CGS-CIMB Research analyst Ong Kang Chuen has maintained his “add” rating on Boustead Singapore. He has also raised his target price on the stock from $1.30 to $1.35, predicting that the company will see a better 2HFY2023 ending March 31, 2023.
On Nov 11, Boustead Singapore recorded a core net profit of $13.6 million, 28% lower y-o-y. The lower core net profit, which made up only 39% of Ong’s core net profit forecast for FY2023, still remained “in line” with the analyst’s expectations due to his expectations of a better second half of the year.
He points out that in 1HFY2023, project-oriented segments like energy engineering and real estate saw revenue declines due to lower order backlogs, while Boustead’s geospatial segment held steady, only suffering a 3% fall in profit before tax due to foreign exchange losses.
This is due to the group billing its customers in their local currencies while key costs are paid in US dollars, Ong explains.
In its results release, Boustead said its revenue continued to grow (in constant currency terms) in Southeast Asia in 1HFY2023, and sees firm demand for geospatial technology and smart mapping capabilities across the region riding on structural tailwinds.
Nevertheless, he expects that its strong order book will underpin an earnings recovery in 2HFY2023, noting the real estate segment had secured a contract win worth about $300 million.
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Boustead’s energy engineering segment also saw strong order momentum recovery in 1HFY2023, having secured more than double the value of contracts won in FY2022.
Ong expects the energy segment to benefit from the demand surge for global energy security, leading to further order wins in 2HFY2023 for Boustead.
He also points out that the company’s order backlog grew to $558 million by end-September, compared to the end-March figure of $274 million.
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“We expect this to underpin earnings recovery starting 2HFY2023, [and] FY2024 should be even stronger as that is when much of the revenue recognition for these contracts will occur,” Ong says.
He calls 1HFY2023 a “fundamental inflexion point” for Boustead, and raises his FY2023-FY2025 earnings per share forecast (EPS) by 0.8-6.7% on stronger order win assumptions.
Furthermore, its valuation remains attractive, and Ong says that if investors strip out its stake in Boustead Projects (around $130 million based on market value) and net cash of $170 million, “investors are essentially paying 2.5x 2023 P/E for the geospatial segment, which is a high-margin, cash-generating business that offers structural growth, while getting the energy and healthcare segments for free.”
As of 3.21pm, shares of Boustead Singapore were trading at 78 cents, with a FY2023 P/B ratio of 0.83x and dividend yield of 5.1%.
