Company Overview

Boustead  operates  market  leading  infrastructure  related businesses:  Geospatial  Technology  (29%  PBT),  Industrial Property Design & Build + Property Portfolio (42%), Water & Wastewater  Engineering  (1%),  and  Energy  (28%)  Related Engineering. Boustead also generates strong excess cash.

What’s in the news? 1H results.

1H  FY3/14  results  saw  revenue  increase  7.3%y-y  as energy  contracts  led  the  way,  but  EBITDA  only  rose 4.9%y-y as  margin  expansion from  Energy Engineering and  greater  recurring  rental  income  were  offset  by margin compression at the Design & Build level (greater competition)  and  Geospatial  business,  which  was impacted  by  the  change of  Aussie  government, further compounded  by  currency  depreciation.  Final  PATMI was  further  artificially  depressed  3%y-y  due  to  an unusually  low  tax  rate  in  FY3/13  giving  rise  to  higher base effects. Main drag was Geospatial but we view this as a one-half event and expect revenues and margins there to normalize once the present government settles in.  We  continue  to  be  positive  on  the  core-underlying businesses and emphasize key developments below.

Investment Action: Plenty of catalysts ahead!

Maintain  BUY  with  a  raised  TP  of  S$2.05  from S$1.935 as:

1. Orderbooks are at record levels: S$445m vs S$288 y-y.
2. More than 60,000 sqm  of industrial portfolio are  in the development  pipeline,  progressively  ramping  up recurring  earnings  from  rentals  (S$15.3m,  S$20.6m, S$26.9m est. y-y till FY3/16) and  taking Boustead more than  two-thirds  of  the  way  to  unlocking  its  real  estate value (est. S$419m) in a REIT.
3. Exciting  Industrial  Property  Development  in  Iskandar Malaysia,  as Boustead recently took a 35% stake in a JV with Malaysian builder AME (35%), Tat Hong (25%), and CSC (5%), with plans to develop 120k sqm of prime industrial land in Nusajaya.
4. High  net  cash  and  free  cash  generation  raises  the prospect of more industrial properties to be added.
5. Boustead  is  deeply  undervalued  but  with  realizable catalysts above  –  P/E ex net cash ex properties is 4.8x for the Energy, D&B, and Geospatial business!

Source: PhillipCapital Research - 12 Nov 2013