Boustead Singapore

UOBKayhian on 24 Jul 2012

Valuations
· Boustead is trading at 8.8x FY12 earnings with a dividend yield of 5.2%. Based on Bloomberg’s consensus estimate, Boustead has a 12-month target price of S$1.14 and is set to report S$55.2m of earnings in 2013.
· We view that Boustead should be trading at S$1.10/share, pegged to the 3-year historical average PE of 10.0x on consensus EPS of 11.0 S cents. This gives us an upside of 14.0%.
Investment Highlights
· Boustead Singapore Limited provides infrastructure-related Engineering Services and Geo-Spatial Technology. Its Engineering Services segment comprises of Energy-Related Engineering, Water & Wastewater Engineering and Real Estate Solutions. Clients for this division include Amoco, Bechtel, BHP Billiton, Rolls-Royce, Jabil and etc. Current book orders stand at S$371m, and we estimate that about 80% will be recognised in this financial year.
· Industrial Real Estate solutions form the largest section of the group's total orderbook and will contribute the most revenue in FY13. Boustead design, build and in some projects lease turnkey industrial facilities for corporations in Singapore, China, Malaysia and Vietnam. By providing a comprehensive real estate solution, Boustead is able to tender for projects at a more competitive rate with adequate profit margins.
· Currently the group also has 10 properties within the industrial leasehold portfolio with a gross floor area (GFA) of 107,000sqm. The portfolio is generating S$7m-8m in PBT and the group aims to build this to 200,000sqm before potentially spinning the assets off into a REIT.
· Its Energy-Related engineering provides direct-fired process heater systems to downstream oil and gas (O&G) and petrochemical industries and process control system to upstream O&G corporations. Lastly, Boustead Maxitherm Energy supplies solid waste energy recovery plants to mini-power plants. Orderbook stands at S$130m and this will be completed over 18 months.
· Although Boustead has been in the water and waste water treatment industry since 1980, the group currently has an orderbook of S$30m and only expects to breakeven for FY13.
· Lastly, Boustead provides geographical information systems to government agencies, commodities traders, O&G explorers, financial institutes in exclusive markets of Australia, Singapore, Malaysia, Indonesia, Brunei, Bangladesh and Timor-Leste. Management projects that this segment is likely to register a high single-digit growth, driven by new client acquisitions and systems upgrade.
Our view
· Stock price performance will be driven by sustainable contract wins by Boustead. The increase in O&G exploration activities from stronger energy demand in the region is likely to induce more energy-related engineering projects while the geo-spatial division will generate adequate recurring cash flow for the group.
· In additional, Boustead is sitting on a healthy net cash position of S$170.5m that allows the group to make synergistic acquisitions if required.