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).

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.

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.

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.

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.

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