OCBC's Ada Lim, calling Boustead Singapore 'big, bold and beautiful', has on Sept 22 initiated coverage on this country's longest-operating company with a 'buy' call and accorded a $1.05 price target on this stock.
The company was founded in 1828 by Edward Boustead and has over the years, under chairman and group CEO Wong Fong Fui, evolved from the original engineering business to also real estate, geospatial systems and healthcare.
For its FY2023 ended March 2023, the real estate business was its largest revenue contributor accounting for 50.6% of the total.
This was followed by geospatial, where Boustead provides geographic information system solutions to over 7,000 clients including government agencies.
Via its energy engineering division, Boustead provides process technologies and emissions reduction solutions to customers including 70% of the world’s top 20 energy companies.
The geospatial and energy engineering segments accounted for 29.9% and 17.5% of its FY2023 revenue respectively.
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Last but not least, Boustead has a healthcare business that focuses on rehabilitative care and sports science, which generated 2% of its revenue.
From the perspective of Lim, Boustead is well positioned to capture long term growth in these various "megatrends".
For one, its energy engineering business services customers that are making the transition to cleaner energy; its geospatial business is deemed an "essential component" of smart city projects and as for healthcare, clearly, a segment that will see growing demand as populations ages.
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Lim points out Boustead has a forward dividend yield of 5.3%, which is more than one standard deviation above its five-year historical average of 4.3%. She notes that while Boustead does not have a defined dividend policy, the company has maintained a payout ratio of between 40 and 60%.
"Management has shared that it prioritises sustainability in its decisions concerning dividends. We are also not ruling out the possibility of an increase in dividends once Boustead Projects has been successfully privatised," says Lim.
Besides the relatively attractive dividend yield, Lim sees the stock trading at an "attractive entry point" of 8.1x forward PE, more than one s.d. below its five-year historical average of 11.2x.
"Based on our forecasts and the last close price of 85 cents as at Sept 21, we are projecting a dividend yield of 4.9% and 5.2% in FY2024 and FY2025, respectively, representing a conservative payout ratio of 45%," says Lim.
Furthermore, the company is in a strong net cash position with its hoard of $320.5 million, with minimal borrowings of around $7.5 million. "We see great potential for Boustead to deploy cash to continue to drive its next stage of growth," she says.
Lim, citing the management, says the company is on the lookout for potential acquisitions and investments, such as for its private real estate funds, which can help generate recurring income; other healthcare players; and also other energy engineering and real estate businesses.
Under Lim's SOTP valuation of $1.05 - a method commonly applied to conglomerates such as Boustead - the company's energy engineering business, which generated earnings of $11.3 million for FY2023, has been given a multiple of 8.3x and is worth $94.2 million.
The geospatial unit, which brought in $25.3 million, has been given a higher multiple of 10x and is worth $222.9 million.
The real estate segment has been tacked with a 40% discount of its NAV and is worth $100.1 million.
Healthcare, which is still loss-making, has been disregarded and last but not least, there's net cash of $88.4 million estimated as at March 2024, with the assumption that the privatisation of Boustead Projects has been completed by then.
