Boustead Singapore Ltd - CIMB Research 2015-12-09: To inject new energy

Boustead Singapore Ltd - CIMB Research 2015-12-09: To inject new energy BOUSTEAD SINGAPORE LIMITED F9D.SI 

Boustead Singapore Ltd - To inject new energy 

  • Healthy order book of S$233m for industrial real estate solutions segment; slower energy-related engineering order book of S$120m. 
  • Resilient growth outlook for geospatial technology division backed by demand. 
  • Sound financial position to navigate oil & gas downcycle with flexibility. 
  • Proposed acquisition of a distressed energy asset in Indonesia. 
  • Maintain Add rating with a target price of S$1.06 (25% discount to FY3/16 RNAV). 

■ Real estate: remain focused on leasehold portfolio expansion 

  • We expect BSL’s 51%-owned subsidiary Boustead Project (BP) to continue to expand its industrial leasehold portfolio in the next 2-3 years towards an eventual REIT-listing. 
  • We see no capital restriction for BP to pursue this goal, given its S$147m cash on hand (end-2QFY16). 
  • The joint development partnership with ADIC (a Middle East sovereign wealth fund) will also help reduce its capital outlay substantially. 
  • Besides the leasing business, BP has a healthy design-and-build order book of S$233m as at end-2Q16. 

■ Energy-related engineering: already in the midst of winter 

  • We expect a subdued outlook of the group’s energy-related engineering division in FY16 and possibly FY17, in view of depressed global energy prices. The division’s current order book (including that for wastewater engineering) of S$120m is close to a 5-year low. 
  • Management expects continued delays in the award of sizeable energy contracts and likely lower project margins in the rest of FY16. That said, BSL should be able to navigate the oil & gas downcycle with flexibility, given its strong net cash position. 

■ Geospatial: expect upbeat profit growth to be backed by demand 

  • We expect the geospatial technology division to continue delivering high single-digit profit growth in FY16-17, driven by the firm demand for the Esri technology, which is the preferred geospatial technology (c.40% global market share) by governments across the region for their national spatial data infrastructure system. 
  • Boustead has the exclusive distributorship for Esri technology in Australia and the ASEAN region, and remains Esri’s top three best-performing distributors globally. 

■ Buying distressed Indonesian energy asset 

  • BSL recently announced it has, via a 83%-consortium, entered into an agreement with ASX-listed 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. 

■ Very strong balance sheet; wait for the next bigger move 

  • As at end-2QFY3/16, the group had a pure cash position of S$144m at BSL level, representing 32% of its market cap (51%-owned BP has minimum net debt of S$15m that is backed by its mature industrial real estate portfolio). 
  • We believe the strong cash position will allow BSL to capitalise on the potential consolidation in the oil and gas sector, when the right opportunities arise. 
  • Our FY16 SOP estimate stands at S$1.19 per share, even if we fully write off the valuation for the energy division.

William TNG CFA CIMB Securities | Roy CHEN CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.19 Same 1.19