Over the longer term, in an effort to increase yield, the group has planted up to 12,800 ha of clonal material with an additional 1,800 ha to be planted in 2012. Boustead group key oil palm statistics 2008 2009 2010 2011 9M 2012 Planted area (hectares) Prime mature 62,634 62,236 61,323 60,730 59,594 Young mature 5,147 4,634 6,308 7,183 8,036 Total mature 67,781 66,870 67,631 67,913 67,630 Immature 6,708 7,500 6,723 6,271 6,832 Total planted 74,489 74,370 74,354 74,184 74,462 Malaysia 26,572 Sabah 23,841 Sarawak 18,834 Indonesia 4,937 Own 25,311 Leased from Golden Corp Returns Bhd 28,928 Leased from Al-Hadharah Boustead REIT 19,945

FFB crop (MT) 1,161,334 1,106,371 1,070,455 1,121,629 FFB yield per hectare (MT/hectare) Prime mature 17.5 16.7 16.3 17.1 Total mature 17.1 16.5 15.8 16.5

Mill production (MT) Palm oil 257,468 242,582 237,078 247,928 Palm kernel 61,018 56,918 54,269 56,339

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Boustead Holdings Berhad 05 February 2013

Extraction rates (%) Palm oil 19.9 20.2 20.5 20.3 Palm kernel 4.7 4.7 4.7 4.6

Oil yield per prime mature hectare (MT/hectare) 4.1 3.7 3.7 3.9

Average selling prices (RM/MT) FFB 597 433 556 687 Palm oil 2,794 2,170 2,622 3,272 Palm kernel 1,570 990 1,625 2,195

Source: Company, Kenanga Research

Key operating statistics 2010 2011 Categories Hectares % Hectares % Oil palm 74,354 76.1 74,184 77.0 Plantable reserves 9,314 9.5 8,229 8.5 Building sites, roads, unplantable areas, etc 13,980 14.4 13,980 14.5 Total hectares 97,648 100 96,393 100.0

Age Profile of Palms Prime mature Total Planted Years Immature< 3 Young mature 7-15 16-28 3-6 Region Peninsular Malaysia 4,010 4,201 8,523 9,838 26,572 Sabah 2,261 2,982 8,876 9,722 23,841 Sarawak 0 0 15,452 3,382 18,834 Indonesia 0 0 4,937 0 4,937 Total hectares 6,271 7,183 37,788 22,942 74,184

Source: Company, Kenanga Research

Palm products average selling prices (ASPs)

4000 CPO ASP PK ASP FFB ASP

3350 3500

3272 3076 3000 2794 2622 2500 2413

2195 2170 2000

1720 1625

ASP RM/tonne RM/tonne ASP 1571 1500

1000 990 730 687 646 597 556 500 433

0 1 9 1 1 Y0 Y1 0 FY08 F FY10 F 2 M 9 9M 2012 Source: Company, Kenanga Research

Pharmaceutical

Background. Pharmaniaga is a leading Malaysian distributor of pharmaceutical and healthcare-related products for local and foreign principals with clients that include government hospitals, private medical centres, pharmacies and private clinics. With four key distribution centres in Shah Alam, Juru, Kuching and Kota Kinabalu, the distribution service in Malaysia is considered par excellence . Over in Indonesia, the company’s distribution network comprises 29 branches with the main warehouses being located

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Boustead Holdings Berhad 05 February 2013 in Jakarta, Bandung and Surabaya. In addition, this division also has four manufacturing facilities in Bangi, Puchong, Sg Petani and Sri Iskandar belonging to Boustead’s former subsidiary, Idaman Pharma Manufacturing Sdn Bhd, which has now been absorbed into Pharmaniaga. Typically, government revenue makes up 76% of Pharmaniaga’s revenue of which 60% is concession-based and 16% from the non-concession segment. The remaining balance is from Indonesia’s logistics (21%) and other Malaysian markets (3%).

Recurring and captive income from concession agreement. Specifically, Pharmaniaga is the sole concession holder to purchase, store, supplies and distribute approved drugs and medical products to 148 Government hospitals and 1,400 clinics and district offices nationwide. The concession agreement ends in 2019 and allows for an upward revision in price every three years. The last revision was back in 2011. Note that Pharmaniaga Logistics had on 16 Mar 2012 entered into a 10-year concession agreement with the Malaysian government to purchase, store, supply and distribute drugs and medical products.

Reduced delivery lead time to capture higher sales. The implementation of Pharmacy Information System (PhIS) at 148 government hospitals and the Clinic Pharmacy Information System at over 1,400 clinics and district offices nationwide has enhanced the service capabilities of pharmacies by streamlining their knowledge-sharing across hospitals and clinics on patient medication and inpatient and outpatient pharmacy services. This has reaped great results where the delivery of order has been reduced from 60 days previously to just within seven working days now. In a bid to keep pace with market expectations and meet the medical needs of the country, a modern warehousing infrastructure has also been maintained. The cold room capacity has been expanded and the generator sets have also been upgraded to handle the growing volume of items requiring chilled storage.

