Wednesday, November 13, 2013

Boustead Singapore : Steady Growth, Fundamentals Intact(S—P)

Boustead Singapore
52-week Share Price Range (SGD)0.95 - 1.52
Steady Growth, Fundamentals Intact

• 1HFY14 (Mar) results in line. Boustead broadly met our expectations with a net profit of SGD26.7 mln (-3% YoY). After adjusting for nonrecurring items such as disposal gains coupled with impairment losses and overprovision of tax incurred in 1HFY13, 1HFY14 net profit would have increased by 25% YoY. An unchanged interim tax-exempt DPS of 2 cents was declared.

• Growth supported by Energy-Related Engineering. 1HFY14 engineering division top line increased by 14% YoY to SGD190.5 mln as a result of strong contribution from energy-related engineering (+40% YoY to SGD76.8 mln), driven by the recovery of the group’s downstream O&G business. The real-estate solutions, however, registered a smaller growth (+4% YoY SGD107.4 mln) as a result of more focus on the strategic expansion of the group’s industrial leasehold property, which will increase future recurring income. These were partially offset by weaker contribution from water and wastewater division (-37% YoY) with increased competition. Meanwhile, contribution from geo-spatial technology declined (-11% YoY to SGD51.5 mln) with the weakening of the AUD currency and a slowdown in demand, particularly in Australia, during the run-up to its 2013 Federal Election.

• Gross margin was stable at 32% in 1HFY14. Improved margins were unlocked in 2Q14 on some projects in the engineering divisions, which helped alleviate the higher costs, tight labor and stiffer competition in the real estate division. Meanwhile, other operating income declined slightly to SGD7.2 mln (-2% YoY) in 1HFY14, despite registering a disposal gain of about SGD5 mln of an industrial property in China and fair value gains on foreign exchange contracts. In 1HFY13, the group reported a SGD9.8-mln gain on disposal, partially offset by an impairment loss of SGD4.5 mln.

• Recently entered into a JV with Tat Hong International and several other companies to develop six parcels of vacant land in Iskandar Malaysia. Boustead will have a 35% stake in the project. The group believes that Iskandar Malaysia represents the most promising avenue of international expansion for its real estate division, given the strong interest for industrial and other properties in Nusajaya. Boustead has also recently entered into a joint partnership with Tat Hong Investments to develop industrial property at Ubi Avenue 4, Singapore.

• Key risks: The main risks for Boustead include project cost overruns, shortage of skilled labor, foreign exchange fluctuations and a prolonged economic downturn, which would hurt demand for its services. In addition, more stringent bank financing/credit squeeze may delay or derail
opportunities for design-and-build projects.

Earnings Outlook
Revenue Drivers:
• Decent total current orderbook at approximately SGD445 mln, a significant increase over the SGD288 mln stated in 2QFY13. The group has secured over SGD300 mln in new contracts in FY14, which has just surpassed the orders secured by the group for the whole of FY13. Enquiry pipelines remain healthy, although negotiation periods are anticipated to remain slightly protracted and the group continues to face intensifying competition, which may impact future gross margins.

• Real estate solutions orderbook of SGD245 mln. The division recently secured its largest contract to-date to design and build the Seagate Singapore Design Centre – The Shugart. The contract amount is expected to exceed SGD100 mln, with the final amount to be determined based on design and engineering options. This is the second key contract clinched this year since February, where the group clinched an SGD70-mln contract to design and build DB Schenker’s logistic facility at the Tampines LogisPark.

• Energy-related orderbook of SGD171 mln. The group was recently awarded SGD38 mln in O&G contracts globally. With this award, Boustead has clinched over SGD140 mln worth of O&G contracts since the start of FY14. This significantly surpasses the value of energy orders secured for the whole of FY13 at SGD111 mln.

• Rising demand for geo-spatial technology across key markets in Australia and Southeast Asia. The main services provided, which include distribution of software, professional/consulting services and after-sales training, have about 40%-50% of its earnings which are recurring in nature.

• The group’s leasehold portfolio rises to 14 properties after it recently secured two design-build-and-lease contracts for a: (i) 10,520 sqm integrated facility in Singapore to be completed in 3Q2014; and (ii) 24,800 sqm integrated MRO and remanufacturing centre at the Tukang Innovation Park to be completed in 1Q15. The group has secured three design-build-and-lease contracts since the start of FY14. With the new contracts, Boustead’s leasehold portfolio presently has a total GFA exceeding 163,000 sq m. The portfolio is estimated to generate an annual rental income of more than SGD30 mln when all buildings are fully completed. We understand that Boustead is seeking to achieve a critical mass of 200,000 to 300,000 sq m before pursuing an equity listing where it can potentially unlock the value of its leasehold portfolio.

Margin Outlook:
• Gross margin stayed at about 32.1% in 1HFY14 (a slight decline from 32.2% in 1HFY13), in line with our forecast. We expect stiffer competition, tight labor and higher costs - particularly in the real estate division - to place a lid on the group’s gross margins in the near term.

• After some fine-tuning, we have kept our FY14 and FY15 earnings forecasts relatively unchanged at SGD58.1 mln and SGD54.1 mln respectively. We expect the group’s real estate solutions division to be bolstered by the group’s increasing recurring rental income from its expanding leasehold portfolio in the near term and reduced reliance on the one-off design-and-build projects.

Source/Extract/Excerpts/来源/转贴/摘录: S&P Capital IQ Equity Research
Publish date: 11/11/13

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