ECM Libra Investment Research has maintained its hold recommendation on BOUSTEAD HEAVY INDUSTRIES Corporation Bhd (BHIC) at RM4.86 after the latter announced results that were mainly affected by higher costs and reduced share of profit from its associate due to lower progress billings of vessels CONSTRUCTION [Not Available].

The research house said BHIC recorded a second-quarter (2QFY09) revenue of RM120.3 million (+8% year-on-year, 3.9% quarter-on-quarter), bringing the 1HFY09 revenue to RM236.1 million (+11.2% y-o-y).

Meanwhile, its 2Q09 net profit came in at RM18.3 million (-48.2% y-o-y, +19.8% q-o-q), resulting in 1HFY09 net profits coming in below house and consensus numbers, said  ECM Libra.

“However, the improved q-o-q results were due to the delivery of a well testing and servicing vessel and the MUDA Living quarters structure for Carigali-PTTEPI Operating Company Sdn Bhd which is in the final stages of completion,” it said in a report last Friday.

ECM Libra said BHIC’s order book was still estimated to have about RM600 million in contracts, as there had been no indications of new contract being awarded in the past year.

“This means that Boustead Naval Shipyard (BNS) continues to be the earnings driver for the company during these troubled times. The group has stated that based on the existing order book, prospects for 2HFY09 are expected to reflect the trends established in the first six months,” it said.

The research house said that due to this, it had reduced its earnings forecast for FY09, but maintained FY10 and FY11 numbers.

“Going forward, the group plans to focus on lean inventory, process improvements, risk management and prudent cash flow management to ride out the challenging market outlook,” it said.

ECM Libra said it believed there were indications of a turnaround at this point and also that BHIC’s joint venture with DCNS S A should bear fruit soon.

“There is also a potential of the group getting more shipbuilding contracts from the Malaysian government once all the vessels for the current contract are delivered.

“As such, we have revised our target price upwards to RM4.96 by using the group’s forward EPS (earnings per share) of 38.2 sen and its average P/E (price/earnings) of 13 times. However due to the run-up in share price, we maintain our hold call on the stock, with a potential re-rating if it is awarded more government contracts,” it said.

Last Friday, BHIC fell two sen to close at RM4.84.