CIMB Securities 2015-08-13: Boustead Singapore Ltd - 1Q16; Not spared from a downcycle. Maintain HOLD.


Not spared from a downcycle 

  • At 22% of our full-year forecast, Boustead’s 1QFY3/16 core net profit was deemed below our expectations as we expect poorer earnings outlook in the remaining year. 
  • We cut FY16-18 core EPS estimates by 19.6%-27.4% in view of 
    1. the protracted challenging business environment for its energy division and 
    2. the subdued profitability of the geospatial technology division due to the weakened A$ versus the US$. 
  • While we continue to like Boustead for its sound financial position and core engineering capability, we need some meaningful catalysts to re-rate the stock. 
  • We maintain a Hold rating on Boustead, with a lower target price of S$1.06, based on a 25% holding company discount to its FY3/16 SOP valuation (previously a 10% discount). 

1Q16 financial results highlights 

  • Adjusted for the 48.8% demerger of Boustead Projects (BP), Boustead’s 1Q16 revenue declined by 8% yoy and core net profit by 13.8% yoy on broad-based weaknesses. 
  • Pre-tax profit for the real estate, energy and geospatial divisions fell by 22%, 62% and 33%, respectively. 
  • While the challenges for real estate and energy have been well-guided, we highlight the dip in revenue (-11% yoy) and margin (18% vs. 20%+ previously) for the geospatial division due to the weakened A$ against US$ and S$. 
  • Boustead’s current order book stands at a relatively healthy level of S$344m (real estate: S$214m; energy: S$130m). 

Business environment remains challenging 

  • Management guides for a cautious business outlook, as headwinds from China and Europe could have an adverse impact on the industries that the group serves. 
  • Delays are expected for the award of sizeable contracts from global oil & gas industries. 
  • Future gross margins are likely to be affected due to stiffer competition for contracts, though cost management measures have been put in place to partially mitigate the impact. 
  • In addition, the geospatial division may stay subdued by the weak A$, which tends to correlate with China’s economy. 

Sound financial position 

  • We believe that the sound financial position could help Boustead to navigate the downcycle with flexibility. 
  • Excluding those parked under the separately listed BP, Boustead has zero debt, S$136m cash and S$40m available-for-sale financial assets as at end-1Q16. 
  • The cash could be earmarked for potential M&As when the right opportunity emerges.

Roy CHEN | William TNG CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-13
HOLD Maintain HOLD 1.06 Down 1.57