Boustead Singapore Ltd - CGS-CIMB Research 2019-09-23: Bouncing Back To Glory


Boustead Singapore Ltd - Bouncing Back To Glory

  • BOUSTEAD SINGAPORE LIMITED (SGX:F9D) is an engineering company focusing on industrial real estate and energy; it also holds exclusive distributorship of Esri’s GIS for 8 countries.
  • The group has a bright overall outlook, with order book backlog of both its real estate and energy segments at a 5-year high as of end-Jun 2019.
  • Meanwhile, we believe its geospatial technology business continues to enjoy strong growth potential, riding on the “smart city” wave.
  • Initiate coverage with an ADD rating. Potential REIT launch and further order wins in energy segment are potential catalysts.


  • BOUSTEAD SINGAPORE (SGX:F9D) was established in 1828 and listed on the Singapore Exchange Mainboard on 1975. Its modern history can be traced to Chairman Mr. Wong Fong Fui’s control of the company since 1996.
  • The Group operates four main segments, namely
    1. industrial real estate solutions,
    2. geospatial technology,
    3. energy-related engineering, and
    4. healthcare technology.

Industrial real estate solutions - Boustead Project

  • Boustead Singapore’s industrial real estate segment is operated by BOUSTEAD PROJECTS (SGX:AVM), which was established in 1996. Boustead Project was publicly listed on 30 Apr 2015 through a spin-off, with 49% of Boustead Project’s equity distributed to Boustead Singapore’s shareholders in the form of dividend-in-specie. Currently, Boustead Singapore owns a 52.8% controlling stake in Boustead Project.
  • Boustead Project’s wholly-owned subsidiary Boustead Projects E&C Pte Ltd is approved by Singapore’s Building and Construction Authority for Grade CW01-A1 and General Builder Class One Licence to execute building construction contracts of unlimited value. It has in-depth experience in designing and constructing custom-built facilities, covering the aerospace, business park and commercial, food, healthcare and pharmaceutical, high-tech manufacturing, logistics, research & development, technology and waste management industries, among others.
  • Over the past few years, Boustead Project has steadily built up its capabilities, technological know-how and competencies, and moved up the value chain. It aims to be able to eventually bid for higher-value contracts such as construction of data centres. Boustead Project also intends to target more public-sector projects in Singapore, building on its recent wins from JTC Corporation (Unlisted) and Surbana Jurong Pte Ltd (Unlisted).

Key business activities:

  • Design and build (D&B) - Boustead Project offers turnkey solutions for custom-built smart eco-sustainable business park and industrial developments. Boustead Project has a proven track record in the delivery of high-specification built-to-suit industrial facilities to MNCs and local enterprises in a wide spectrum of industries. Since its inception till end-FY19, Boustead Project has constructed and developed more than 3m sq m of real estate regionally, in Singapore, China, Malaysia and Vietnam. Being a knowledge-based business with all the construction works carried out by subcontractors, the D&B business of Boustead Project carries very little fixed assets and does not have large overhead expenses. This allows Boustead Project to manage its costs efficiently. Another advantage of the D&B model, in our view, is the self-financing feature of its projects – Boustead Project typically receives upfront payment from clients before it pays its subcontractors based on work completed.
  • Design, build and lease (DB&L) - Besides D&B, clients are also offered a hybrid methodology in which Boustead Project assumes dual roles as the developer-owner of the properties, along with that of a design-and-build partner to deliver custom-built developments typically leased to clients under long-term agreements. This option allows clients to free up capital that will otherwise be attached to the real estate, and to focus on their core businesses. With this arrangement, Boustead Project has built up an industrial leasehold portfolio that generates stable and recurring rental income. Boustead Project’s capabilities have since expanded to include asset management and facilities management services.

Competitive strengths:

