Boustead Singapore Ltd - CGS-CIMB Research 2019-12-09: Poised For Stronger Quarters Ahead


Boustead Singapore Ltd - Poised For Stronger Quarters Ahead

  • We believe Boustead has a bright outlook in CY20, with order books of both its real estate and energy segments at five-year highs as of end-Sep 2019.
  • Meanwhile, we believe its geospatial technology business continues to enjoy strong growth potential, riding on the “smart city” wave.
  • Maintain ADD rating and Target Price of S$1.00. Boustead is trading at 9.1x CY21F P/E, while being backed by S$0.40/share net cash and 3.9% dividend yield.

Energy-related segment making a major comeback in 2HFY3/20

  • YTD, BOUSTEAD SINGAPORE LIMITED (SGX:F9D)’s energy segment has secured c.S$170m (FY19: S$89m) worth of contracts to design, build and supply heat-and control-related process systems.
  • We estimate the segment order book to be at S$209m as of end-Sep 19, a five-year high. Management remains positive on further order wins, as they noted that more oil and gas companies are reaching their final investment decisions.
  • We expect a much stronger 2HFY3/20, with contributions from a major S$100m contract starting in 3QFY20.

Buffing up its sales team to drive geospatial segment growth

  • Rising urbanisation and the development of smart cities trigger the need for more advanced global positioning systems and navigation platforms. We forecast the geospatial segment’s PBT to grow by 10% p.a, reaching S$31.5m in FY22F. Stripping off currency impacts, we expect the segment revenue to show a healthy growth, in the mid-single digits, for FY20F.
  • Boustead is expanding its sales team to drive sales growth, and we expect the segment PBT to return to positive growth in 2H.

Possible REIT launch in CY20F could be a catalyst

  • We estimate the existing projects under development will bring BOUSTEAD PROJECTS LIMITED (SGX:AVM)’s (Boustead’s 52.8%-owned subsidiary, ADD, Target Price: S$1.24) leasehold portfolio asset base to S$1bn by 2020F, putting it on track for an eventual REIT listing.
  • With the help of higher occupancy rates after the asset stabilisation of the Alice@Mediapolis property, we think a REIT listing could materialise as early as CY20F. We think this could unlock significant value as the investment properties are accounted for at cost less depreciation.
  • A special dividend is also a possibility after a successful REIT listing, in our view. See Boustead Dividend History; Boustead Announcements; Boustead Latest News.

Valuation attractive at 4.4x ex-cash CY21F P/E; Maintain Add

  • We think Boustead’s valuation is undemanding at 9.1x CY21F P/E, while backed by S$196m in net cash and a stable dividend yield of c.4%.
  • Boustead is firing on all cylinders, with its real estate and energy-related engineering order books, while its geospatial segment continues to expand steadily.
  • Our Target Price is derived based on SOP valuations – geospatial (40%), property (33%), energy (8%), and cash (16%). See Boustead Share Price; Boustead Target Price; Boustead Analyst Reports.
  • Downside risks include weaker than expected margin expansion.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09
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