Solid 9M2012 performance. The pharmaceutical division’s EBIT rose 55% YoY to RM105m in 9M2012. The solid results were driven by 56%-owned subsidiary Pharmaniaga Berhad, which saw higher a sales volume to the government sector coupled with the improvement in operational efficiencies at both its domestic and overseas businesses.

Overseas venture a step in the right direction. Pharmaniaga’s overseas expansion plan is on track with the signing of a Memorandum of Collaboration for a pharmaceutical joint venture project with Modern Industrial Investment Holding Group Co Ltd, a Riyadh-based holding company, and E-Healthline, a US-based company, which provides integrated healthcare management solutions. This will enable the three parties to explore the possibility of installing and operating a pharmaceutical complex in Saudi Arabia to cater to markets in the Middle East and North Africa.

Pharmaceutical key financial quarterly performance (RM’m) 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Revenue 28.7 432.0 397.6 399.4 446.7 456.8 426.4 EBIT 10.4 35.0 22.2 24.4 44.6 28.0 32.8

Source: Company, Kenanga Research

Trading and manufacturing

Largest contribution from Boustead Petroleum Marketing. The trading & manufacturing division performed well in 2011, delivering a pre-tax profit of RM113m (+20% y-o-y). This was due to the strong earnings generated by Boustead Petroleum Marketing Sdn Bhd, which accounted for 84% (RM95m) of total trading and manufacturing pre-tax profits underpinned by increased volumes from all product lines, stronger operating margins that were achieved through cost optimisation and improved operational efficiencies. Boustead Petroleum Marketing Sdn Bhd core business is in marketing and distribution of petroleum products from retailing via a network of >300 service stations under the BHPetrol brand to marketing of liquefied petroleum gas (LPG) and lubricants through the Syngard brand. Other subsidiaries are Boustead Engineering, Boustead Global Trade Network, Kao Malaysia, Boustead Building Materials and Boustead Emastulin.

BHPetrol expansion plans in FY12 and going forward. So far, in FY12, BHPetrol has completed 9-11 new service stations and upgraded 5 existing ones. This is part of its investment strategy to generate high capital efficiencies and improve long-term profitability. All in, BHPetrol is expected to build 8-10 stations per annum.

UAC profitable but expect tough competitive environment ahead. UAC Berhad (UAC) recorded a pre-tax profit of RM14m in 2011. The positive 14% growth in sales volume in export market was driven by its signature product, the fibre cement system. However, revenue from export sales was dragged down by the strong Ringgit. Back home, the level of demand remained constant despite stiff competition from the other local players. The company enjoys stable recurring income with higher net income from Menara UAC which is almost fully tenanted. UAC Berhad is mainly involved in: (i) manufacturing of cellulose fibre cement boards used for wide ranging ceiling and cladding applications, and corrugated sheets used extensively for roofing; (ii) production and distribution of metal roofing and cladding sheets; and (iii) manufacturing and installation of steel roof truss systems for commercial, residential and industrial buildings. With greater acceptance of industrialised building systems (IBS) both locally and internationally, the UCO SolidWall System is making inroads into new projects in both residential and commercial sectors. The focus will be on expanding its reach in Africa and the Middle East with the introduction of a new variation of the UCO SolidWall System going forward.

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Boustead Holdings Berhad 05 February 2013

Privatization of 65%-owned UAC Berhad (UAC) at hefty PER valuation. UAC is expected to be delisted in 1Q2013 following the privatisation of the remaining 65% shares not own by Boustead Holdings. Recall, UAC has proposed to purchase the remaining 35% stakes in UAC through a selective capital repayment (SCR) exercise. Under this SCR exercise, existing shareholders (excluding Boustead Holdings) will receive a total cash payment of RM85.4m or RM3.30/UAC share. Boustead Holdings will waive its entitlement to the repayment of capital pursuant to the proposed SCR in favour of the remaining shareholders. Subsequently, as part of the SCR, a RM1.00/share dividend was proposed which collectively amount to RM4.30/share. At RM4.30/share and UAC FY11 EPS of 16 sen, the acquisition PE works out to be 27x which would only contribute an additional RM3.6m (35% of FY11 net profit of RM11.9m) to Boustead’s bottom line.

Expecting a tough competitive environment for UAC. We believe higher costs and downward pressure on selling price will erode UAC’s margins and hurt its bottom line going forward. Competition in the local market will be further exacerbated by a flooding of imported products from neighbouring countries into the Malaysian market as neighbouring exporters are drawn by the more attractive prices in Malaysian.