  • Boustead Project is a pioneering force in Singapore’s industrial real estate sector D&B field, through its consistent investment in advanced capabilities with industry 4.0 transformation standards and market leading methodologies. Over the past two decades, Boustead Project’s business model has transformed from design-and-build (1996), to design-build-and-lease (2003), to advanced eco-sustainable buildings (2009), and to integrated digital delivery (IDD) (2017).
  • IDD deploys digitalisation and cloud-based technologies, and transformative methodologies like 7D building information modelling (BIM), virtual design and construction (VDC), and design for manufacturing and assembly (DfMA).This greatly improves its data governance, with digitalisation a driving force in the institutionalisation of data, processes, project management and standards.
  • Through the use of BIM, a project is created virtually to represent the real development in every aspect, which enables more accurate forecasting and management of processes, and thereafter is used in the building's facilities management until the very end of the building’s multi-decade lifecycle.
  • By implementing building information modelling, all involved parties can be kept on the same page during construction projects. These projects can then benefit from a clear oversight of increasing complexities while maintaining flexibility. We think that using such a model also ensures that all requirements for the project are considered and coordinated during the conception phase. Within a BIM model, there are multiple dimensions, each relating to a certain data set within, on top of the first 3D which relates to the creation of visualisation of the building:
    • 4D relates to scheduling information such as when an element will be built.
    • 5D is cost estimating for each aspect of the building.
    • 6D deals with the sustainability targets within a building, such as energy use.
    • 7D covers the handover process to the building owner, detailing accurate facilities management and asset management data.
  • Complementing this, Boustead Project uses drone technology to monitor construction activities, providing greater aerial visibility on the project through its entire lifecycle, and feeding back data to BIM to create a positive reinforcing loop. Along with technological implementations, Boustead Project is in close collaboration with precast concrete specialists to design extremely large prefabricated construction elements for industrial deployment, with the aim of achieving productivity gains that it believes will likely be returned incrementally through lower costs and construction time.
  • Showcasing Boustead Project’s capabilities is its landmark project completed in Oct 2018. The ALICE@Mediapolis (ALICE) is a smart business park development in Singapore offering 11 floors of multi-tenanted space for the info communications and technology industries. From 7D BIM to cover the entirety of the building’s multi-decade lifecycle, to drone surveillance, to an integrated front-end smart mobile app for tenants tied directly to back-end building management systems, ALICE presents many firsts in the industry. In addition, large-scale prefabricated bathroom units (PBUs) using prefabricated, prefinished volumetric construction were also adopted in the construction of ALICE, moving beyond the norm of small PBUs in the residential sector.
  • We believe these advanced capabilities enabled Boustead Project to secure mega project wins in 2018, including the S$242m JTC multi-storey recycling facility and S$200m Surbana Jurong Campus. These technologies could also allow Boustead Project to enjoy productivity gains through quicker project turnaround and cost savings, in our view. We think the additional cost-savings could lead to Boustead Project recording incremental construction and project management profits upon the completion of the D&B projects, boosting gross profit margin (GPM) from high-single-digit to low-teens.

Key assets

  • As at end-Jun 2019, Boustead Project’s leasehold portfolio comprised 21 industrial properties in Singapore with a total GFA of c.370k sq m – 17 completed properties and four properties under development.
  • Out of the 21 facilities, 12 are Boustead Project’s wholly-owned properties and nine are held by JVs (Boustead Project’s stake in the JVs range from 30% to 51%).
  • Outside Singapore, Boustead Project owns three plots of industrial properties in Wuxi Boustead Industrial Development, China (13,940 sq m), and an industrial park in Vietnam (33,900 sq m). It also owns a 35% stake in a warehouse located in Port of Tanjung Pelepas, Iskandar Malaysia (24,105 sq m).

Geospatial technology

  • Boustead Singapore’s geospatial technology arm is represented by two 88.2%-owned subsidiaries, Esri Australia Pte Ltd (Unlisted) and Esri South Asia Pte Ltd (Unlisted), which are the exclusive distributors of the Esri geographic information system (GIS) in eight countries – Australia, Singapore, Malaysia, Indonesia, Brunei, Bangladesh, Papua New Guinea and Timor-Leste. The exclusive distributorship is a long lasting one, which began since 1977 (renewable every three years). To date, it has established a client base of more than 13,000 organisations spanning the government and private sectors.
  • Approximately 80% of Boustead Singapore’s geospatial segment revenue is derived from national, state and municipal government agencies in Australia, Singapore, Malaysia and Indonesia. The remaining c.20% comes from the private sector across industries including engineering, mining, O&G, utilities, financial/insurance, and retail/telecommunications corporations. Notable clients include BHP Billiton, Boeing, Petronas, Veritas Asia and hundreds of key government ministries and agencies, as well as tertiary education institutions in Australia, Singapore, Malaysia and Indonesia.
  • We believe customers have high switching costs, as Esri’s GIS solutions is the common data mapping platform used across agencies and across user interface platforms. Esri technology forms the backbone of the Spatial Data Infrastructures in Australia, Indonesia and Malaysia. In Singapore, the Urban Redevelopment Authority (URA) has been employing the Esri GIS platform in strategic planning, and land and property management since 1995. According to management, c.50% of the segment revenue can be considered recurring, where clients are charged for usage and maintenance or enhancement services.

Background of Esri Inc (Unlisted)

  • Founded in 1969, Esri Inc is the global market leader in geographic information system software, location intelligence, and mapping. According to a market research report by ARC Advisory, Esri had c.43% share of the GIS software market worldwide in 2014. Today, Esri software is deployed in more than 350,000 organisations including the world's largest cities, most national governments, 75% of Fortune 500 companies, and more than 7,000 colleges and universities. To maintain its technological lead, Esri reinvests 30% of its annual revenue into research and development.

