Wednesday 9 October 2013

Boustead Heavy Industries - Confirmed RM9bil LCS contract

BHIC’s 21%-owned Boustead Naval Shipyard (BNS) has received an amended acceptance letter from the Ministry of Defence Malaysia for the earlier award back in December 2011 to design, construct, equip, test and deliver 6 Second-Generation Patrol Vessels named as Littoral Combatant Ships (LCS) for the Royal Malaysian Navy.
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 This announcement essentially confirms that the contract value has been fixed at RM9bil compared to an earlier indicative ceiling price of the same sum. Also, advance payment of RM700mil will be made in stages.

Currently, the group has gross and net order books of RM10bil and RM3bil respectively. But we expect further news flow of new contracts in the pipeline pending the announcement of the 2014 Budget, and against the backdrop of the Lahad Datu incursion earlier this year which highlights the dire need for tighter security measures.

The upcoming fresh orders may comprise two patrol vessels potentially worth RM1bil and 25 additional fast interceptor crafts valued at RM330mil for the Malaysian Maritime Enforcement Agency.



Boustead Heavy Industries - Supplemental contracts to Gen2 LCS Hold


BHIC’s 51%-owned Contraves Advanced Devices Sdn Bhd (CAD) has been awarded two supplemental contracts worth up to RM509mil by the group’s 21%-owned  Boustead Naval Shipyard Sdn Bhd (BNS) to procure, engineer, and integrate the DCNS SETIS Combat Management System, a Combined Integrated Communication System and Communications ESM System over a 10-year period.

- These supplemental agreements account for 33% of BNS’ earlier letters of award in April this year to CAD worth up to RM1.5bil to undertake  engineering, procurement and integration works encompassing the DCNS SETIS Combat Management System and the Rheinmetall Fire Control System. These scopes of works are part of BNS’ existing RM9bil contract to build six second generation of patrol vessels called littoral combat ships (LCS).

OSI, Boustead Contracted for Royal Malaysian Navy LCS


OSI Maritime Systems (OSI) is announced the signing of a Letter of Award with Boustead Naval Shipyard (BNS), Malaysia. Under the Littoral Combat Ship (LCS) program, BNS will build six Gowind-class corvettes for the Royal Malaysian Navy. Under the terms of this agreement, OSI will deliver six Integrated Navigation and Tactical Systems (INTS); included are the company’s world leading ECPINS-W and Warship-AIS products, specifically designed for naval operations.



ADVANCED DEGAUSSING ORDER AWARD


The contract ‘letter of award’ LOA for the Advanced Degaussing Systems for the Royal Malaysian Navy´s new Littoral Combat Ships (LCS) programme was granted to Polyamp AB, Sweden, the 15th April 2013 by Boustead Naval Shipyard Sdn. Bhd. for an undisclosed order sum. The order will be delivered by Polyamp in Sweden while made in cooperation with Malaysian Defense Industry; Dayatech Merine SDN BHD which are Polyamp local partner company in Malaysia. In the order is also included technical management, training and initial spare parts. Polyamp will utilize its successful ADG systems and ADG parts previous delivered for USN CVN77 Carrier, San Antonio Class LPDs, Royal Danish Navy Absalon Class Flexible Support ships, Peter Willemoe Frigate Class and the Royal Swedish Navy Visby Class. 
Contract task commence immediately, consequently the Kick-off meeting was held at Boustead Naval Shipyard Head Office in Kuala Lumpur, Malaysia the 11th-12th May 2013.

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Head, SGPV-LCS programme Capt.(Rtd.) Anuar Murad, Boustead Naval Shipyard and Polyamp CEO Eric Östlund is shaking hand flanked by Polyamp Local Representative Engineering Director Theya Nith Ramasy, Daytech Merine SDN BHD and Polyamp VP – Per Ennerfors (left)

CONTRAVES AWARDED TO SUPPLY CAPTAS

BHIC announced that its subsidiary Contraves Advanced Devices Sdn Bhd (“CAD”) has received 2 letters of award (LOA) from 20% associate, Boustead Naval Shipyard (BNS) (which is also a subsidiary of Boustead Holding which in turn is BHIC Major shareholder), to supply i) Thales Underwater Systems CAPTAS Towed Array Sonar complete with simulator, and ii) Thales Nederland BV SMART-S Main Surveillance Radar with simulators for the Littoral Combat Ships Programme at a total value of RM287m and RM228m respectively.
The contract duration is up to 10 years from the commencement date.
The awards are expected to have positive impact from FY13 onwards.

Comment

We are neutral on the awards and it is related to the mobilisation of the RM9bn littoral combat ship (LCS) contract held under BNS.
Speed of contract mobilisation is the critical factor in BHIC’s earnings and valuation. We believe contracts are in the process of being mobilisation, however, when the contracts will be realised on the bottom line is still nebulous. The contract time frame is 10 years which suggests that profit contributions will be spread thin over the period. We are cautiously optimistic going forward and continue to monitor the situation closely.
We maintain that, being one of 7 Petronas licence fabricators, future earnings maybe enhanced by spill over jobs from offshore O&G fabrication work if it is able to show good track record in executing existing jobs and protect margins.

Risks

  • Sacrificed profits while in technology transfer phase.
  • Delays in contract disbursement.
  • Potential write downs from selling chemical tankers.

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