9M2012 EBIT rose 29% due to higher sales volume from Boustead Petroleum Marketing . The trading & manufacturing division’s 9M2012 EBIT rose 29% y-o-y to RM117m mainly on improved earnings from Boustead Petroleum Marketing which had achieved a higher sales volume, as well as a RM12m stockholding gain.

Trading and manufacturing quarterly EBIT

50.0

45.0

40.0

35.0

30.0

25.0 Rm m Rm

20.0

15.0

10.0

5.0

2011 2011 2011 2011 2012 2012 2012 Q Q Q Q Q Q Q 1 2 3 4 1 2 3

Source: Company, Kenanga Research

Property

Remaining GDV of RM3,830m. The key outstanding property development projects include Mutiara Damansara, Mutiara Hills (Semenyih), Mutiara Rini (Johor Baru) and the proposed mixed development of residential and commercial developments in Bukit Raja (Boustead’s stake is 30%). Of the total land bank of 2,183 acres from these projects, 1,279 acres have yet to be developed. The on-going development projects include 311 units of condo in Surian Residences (Mutiara Damansara). The group is also launching an estimated 600 units in Mutiara Rini, which is strategically located adjacent to Nusajaya in Johor. Property GDV Property development Remaining GDV (RM m) Total land area (acres) Undeveloped area (acres) Mutiara Rini 2000 1400 980 Mutiara Damansara 1000 355 24 Mutiara Hills Semenyih 230 218 125 Bukit Raja (30% stake) 2000 700 500

Source: Company, Kenanga Research

Jalan Cochrane - catalyst for property division going forward. In early Nov 2012, Boustead Holdings’ wholly-owned subsidiary, Mutiara Rini Sdn Bhd has proposed to acquire three parcels of land totalling 12.8 acres for RM107m or RM191 /sq feet.

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Boustead Holdings Berhad 05 February 2013

We believe the group plans to own and operate a shopping mall on the land, to be jointly developed with Ikano following announcement that Boustead entered into a 50:50 joint venture with Ikano, which owns and operates IKEA stores in South East Asia. The land is located along Jalan Cohrane, Kuala Lumpur. The paid-up capital of the JV will be RM200m. Portfolio of hotels and buildings under property investment. Boustead’s property investment division has a portfolio of four office buildings namely Menara Boustead Penang, Menara Affin, Menara Boustead KL and Wisma Boustead, a retail mall known as The Curve and its annexe, e@Curve, Curve NX and a luxury condominium development known as 183 Ampang. The Curve NX houses the international award winning indoor theme park known as Kidzania (80:20 JV between Khazanah and Boustead) with 595 parking bays and a re-modeled McDonalds Drive-Thru restaurant. Apart from the office buildings above, it also has a portfolio of hotels, which carries the brand name of Royale Bintang namely The Royale Bintang Curve, The Royale Bintang Kuala Lumpur, The Royale Chulan and The Royale Bintang Resort & Spa in Seremban. Its latest hotel is The Royale Bintang Damansara, the only hotel in the country with an ice-skating rink. Located in Mutiara Damansara, and connected via covered walkways to the Curve, e@Curve and Surian Tower, its ballroom will have a seating capacity of 1,000 and is large enough to host weddings and major conventions. This 400-room hotel will take up the excess demand for hotel rooms in this vicinity. Elsewhere, work on the Royale Bintang Penang hotel is progressing well and this scaled-down 5-storey 4-star hotel will now have 180 rooms when completed in 2013.

>90% tenancy. Its retail investment properties, the Curve and e@Curve are well patronised with 98% and 94% tenanted respectively. Similarly, Menara Boustead Penang, Menara Affin, Menara Boustead KL, Menara Affin and Wisma Boustead are virtually fully tenanted with an average occupancy rate of 94%. The malls continue to draw a strong following, especially during weekends where a spread of attractive themed décor, promotional programmes and family entertainment combined with shopping and dining options guarantee visitors a pleasant experience.

Prime investment properties which can be monetised. Boustead’s property investment has four office buildings under its belt, namely Menara Boustead Penang, Menara Affin, Menara Boustead KL and Wisma Boustead. In the retail segment, it has The Curve and its annexe, e@Curve, Curve NX and a luxury condominium development known as 183 Ampang. It also has a portfolio of hotels, which carries the brand-name Royale Bintang, which includes The Royale Bintang Curve, The Royale Bintang Kuala Lumpur and The Royale Bintang Resort & Spa in Seremban. Based on our RNAV estimates, these properties investment assets are worth RM1.7b.

