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Part 3 of this Boustead analysis will focus on future plans and prospects for the Company, amid the worst economic downturn in the last 70 years. Adding to the global problems is the recent news of a default for Dubai World, which has sought halting of repayments for their loans for 6 months while they re-structure. Fears of a contagion effect in the Middle East are still fresh, and as of this writing news is still uncertain about whether Dubai’s problems are mainly confined to the country itself and the bankers who lent it money, or if it is part of a more widespread regional problem affecting other Middle Eastern nations.
Energy-Related Engineering Division (C&E, BIH and Maxitherm)
Contracts are coming in much slower in recent months, as evidenced by the pace of contract win announcements from C&E and BIH. Contract values are also smaller and according to Management, this is due to the lengthy negotiation process as a result of the lack of financing due to the global downturn. From what I understand, most oil and gas majors have already kick-started their E&P activities as the recession passes; but most companies still expect significant cost savings and are pushing for vendors like Boustead for better terms, which has led to the longer negotiation times. In the next 6 months at least, I do not see much improvement in this division in terms of securing large contracts, as the macro-environment is still very uncertain and recovery remains tentative.
Over at the solid-waste recovery business (Boustead Maxitherm), ongoing re-structuring will limit the contribution of this division at least in the near future. It has taken a long time to re-organize this unit and my view is that Management should consider if the potential for this division to contribute outweighs the trouble and ongoing costs required to do a proper re-structuring. More details need to emerge on the exact nature of said re-structuring and the plans for this sub-division moving forward. The lack of clarity at the moment is disconcerting, to say the least. Read more...