Boustead Projects - CGS-CIMB Research 2021-01-04: A Major Step To Unlocking Value

BOUSTEAD PROJECTS LIMITED (SGX:AVM)

Boustead Projects - A Major Step To Unlocking Value

Establishment of Boustead Industrial Fund enables value-unlocking of Boustead Projects’ leasehold portfolio and as a platform to house future industrial properties.
Boustead Projects is expected to record S$136m disposal gain from its initial injection of 14 properties into Boustead Industrial Fund. We see high possibility of special dividends in FY21 (Apr 2020 to Mar 2021).
Reiterate ADD on Boustead Projects. With the fruition of the value-unlocking exercise, we raise our target price to S$1.33, now based on a 30% discount to FY21F RNAV.

Boustead Project (SGX:AVM) has established Boustead Industrial Fund (BIF), a private business trust with the objective to invest and manage investments in business parks and industrial and logistics properties. See Boustead Projects' announcements.
Boustead Projects will hold an initial 25% stake in the fund (through subscription of units and notes issued); other initial investors include AP SG 21 Pte. Ltd., a special purpose vehicle for institutional real estate investors, as well as Metro Holdings (SGX:M01).
We view this as a positive move as this will enable Boustead Projects to unlock the value of its leasehold portfolio and strengthen its balance sheet while also creating a platform to house industrial properties to be completed in the future.

Boustead Projects will inject 14 of its industrial properties into Boustead Industrial Fund as the latter’s initial portfolio properties. See Fig1 in PDF report attached below for details of the 14 properties. Total consideration is S$332m, at a slight premium over their market valuation of S$331m.
As Boustead Projects’ investment properties are accounted for at cost less depreciation, gain of disposal from this transaction is expected to be c.S$136m.
Nevertheless, given the lower rental income from investment properties post disposal, we reduce our FY21 to FY23 core earnings forecasts for Boustead Projects by 16.3-66.1%.

After netting off cash required to pay off existing encumbrances of these properties and initial injection of capital into Boustead Industrial Fund, Boustead Projects forecasts cash proceeds of c.S$137m, which the company plans to use to
1. pursue further growth in its design-and-build business,
2. fund working capital requirements, and
3. potentially declare special dividends.
As Boustead Projects already possesses a strong balance sheet (end-Sep 2020: S$56m net cash), we see high possibility of special dividends being declared after the transaction is approved.
Assuming 50% of the net cash proceeds are paid out as special dividends, dividend could amount to S$0.22/share or a dividend yield of 26.6% for FY21.

With the fruition of the value-unlocking exercise, we raise our Boustead Projects' target price to S$1.33, now based on a 30% discount to our FY21F RNAV estimate of S$1.89 per share (previously 50%).
See
Boustead Projects’ valuation of 0.43x FY21F RNAV is attractive, in our view.
Rerating catalysts include the announcement of special dividends or further asset injection into Boustead Industrial Fund.
Downside risks include lacklustre order wins for Boustead Projects’ design-and-build business.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-04

SGX Stock Analyst Report ADD MAINTAIN ADD 1.33 UP 0.950