Boustead Projects - CGS-CIMB Research 2020-07-14: Significant Value To Be Unlocked

BOUSTEAD PROJECTS LIMITED (SGX:AVM)

Boustead Projects - Significant Value To Be Unlocked

Boustead Project's FY20 core NP fell 10.4% y-o-y, below expectations at 90% of our forecast. Disappointment was mainly due to weaker-than-expected project margins.
We expect staggered return to normalcy for Boustead Project’s design-and-build segment post circuit breaker. Boustead Project’s leasing segment should remain relatively resilient.

Potential REIT launch remains the key catalyst for Boustead Project.
We reiterate ADD with a lower Target Price of S$0.88, based on a 50% discount to FY20F RNAV.

Boustead Project (SGX:AVM)’s 2HFY3/20 core net profit came in at S$13.4m (+39% h-o-h, +7% y-o-y). FY20 core net profit fell 10.4% y-o-y to S$23.0m, below expectations at 90% of our full-year forecast. Despite the strong topline growth of S$426.2m (+92.5% y-o-y) in 2HFY20, Boustead Project saw weaker profitability due to
- lower gross margins on ongoing projects, and
- lower quantum of cost savings from previously-completed projects.
To preserve cash to buffer against Covid- 19, Boustead Project lowered its FY20 DPS to 0.8 Scts (FY19: 2 Scts).

Order backlog as of end-FY20 remained at a healthy level of S$496m, compared to past 5-years’ average of S$330m. However, we forecast Boustead Project’s design-and-build segment to see a 44% revenue drop in FY21F due to slower construction progress.
Construction works in Singapore were halted for two months (7 Apr to 1 Jun) due to the government’s circuit breaker (CB) measures to curb the spread of Covid-19. We also expect a staggered return to normalcy post-CB, given labour constraints and new conditions for working in the post-CB era.
We also see lower project margins in FY21F given the need for additional safety measures in accommodation and transportation of workers.

Meanwhile, we expect Boustead Project’s leasing segment to remain relatively resilient in FY21F as the majority of its industrial properties are single-tenanted and leased to blue chip multinational corporations. We understand that the rental collection rate remains high, and Boustead Project is actively working with a handful of tenants affected by Covid-19 to assist them with deferment of rental payments.
We continue to see a REIT listing in 2020 or 2021 as a possibility. We think such a move could unlock significant value, as Boustead Project’s investment properties are accounted for at cost less depreciation.

We lower our FY21-22F EPS forecasts by 38-63%, mainly due to slower progress completion and lower order win assumptions. Nevertheless, Boustead Project’s valuation of 0.55x FY20F RNAV is attractive, in our view.
We reiterate our ADD call with a lower Target Price of S$0.88, based on a conservative 50% discount to our FY21F RNAV estimate of S$1.75 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 include stricter government regulations which could further slow construction activities in CY20.

ONG Khang Chuen CFA CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-14

SGX Stock Analyst Report ADD MAINTAIN ADD 0.88 DOWN 0.930