Boustead Projects - UOB Kay Hian 2020-01-15: Overlooked Assets Of A Building Champ

BOUSTEAD PROJECTS LIMITED (SGX:AVM)

Boustead Projects - Overlooked Assets Of A Building Champ

BOUSTEAD PROJECTS (SGX:AVM) is a leading real estate solutions provider with niche expertise in the design and build of business parks and industrial developments, often at the forefront of transformational building technologies.
Boustead Project’s portfolio of leasing properties is also sizeable, with the market value of completed assets topping S$800m. Monetising the asset portfolio will be a highly anticipated catalyst.

Initiate coverage with a BUY with target price based on a 40% discount to RNAV. See Boustead Project Target Price.

Boustead Project’s strength lies in its turnkey solutions for custom-built smart eco-sustainable business park and industrial developments. It is a testament to the group’s niche and competitive offering that they are able to secure a number of projects in recent years, including high-profile projects such as Razer HQ in One-North Crescent.
The order book for the group sat at a healthy S$580m as of Sep 19. While industrial construction demand increased to a high in 2019 (S$7.6b) according to the Building & Construction Authority, we think that order wins can be well sustained for the group as it builds on its niche expertise in integrated smart building solutions that ride on the wave of Internet of Things technologies and automation in modern industrial buildings. An example is the recent MOU signed with Getronics that enables Boustead Project to leverage unified, “single pane of glass” building management solutions.

Boustead Project’s portfolio of 24 wholly-owned and jointly-owned properties (20 completed and 4 under construction) has hit a sizeable value. According to the group, the market value of the completed properties is over S$800m (of which approximately S$366m are wholly owned). Potentially, a spin-off into a REIT platform could also help unlock value for Boustead Project in the form of receiving recurring management fees as the manager.
The properties are generally leased to reputable global corporations in high value-added industries. According to the group, its portfolio of wholly-owned properties has a 93% occupancy rate, with a WALE of more than 5 years, a higher average than that of listed industrial REITs.
Boustead Project’s newer property, ALICE@Mediapolis, is still in the process of attracting tenants with leasing income still stabilising. We estimate about 80% of the leaseable area is committed. An improvement of the occupancy rate at ALICE@Mediapolis, in our view, could kick-start the process of a potential spin-off.
Boustead Project also completed the acquisition of a sizeable industrial property at 6 Tampines Industrial Avenue 5 in Dec 19.

Boustead Project was in a net cash position of S$51.1m in 2QFY20 following the deconsolidation of a subsidiary and collection and loan repayment for a sizeable project under a deferred payment arrangement. Historically, the group has had a low gearing ratio, with a five-year average of 15.8% from FY15-19.
Operating cash flow excluding contract assets and liabilities, which have timing differences of contract differences, has also been steady.

Boustead Project is a leading real estate solutions provider in Singapore, with core engineering expertise in the design and build business and development of smart eco-sustainable business parks and industrial projects. The group has constructed and developed more than 3m sqm of real estate in Singapore, China, Malaysia and Vietnam.

Boustead Project has steadily built up its capabilities in technologically-enhanced real estate developments with Industry 4.0 standards, adopting digitally-enabled, productivity-enhancing approaches like integrated digital delivery, 7D building information modelling (BIM), virtual design and construction (VDC), design for manufacturing and assembly (DfMA) and smart building capabilities. An example is ALICE@Mediapolis which has presented many firsts in the industry, including drone surveillance, an integrated front-end smart mobile app for tenants, and large-scale production of bathroom units using prefabricated, prefinished volumetric construction.

Boustead Project continues to search for strategic partnerships, catalytic acquisitions and investments aimed at accelerating business expansion, enhancing capabilities, broadening revenue streams and driving sustainable long-term growth. Under Boustead Development Partnership (BDP), the group’s JV with a reputable Middle East sovereign wealth fund, Boustead Project has a platform with which to undertake sizeable development and redevelopment projects in Singapore’s industrial real estate market. One of the projects under this partnership is the Razer HQ for Southeast Asia, a high-tech smart business park expected to be completed by 2020.
Boustead Project is a 52.7%-owned subsidiary of Boustead Singapore (SGX:F9D). See also the initiation coverage report: Boustead Singapore - Steadfast Global Player With Reliable Prospects.

Valued at target price based on a 40% discount to RNAV (27% upside). See Boustead Project Target Price.
We value Boustead Project based on its three areas of operations:
1. wholly-owned properties,
2. jointly-owned properties, and
3. design and build business.
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See also Boustead Project Share Price; Boustead Project Target Price; Boustead Project Analyst Reports; Boustead Project Dividend History; Boustead Project Announcements; Boustead Project Latest News.

Lucas Teng UOB Kay Hian Research | Llelleythan Tan UOB Kay Hian | https://research.uobkayhian.com/ 2020-01-15

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