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


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's 2HFY3/20 results below expectations

  • 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).

Staggered return to normalcy post circuit breaker

  • 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.

Possible REIT launch remains the key catalyst

  • 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.

Reiterate ADD with a lower Target Price of S$0.88

ONG Khang Chuen CFA CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | 2020-07-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.88 DOWN 0.930