Boustead

PHILLIP SECURITIES RESEARCH, Nov 12

BOUSTEAD operates market-leading infrastructure-related businesses: geospatial technology (29 per cent profit before tax), industrial property design and build and property portfolio (42 per cent), water and wastewater engineering (one per cent) and energy-related engineering (28 per cent). Boustead also generates strong excess cash.

H1 FY2014 results saw revenue increase 7.3 per cent y-o-y (year-on-year) as energy contracts led the way, but Ebitda (earnings before interest, taxes, depreciation and amortisation) rose only 4.9 per cent y-o-y as margin expansion from energy engineering and greater recurring rental income were offset by margin compression at the design and build level (greater competition) and geospatial business, which was impacted by the change of the Australian government, further compounded by currency depreciation.

Final profit after tax and minority interests (Patmi) was artificially depressed 3 per cent y-o-y due to an unusually low tax rate in FY2013 giving rise to higher base effects. Main drag was geospatial, but we view this as a one-off event and expect revenues and margins there to normalise once the present government settles in. We continue to be positive on the core underlying businesses and emphasise key developments below.

Maintain "buy" with a raised TP (target price) of S$2.05 from S$1.935 as:

• Orderbooks are at record levels: S$445 million versus S$288 million y-o-y.
• More than 60,000 sq m of industrial portfolio are in the development pipeline, progressively ramping up recurring earnings from rentals (S$15.3 million, S$20.6 million, S$26.9 million estimated y-o-y till FY2016) and taking Boustead more than two-thirds of the way to unlocking its real estate value (estimated S$419 million) in a Reit (real estate investment trust).
• Exciting industrial property development in Iskandar Malaysia, as Boustead recently took a 35 per cent stake in a JV with Malaysian builder AME (35 per cent), Tat Hong (25 per cent) and CSC (5 per cent), with plans to develop 120,000 sq m of prime industrial land in Nusajaya.
• High net cash and free cash generation raises the prospect of more industrial properties to be added.
• Boustead is deeply undervalued but with realisable catalysts above - P/E ex net cash ex properties is 4.8 times for the energy, design and build, and geospatial business.

BUY