Boustead Projects - CGS-CIMB Research 2020-11-17: One Step Closer To Value Unlocking


Boustead Projects - One Step Closer To Value Unlocking

  • Boustead Project’s 1H21 results were below expectations as weak design-and-build segment offset resilient performance in its leasing segment.
  • With strong leasing activities and portfolio valuation reaching c.S$1.2bn by end-FY21F, we think time is ripe for Boustead Project to unlock value from its properties.
  • Reiterate ADD on Boustead Project with a higher target price of S$0.95, still based on a 50% discount to FY21F RNAV.

Boustead Project's 1HFY21 results below expectations

  • Boustead Project (SGX:AVM) recorded S$2.2m net loss in 1HFY21 vs. our previous full-year forecast of S$10m net profit, impacted by the two-month construction industry stop work order and gradual resumption of works.
  • The key drag was weaker-than-expected design-and-build segment (segment loss before tax of S$9.3m), which more than offset the resilient performance in Boustead Project’s leasing segment (segment PBT of S$7.1m).

Resumption of construction work to support 2H earnings recovery

  • Construction works in Singapore saw a gradual resumption beginning Jul. While project run-rate remains below pre-Covid levels due to numerous safe distancing measures remaining in place and lower worker availability, Boustead Project still expects its key development projects (Bombardier Phase 2, Razer SEA HQ, 351 on Braddell) to be completed within FY21.
  • Order backlog as of end-1H21 remained at a healthy level of S$447m, compared to the past 5 years’ average of S$330m.
  • We forecast Boustead Project's design-and-build revenue to double on a h-o-h basis to S$149m in 2H21, supporting the segment’s return to profitability in 2H.

Strong leasing activity paves the way for potential REIT launch

  • Despite challenging conditions, Boustead Project secured a string of new key leases for its leasehold properties (including those still under construction), with reputable tenants including NETS Group, JustCo, Zuellig Pharma and Shopee Express taking up a total of 39,600 sqm of net lettable area.
  • We understand that the majority of Boustead Project’s leasehold properties are now fully leased out. This, coupled with the expected completion of development projects which would bring Boustead Project’s leasehold portfolio asset base to S$1.2bn by end-FY21F, puts Boustead Project in a good position to pursue an eventual REIT listing, in our view. This could unlock significant value, as Boustead Project’s investment properties are accounted for at cost less depreciation.
  • We believe a special dividend is also a possibility after the successful REIT listing.

Reiterate ADD with a higher target price of S$0.95

ONG Khang Chuen CFA CGS-CIMB Research | 2020-11-17
SGX Stock Analyst Report ADD MAINTAIN ADD 0.95 UP 0.880