Heavy Industry

Background. Boustead Heavy Industries Corporation (BHIC) principal activities include the fabrication of offshore structures, shipbuilding, and restoration and maintenance of vessels and defense-related products. Under the shipbuilding division, it has three shipyards in Lumut (48 acres), Penang (40 acres), and Langkawi (30 acres). Meanwhile, the key operating subsidiaries in the heavy industries division are Boustead Naval Shipyard Sdn Bhd (82%-owned by Boustead Holdings), 65%-owned Boustead Heavy Industries Corporation Berhad (BHIC) and 51%-owned MHS Aviation Berhad (MHS).

Whopping RM9bn contract to build patrol vessels from the Government but earnings contribution only expected from 2014 onwards. With the delivery of the final Patrol Vessel (PV) from the first batch of six petrol vessels (PVs), Boustead Naval Shipyard Sdn Bhd in December 2011, received a Letter of Award to construct six Second Generation Patrol Vessels (SGPV) for a contract value of RM9bn from the Ministry of Defense. The timeline for delivery of six petrol vessels is expected by 2020, of which the first SGPV is expected to be delivered by 2017. Subsequently, the remaining vessels are scheduled to be delivered each every six months till 2020. These SGPV are equipped with surface-to-air missiles, surface-to-surface missiles, torpedo launching systems, towed array sonar and surveillance radar. Among the features that have been upgraded in these vessels are the propulsion system, long range surveillance capabilities, including anti-surface, anti-air and anti-submarine warfare capabilities – features not available in the previous generation of patrol vessels. We do not expect significant earnings contribution over the next two years from this contract as the first PV is only expected to start construction in 2014.

Unbilled order book of RM2bn excluding patrol vessels will last over the next 1-2 years. The current unbilled order book of RM2bn excluding patrol vessels includes: (i) RM1.3bn in-service support of the Prime Minister’s Class Scorpene Submarine contract; and (ii) the remaining balance of RM700m is from refurbishment of vessels (service life extension programme of Kasturi Class Corvettes (KD Kasturi & KD Lekir).

MHS awarded RM3bn Petronas Carigali contract for 10 years. The acquisition of 51%-owned MHS was completed in June 2011. The fortunes in this division hinge upon the RM3.1bn Petronas Carigali contract which began in April 2011 for a period of 10 years with an option to extend for another 5 years. In order to enhance its services and better serve Petronas, MHS entered into a contract with Eurocopter Malaysia Sdn Bhd to acquire five brand new EC225 heavy helicopters, two of which were delivered in 2011. These crafts will provide support to the oil and gas industry in Kerteh and will contribute significantly to MHS’ revenue. This 10-year contract jointly supports Petronas Carigali Sdn Bhd, ExxonMobil Explorations and Production Malaysia Inc and Newfield Peninsula Malaysia Inc.

Poor set of 9MFY2012 results due to losses from the commercial shipbuilding. The heavy industries division 9MFY2012 EBIT slumped to RM8.7m (-85% y-o-y) largely on losses from the commercial shipbuilding as a result of cost escalations. The maintenance, repair and overhaul business also saw depressed business conditions and the slowdown of the chartering business had also affected the division’s bottom line.

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Boustead Holdings Berhad 05 February 2013

Earnings are expected to remain in the doldrums and volatile. We believe earnings from this division is expected to remain in the doldrums over the next few quarters plagued by potential cost incurred on delays in delivery of vessels, uncertainty on potential write downs on the sale of the chemical tankers and continued weakness in the commercial shipbuilding division. Elsewhere, order book at its maintenance repair operations (MRO) division is not visible and contracts are largely short term in nature. More importantly, the key earnings contribution from the petrol vessels would only commence in 2014 and the initial expenses incurred in construction is expected to drag down earnings as well, further exacerbated by the smallish top line contribution in the early stages which has yet to hit key billing milestones.

Heavy industries key financial quarterly performance 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Revenue (RM m) 162.5 200.6 214.9 516.5 304.8 392.9 480.7 EBIT(RM m) 24.4 10.9 22.9 (11.5) 22.2 (12.5) (1.0)

Source: Company, Kenanga Research

Finance and investment

21%-owned Affin Holdings is key associate earnings contributor. Boustead’s associate profits are driven predominantly by its 21% stake in Affin Holdings, which in turn relies on Affin Bank and Affin Islamic Bank. This accounted for 86% of the total associates income in FY11. Other subsidiaries in the Affin Group include Affin Money Brokers, AXA Affin Life Insurance and AXA Affin General Insurance, Affin Investment Bank, Affin Fund Management and Affin Moneybrokers.

Associates contribution largely from Affin Holdings. Boustead’s associate profits are driven predominantly by its 21% stake in Affin Holdings. We have factored in FY12 net profit of RM528m and FY13 net profit of RM555m for Affin Holdings, translating into RM110m and RM117m in associates profits for FY12F and FY13F respectively.

