BOUSTEAD : Maintain BUY with TP of RM5.67

HLG Research maintains Buy on Boustead Holdings

HLG Research is maintaining its Buy recommendation on BOUSTEAD HOLDINGS BHD [] with a target price of RM5.67 following the latest corporate development.

The research house said on Wednesday, Nov 3 that at RM5.67, this is a 10% holding company discount to its conservative sum-of-parts of RM6.30.

The Edge FinancialDaily reported Boustead is issuing up to RM1 billion MTN to build a war chest of over RM500 million to continue its acquisition trail.

The first tranche of RM620 million will be used to fund the acquisition of Pharmaniaga, its manufacturing and property divisions and repay borrowing. The group is also very positive about the property sector on the back of government’s efforts to revitalise KL and is eyeing some PROPERTIES [] in the Klang Valley that are close to developed areas and targeting to achieve 25% annual property development revenue growth, it reported.

HLG Research, in its comments, said this fund raising exercise (besides funding its already announced acquisitions) is to position itself for the injection of 60 acres Jalan Cochrane land (deal expected to be finalized by end 2010) and the 245 acres Batu Cantonment army base.

Given its track record in developing Mutiara Damansara and Mutiara Rini (Johor), the two strategically located landbank would further add value to the group and further consolidate its status as a undervalued stock and attract interest from investors.

"Maintain Buy with a target price of RM5.67 (10% holding company discount to our conservative SOP of RM6.30). We stressed that our SOP is conservative as we are using flat CPO price assumption of RM2,500 a tonne for FY10-12 vis-à-vis circa RM3,000 a tonne currently.

“Moreover, we are only using 14.5x FY11 P/E vis-à-vis sector average of 16.5 times currently and yet to include any value from the potential injection of the two abovementioned landbank. By simply raising our CPO assumption to RM2,700 a tonne, our target price would have increased to RM6.22,” it said.