Boustead Singapore Ltd - CGS-CIMB Research 2020-01-02: FY20 Set To Be A Year Of Two Halves

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BOUSTEAD SINGAPORE LIMITED (SGX:F9D)

Boustead Singapore Ltd - FY20 Set To Be A Year Of Two Halves

• We maintain ADD on Boustead Singapore, as we expect PATMI growth to accelerate to 20.6% y-o-y in 2HFY3/20F (1H20: +1.4% y-o-y).
• Energy segment could make a comeback with a major contract (50% of segment orderbook) starting to contribute in 3QFY20F.
• Earnings from geospatial segment will be back-loaded in 2HFY20F, as federal elections in key markets resulted in slower government spend in 1H.

Energy-related segment making a major comeback

• We expect PBT from Boustead Singapore’s downstream oil & gas business to further surge 82.5% on a hoh basis in 2HFY3/20 (FY20F: S$9.6m PBT, +773% y-o-y), with a major S$100m contract (c.50% of segment orderbook) starting to contribute in 3QFY3/20.
• YTD, Boustead Singapore has secured c.S$190m (FY19: S$89m) worth of contracts to design, build and supply heat and control related process systems. We estimate segment orderbook to be at S$209m currently, a 5-year high.
• Management remains positive on further order wins, as it noted that more potential clients from the LNG and petrochemical industries are reaching final investment decisions.

Geospatial technology segment earnings to be back-loaded in 2H20

• Boustead Singapore’s geospatial technology segment had a slow start in 1H20 due to
  1. federal elections in key markets including Australia and Indonesia, which resulted in government expenditure being withheld, and
  2. FX headwinds.
• Management expects segment earnings to be back-loaded in 2H, and is expanding its sales team in anticipation of higher work flow. Aussie dollar has also stabilised against the US dollar and Singapore dollar since Sep 19. We forecast segment PBT to rise 10.8% y-o-y to S$15.7m in 2H20F (1H20: -9.2% y-o-y).

Two public sector projects to support property segment in FY20F

• Management noted that the uncertainties caused by Sino-US trade tension has resulted in corporates turning more cautious, thereby hurting Boustead Singapore’s order wins in the property segment YTD.
• Nevertheless, we believe the two ongoing public sector projects (S$242m JTC multi-storey recycling facility and S$200m Surbana Jurong Campus) could continue to support property segment earnings through FY21F, given their larger scale and longer project duration.
• We also expect Boustead Singapore’s leasing income to increase in the coming quarters, with ongoing ALICE@Mediapolis asset stabilisation and 85 Tuas South property starting to contribute.

Maintain ADD

• Boustead Singapore is one of our small-cap top picks for 2020, as we expect strong earnings rebound in 2HFY20F. Maintain ADD.
• Our Target Price is based on a 20% discount to our SOP valuation at S$1.25/share. See Boustead Target Price.
• Boustead Singapore's valuation is undemanding at 9.2x FY21F P/E, -1.1. s.d. below its historical average P/E. The stock is backed by S$196m of net cash (S$0.40/share) and stable dividend yield of 4.0%.
• Re-rating catalysts include further order wins; downside risks include weaker margins.
• See Boustead Share Price; Boustead Analyst Reports; Boustead Dividend History; Boustead Announcements; Boustead Latest News.
• Boustead Singapore is one of the CGS-CIMB analysts' 2020 Top Small Cap Picks

ONG Khang Chuen CFA CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-02

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