Key highlights from Affin Holdings Berhad’s 9MFY12 results include: ° The key surprise in the results was the group’s 3Q12 non-interest income of RM167.5m, which was significantly positive, rising 14.4% and 39.8% QoQ and YoY respectively. As such, the total 3Q12 revenue came in encouragingly at RM395.7m (+5.3% QoQ). ° The 3Q12 net interest income was flat with a marginal decline of 0.6% QoQ but it rose 7.8% YoY, supported by the positive growth in gross loans by 1.8% QoQ (15.5% YoY). Meanwhile, the total deposits rose by 1.2% QoQ (7.5% YoY). The estimated NIM was higher by 1bps to 1.77% in 3Q12 from 1.76% in 2Q12 on a reasonable leverage with the L/D ratio registered at 79.7%. ° The write-back of RM23.4m in the results was in line with the decline of the gross impaired loans to RM818.7m (from 2Q12’s RM842.2m) with the gross impaired ratio falling to 2.43% (from 2.55% in 2Q12). Loan loss coverage was at 70.7%. ° Cost was lower at a cost-to-income ratio of 43% during the quarter (vs. 46.1% in 2Q12 and 49.0% in 3Q11) due to the increase in revenues. ° The achieved annualised ROE of 11.0% was above our previous expectation of 9.1%.

Outlook going forward. Affin’s potentially higher credit risks have already been priced in by the existing discount in its valuation and hence, there is room for its trading multiple to improve with its M&A news. Its negotiation with DRB Hicom for a potential acquisition stake in Bank Muamalat (BMMB) is still ongoing. This is a good move given that the acquisition of BMMB will be the key to the group becoming a bigger player in Islamic Banking and will widen Affin’s branch network with an additional 58 branches from BMMB should an acquisition go through. In addition, Affin will also be able to tap into BMMB’s existing business collaboration with DRB-Hicom, in particularly with Pos Malaysia and Proton.

Key financial indicators for Affin Group Segmental Breakdown

Y/E : Dec 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 % Total loans growth Q-O-Q 1.0% 2.8% 4.0% 2.5% 6.7% 2.2% 4.1% 1.8% % Total loans growth Y-O-Y 18.12% 16.14% 14.19% 10.77% 16.95% 16.32% 16.38% 15.54% % Gross impaired ratio 3.72% 3.51% 3.37% 3.26% 2.84% 2.87% 2.55% 2.43% % Net impaired ratio 3.05% 2.85% 2.70% 2.53% 2.28% 2.27% 1.93% 1.83% % LLR/Gross NPL 59.69% 62.67% 65.60% 69.66% 72.80% 68.51% 68.30% 70.66% % Loan deposit ratio 80.3% 78.5% 78.9% 75.3% 77.3% 77.0% 80.2% 79.7% % Net interest margin 1.92% 1.86% 2.08% 1.95% 1.82% 1.71% 1.76% 1.77% % Cost/Income ratio -46.73% -49.53% -47.88% -49.02% -45.31% -47.71% -46.07% -42.99%

Note: Percentage of ratio might vary from company as differences in assumption of calculation. Source: Company, Kenanga Research

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Boustead Holdings Berhad 05 February 2013

5. VALUATION & RECOMMENDATION We are initiating coverage on Boustead Holdings with a Market Perform recommendation and SOP-based target price of RM4.90.

Boustead Holdings RNAV Listed entities no. of shares effective Current share price Value (RM m) Comments stakes (m) (RM/share) Affin Holdings 309.2 4.40 1,360 Based on house target price Boustead Heavy Industries 161.5 2.20 355 Mark to market UAC 74.4 4.30 320 Based on takeover price Al-Hadharah Boustead REIT 335.9 1.94 652 Mark to market Pharmaniaga 64.4 8.05 518 Mark to market

Net debt as at 30 Sept 2012 (4,979) Total RNAV less net debt 5,072 no. of shares 1,034 SOP/share RM 4.90

Source: Company, Kenanga Research

9M2012 net profit fell 36% to RM266m. The group’s top line grew 25% YoY to RM7.5b driven by contribution from its divisions across the board. A higher sales volume contributed to a 13% increase in the revenue for the trading & manufacturing division while the plantation division’s revenue fell by 6.5% largely due to a 5% reduction in FFB volume and an 8% decrease in the average palm oil price. The pharmaceutical division’s revenue meanwhile rose 96% to RM903.5m due to the consolidation of Pharmaniaga. The heavy industries division’s revenue rose 55% to RM1.3b largely on the consolidation of MHS Aviation, which contributed a turnover of RM293m, and a higher progress of work from the SGPV project. However, the overall net profit fell 36% to RM266m due to the lower production and ASPs at the plantation division, a sharp reduction in profit from the heavy industry division due to losses from the commercial shipbuilding business as a result of cost escalations and elimination of unrealised profit on goods supplied by Idaman (now a subsidiary of Pharmaniaga) to Pharmaniaga.