Esri GIS solutions

  • Esri’s GIS solutions help create technologically-enabled maps, which enables individuals from all professions to identify and capitalise on the value of location by linking geographic information with descriptive information. The maps generated contain numerous layers of information, resulting in countless method of analysing, presenting and managing how information interacts with the geographic space in different dimensions and over the continuum of time. The information mapped by Esri GIC solutions reveal patterns, relationships and trends that are not readily apparent in charts and statistics generated in conventional spreadsheets or statistical packages, thus providing unique insights and facilitating in-depth analysis and strategic decision making.
  • Examples of GIS application include:
    1. Government (Homeland Security) – Resources and assets at the national, regional and local levels are used in emergency response in the areas of detection, risk assessment and mitigation, and prevention, preparedness, response and recovery. Utilised in both natural and human-induced disasters, Esri GIS solutions have merged into the common operating procedure for public safety and emergency response activities. City, country, state and federal-level agencies use Esri GIS solutions as a common framework for organising and sharing information, so as to ensure the safety of citizens and to safeguard public property.
    2. Business (retail) – Businesses maintain information about sales, customers, inventory, demographic profiles, and mailing lists, all of which have geographic locations. Business managers, marketing strategists, and professional planners increasingly rely on Esri GIS solutions to analyse, organise and present their business information. This helps the retailers in identifying customers, selecting new retail locations, managing inventories, and procuring resources.
    3. Natural resources (oil & gas) – Oil & gas exploration, hydrology harnessing, timber management and mining operations require sound assessment to steer growth into areas that can support it while preventing contamination of rivers or destruction of resources. The delicate balance between industrial development and environmental conservation requires sophisticated modelling and spatial analytical tools, which can be provided by Esri GIS solutions.

Energy related engineering

  • Boustead Singapore’s energy-related engineering can be segmented into three functional units:
    1. downstream oil & gas (O&G),
    2. upstream O&G, and
    3. water & wastewater engineering.

Downstream oil & gas (c.65% segment revenue contribution (as at FY19)):

  • Boustead Singapore’s downstream O&G segment is represented by its wholly-owned subsidiary Boustead International Heaters (BIH), which is a leading global specialist in the design, engineering, and supply of direct-fired process heater systems, waste heat recovery units and associated equipment for the global O&G, petrochemical and energy industries. BIH has a strong presence in Europe, the Middle East, North America, South America and the Asia Pacific. BIH’s clients include global engineering corporations, and global energy corporations including BASF (BASF SE, Not Rated), BHP Group (BHP LN, Not Rated), Petronas (Unlisted) and Saudi Aramco (Unlisted).

Upstream oil & gas (c.20% segment revenue contribution (as at FY19)):

  • Boustead Singapore’s upstream O&G segment is represented by its 94.4%-owned subsidiary Boustead Controls & Electrics (BC&E) (Unlisted). BC&E is a regional leader in the design, engineering and supply of niche process control systems, wellhead control systems and integrated control & safety shutdown systems for the upstream O&G industries. Its systems typically help control the wellhead and are also utilised on production platforms, and floating, production, storage and offload (FPSO) vessels, where they help to shut down production process safely while ensuring that downtime and production loss are minimised. Geographically, BC&E’s traditional key markets are the Middle East and South Asia. Its client base includes large multinationals like Saudi Aramco (Unlisted) and CNOOC (883 HK, Not Rated).

Water and wastewater engineering (c.15% segment revenue contribution (as at FY19)):

  • Boustead Singapore’s water and wastewater engineering segment is represented by its wholly-owned subsidiary Boustead Salcon Water Solutions (BSWS). BSWS is a fully integrated engineering, procurement, construction and maintenance contractor capable of designing, constructing and supplying water and wastewater treatment plants. It is pre-qualified by many of the global engineering corporations. To sidestep the intensive competition in the traditional mainstream water solutions industry, BSWS focuses its business in the energy
  • sector, where it has a strong reputation, along with the O&G offshore sector. Geographically, BSWS has presence in the Asia Pacific and Middle East. Southeast Asia is the most important market for BSWS, contributing more than 50% of its revenue in FY19. Its client base includes global engineering corporations and global energy corporations including BP PLC (BP LN, Not Rated) and Petronas (Unlisted).

Healthcare technology

  • Healthcare is a new vertical for Boustead Singapore. It acquired a 100% stake in White Rock Incorporation (WRI) in May 2018 for S$18.9m. WRI is a provider of niche innovative medical solutions that address age-related chronic diseases and mobility issues, with a focus on rehabilitative care, sleep care and sports science in Asia Pacific.

