• Boustead Singapore’s 1HFY21 core net profit (+114% y-o-y) was above expectations, led by solid performance in energy and geospatial segments.
• We expect strong earnings momentum to sustain into 2H21F, driven by stronger energy segment contribution and recovery from property segment.
• Reiterate ADD on Boustead Singapore with higher SOP-based target price of S$1.20. Valuations are undemanding at ex-cash FY22F P/E of 4.0x and dividend yield of 3.9%.

Boustead Singapore's Strong 1HFY21 Results

• Boustead Singapore (SGX:F9D) announced 1HFY21 (Apr to Sep 2020) core net profit of S$25.1m (+114% y-o-y), above expectations at 82% of our previous FY21F forecast.
• Key surprises were stronger-than-expected growth in energy-engineering (five-fold y-o-y jump in segment PBT) and geospatial (+77% y-o-y), which offset the weaker property segment (operated by subsidiary Boustead Projects).

Energy-related Engineering: Strong Earnings Visibility Till 1HFY22F

• Despite the downturn in global crude oil prices, pretax profit of the energy-related engineering segment surged 5x y-o-y in 1H21 to S$16.4m. Order book remained high at S$203m as of end-1H21, and we see strong earnings visibility till end-1HFY22F.
• We understand that revenue recognition for these orders is slightly back loaded, but conservatively forecast segment PBT of S$16.5m in 2H21F (+266% y-o-y).

Geospatial Technology: Strong Tailwinds

• New enterprise agreements and firm demand for geospatial technology in Australia and Singapore drove segment revenue/PBT growth of 41%/77% y-o-y.
• Underpinned by government agencies’ increasing use of smart mapping technologies to combat COVID-19, we forecast segment PBT growth of 31% y-o-y to S$39m in FY21F, much stronger than the segment’s typical high-single-digit growth rate annually.

Property Segment: Recovering From COVID-19 Disruptions

• While Boustead Singapore's property segment was hit hard by COVID-19 related measures in 1H21, we expect a return to profitability in 2H on the back of a resumption of construction activities, and strong leasing activities.
• With high occupancy rates and portfolio valuation reaching S$1.2bn by end-FY21F, we think the time is ripe for Boustead Project (SGX:AVM) to unlock value from its leasehold properties.

Reiterate ADD With a Higher Target Price of S$1.20

• Reiterate ADD as we expect Boustead Singapore's strong earnings momentum to sustain into 2H21F.
• We raise our Boustead Singapore's FY21-23F EPS forecast by 7.1%-71.6% to reflect stronger profit assumptions from geospatial and energy segments. Our target price is raised to S$1.20, still based on a 20% discount to our SOP valuation at S$1.25/share.
• Maintain ADD as we think Boustead Singapore's valuation is undemanding at 10.5x FY22F P/E. The stock is backed by S$232m of net cash (S$0.48/share, or 61% of market cap) and stable dividend yield of 3.9%.
• Re-rating catalysts include further updates on Boustead Project’s potential REIT spin-off.
• Downside risks include weaker order wins for energy and property segments.

Source: CGS-CIMB Research - 17 Nov 2020