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Boustead Holdings Berhad 05 February 2013

70% dividend payout policy. Boustead has declared a single tier DPS of 10 sen in 3Q12, bringing its 9M YTD DPS to 25 sen, which is in line with our FY12 net DPS forecast of 28 sen. we expect FY13 and FY14 net DPS numbers of 26 sen and 29 sen respectively, translating to an average yield of >5%.

6. RISKS Further weakness in CPO prices. Boustead’s plantation business is an integral part of its operations, contributing 25% of the 9MFY12 EBIT and an average of 24% over the last three years. Since 91% of its plantations have already matured and have not been increasing over the past few years, their earnings growth hinge purely on higher CPO prices, the outlook of which is not looking too bright. Its ongoing replanting programme using clonal material to boost FFB yields is only expected in the longer term.

Delay in the delivery of PVs and cost escalation. Its heavy industries division is plagued by the potential additional cost incurred in the delays in delivery of vessels, uncertainty on potential write-downs on the sale of chemical tankers and continued weakness in the commercial shipbuilding division. Elsewhere, the order book at its maintenance repair operations (MRO) division is also not visible as the contracts here are largely short term in nature. More importantly, the key earnings contribution from the petrol vessels will only commence in 2014. Even then, we expect the initial expenses incurred in the early stages of construction to drag down earnings in the short term until the construction level reaches their more advanced stage beyond 2014, where higher billings could then be made.

Earnings review (YTD) FY Dec (RMm) 2011 2012 Y-o-Y Comments 9M 9M Chg (%) Revenue 6,001.5 7,532.1 25.5 Improvement across the board except plantation. Plantation 754.1 705.0 (6.5) Lower due to a 5% reduction in FFB volume and an 8% decrease in average palm oil price. Heavy Industries 578.0 1,178.4 103.9 Higher due to full 9-month contribution from MHS Aviation and higher progress billings from the second generation patrol vessels projects. Property Development 310.8 351.7 13.2 Finance & Investment 82.2 97.8 19.0 Pharmaniaga (Trading) 858.3 1,329.9 54.9 Reflecting Pharmaniaga’s 9-month operations led by higher sales volume to the Government.

Trading & manufacturing 3,418.1 3,869.3 13.2 Due to higher sales volume.

EBIT 498.7 432.2 (13.3) Plantation 219.5 107.4 (51.1) Due to lower palm product prices and FFB crop production. ASPs for FFB, palm oil and palm kernel fell 11.5%, 8.2% and 28.7%, respectively. Heavy Industries 58.2 8.7 (85.1) Due to losses from the commercial shipbuilding operations arising from cost overruns and lower earnings from the MRO businesses. Property Development 69.2 94.0 35.8 Due to gain from disposal of a vacant land in 1Q 2012. Finance & Investment (6.2) 0.0 NM Pharmaniaga (Trading) 67.6 105.4 55.9 Due to the inclusion of Pharmaniaga Berhad Trading & manufacturing 90.4 116.7 29.1 Due to stock holding gains (RM4m) and higher sales volume.

Pretax profit 585.9 445.8 (23.9) Taxation (84.1) (93.4) 11.1 Minorities (83.5) (86.2) 3.2 Net profit 418.3 266.2 (36.4) EPS 40.5 25.7 (36.4)

Ebit margin % Plantation 29.1 15.2 Heavy Industries 10.1 0.7 Property Development 22.3 26.7 Finance & Investment (7.5) NM Pharmaniaga (Trading) 7.9 7.9 Trading and manufacturing 2.6 3.0

Source: Company, Kenanga Research

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Boustead Holdings Berhad 05 February 2013

Quarterly revenue and EBIT breakdown FY Dec (RM m) 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Revenue Plantation 254.4 253.4 246.3 277.2 263.8 229.8 211.4 Heavy Industries 162.5 200.6 214.9 516.5 304.8 392.9 480.7 Property 89.5 99.7 141.4 118.1 92.6 130.3 128.8 Finance & Investment 25.4 28.3 28.5 22.8 32.4 31.8 33.6 Pharmaceutical 28.7 432.0 397.6 399.4 446.7 456.8 426.4 Trading and manufacturing 1,027.0 1,211.3 1,179.8 1,200.5 1,264.1 1,305.5 1,299.7 Total 1,587.5 2,225.3 2,208.5 2,534.5 2,404.4 2,547.1 2,580.6 EBIT Plantation 74.7 70.5 74.3 25.7 61.1 16.4 29.9 Heavy Industries 24.4 10.9 22.9 (11.5) 22.2 (12.5) (1.0) Property 16.2 27.7 25.3 33.5 43.7 25.5 24.8 Finance & Investment (2.0) (3.0) (1.2) (1.8) (1.6) 0.0 1.6 Pharmaceutical 10.4 35.0 22.2 24.4 44.6 28.0 32.8 Trading and Manufacturing 33.5 31.1 25.8 40.3 40.0 33.6 43.1 Total 157.2 172.2 169.3 110.6 210.0 91.0 131.2 Source: Company, Kenanga Research

