CGS-CIMB Group Research analyst Ong Khang Chuen has kept an “add” rating on Boustead Projects with a lowered target price of $1.25 from $1.40.
Boustead Project’s FY2022 ended March core net profit of $11.3 million as compared to the $3.1 million loss in FY2021 came in slightly above Ong’s expectations at 109% of his forecast.
“While Engineering and Construction (E&C) segment saw margins negatively impacted by higher cost pressures, especially for pre-pandemic backlog, this was offset by higher profits in the real estate segment due to higher occupancy of asset portfolio which led to stronger recurring income, and capital recycling initiative with the sale of 351 on Braddell to Boustead Industrial Fund (BIF),” writes Ong.
Ong notes however that while Boustead Projects has observed an improvement in construction demand for the private sector, it has been erring on the side of caution when it comes to project tendering in view of escalating cost pressures, including labour, construction material and supply chain costs.
Boustead Projects is focusing on securing contracts from high value-added sectors where it has a competitive advantage such as the pharmaceutical and technology sectors. Contract wins of $148 million in FY2022 brought the order backlog to a healthy level of $235 million as of end-March 2022.
“We expect E&C segment margins to remain depressed in 1HFY2023 before improving in 2HFY2023 as Boustead Projects completes projects secured pre-Covid-19,” says the analyst.
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Boustead Projects looks to grow further in Vietnam, with its strong net cash of $203 million end-FY2022. It has inked strategic collaboration with a local partner, Khai Toan Joint Stock Company, to acquire a 60% stake in an industrial real estate fund, to be jointly set up with initial injection of six assets worth US$84 million.
The fund plans to grow through a combination of mergers and acquisitions (M&A) and greenfield development, and Boustead Projects could benefit from growth of the income-yielding portfolio as a developer-owner.
The analyst expects the transaction to be completed by 1HFY2023.
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Locally, Boustead Projects intends to ramp up industrial property development efforts when there is more visibility on the current inflationary cycle and its cost impacts.
Overall, Ong sees Boustead Projects attractively valued, with net cash of 65 cents/share as of end-FY2022, representing 72% of market cap, while owning a portfolio of industrial properties worth around $500 million that can be potentially injected into BIF or other property trusts to further unlock value in future years.
Ong also lowers his FY2023-FY2024 earnings per share (EPS) due to lower margin assumptions.
Some downside risks the analyst foresees include further escalation of cost pressures and execution risks in Vietnam.
As at 10.52am, shares in Boustead Projects are trading flat at 90 cents at a FY2023 P/B ratio of 0.70x and dividend yield of 1.1%.