Key business activities:

  • Technology distribution – Representing c.80% of segment revenue, WRI’s technology distribution business offers rehabilitation solutions (including exoskeleton, anti-gravity treadmill etc.) to promote faster recovery. This is an institutional focused business which targets healthcare institutions, including community hospitals, nursing homes and outpatient centres. The products also serve to improve productivity of physiotherapists, allowing them to free up time to serve more patients.
  • Service-led – Representing c.20% of segment revenue, WRI’s service-led business includes ripple mattress rental system, sleep diagnostic, vital signs monitoring, and compression therapy. WRI’s SleepImage sleep diagnostic is based on cardiopulmonary coupling technology developed by an affiliate of the Harvard Medical School, which can be used to conduct sleep screening to watch out for signs of chronic obstructive pulmonary disease, stroke and diabetes. WRI has the exclusive rights to operate this business in Asia. As a bundled solution, WRI also distributes Transcend’s (Unlisted) range of portable continuous positive airway pressure (CPAP) products which can be used to treat obstructive sleep apnoea and prevent patients from further development of chronic diseases.


Industrial real estate solutions

Leading building technologies enable Boustead Project to clinch large project wins from both public and private sectors.

  • Through continuous investments, Boustead Project has elevated its market-leading technical capabilities to capture opportunities in highly-advanced industries and ground-breaking developments. We think these capabilities have helped Boustead Project secure two mega contracts over the past year (S$242m JTC multi-storey recycling facility and S$200m Surbana Jurong Campus), lifting its order book to an all-time high of S$660m as at end-FY3/19 (FY18: S$218m). We project Boustead Singapore to record S$330m (+60.9% y-o-y) in D&B revenue in FY20F.

ALICE@Mediapolis is a boost to Boustead Project’s leasehold portfolio.

  • ALICE, dubbed Singapore’s first truly smart business park development, was completed in Oct 2018, and is currently undergoing asset stabilisation. The property accounts for c.24% of Boustead Project’s leasehold portfolio total market valuation (S$822m as at end- FY3/19, including wholly-owned and jointly-owned properties). We forecast the ramp-up of ALICE’s occupancy rate to drive Boustead Project’s leasing segment pretax profit CAGR to 9.5% in FY19-22F. As at end-Jun 2019, 80% of ALICE’s net leasable area was either committed or under advanced negotiations.

Potential REIT launch could unlock shareholder value.

  • We think Boustead Project could be ready for a REIT listing as early as CY20F. This could unlock significant value, as Boustead Project’s investment properties are accounted for at cost less depreciation.
  • Key benefits of the potential REIT listing, in our view, include:
    • Asset monetisation associated with the REIT listing could unlock significant shareholder value, potentially through a special dividend;
    • Establishment of a REIT platform could accelerate Boustead Project’s future capital recycling;
    • Boustead Project could act as the REIT manager and receive recurring management fees.
  • Boustead Project’s management is targeting an S$1bn total asset size (including properties held by JV) as the critical mass for the REIT launch. Given an estimated total development cost of c.S$260m for the upcoming projects, we believe Boustead Project’s total asset size could meet the launch target by CY20F.
  • We believe that other precedent conditions for the REIT listing include raising its overall portfolio occupancy (currently at c.94%) to a higher level, e.g. above 95%. This could be achieved by:
    1. improving the occupancy of Boustead Project’s recently completed ALICE@Mediapolis, and
    2. securing a new anchor tenant for the 36 Tuas Road premise. As at end-Jun 2019, 80% of ALICE’s net leasable area is either committed or under advanced negotiations.
  • For the properties under construction, we expect the Braddell Road development to achieve optimal occupancy at a faster rate compared to ALICE@Mediapolis, given its good location and asset type (light industrial). Overall, we believe Boustead Project should be ready for a REIT launch by CY20F. Other possibilities that we think Boustead Project could take to accelerate its REIT launch include pooling its assets with those of a private industrial property owner.

Geospatial technology

  • Boustead Singapore’s geospatial segment revenue is derived from
    1. software sales,
    2. maintenance services,
    3. professional consulting and implementation services, and
    4. training.
  • About 50% of the segment revenue is recurring, and likely to increase with the scale of use. With the world trending towards an era ushered by big data, internet of things (IoT) and smart cities, we believe strong expansion potential lies for Boustead Singapore’s geospatial segment, and forecast segment revenue CAGR of 5.8% over FY19-22F, to be driven by
    1. expanding the consumption of software and services of existing clients, and
    2. cultivating new areas of growth with potential clients who are just beginning to realise the value of GIS technology.

“Smart city” and “smart government” concepts to drive demand for GIS capabilities.

