Boustead Singapore Ltd - CIMB Research 2016-02-16: Negatives priced in

Boustead Singapore Ltd - CIMB Research 2016-02-16: Negatives priced in BOUSTEAD SINGAPORE LIMITED F9D.SI 

Boustead Singapore Ltd - Negatives priced in 

  • 9M16 in line; core net profit at 80% of our FY16 forecast; NP fell 29% yoy in 3Q16. 
  • Healthy order book of S$228m for industrial real estate solutions division; slower energy-related engineering order book of S$115m. 
  • Pure cash position of S$147m at BSL level (38% of market cap); minimal net debt at separately-listed BP level, backed by a mature industrial leasehold portfolio. 
  • We maintain Add with a lower target price of S$0.85 based on a 25% discount to FY16 SOP (we have written off the valuation for BSL’s energy division in full). 

Lower 3Q profit within expectations 

  • Boustead Singapore Ltd’s (BSL) net profit fell 29% yoy to S$7.5m in 3Q16 (3Q15: S$10.5m) due to lower profit from the energy-related engineering division and geospatial technology division, partly offset by higher profit from the industrial real estate solutions division. 
  • 3Q16 revenue fell 20% yoy to S$142m on lower revenue from all segments. 

Industrial real estate: gaining traction in Malaysia 

  • Net profit of Boustead Projects (BP), the group’s 51%-owned industrial real estate arm, surged 165% yoy to S$7.2m in 3Q16 (3Q15: S$2.7m) due to an expanded industrial leasehold portfolio and a higher design-and-build project margin. 
  • BP secured S$70m worth of contracts in the last three months, including one data centre project in Singapore and three industrial facility projects in Malaysia. 
  • Order book stands at a healthy level of S$228m as of today vs. S$233m in 2Q16. 

Energy-related engineering: still in winter 

  • Pre-tax profit of BSL’s energy-related engineering division slumped 85% yoy to S$1.1m in 3Q16 (3Q15: S$7.4m), due to poor performance of the upstream oil & gas, water and wastewater engineering and solid waste energy recovery businesses. 
  • Management expects further delay in the award of sizeable contracts, given the depressed global oil prices. 
  • The division’s order book is currently at S$115m, the lowest level since FY08. 

Geospatial technology: firm demand, but marred by weak A$ 

  • Despite the firm demand for Esri Technology across Australia and South East Asia, the pre-tax profit of the division fell 30% yoy to S$5.0m in 3Q16 (3Q15: S$7.1m), due to the significantly weakened Aussie dollar against the US dollar (70-75% of sales were denominated in A$ while 40-50% of costs were in US$). 
  • We believe that the current level of profit for the division is sustainable, given the stablising FX rates. 
  • We still expect high single-digit profit growth for the division in the medium term, driven by demand. 

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

  • Our FY17-18 EPS forecasts are cut by 37%, as we lower our expectations for BSL’s energy profitability to the breakeven level to reflect the sluggish global oil & gas sector. 
  • We think big losses for the division are unlikely, given that BSL is a service provider with low overheads and capex. 
  • Our new target price of S$0.85 is conservatively based on a 25% discount to FY16 SOP, with valuation for the energy division fully written off. 
  • BSL is eyeing potential M&A opportunities, backed by a pure cash position of S$147m. 

William TNG CFA CIMB Securities | Roy CHEN CIMB Securities | http://research.itradecimb.com/ 2016-02-16
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.85 Down 1.06