Boustead rated ‘buy’ on PFCE stake buy plan

HONG Leong Investment Bank (HLIB) has rated Boustead Holdings Bhd a “buy” on its plans to acquire a 80 per cent stake in PFC Engineering Sdn Bhd (PFCE) for RM20 million.

“PFCE is an integrated engineering and maintenance services provider for the oil and gas (O&G) industry.

“Boustead will procure RM35 million loans/advances for PFCE funding requirements. Net debt will increase by three per cent, which is manageable due to consolidation of PFCE debt.

“Assuming financing cost of six per cent for both the acquisition cost and loans/advances, the profit guarantee will boost earnings by circa three per cent,” HLIB said in its report.

It noted it is “neutral” on Boustead, given the relatively small acquisition that comes with profit guarantee, which would value the acquisition at slightly over one time price earnings.

“It will further enhance the group’s heavy industry division as well as its expansion into O&G-related businesses, especially after the recent land acquisition in Port Klang.

HLIB said there is lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing and dilution from potential cash call.

“But it has relatively high gearing, a complicated group and quarterly fluctuation in earnings. Thus, target price maintained at RM6.23.”