CGS-CIMB’s Ong Kang Chuen has maintained his “buy” calls for both Boustead Singapore and Boustead Projects with target prices of $1.20 and 95 cents, respectively.
This is up from his previous target prices of $1 and 88 cents.
For Boustead Singapore, Ong noted their 1H core net profit of $25.1 million were above expectations at 82% of our previous FY21F forecast.
Key surprises were stronger-than-expected growth in energy-engineering, recording a five-fold y-o-y jump in segment profit before tax (PBT) and geospatial (+77% yoy), which offset the weaker property segment.
Ong added despite the downturn in global crude oil prices, pretax profit of the energy-related engineering segment surged five times y-o-y in 1HFY2021 to $16.4 million.
He also stated that Boustead Singapore’s order book remained high at $203 million as of end-1HFY2021, and we see strong earnings visibility till end-1HFY2022F.
“We understand that revenue recognition for these orders is slightly back loaded, but conservatively forecast segment PBT of $16.5 million in 2HFY2021F (+266% y-o-y).” he added.
Meanwhile, new enterprise agreements and firm demand for geospatial technology in Australia and Singapore drove segment revenue and PBT growth of 41% and 77% y-o-y respectively .
Underpinned by government agencies’ increasing use of smart mapping technologies to combat Covid-19, he forecasts segment PBT growth of 31% y-o-y to $39 million in FY2021F, much stronger than the segment’s typical high-single-digit growth rate annually.
Separately, Ong expects a return to profitability for the property segment (managed by subsidiary Boustead Projects) in 2H, on the back of a resumption of construction activities, and strong leasing activities. “With high occupancy rates and portfolio valuation reaching about $1.2 billion by end-FY21F, we think the time is ripe for Boustead Projects to unlock value from its leasehold properties.”
In a separate note, Ong noted construction works in Singapore saw a gradual resumption beginning July.
He said while project run-rate remains below pre-Covid levels due to numerous safe distancing measures remaining in place and lower worker availability, Boustead Projects still expects its key development projects (Bombardier Phase 2, Razer SEA HQ, 351 on Braddell) to be completed within FY2021.
In addition, order backlog as of end-1H21 remained at a healthy level of $447 million, compared to the past 5 years’ average of $330 million. We forecast design-and-build revenue to double on a h-o-h basis to $149 million in 2H21, supporting the segment’s return to profitability in 2H.
Despite “challenging conditions”, Ong said Boustead Projects secured a string of new key leases for its leasehold properties (including those still under construction), with reputable tenants including NETS Group, JustCo, Zuellig Pharma and Shopee Express taking up a total of 39,600 square meters (sqm) of net lettable area.
He understands that the majority of BP’s leasehold properties are now fully leased out. This, coupled with the expected completion of development projects which would bring BP’s leasehold portfolio asset base to S$1.2 billion by end-FY2021F, puts BP in a good position to pursue an eventual REIT listing, in our view.
He said this could unlock significant value, as BP’s investment properties are accounted for at cost less depreciation, and also expects a special dividend as a possibility after the successful REIT listing.
As at 1.21pm, shares of Boustead Singapore and Boustead Projects traded at 80 cents and 81 cents respectively, with a dividend yield of 3.85% and 1%.
