BOUSTEAD SINGAPORE

UOBKayhian on 27 May 2014

VALUATION

• Maintain HOLD and target price of S$2.00. We value Boustead Singapore (Boustead) using a SOTP model and at 16.6x FY15F PE (ex-cash 14.1x). We like its high net cash position of S$166m (32 cents/share) and project a dividend of 5 S cents/share for FY15, which translates to a yield of 2.7%. Entry price is S$1.74.

INVESTMENT HIGHLIGHTS

• FY14 adjusted net profit of S$60m, up 6% yoy despite revenue being flat at S$514m. The energy division (+49% yoy) led in top-line growth on the back of a recovery in O&G. Real estate (-17%) saw a fall in revenue amid a more competitive operating environment and as the group continued with its re-strategisation towards more investment vs development projects. Geo-spatial (-7%) was affected by the Australian elections in 1HFY14 and a weak Australian dollar. Water (-35%) continued to struggle from intense competition.
• Energy leading the way with a higher PBT margin of 14% in FY14 vs 11% in FY13. This was driven by an improvement of margins in major projects, on the back of a recovery in the O&G sector. Although the other divisions suffered some impact on their margins, the group still managed to achieve an overall PBT margin of 15% in FY14 vs 14% in FY13. Boustead secured a record S$421m worth of new orders.
• 7 cent full-year dividend translates to a 50% payout. This includes a proposed 2 cent special dividend. The group generated operating cash flow of S$101m in FY14, which was mainly redeployed as capital investment in their four ongoing designbuild- lease projects.
• S$380m orderbook backlog is comprised of energy (S$152m), real estate (S$174m) and water (S$54m) projects. We expect the energy division to continue its momentum in FY15 with projects from Northern Europe generating good margins.With the industrial property environment in Singapore turning more competitive lately, management is considering expanding to the nearby countries of Malaysia and Indonesia. It is also still considering options for unlocking the value of its investment properties, including potential collaborations with third parties to build a sizeable enough portfolio for a REIT.
• Geo-spatial to recover in FY15 and we assume a 7% growth for this division. Potential upside could come from a deeper penetration into Indonesia and Malaysia, which are relatively underdeveloped as compared to Singapore and Australia. While margins may be impacted slightly in the near term as the group grows its workforce, we view demand in this segment to be sustainable backed by government entities.
• Potential catalysts include a) contract wins, b) regional expansion, c) earnings accretive M&As, and d) a spin-off of its industrial assets into a REIT.