Boustead Projects Limited - CIMB Research 2017-05-23: Earlier-than-expected Dividend

SGinvestors.io

BOUSTEAD PROJECTS LIMITED AVM.SI

Boustead Projects Limited - Earlier-than-expected Dividend

• BP’s FY3/17 core net profit was in line, at 100% of our full-year forecast.
• Reported net profit of S$36.1m in FY17 was boosted by one-off gains, excluding which core net profit rose 2.5% yoy to S$27.1m (FY16: S$26.4m).
• Strong balance sheet with S$25m net cash as at end-FY17; BP proposed maiden dividend of 2.5 Scts per share, leading to a 2.9% yield.
• BP needs to secure more contracts to replenish its design & build (D&B) order book, which currently stands at a five-year low of S$146m.
• Maintain Add call and TP of S$1.04, still based on a 40% discount to FY18F RNAV.

FY17 core net profit in line, reported profit boosted by one-offs 

• BP’s FY3/17 core net profit was in line with our expectations, at 100% of our full-year forecast. 
• Reported net profit of S$36.1m in FY17 was boosted by one-off gains from 
  1. the disposal of its TripleOne Somerset stake, and 
  2. the compensation for early lease termination by Ausgroup. 
• Excluding one-offs, group core net profit rose 2.5% yoy to S$27.1m in FY17 (FY16: S$26.4m).

Rock-solid balance sheet and upbeat operating cash flow 

• Group balance sheet strengthened to S$25m net cash as at end-FY17 (FY16: S$2.6m net debt), forming 9% of group market cap. This has yet to take into account the remaining proceeds of S$25.4m from the sale of TripleOne Somerset, which was only received after the balance sheet date. 
• The group’s core businesses remained strongly cash-generative, registering operating cash flow of S$44m in FY17 (FY16: S$31m).

Earlier-than-expected dividend of 2.5 Scts (2.9% yield) 

• BP’s proposed maiden dividend of 2.5 Scts per share for FY17 (1.5 Scts ordinary, 1 Sct special) was a positive surprise to us, as management previously guided for no dividend in FY16-17 for business expansion purposes. 
• We note that the earlier-than-expected dividend paid out of the asset disposal proceeds has demonstrated management’s commitment to reward its shareholders. 
• We expect the 2.5 Scts DPS to be sustainable going forward, backed by BP’s net cash position and upbeat operating cash flow.

Navigating the downcycle with flexibility 

• We are cautious on the near-term outlook for the Singapore industrial property sector given the subdued economic growth and the current oversupply situation of industrial space. This is duly reflected by our projected 26% yoy decline in group FY18F core net profit. 
• Nevertheless, with its strong balance sheet and upbeat operating cash flow, we remain confident that BP will navigate the sector downcycle with flexibility and to stay in a privileged position to benefit from a future sector upturn.

Attractive valuation at a 50% discount to RNAV, maintain Add 

• Currently trading a 50% discount to FY18F RNAV, we think the near-term negatives for BP are more than priced in. We like BP for its market leadership in the Singapore industrial D&B space, strong track record, formidable balance sheet and cash-generative business model. 
• Key re-rating catalysts ahead include 
  1. replenishment of its D&B order book, and 
  2. possible utilisation of its balance sheet for M&As to accelerate the progress towards an eventual REIT listing. 
• Stiff competition is a key risk. 

Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-05-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.040 Same 1.040