Boustead Singapore

UOBKayhian on 17 Feb 2014

VALUATION

• Maintain BUY and target price of S$1.94 based on our SOTP model. The implied FY15F PE is 17.5x (ex-cash: 14x). We like Boustead Singapore’s (Boustead) high net cash position, which we think the market has not fully accounted for. We project a dividend of 5 cents/share for FY14, which translates to a yield of 2.9%.

INVESTMENT HIGHLIGHTS

• Revenue and adjusted net profit up 1% and 16% yoy respectively, excluding several one-off items. The energy division (+46% yoy) led in growth on the back of a recovery in O&G. Real estate (-34%) fell as the group continued with its restrategisation towards more investment property vs development projects. Geospatial (-8%) recovered in 3QFY14 and narrowed its ytd decline from 11% in 1HFY14. Water (-46%) continued to struggle with intense competition.
• Unlocked better margins from engineering projects in real estate and energy. For 9MFY14, group gross profit rose 6% yoy and margin improved to 34% (9MFY13: 32%). Excluding one-off items, pre-tax margin also improved to 15% (9MFY13: 14%) and net margin rose to 11% (9MFY13: 9%). 
• Net cash at S$178m (34 cents/ share) as at end-Dec 13 after S$27m of additional borrowings were incurred in 3QFY14, secured by the recently purchased AusGroup property. Operating cash flow for 9MFY14 stood at S$82m (9MFY13: S$25m). NAV improved to 64 cents/share (9MFY13: 60 cents).
• Expect a good final quarter to seal FY14 as Boustead’s ytd results reflected the positive outlook on its real estate, energy and geo-spatial divisions, in line with our own expectations. We continue to like the group’s business model that allows for better cost management, easier scaleability and lower capital intensity. We note the group’s operating expenses increased 5.8% yoy vs a 6.4% yoy rise in gross profit. Maintenance capex incurred as of 9MFY14 was S$2.1m.
• Earnings visibility on orderbook backlog of S$371m as at end-Dec 13. This is broken down into energy (S$142m), water (S$27m) and real estate (S$202m). We think new contract wins will likely come from energy and real estate, where the former will benefit from the US shale gas boom and regional upcycle while the latter will be supported by management’s focus to grow its industrial leasehold portfolio. We reckon it also has a high probability of securing the S$150m AEI for TripleOne Somerset, where it has a 5.5% stake in the consortium that intends to acquire the property.