  • The value of the GIS market in Asia Pacific is expected to grow at a CAGR of 15% between 2018 to 2024F, according to a study by Global Market Insights. This is mainly attributable to factors such as rising urbanisation and development of smart cities and various efforts taken by the government agencies to strengthen spatial infrastructure of the satellite communication (satcom) industry which further triggers the need to have more advanced GPS systems and navigation platforms to capture the location-based data. The ‘smart government’ concept is also complementing the smart city approach in driving demand for GIS capabilities, in our view. These trends are driving agencies across different levels of government to invest significantly into GIS solutions to translate smart government principles into tangible transformative actions.
  • In Australia (60-70% revenue contribution to Boustead Singapore’s geospatial segment (as at FY19)), we expect opportunities to flow from Geocentric Datum of Australia 2020 (GDA2020), Australia’s new official datum. GDA2020 seeks to accurately align Australia’s national coordinates with global satellite positioning systems to enable smart devices and other positioning technologies to accurately locate mapped features. We also expect smart city implementations to underpin demand for Esri’s GIS solutions. According to management, Esri is currently involved in 30-40 smart city implementation projects in Australia. In Jul 2018, Esri launched its local government access (LGA) programme, providing entry-level access to Esri’s ArcGIS. We expect this to help Esri better reach a new tier of local governments that have previously been considered out-of-reach due to their budget and resourcing constraints.
  • In Singapore (15-20% revenue contribution to Boustead Singapore’s geospatial segment (as at FY19), we expect the smart government concept to continue driving demand for GIS capabilities, as Singapore pushes ahead to be a smart city leader. Government agencies including the Land Transport Authority (LTA), Public Utilities Board (PUB), Singapore Health and Urban Redevelopment Authority (URA) leverage Esri’s ArcGIS to underpin intelligent applications and smart workflows.

Establishing a foothold in new sectors.

  • We see increasing traction of customer gains in sectors including architecture, engineering and construction (AEC), telecommunications, and banking, and expect the trend to continue in the coming years. In the AEC space, we expect further adoption of GIS solutions in both private and public sector projects. Esri’s partnership with Autodesk (established in Nov 2017) enabled integration of GIS and building information modelling (BIM) technologies. This helped to create a broader and deeper understanding of the infrastructure in the larger context of both built and natural environments, enabling earlier and better-informed decision-making, improved stakeholder engagement, and accelerated approval processes. A case study includes Malaysia’s Mass Rapid Transit Corporation’s use of the technology to optimise designs, enhance project execution and reduce risk exposure in the creation of its upcoming Sungai Buloh–Serdang–Putrajaya MRT Line. In the banking space, GIS solutions also showed the ability to optimise the performance of branch networks and improve service quality.

Energy-related engineering

Boustead likely to be a beneficiary of O&G sector recovery, in our view.

  • Rystad Energy forecasts global offshore capex CAGR of 9.7% over 2018-25F, as oil prices have stabilised, increasing the willingness of exploration and production (E&P) companies to invest in new offshore projects. We think this may lead to more drilling work (both exploration and production drilling), and the sanctioning of new developments that may involve the fabrication of new fixed production platforms, central processing platforms (CPP), wellhead platforms (WHP) or floating, production, storage and offload (FPSO) vessels, the transportation and installation of offshore structures, and the pipelines required to link the offshore production infrastructure with the onshore refining/processing infrastructure.
  • According to Bloomberg New Energy Finance, major downstream capacity expansion projects are also coming online around the world; it expects global oil refining capacity to increase 15% over 2018-25F, reaching 116 million barrels per day (MMbd) in 2025F. Boustead Singapore’s management is also observing an increasing number of projects progressing towards final investment decisions with global O&G industries adjusting to an environment of lower crude oil prices. We think Boustead Singapore’s prequalified status with a number of global engineering, procurement and construction (EPC) contractors will allow it to capitalise on the rising O&G spending, and forecast Boustead Singapore’s energy-related engineering revenue to grow at a CAGR of 12.7% over FY19-22F.

Capturing opportunities in brownfield projects.

  • While some major O&G corporations are still deferring investment decisions on greenfield developments, they are still investing in smaller, more cost-effective refurbishment and upgrading projects (brownfield projects) that have shorter payback periods. We believe this could open up opportunities for Boustead Singapore, as it further diversifies its activities from traditional greenfield developments (typically managed by EPC companies) to brownfield projects which are directly procured by end-users, and contributes higher margins. According to management, the relatively smaller scope and size of brownfield projects tend to fall outside the usual scope of EPC corporations, allowing Boustead Singapore to directly engage with and provide solutions that address the aftermarket needs of end-user clients.

FY3/20F set to be a strong year, buoyed by a strong order book.

