KUALA LUMPUR (March 9): Boustead Holdings Bhd’s share price tumbled from the five-year peak of around RM3 in October 2017 to a low of 42 sen in March 2020. Since then, the stock has never traded above 80 sen until its controlling shareholder Armed Forces Fund (LTAT) made a takeover offer of 85.5 sen per share last week.
LTAT wants to take the debt-laden conglomerate private.
Put bluntly, Boustead has had its fair share of negative news ranging from high debt level and financial stress caused by stretched cash flow to the failure of its subsidiary, Boustead Heavy Industries Bhd (BHIC), to deliver littoral combat ships (LCS), and the latest issue over the RM500 million impairment of unsold Covid-19 vaccines in its pharmaceutical arm, Pharmaniaga Holdings Bhd.
On top of that, the diversified conglomerate’s total borrowings stood at RM6.79 billion as at end-2022, of which more than half amounting to RM4.04 billion was short-term loans, against its shareholder equity fund of RM3.325 billion.
Also, it has perpetual sukuk of RM609.8 million.
All these have pulled the stock in the doldrums.
Since the announcement on March 3, LTAT has been able to raise its stake to 71.48%, from 59.42%, according to company filings, indicating some minorities decided to sell on the open market.
LTAT’s takeover offer, which will cost RM703.25 million, has valued Boustead at RM1.73 billion.
That said, should the minority shareholders pay attention to the negative newsflow, or to the other side of its balance sheet that shows that the group’s net asset per share was at RM1.64 per share — more than double the offer price.
The group’s jewel lies in its assets, with net tangible assets of RM3.032 billion.
Stakes in listed firms worth RM2.18 bil
Boustead Holdings owns shares in four listed entities, namely Affin Bank Bhd (20.93%), Boustead Plantations Bhd (57.42%), Boustead Heavy Industries Corp Bhd (65%) and Pharmaniaga Bhd (51.85%).
Based on the share price closing on Tuesday (March 7), the shareholdings combined are worth a total of RM2.18 billion, or 65.62% of Boustead’s last reported NTA.
The bulk of it is derived from its stake in Affin, whose shares closed at RM2.10, bringing its 20.93% stake to a market capitalisation of RM999.44 million.
Affin Bank, the smallest among its local peers, has surprised many by its financial performance in the financial year ended Dec 31, 2022 (FY2022).
Boustead Holdings’ 57.42% stake in Boustead Plantations, meanwhile, carries a market value of RM913.21 million, based on its shares’ latest closing price of 71 sen. The planter’s share price has been buoyed by the strong crude palm oil prices which helped lift earnings to the highest since 2017. It paid out 14.45 sen dividend, or RM185.86 million, in FY22 to Boustead’s pocket.
The other two companies had underperformed last year. BHIC was in the red in FY22 owing to underperformance of subsidiary Boustead Naval Shipyard Sdn Bhd (BNS) due to issues with the LCS project for the defence ministry.
Still, its share price of 36 sen — just over one-fourth its share price of RM1.30 pre-pandemic — amounted to RM58.14 million for Boustead’s 65% stake in BHIC.
Boustead has seen its investment in Pharmaniaga Bhd diminish; it was once its key income contributor given its concession to supply generic drugs to public hospitals.
Pharmaniaga fell into PN17 status last month owing to the RM552 million impairment for overstocked Covid-19 vaccines. The counter, which last traded at 31 sen, brings about a market value of RM210.56 million for Boustead’s 51.85% stake in the pharmaceutical group.
Asset-laden conglomerate
According to Boustead’s FY2021 annual report, among the group’s notable properties managed by its property management segment are The Curve shopping mall (RM567 million), Nucleus Tower (RM226 million) and Menara UAC (RM92 million) in Mutiara Damansara.
Other properties include Menara Affin (RM124 million) and Menara Boustead (RM102.8 million) in Kuala Lumpur.
Under the Royale Chulan brand, the Royale Chulan Damansara (RM193.2 million) and Royale Chulan Seremban (RM83.4 million) are also listed on the top properties list out of the eight Royale Chulan hotels and resorts in the Klang Valley, Negeri Sembilan, Penang, Pahang and London.
Additionally, the group lists industrial land plots in Kapar and Bukit Raja totalling 44.8 hectares valued at RM236.4 million, and two development land plots in Ulu Langat measuring 32 hectares (RM139.1 million) and 137.9 hectares (RM125.4 million), aside from a collection of palm oil estates located across Malaysia.
Just the assets above parked under unlisted units of Boustead Holdings are worth RM1.89 billion.
Boustead also operates in a slew of other businesses via non-listed subsidiaries in the fuel retail segment (42%-owned Boustead Petroleum Marketing Sdn Bhd) and education (66.41%-owned University of Nottingham Malaysia Sdn Bhd).
The cash cow is BHPetrol, which operates 373 stations. It booked RM104 million in net profit in FY2021 and potentially higher in FY2022 in line with improved performance of peers in the sector.
On the University of Nottingham Malaysia, Boustead had planned to exit the business for £23.5 million (RM126 million) but the deal lapsed in August last year. It operates in the University of Nottingham building in Semenyih, valued at RM236.5 million.
Datuk Ahmad Nazim Abd Rahman, chief executive officer of LTAT, said that the privatisation will help accelerate the restructuring of the Boustead group as opposed to it being done as a listed entity, The Edge Weekly reported on March 6.
The restructuring forms the final milestone of the transformation of LTAT, whose dividends to its contributors plunged to just 2% in 2018 from 8.27% in 2017, before rebounding to 4.1% in 2021. This follows impairments of overstated assets, and reviews of projects within the Boustead Group. It also halted the overpaying of dividends above its asset returns practised in the past.
If the privatisation and the subsequent restructuring go as planned, LTAT would certainly be able to unlock the deep value within Boustead, which was once the pride of the armed forces.
To ensure that LTAT will need to convince minorities that the offer of 85.5 sen is a decent one.
Source: TheEdge - 9 Mar 2023
