HLG: BHIC - Turnaround within expectation (13 August 2008)

Boustead Heavy Industries BUY



Price target RM6.50



Share price at 12 Aug RM4.30



Investment summary
H108 net profit of RM66m is 53% of HLG full-year forecast and 50% of consensus estimate. BHIC is showing signs of sustained profitability following its restructuring plan last year. Following a sector PE de-rating by 4-5x YTD, we lower our target price to RM6.50/share on 11x FY09E EPS (vs. 16x previously). We remain excited on BHIC and thinks share price is undervalued at 7x FY09E EPS.

We are positive on the oil and gas shipbuilding sector: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity to replenish its order book.



Lookout for new jobs

Strong Q208 results re-affirm our BUY rating on the stock. Share price is flat in the last two months due to absence of news flow on new jobs. We are excited on its order book build-up in the next six months. Share price is undervalued at 7x FY09 EPS, 25% discount to sector peers.