Segmental breakdown assumption FY Dec 2009 2010 2011 2012F 2013F 2014F Revenue (RM m) Plantation 634.0 806.5 1,031.3 874.9 870.5 879.2 Heavy Industries 1,044.5 1,166.0 1,094.5 1,502.0 1,546.1 1,693.3 Property 372.7 398.8 448.7 439.7 448.5 585.3 Finance & Investment 282.7 190.0 105.0 106.1 107.1 108.2 Pharmaceutical NA 93.4 1,257.7 1,672.7 1,786.5 1,947.3 Trading 3,057.8 3,527.1 4,618.6 5,064.8 5,544.7 6,079.5 Total 5,392 6,182 8,556 9,660 10,303 11,293 EBIT (RM m) Plantation 19.7 155.0 245.2 177.1 189.3 189.1 Heavy Industries 178.5 188.9 46.7 12.2 18.7 42.3 Property 80.5 103.0 102.7 119.6 122.0 132.9 Finance & Investment 31.7 (3.9) (8.0) 29.2 29.5 29.7 Pharmaceutical NA 25.5 92.0 130.5 149.2 162.6 Trading 95.1 113.5 130.7 132.5 148.4 166.2 Total 432.3 582.0 609.3 601.0 657.1 722.8 % Margin Plantation 3.1% 19.2% 23.8% 20.2% 21.8% 21.5% Heavy Industries 17.1% 16.2% 4.3% 0.8% 1.2% 2.5% Property 21.6% 25.8% 22.9% 27.2% 27.2% 22.7% Finance & Investment 11.2% -2.1% -7.6% 27.5% 27.5% 27.5% Pharmaceutical NA 27.3% 7.3% 7.8% 8.4% 8.4% Trading 3.1% 3.2% 2.8% 2.6% 2.7% 2.7% Source: Company, Kenanga Research

2013 revenue and EBIT breakdown 2013 Revenue 2013 EBIT 8% Revenue EBIT

Plantation 23% Plantation Heavy Industries 28% Heavy Industries 15% Property Finance & Investment Property

Pharmaceutical Finance & Investment

Trading and manufacturing Pharmaceutical

Trading and manufacturing 4% 55% 1% 3%

23%

17% 19% 4% Source: Company, Kenanga Research

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Boustead Holdings Berhad 05 February 2013

Income Statement Financial Data & Ratios FY Dec (RM’m) 2010A 2011A 2012E 2013E 2014E FY Dec (RM’m) 2010A 2011A 2012E 2013E 2014E Revenue 6,181.8 8,555.8 9,660.3 10,303.4 11,292.7 Growth (%) EBITDA 700.8 778.5 781.7 852.8 933.7 Turnover 14.6% 38.4% 12.9% 6.7% 9.6% Depreciation (118.8) (169.2) (180.7) (195.8) (210.9) EBITDA 33.5% 11.1% 0.4% 9.1% 9.5%

Operating Profit 582.0 609.3 601.0 657.1 722.8 Operating Profit 43.6% 4.7% -1.4% 9.3% 10.0% Other Income 146.6 188.1 60.0 60.0 60.0 PBT 44.8% 14.4% -32.0% 11.3% 10.2% Interest Exp (109.4) (192.7) (205.6) (201.1) (198.8) Core Net Profit 57.3% 13.6% -42.8% 11.4% 9.3% Associate 107.0 131.7 109.8 112.9 108.9

