Boustead Singapore Ltd - CIMB Research 2017-05-23: Solid FY17 Performance Amid Challenging Landscape

Boustead Singapore Ltd - CIMB Research 2017-05-23: Solid FY17 Performance Amid Challenging Landscape BOUSTEAD SINGAPORE LIMITED F9D.SI

Boustead Singapore Ltd - Solid FY17 Performance Amid Challenging Landscape

  • FY3/17 core net profit beat our expectation, at 118% of our forecast. The surprise was due to a still profitable energy division vs. our forecasted slight loss.
  • FY17 reported net profit of S$33.3m was boosted by one-off gains at BP level.
  • Excluding one-offs, group core net profit fell 11% yoy in FY17.
  • Pure cash position of S$163m at BSL level (equivalent to 35% of group market cap). FY17 DPS of 2 Scts translates to a 2.3% yield.
  • Maintain Add call with higher target price of S$0.96, as we roll forward to base our valuation on a 20% discount to FY18F SOP.



FY17 core net profit above expectation 

  • Boustead Singapore Ltd’s (BSL) FY17 core net profit came in above our expectation, at 118% of our forecast. The surprise was mainly due to the still profitable energy division vs. our projected slight loss. 
  • Group FY17 reported net profit of S$33.3m (FY16: S$28.2m) was boosted mainly by the one-off gains at its 51%-owned Boustead Projects (BP) level. 
  • Excluding all one-offs, group core net profit fell 11% yoy to S$26.4m in FY17 (FY16: S$29.7m). 
  • BSL declared a final DPS of 1.5 Scts, raising FY17 DPS to 2 Scts.


Industrial real estate: FY17 net profit boosted by one-off gains 

  • BP’s FY17 core net profit was in line with our expectation at S$27.1m (FY16: S$26.4m) while its reported profit of S$36.1m was boosted by one-off gains from 
    1. the disposal of its TripleOne Somerset stake, and 
    2. compensation for an early lease termination by Ausgroup. 
  • We remain cautious on the Singapore industrial property sector outlook, and have factored in a 26% yoy decline in BP’s FY18F core net profit, given that its design & build order book currently stands at a five-year low of S$146m.


Energy-related engineering: positive profit a happy surprise 

  • The positive, albeit substantially lower yoy, pretax profit of S$1.4m (excluding a S$2.8m FX gain) is a happy surprise, as we have previously wrote off profit expectations for the division for FY17-19F. 
  • In order to navigate the challenging landscape, management has adopted stringent cost controls, including right-sizing its workforce to less than half of its peak level. 
  • We believe the risk of the energy division running into big losses is limited, given the business’s negligible capex needs and scalable overhead expenses.


Geospatial technology: strong demand driving business growth 

  • The strong demand for Esri-technology in Australia and Southeast Asia continued to drive the division’s revenue and pretax profit growth, up 5% and 10% yoy, respectively, in FY17. 
  • We continue to look at a mid-to-high single-digit pretax profit growth for the division in FY18-19F, underpinned by the growing demand from the national defence and smart city/nation initiatives across the region.


Negatives likely priced in, strong balance sheet for potential M&As 

  • We maintain our Add call on BSL, with higher target price of S$0.96, as we roll forward base our valuation on a 20% discount to FY18F SOP. 
  • For conservative purposes, we have fully written off the valuation for the energy division. 
  • Given the strong pure cash position of S$163m at BSL level as at end-FY17, management is prudently looking for potential M&A opportunities. Successful M&A execution is a potential re-rating catalyst, while adverse FX fluctuation is a key risk.




William TNG CFA CIMB Research | Roy CHEN CFA CIMB Research | http://research.itradecimb.com/ 2017-05-23
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.96 Up 0.850



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