  • In Aug 2019, BIH announced that it has secured a c.S$100m contract for the design, engineering and supply of waste heat recovery units (WHRUs) for a major energy infrastructure development in Europe. With this contract win, Boustead Singapore’s engineering segment order wins YTD in FY20F rose to S$161m, a 5-year high. We project its energy-related engineering segment to record S$133m revenue in FY20F (+30% y-o-y).

Healthcare technology

To benefit from aging population and increasing number of patients who need rehabilitation.

  • We expect the aging population trend to continue to drive the growth of the orthopaedic and rehabilitation products market. Older people are more likely to develop conditions that need rehabilitation, physical therapy or orthopaedic surgery than the younger generation. The United Nations (UN) projects that the global population of 60-year-olds and above will more than treble in the first half of the 21st century to reach approximately 2.0 billion by 2050F. Moreover, life expectancy is projected to rise from 70-years-old in 2010- 2015 to 77 in 2045-2050F globally, according to the UN. As the average life expectancy rises, the resulting growth of the elderly population creates a large demand for rehabilitative services and products.
  • We also expect the demand for orthopaedic rehabilitative products to be driven by the increasing prevalence of conditions such as degenerative joint diseases and cardio cerebrovascular diseases, as well as high incidence of sports injuries caused by the increasing popularity of sports among athletic enthusiasts globally.
  • WRI, as a provider of niche innovative medical solutions that address these issues, is poised to benefit from these trends, in our view, as its solutions are designed to address currently underserved or unmet needs.

Transitioning into a solutions provider offering bundled products and services.

  • Boustead Singapore’s healthcare segment is transitioning itself from a product-led model into a solutions provider with bundled products and services, with the goal of raising its proportion of recurring revenue. The goal is to minimise the lumpiness in the division’s revenue and profit recognition, and allow for more steady recurring income to flow through, reducing cyclicality.
  • Initiatives include:
    • Establishing functional assessment centres to assess pre-and post-surgical outcomes of chronic disease patients (e.g. orthopaedic diagnostic centres) as well as data building for prognostic purposes;
    • Providing sleep care management for chronic disease patients;
    • Providing efficacious and technology-driven mobility programmes for chronic disease patients;
    • Providing services that address the underserved or unmet needs of elderly patients in healthcare facilities such as compression therapy, vital signs monitoring and wound care;
    • Providing rehabilitation services, education and training to healthcare practitioners; and
    • Partnering principals to assemble and manufacture products that cater to the local requirements of Asian markets.
  • According to management, the healthcare division is in the final stages of setting up a diagnostic assessment centre for hospitals, targeted to run by the end of FY20F. WRI plans to run the centre for hospitals, providing them with services and equipment to assess patients’ needs, and then follow up with the provision of products and services catering to those needs.
  • We expect services to lead the segment’s revenue growth over the coming 3-5 years, and estimate Boustead Singapore’s overall healthcare segment to record revenue CAGR of 15.8% over FY19-22F.


Loss of franchise for Esri technology distribution

  • Boustead Singapore’s exclusive distributorship with Esri is subject to renewal every three years. A loss of the exclusive distributorship would impact Boustead Singapore’s earnings significantly, in our view. That said, we believe the probability of the distributorship being terminated is very small, given their long and established relationship (40 years), and Boustead Singapore’s excellent track record in driving sales.

Slowdown in industrial activity

  • Demand for industrial space is a function of industrial activity, which is subject to economic cycles. Deceleration in industrial activity could lead to sluggish new order wins. Boustead Singapore may also face stiffer competition from both international and local developers in the design-and-build space, which includes an increasing number of construction companies which are expanding into the industrial real estate segment. Rising competition could lead to lower project margins.
  • On the leasing front, while the US-China trade war has not had a significant impact on industrial REITs’ occupancy and rental rates in 1H19, corporates appear to have become more cautious on tenancy decisions, in our view, and we think long-drawn tensions could negatively impact industrial landlords, including Boustead Singapore.

Slowdown in oil & gas investment

  • As an active EPC player that provides energy-related engineering services, Boustead Singapore will be adversely affected by a possible slowdown in global oil & gas investment, in our view. Triggers for such a scenario include weaker energy prices and softer demand for oil & gas products due to economic uncertainties. We believe Boustead Singapore could face fiercer competition and its profit margin would shrink as competitors lower their prices to win contracts.

Execution risk for new ventures

  • The healthcare vertical is a new business segment for Boustead Singapore. Post the acquisition of White Rock Incorporation, Boustead Singapore took significant steps to deepen the transformation of the business into a solutions provider with bundled products and services, with the aim of improving the profitability, scale and sustainability of its business lines. Operating risks may be higher given Boustead Singapore’s limited experience in this business segment, in our view.

