Boustead Projects Limited - CIMB Research 2017-03-24: Building projects runway

Boustead Projects Limited - CIMB Research 2017-03-24: Building projects runway BOUSTEAD PROJECTS LIMITED AVM.SI

Boustead Projects Limited - Building projects runway

  • Boustead Projects (BP) is a reputable high-spec facilities designer and builder behind big names such as Rolls Royce, Airbus, Applied Materials and GSK.
  • It also has a portfolio of 18 leasehold facilities to counter construction cyclicality, generating c.S$20m operating cashflow p.a or c.60% of group’s EBITDA.
  • Asset size (including projects under development) is on track to hit its targeted critical mass for a REIT listing potentially by FY3/20-21F, based on our estimate.
  • Attractive valuation at 0.47x FY18F RNAV; initiate coverage with Add and S$1.04 target price based on 40% discount to FY3/18F RNAV of S$1.73 per share.

Market leader in the niche industrial design-and-build (D&B) field 

  • Boustead Projects Limited (BP) is a market leader in the industrial real estate D&B field, with a proven track record in the delivery of high-spec built-to-suit industrial facilities to MNCs and local customers across industries including aerospace, pharmaceutical, high-tech manufacturing and logistics. 
  • Its past customers include Airbus, Rolls-Royce, IBM, Applied Materials, P&G, GSK and DB Schenker. 
  • Current order book stands at S$170m as of end-3QFY17.

18 leasehold properties provide income stability 

  • BP’s leasehold portfolio comprises 18 industrial facilities in Singapore (16 completed, two under development) with total GFA of c.238k sq m. 
  • Key attributes of the portfolio include: 
    1. 17 out of the 18 facilities being built-to-suit buildings with 15 occupied by single tenants; 
    2. over 80% GFA caters to MNCs from high value industries (transport, logistics, healthcare, technology, etc) and 
    3. long WALE of c.7 years. 
  • We expect the portfolio to bring in steady operating cash flow of S$20m-23m p.a. in FY17-19F.

Partnering reputable players to drive local and regional expansion 

  • The partnership with mid-eastern sovereign fund ADIC since 2014 has relieved BP from capital constraints to bid for sizeable projects. Notable projects won by the partnership included recently announced Mediapolis Development worth c.S$160m and GSK project S$130m in Mar 2015. 
  • In 2016, BP also formed strategic framework with China SOE, Guangdong New Co-Op Agricultural Products Wholesale Centre Investments to develop agricultural and commodity logistic projects in China.

More attractive valuation than REITs and developers, with net cash 

  • BP trades at a 0.47x FY18F RNAV, vs Singapore industrial REITs of 1.02x RNAV and developers at 0.68x RNAV. BP’s CY17F/18F core EV/EBITDA of 4.6x/3.8x is much lower than REITs’ average of 16.9x/16.1x. 
  • Our target price of S$1.04 is based on a 40% discount to FY3/18F RNAV of S$1.73 per share. BP has S$8.6m net cash as at 3Q17.

REIT launch is the biggest potential catalyst in the medium term 

  • The recent project wins (Mediapolis and Continental phase III) will bring the total asset base to c.S$750m by FY19F, marking a significant step of BP towards its goal of an eventual REIT listing. 
  • Factoring in c.2 years of gestation, we believe BP could be ready for a REIT listing by FY20-21F. This could be expedited, in our view, if BP pools its portfolio with private property owners. We estimate a potential REIT launch could re-rate BP to S$1.30-1.39 (based on 20-25% discount to FY18F RNAV).

4QFY17F is likely to be a bright spot for net profit 

  • We expect BP to recognise one-off gains of S$13.7m in 4QFY17F for: 
    1. the disposal of its TripleOne Somerset stake and 
    2. compensation from an early lease termination. 
  • We forecast the one-off gains to boost BP’s FY17F net profit to S$37.8m vs FY16’s $22.9m.
  • Any special dividend should be a positive surprise. 
  • Stiffer competition is a key risk.

Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | 2017-03-24
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