Boustead Projects - CGS-CIMB Research 2020-04-13: Aiming To Unlock Hidden Value

BOUSTEAD PROJECTS LIMITED (SGX:AVM)

Boustead Projects - Aiming To Unlock Hidden Value

Construction works in Singapore are halted for a month under the circuit breaker measure announced by the government.
Macro uncertainties have hurt Boustead Project (SGX:AVM)’s order wins for D&B segment YTD, but Boustead Project’s two ongoing public sector projects may anchor segment earnings.
Potential REIT launch remains the key catalyst for Boustead Project.

We reiterate ADD with a lower Target Price of S$0.93, based on a 50% discount to FY20F RNAV.

Construction works in Singapore are halted for a month (7 Apr to 4 May), in line with the circuit breaker measure announced by Singapore government to mitigate the spread of Covid-19. With the stop work order, we can expect minimal progress billings for Boustead Project in Apr.
There is still room for Boustead Project to catch up in the later part of the year as the situation improves, but we see short-term negative earnings impact from the circuit breaker, given construction companies’ large fixed cost base.

Management noted that the macroeconomic uncertainties have resulted in corporates turning more cautious, thereby hurting Boustead Project’s order wins in the design and build (D&B) 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 anchor Boustead Project’s D&B segment earnings through FY21F, given their larger scale and longer project duration.
At end-Sep 2019, Boustead Project’s order book remains healthy at S$620m, still more than double its past five years’ average of S$295m.

We estimate existing projects under development would bring Boustead Project’s leasehold portfolio asset base to S$1bn this year, putting it on track for an eventual REIT listing.
With the help of higher occupancy rate after the completion of the ALICE (ALICE@Mediapolis) asset stabilisation, we continue to see REIT listing in 2020/2021 as a possibility. 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.

We lower our FY20-22F EPS forecasts by 20.5%-21.8% mainly due to downward revisions of our order win forecasts. Boustead Project’s valuation of 0.35x FY20F RNAV is attractive, in our view.
We reiterate our ADD call with a lower Target Price of S$0.93, based on a conservative 50% discount to our FY20F RNAV estimate of S$1.86 per share.
See Boustead Project Share Price; Boustead Project Target Price; Boustead Project Analyst Reports; Boustead Project Dividend History; Boustead Project Announcements; Boustead Project Latest News.
Re-rating catalysts are:
- more large-scale order wins, and
- updates on potential REIT listing.
Downside risks are prolonged disruptions to ongoing construction works.
Read also sector report: Construction & Material Sector - CGS-CIMB Research 2020-04-13: Feeling The COVID-19 Pinch.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-13

SGX Stock Analyst Report ADD MAINTAIN ADD 0.930 DOWN 1.24