BOUSTEAD SINGAPORE

UOBKayhian on 17 Feb 2015

• Maintain BUY but with a reduced target price of S$2.04, derived from our SOTP model. We cut our FY15-17F net profit by 2.5-5.4% to account for the lower-than expected earnings and order wins for the energy segment. 

 FINANCIAL HIGHLIGHTS 

• Boustead Singapore recorded profit after tax of S$11.8m in 3QFY15, a decline of 36% compared with S$18.4m in 3QFY14, due to lower gross profit margins despite higher revenue. The Group’s revenue grew 37% yoy to S$177.9m mainly attributable to a larger contribution from the real estate segment that saw revenue from this segment rising 95% to S$99.5m. However, gross profit and gross profit margins were lower for the quarter as a result of the completion of a large real estate project. Gross profit for the quarter fell 12% to S$42m with overall GPM deteriorating 13.3ppt from 36.9% in 3QFY14 to 23.6% in 3QFY15. 9MFY15 net profits totalled S$45.4m (+1% yoy) and accounts for 72.4% of our previous full-year forecast of S$62.7m. 
• The group also announced that its current orderbook backlog stands at S$342m (S$180m in real estate and S$162m in energy). While there was been a slower than expected award of contracts for the energy segment due to falling oil price, management maintains positive about its mid-long term prospects as its enquiry pipeline remains healthy. 

OUR VIEW 

• Gross margins from the real estate segment should normalise. We understand that the large real estate project that dragged gross profit margin down was awarded with a more competitive bid two years ago, as Boustead saw it as a strategic move rather than plain profitability. Upon the completion of this lower margin real estate project, we expect margins to recover going forward. 
• Challenges to remain in the energy segment. Although Boustead is still receiving healthy number of enquiries on projects, we expect orders to slow as its customers reduce capex amidst falling oil prices. Investors should note that this segment contributes approximately 26% of PBT and 18% of our valuation. 
• There is still no official update on the Boustead Project demerger, but we expect the company to already have submitted relevant documents to the authorities. Boustead is carrying out this corporate action with utmost priority as any delay will result in the company having to file the complete set of financial documents again.