Exceptional Items - 94.6 - - - Profitability (%) PBT 726.2 831.0 565.2 628.9 692.9 EBITDA Margin 11.3% 9.1% 8.1% 8.3% 8.3% Taxation (101.3) (99.1) (113.0) (125.8) (138.6) Operating Margin 9.4% 7.1% 6.2% 6.4% 6.4% Minority Interest (87.4) (121.3) (103.0) (114.1) (129.0) PBT Margin 11.7% 9.7% 5.9% 6.1% 6.1% Net Profit 537.5 610.6 349.2 389.1 425.4 Core Net Margin 8.7% 7.1% 3.6% 3.8% 3.8% - Effective Tax Rate 13.9% 11.9% 20.0% 20.0% 20.0% ROA 5.8% 5.5% 2.7% 2.9% 3.1% Balance Sheet ROE 12.0% 12.3% 6.6% 7.0% 7.4% FY Dec (RM’m) 2010A 2011A 2012E 2013E 2014E Fixed Assets 5711.4 7343.2 7461.5 7563.5 7848.4 DuPont Analysis Intangible Assets 1472.3 1257.4 1257.4 1257.4 1257.4 Net Margin (%) 8.7% 7.1% 3.6% 3.8% 3.8% Other FA 126.2 62.9 62.9 62.9 62.9 Assets Turnover (x) 1.5 1.5 1.4 1.3 1.2 Inventories 244.0 680.3 768.1 762.2 959.1 Leverage Factor (x) 2.2 2.9 2.9 2.9 2.9 Receivables 1289.8 2238.4 2489.8 2600.2 2738.1 ROE (%) 12.0% 12.3% 6.6% 7.0% 7.4% Cash 424.5 1140.7 1200.4 1251.5 979.6 Total Assets 9268.2 12722.9 13240.1 13497.6 13845.5 Leverage Debt/Asset (x) 0.3 0.4 0.4 0.4 0.3 Payables 1100.3 2177.5 2488.6 2611.0 2803.4 Debt/Equity (x) 0.7 1.0 0.9 0.9 0.8

ST Borrowings 2475.8 3936.2 3821.6 3496.9 3427.6 Net Cash/(Debt) (2,739) (3,955) (3,895) (3,744) (3,917) Other ST Liability 158.6 123.9 120.4 121.4 121.4 Net Debt/Equity (x) 0.6 0.8 0.7 0.7 0.7 LT Borrowings 687.4 1159.3 1273.9 1498.7 1469.0 Other LT Liability 147.4 122.7 122.7 122.7 122.7 Valuations Minorities Int. 470.8 751.9 854.9 969.0 1097.9 EPS (sen) 52.0 59.0 33.8 37.6 41.1 Net Assets 4227.9 4451.4 4558.0 4678.2 4803.6 NDPS (sen) 39.0 39.0 28.0 26.0 29.0 BVPS (RM) 4.1 4.3 4.4 4.5 4.6 Share Capital 470.1 470.1 517.1 517.1 517.1 PER (x) 9.3 8.2 14.3 12.8 11.7 Reserves 3757.8 3981.3 4040.9 4161.1 4286.5 Net Div. Yield (%) 8.1 8.1 5.8 5.4 6.0 Equity 4227.9 4451.4 4558.0 4678.2 4803.6 PBV (x) 1.2 1.1 1.1 1.1 1.0 EV/EBITDA (x) 10.3 10.8 10.7 9.6 8.9 Cashflow Statement FY Dec (RM’m) 2010A 2011A 2012E 2013E 2014E Operating CF 173.4 903.0 1,005.3 830.9 788.0 Investing CF (176.2) (1,302.9) (210.9) (210.9) (210.9) Financing CF (148.8) 591.4 (184.6) (568.9) (849.9) Change In Cash (151.6) 192.3 609.8 51.1 (271.8)

Free CF (90.6) (69.9) 705.3 530.9 488.0 Source: Company, Kenanga Research

Fwd PER Band Fwd PBV Band

9 PRICE (RM) PER 5.9 x PER 8.4 x PER 11.0 x PER 13.6 x PER 16.2 x 6 PRICE (RM) PBV 0.7 x PBV 0.8 x PBV 1.0 x PBV 1.1 x PBV 1.3 x

8 5.5

7 5

6 4.5

5 4

4 3.5

3 3

2 2.5

1 2 9 9 9 0 1 2 3 9 9 9 0 0 0 1 1 1 2 2 2 0 1 1 1 0 0 1 1 1 -0 - -11 - -0 -1 -10 1 - -11 -1 1 - v v b-1 r l r l- r l o g-12 ct ul- ct ay-0 ay-11 u e Ju an Ju Ju J Feb- M Aug Nov-09 Feb-10 May-10 Aug-10 N Feb- M Aug-11 No Feb- May-12 A Nov-12 F Jan- Ap Oct-09 J Ap O Jan- Ap Oct-1 Jan-12 Apr-1 O Jan-13 Source: Bloomberg, Kenanga Research

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Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% (An approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%) MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of 3% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than 3% (An approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate)

Sector Recommendations***

OVERWEIGHT : A particular stock’s Expected Total Return is MORE than 10% (An approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%) NEUTRAL : A particular stock’s Expected Total Return is WITHIN the range of 3% to 10% UNDERWEIGHT : A particular stock’s Expected Total Return is LESS than 3% (An approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate)

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Chan Ken Yew Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com Head of Research

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