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6th April 2020

Patriot views with great concern the performance of LTAT (Armed Forces Fund Board) and the companies under its flagship because technically the LTAT manages the pension fund for armed forces members, especially the ranks and files. Special attention is paid to the business activities of Boustead Heavy Industries Corporation (BHIC) Bhd as it involves defence and security issues and what was envisaged in the first ever-tabled Defence White Paper. LTAT, together with Boustead Holdings Bhd, owns 73.6% of BHIC shares. It is much reliant on Boustead Holdings Group for returns. 
What was reported in The Edge on 11 November 2019, ‘BHIC poised for a cash bonanza’, and the latest BHIC’s quarterly report to Bursa Malaysia does not synchronise. In The Edge report it was mentioned that the former defence minister, Mohamad Sabu, had approved the variation orders in the construction of the six littoral combat ships amounting to RM1.4 billion, an issue that plagued corporate performance with delay and work stalled. Also, impairments and provisions following new accounting procedures contributed to bookkeeping loss. Thus, the negative reflections in the FY2018 report of BHIC. Now that the variation orders have been approved, and part of the RM1.4 billion can be taken as profit, the course for BHIC is plain sailing ahead. 
BHIC’s Q42019 report to Bursa Malaysia as announced on 22 February 2020 making a loss of RM116,636 million for FY2019 is worse than the reported loss of RM108,326 million for FY2018. For 2018 dividend paid out was 1.5 sen per share. No dividend will be paid for 2019. This is unacceptable to the ten of thousands of military personnel, especially the ranks and files who have toiled and sacrifice for our nation, looking up to the LTAT fund as a source of financial security when they retire from service. Many have to retire young. The much higher loss in 2019 is also unacceptable especially when the new management team has taken over a year and half ago. 
The latest filing of BHIC to Bursa Malaysia gives a very negative picture of the state of affairs, its corporate health and that of its parent companies. This, plus pervious negative reporting gave opportunity for the shares price of BHIC to be quickly and drastically pressed down within the last two weeks from par value of RM1 to 70 sen at the closing on 3 April 2020. The actual value of the company has been grossly misrepresented for the following reasons:
1. Part of the variation orders amounting to RM1.4 billion should be taken as profit as the cost has already been taken into account in the previous year. Furthermore, haggling over payment of this variation orders for the construction of the six littoral combat ships, and the change in government after GE14, contributed to delay and cost overruns. 
2. The six littoral combat ships currently under construction at Lumut naval shipyard, with a contractual sum of RM9 billion plus RM1.4 billion variation orders, is good enough to sustain the corporation with income for several years. 
3. Profit from the supply of the four littoral mission ships built in China, with one already delivered and three more to go, is another source of good income. 
4. The ongoing maintenance, repair and overhaul jobs for all old and new naval assets provide secured income into the distant future.
5. In the Navy’s 15-to-5 Transformation Plan, which is to streamline naval assets to just five types of vessels, four are locally designed with blueprints by BHIC, except for submarine. The four types of vessels are: New Generation Patrol Vessel of which BHIC has already built six ships currently in use by the Navy; Littoral Mission Ship joint venture with China; Littoral Combat Ship currently under construction in Lumut; and Multi Role Support Ships that are capable of transporting troops, tanks and heavy weapons. Hence, it is accurate to say that BHIC has monopoly in perpetuity of naval defence projects, and the government holds a golden share in its associate, Boustead Naval Shipyard. 
6. The recently tabled Defence White Paper in December 2019 has envisaged developing and enhancing the local defence industrial capabilities to achieve self-reliance in defence technology, and also as spin-off to other sectors of the economy. BHIC is in the envious front-runner role in our local defence industry. 
7. Through its Vendor Development Programme, with 2,984 vendors registered (according to its website), BHIC manages the programme and inducting the vendors into its supply chain. The programme gives a boost to local shipping industry and increases jobs, which certainly adds value to the economy. 
From just the book orders of the littoral combat ships, the littoral mission ships, and the MRO (maintain, repair and overhaul) contracts, BHIC has vey good prospects ahead. There is no way for the company to make a loss. In fact its near monopolistic position in the defence and shipbuilding industry is the envy of many a listed corporation. As such, it does not make sense for its shares price to be pressed down to a low 70 sen. 
According to the Edge Weekly 18 July 2019 report, the low shares price “could also be an attractive takeover target in anticipation of an upcoming boom vis-à-vis defence-related contracts”. With regards to the illogical and suppressed shares price of BHIC over the last two weeks to a ridiculous low, could there be an insidious takeover in the days to come?
Since taking over for the last 18 months, the new management of LTAT, Boustead Holdings and BHIC was passive and did not provide news on turnaround efforts, results and prospects. When the price of BHIC shares has been battered down, the least it could do was to explain the business potentials of its subsidiaries like what business people of acumen would do.  
In the interest and for the welfare of the serving armed forces personnel, Patriot suggests the management of LTAT makes an immediate statement to dispel doubts about the status of BHIC. Patriot further suggests that LTAT, Boustead Holdings and BHIC undertake price support and shares buyback before it becomes a penny stock. This is to indicate to the market the real value of BHIC shares. It is also to indicate that the welfare of the military personnel is given high priority. 
BG Dato Mohamed Arshad Raji (Rtd)
President, Persatuan Patriot Kebangsaan