Legal risk

  • In Nov 2018, YCH Holdings (Unlisted) filed a writ of summons against Boustead Projects, claiming
    1. that Boustead Project had breached contractual obligations it allegedly had with YCH in connection with a development project known as Supply Chain City, and
    2. damages of S$2.34mm for the breach of contract related to the above between the years 2012 and 2014.
  • We understand that Boustead ProjectP is vigorously defending itself against the plaintiff. The court case is expected to conclude in FY20F, according to management.


Anticipate strong topline growth in FY3/20F

  • We expect FY20F to be a strong year of revenue growth for Boustead Singapore,
  • we project 35.8% y-o-y growth. We expect Boustead Singapore’s topline to be boosted mainly by the strong order book of both its energy-related engineering and real estate solutions segments, as well as the full-year consolidation of WRI.

Real estate solutions:

  • We believe that with Boustead Project’s strong technological knowhow, it will be able to win more large-scale projects (above S$200m) going forward. We expect its D&B order book to remain above S$500m over the next three years, and forecast Boustead Project to record a 3-year revenue CAGR of 19.5% over FY19- 22F.
  • In view of its strong order book backlog of S$621m as at end-Jun 2019, we forecast FY20F design-and-build (D&B) revenue of S$330m (1Q20: S$54.4m), which represents 60.9% y-o-y growth. We expect this to be mainly driven by the recognition of revenue from Boustead Project’s two major existing projects – JTC multi-storey recycling facility and Surbana Jurong Campus. Due to the larger scale of these two projects, we forecast that only c.35% of the two projects will be completed in FY20F. We expect 90% of the remaining order book to be completed in FY20F.
  • Meanwhile for its leasing business, we forecast FY20F revenue of S$33.5m (+15% y-o-y). Rental income from the new lease for 85 Tuas South Avenue 1 is slated to start rolling in at the beginning 2QFY20F following the completion of additions/alternations work. We also expect higher management fee from Boustead Project’s new jointly-owned properties, including Amcor Flexibles facility and ALICE.

Geospatial technology:

  • With the world trending towards an era ushered by big data, IoT and smart cities, we believe strong expansion potential lies for Boustead Singapore’s geospatial segment. We forecast segment revenue CAGR of 5.8% over FY19-22F, to be driven by
    1. expanding the consumption of software and services of existing clients, and
    2. cultivating new areas of growth with potential clients who are just beginning to realise the value of GIS technology.
  • For FY20F, we expect near-term weakness, mainly due to FX impact, and forecast geospatial segment revenue to only grow 3.5% y-o-y. Boustead Singapore sets the selling price of its products in local currency; but pays its supplier Esri in US$ for the software sold. Since Apr, S$ has strengthened 5.9% and 2.1% against A$ and RM, respectively; we think this could negatively impact its topline growth in these two markets since they respectively contributed c.70% and c.10% to the segment’s revenue in FY19. Stripping out the FX impact, we forecast an annualised growth rate of 7% for Boustead Singapore’s geospatial segment over the next three years.

Energy-related engineering:

  • We believe Boustead Singapore is likely to be a beneficiary of the O&G sector recovery as oil prices stabilise as that increases the willingness of exploration and production (E&P) companies to invest in new offshore projects. We think Boustead Singapore’s prequalified status with a number of
  • global engineering, procurement and construction (EPC) contractors will allow it to capitalise on the rising O&G spending, and forecast energy-related engineering revenue CAGR of 12.7% over FY19-22F.
  • We believe FY3/20F is set to be a strong year for Boustead Singapore’s engineering segment, buoyed by a strong order book. In Aug 2019, BIH announced that it has secured a c.S$100m contract for the design, engineering and supply of waste heat recovery units (WHRUs) for a major energy infrastructure development in Europe. With this contract win, Boustead Singapore’s engineering segment order wins YTD in FY20F rose to S$161m, a 5-year high. We project energy-related engineering segment to record S$133m revenue in FY20F (+30% y-o-y).

Healthcare technology:

  • We believe the demand for orthopaedic rehabilitative products could benefit from
    1. an aging population and increasing number of patients who need rehabilitation,
    2. the rising prevalence of conditions such as degenerative joint diseases and cardio cerebrovascular disease, and
    3. higher incidence of sports injuries amid the increasing popularity of sports and athletic pursuits globally.
  • We estimate Boustead Singapore’s overall healthcare segment to record revenue CAGR of 15.8% over FY19-22F.
  • We forecast segment revenue growth of 40.9% y-o-y in FY20F (FY20 will be the first year with full-year contribution from the acquired healthcare business). Topline growth remained weak in 1QFY20F, attributable to delays which resulted in the non-delivery of orders on hand during the quarter, as well as a slower conversion of pipeline enquiries into firm contracts. Boustead Singapore is still in the midst of transitioning its healthcare segment from one that is product-led into a solutions provider with bundled products and services; we expect the segment’s performance to improve gradually over the coming quarters.

