Boustead Singapore Ltd - CIMB Research 2017-05-23: Solid FY17 Performance Amid Challenging Landscape

BOUSTEAD SINGAPORE LIMITED F9D.SI

Boustead Singapore Ltd - Solid FY17 Performance Amid Challenging Landscape

FY3/17 core net profit beat our expectation, at 118% of our forecast. The surprise was due to a still profitable energy division vs. our forecasted slight loss.
FY17 reported net profit of S$33.3m was boosted by one-off gains at BP level.
Excluding one-offs, group core net profit fell 11% yoy in FY17.

Pure cash position of S$163m at BSL level (equivalent to 35% of group market cap). FY17 DPS of 2 Scts translates to a 2.3% yield.
Maintain Add call with higher target price of S$0.96, as we roll forward to base our valuation on a 20% discount to FY18F SOP.

Boustead Singapore Ltd’s (BSL) FY17 core net profit came in above our expectation, at 118% of our forecast. The surprise was mainly due to the still profitable energy division vs. our projected slight loss.
Group FY17 reported net profit of S$33.3m (FY16: S$28.2m) was boosted mainly by the one-off gains at its 51%-owned Boustead Projects (BP) level.
Excluding all one-offs, group core net profit fell 11% yoy to S$26.4m in FY17 (FY16: S$29.7m).
BSL declared a final DPS of 1.5 Scts, raising FY17 DPS to 2 Scts.

BP’s FY17 core net profit was in line with our expectation at S$27.1m (FY16: S$26.4m) while its reported profit of S$36.1m was boosted by one-off gains from
1. the disposal of its TripleOne Somerset stake, and
2. compensation for an early lease termination by Ausgroup.
We remain cautious on the Singapore industrial property sector outlook, and have factored in a 26% yoy decline in BP’s FY18F core net profit, given that its design & build order book currently stands at a five-year low of S$146m.

The positive, albeit substantially lower yoy, pretax profit of S$1.4m (excluding a S$2.8m FX gain) is a happy surprise, as we have previously wrote off profit expectations for the division for FY17-19F.
In order to navigate the challenging landscape, management has adopted stringent cost controls, including right-sizing its workforce to less than half of its peak level.
We believe the risk of the energy division running into big losses is limited, given the business’s negligible capex needs and scalable overhead expenses.

The strong demand for Esri-technology in Australia and Southeast Asia continued to drive the division’s revenue and pretax profit growth, up 5% and 10% yoy, respectively, in FY17.
We continue to look at a mid-to-high single-digit pretax profit growth for the division in FY18-19F, underpinned by the growing demand from the national defence and smart city/nation initiatives across the region.

We maintain our Add call on BSL, with higher target price of S$0.96, as we roll forward base our valuation on a 20% discount to FY18F SOP.
For conservative purposes, we have fully written off the valuation for the energy division.
Given the strong pure cash position of S$163m at BSL level as at end-FY17, management is prudently looking for potential M&A opportunities. Successful M&A execution is a potential re-rating catalyst, while adverse FX fluctuation is a key risk.

William TNG CFA CIMB Research | Roy CHEN CFA CIMB Research | http://research.itradecimb.com/ 2017-05-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.96 Up 0.850