Boustead Singapore Ltd - CIMB Research 2015-11-16: Pocket the value while waiting for a boost

Boustead Singapore Ltd - CIMB Research 2015-11-16: Pocket the value while waiting for a boost BOUSTEAD SINGAPORE LIMITED F9D.SI 

Boustead Singapore Ltd - Pocket the value while waiting for a boost 

  • 1HFY3/16 broadly in line; core net profit at 57% of our FY16F. 
  • Healthy order book of S$233m for industrial real estate solutions segment; slower energy related engineering order book of S$120m. 
  • Pure cash position of S$144m at BSL level (32% of market cap); minimal net debt at 51%-owned BP level, backed by mature industrial real estate portfolio. 
  • The group proposed the acquisition of an energy asset in Indonesia. 
  • Upgrade from Hold to Add, with intact TP of S$1.06 (25% discount to FY16 SOP). 

■ Lower 2Q16 results not unexpected 

  • 2QFY16 revenue fell 11% yoy to S$115m (2Q15: S$130m), due to the lower contribution of S$35m from energy engineering division (2Q15: S$52m). 
  • Real estate solutions and geospatial divisions’ revenues largely sustained yoy, at S$54m and S$26m respectively (2Q15: S$51m and S$26m). 
  • Adjusted for the 48.8% demerger of Boustead Projects (BP), 2Q group core net profit fell 29% yoy due mainly to the lower profitability of energy related engineering and industrial real estate businesses. 

■ Order book relatively healthy, though potentially lower margin 

  • The group’s order backlog (as at end-2Q16 plus new orders since) remained relatively healthy at S$353m, including S$120m for energy and S$233m for industrial real estate. Management expects continued delays in the award of sizeable energy contracts during the rest of FY16 and likely lower project margins, given the imbalance of demand and supply in the global oil and gas industry. 

■ Respectable geospatial profit growth, despite hit by weak A$ 

  • In 2QFY16, geospatial division delivered a respectable pretax profit growth of 12% yoy on the back of firm demand for the Esri technology, the preferred geospatial technology (c.40% global market share) by governments across the region for the implementation of their national spatial data infrastructure system. 
  • The growth was achieved against strong currency headwinds, especially the significantly weakened A$ vs US$ (c.75% of sales made in A$, while cost equivalent to 40-50% of sales in US$). 

■ Buying distressed Indonesian energy asset 

  • BSL announced it has, via a 83%-consortium, entered into an agreement with ASXlisted Triangle Energy, to acquire the latter’s 100% interest in a 992 sq km natural gas concession in Aceh, Sumatra, Indonesia. 
  • The group believes the purchase price of US$3.9m (1.2% of group market cap) has great value and the downside risks of the acquisition can be comfortably managed. 
  • Subject to Triangle’s shareholder approval, the deal would enable BSL to shift into upstream ownership and production of natural gas. 

■ Limited valuation downside; wait for the next bigger move 

  • Out of our FY16 SOP estimate of S$1.41 per share, only 15.3% or S$0.22 is attributable to the energy division; the rest comes from geospatial technology (30.9%), real estate (23.8%), cash position (20%) and other investments (10%). ]That is to say - even with the valuation for energy division fully written-off - BSL’s current share price is still at 28% discount to our FY16 SOP estimate. 
  • With its cash position of S$144m (end-2Q16), BSL is in good stead to capitalise on the potential consolidation in the O&G sector.

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2015-11-16
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