PBT could trend lower near term

  • We expect Boustead Singapore’s PBT margin to trend lower in FY20F, mainly due to
    1. the lower margin profile of the two major projects under its real estate segment (due to lower scope of work), as well as
    2. the FX movements negatively affecting its geospatial segment margins.
  • On the other hand, we forecast PBT margins for the energy-related engineering and healthcare technology segments to improve due to better economies of scale which should help to cover the overhead costs.

Strong operating cash generation

  • Boustead Singapore runs on an asset-light model across all four segments. As a result, all segments carry very little fixed assets and do not have large overhead expenses, allowing Boustead Singapore to manage its costs effectively.
  • Boustead Singapore also has insignificant capex; we forecast capital expenditure of only S$8m p.a. over FY20-22F. We believe Boustead Singapore’s operating cash flow will be more than enough to cover its future development capex.

Formidable balance sheet

  • Boustead Singapore has a strong balance sheet with S$99.3m net cash as at end-FY19. We expect its net cash position to continue to strengthen in FY20-22F due to its strong free cash generation.


Initiate coverage with an ADD and SOP-based target price of $1.00

  • We initiate coverage with an ADD rating and Target Price of S$1.00, based on a 20% discount to our SOP valuation of S$1.25/share.
  • Boustead Singapore is firing on all cylinders, with its real estate and energy-related engineering order book backlog at a 5- year high, while its geospatial segment continues to expand steadily. Valuation is attractive in our view, at 6.8x FY3/20F ex-cash P/E while providing a stable dividend yield of 4.1%.
  • Details for our valuation of the individual parts are as follows:

Real estate:

  • The real estate segment is valued at S$203.7m, derived from our target price for Boustead Projects (BOCJ SP, Add, Target Price: S$1.24), which is based on a conservative 40% discount to our FY20F RNAV estimate for the stock. Our 40% target discount for Boustead Project is slightly larger than our target discount to RNAV of 30-35% attributed to the Singapore developers, to take into account Boustead Project’s smaller market cap and lower development profit visibility as build-to-suit projects undertaken by Boustead Project typically last only 12-18 months.
  • If we substitute the valuation of real estate segment with the current market price of Boustead Projects, our target price for Boustead Singapore will be lowered to S$0.87 accordingly.
  • Key assumptions for our RNAV calculation above are:
    • We value Boustead Project’s 100%-owned leasehold portfolio at S$344.8m by applying a 6.5% cap rate to our FY21F net property income (NPI) estimate; the 6.5% cap rate applied is broadly in line with industrial REIT’s 5-7%. The valuation we arrived at is more conservative compared to the independent valuer’s valuation of S$366.3m in Boustead Project’s FY19 AGM presentation, but significantly higher than the figure shown in Boustead Project’s balance sheet given its real estate portfolio is recorded at book value (cost, net of depreciation).
    • We value Boustead Project’s jointly-owned leasehold properties based on its stake in the respective JVs. We pegged the value of the properties to S$455.8m, which was arrived at by independent valuers (based on completed properties as at end-FY19), net of assumed borrowings of S$300m.
    • We separately value Boustead Project’s D&B business at S$173.9m, based on 8x FY21F P/E.

Geospatial technology:

  • We value Boustead Singapore’s geospatial technology segment at S$221.7m, based on 13.5x FY3/21F P/E. The P/E multiple attributed to this segment is pegged at 40% discount versus other tech companies, with discounts given mainly due to
    1. Boustead Singapore’s role as regional exclusive distributor, and
    2. relatively lower EPS growth rate.

Energy-related engineering:

  • We value Boustead Singapore’s energy-related engineering segment at S$47.6m, based on 8.5x FY3/21F P/E. The P/E multiple attributed to this segment is pegged at 25% discount versus other O&G related EPC peers (figure 43), given its relatively smaller scale.

Healthcare technology:

  • Due to the short track record of Boustead Singapore’s healthcare technology segment post acquisition, we currently value the segment based on acquisition price, which was the NAV at the point of acquisition. The valuation implies 15.9x FY3/21F P/E for the healthcare technology segment.

Share buybacks

  • On top of maintaining a stable DPS of S$0.03 since FY18 (we forecast this to remain stable for next 3 years, implying a dividend yield of 4.1% in FY20F), Boustead Singapore has also been more proactive in carrying out share buybacks this year. YTD in FY20F, the company has bought back a total of 6.9m shares, with total consideration spent representing 16.1% of its FY19 net profit.

See attached 40-page PDF report for complete analysis on Boustead Singapore.

ONG Khang Chuen CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-23
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