OCBC Investment Research analyst Ada Lim has kept her “buy” call and target price of $1.20 ahead of Boustead Singapore F9D 's results for the FY2024 ended March 31.
“We look favourably upon Boustead’s growth profile given its deep engineering expertise and exposure to multiple long-term secular trends, such as climate action and sustainability, smart cities and the Internet of Things (IoT), and the silver tsunami in Asia Pacific,” says Lim.
The analyst notes that FY2024 has been an “eventful” year for Boustead with its energy engineering and geospatial divisions experiencing steadfast and consistent contract wins. Boustead’s geospatial division secured a “landmark” contract with the Australian Federal Government valued at around $42 million.
These contract wins contributed to Boustead’s robust order backlog valued at $433 million, of which $152 million and $281 million were booked under the Energy Engineering Division and Real Estate Division respectively, as at Sept 30, 2023.
To the analyst, these developments have provided Boustead Singapore with a “strong” foundation for its 2HFY2024 performance.
Additionally, Lim notes that the company was focused on the privatisation of Boustead Projects (BPL), which was officially delisted from the Singapore Exchange S68 (SGX) on Feb 9.
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Three reasons attributed to this development. To simplify and improve the group's operating structure, to give Boustead more control and flexibility to manage resources efficiently and enhance company competitiveness and to reduce costs related to meeting listing and regulatory requirements, especially since BPL's shares had low trading liquidity.
“We expect the consolidation of BPL to be accretive to Boustead in the long run,” adds Lim.
The analyst adds that BPL announced a partnership with Hankyu Hanshin Properties Corp and Mitsui and Co. to redevelop an industrial property at 36 Tuas Road, via a joint investment in the Boustead Real Estate Fund, as at December last year.
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“The redeveloped property is expected to be one of the first developments to attain the Green Mark Platinum (Super Low Energy) certification for the logistics and manufacturing sectors under the refreshed BCA Green Mark 2021,” says Lim.
The analyst also notes that BPL’s joint venture, KTG & Boustead Industrial Logistics Joint Stock Company (KBIL) entered into a sale and purchase agreement for the acquisition of Minh Quang Industrial Development JSC, which had previously signed an in-principle land lease agreement for a land lot of approximately 136,450 square metres. KBIL plans to develop the land into leaseable industrial facilities.
“We continue to look favourably upon Boustead’s growth profile as its businesses provide exposure to multiple long-term secular trends,” notes the analyst.
The analyst notes the potential of future opportunities to strengthen efficiency and reduce emissions and increasing solutions provided by Boustead’s Energy Engineering Division to boost energy majors amidst the transition towards cleaner energy.
Despite governments being the main users of Esri’s ArcGIS technology, Boustead notes that the technology is being utilised for other purposes such as mining and utilities in Indonesia.
The analyst adds that Boustead’s valuations remain undemanding, in spite of the increase of an estimated 10.6% of its share price since its last close price of 94 cents as at May 6.
Boustead currently trades at forward 12 month price-to-earnings (P/E) ratio of 8.5 times, representing slightly less than one standard deviation (s.d.) below the five year historical average of 10.7 times, while its forward 12 month dividend yield is currently around its five year historical average level at 4.3%.
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On the environmental, social and governance (ESG) front, Lim likes Boustead being an “ESG-enabler” with its eco-sustainable solutions that contribute positively to the environment and to its clients’ community ecosystem.
The company is also said to be “highly committed” to creating a positive work environment including workplace health and safety.
Finally, Boustead has kept a high standard of corporate governance and transparency with its Code of Conduct, which covers policies on anti-bribery and anti-corruption, fair dealing and competition, confidentiality and privacy obligations, insider trading and whistleblowing, amongst others.
Potential catalysts identified by Lim include a strong contract and, or order win momentum, accretive acquisitions to grow the scale of the business, as well as a spin-off of its real estate assets into a REIT.
On the flip side, cost over runs that may impact Boustead’s profit margins, widening losses from its healthcare segment and macroeconomic weakness that may weigh on the company’s fiscal and corporate spending are downside risks.
As at 10.47am, shares in Boustead Singapore are trading at an unchanged 93.5 cents.
