BOUSTEAD SINGAPORE LIMITED
F9D.SI
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
- the protracted challenging business environment for its energy division and
- 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
1.06
Down
1.57
