• Establishment of Boustead Industrial Fund enables value-unlocking of Boustead Projects’ leasehold portfolio and as a platform to house future industrial properties.
• Boustead Projects is expected to record S$136m disposal gain from its initial injection of 14 properties into Boustead Industrial Fund. We see high possibility of special dividends in FY21 (Apr 2020 to Mar 2021).
• Reiterate ADD on Boustead Projects. With the fruition of the value-unlocking exercise, we raise our target price to S$1.33, now based on a 30% discount to FY21F RNAV.

Establishment of Private Business Trust to Unlock Value

• Boustead Project (SGX:AVM) has established Boustead Industrial Fund (BIF), a private business trust with the objective to invest and manage investments in business parks and industrial and logistics properties.
• Boustead Projects will hold an initial 25% stake in the fund (through subscription of units and notes issued); other initial investors include AP SG 21 Pte. Ltd., a special purpose vehicle for institutional real estate investors, as well as Metro Holdings (SGX:M01).
• We view this as a positive move as this will enable Boustead Projects to unlock the value of its leasehold portfolio and strengthen its balance sheet while also creating a platform to house industrial properties to be completed in the future.

Boustead Projects Injecting 14 Properties Into Boustead Industrial Fund at S$332m

• Boustead Projects will inject 14 of its industrial properties into Boustead Industrial Fund as the latter’s initial portfolio properties.
• As Boustead Projects’ investment properties are accounted for at cost less depreciation, gain of disposal from this transaction is expected to be S$136m.
• Nevertheless, given the lower rental income from investment properties post disposal, we reduce our FY21 to FY23 core earnings forecasts for Boustead Projects by 16.3-66.1%.

Special Dividends a Possibility

• After netting off cash required to pay off existing encumbrances of these properties and initial injection of capital into Boustead Industrial Fund, Boustead Projects forecasts cash proceeds of S$137m, which the company plans to use to
  1. pursue further growth in its design-and-build business,
  2. fund working capital requirements, and
  3. potentially declare special dividends.
• As Boustead Projects already possesses a strong balance sheet (end-Sep 2020: S$56m net cash), we see high possibility of special dividends being declared after the transaction is approved.
• Assuming 50% of the net cash proceeds are paid out as special dividends, dividend could amount to S$0.22/share or a dividend yield of 26.6% for FY21.

Reiterate ADD on Boustead Project With Higher Target Price

• With the fruition of the value-unlocking exercise, we raise our Boustead Projects' target price to S$1.33, now based on a 30% discount to our FY21F RNAV estimate of S$1.89 per share (previously 50%).
• Boustead Projects’ valuation of 0.43x FY21F RNAV is attractive, in our view.
• Rerating catalysts include the announcement of special dividends or further asset injection into Boustead Industrial Fund.
• Downside risks include lacklustre order wins for Boustead Projects’ design-and-build business.

Source: CGS-CIMB Research - 4 Jan 2021