CGS-CIMB upgrades Boustead Singapore with $1.40 target price

SINGAPORE – CGS-CIMB has upgraded its call on Boustead Singapore, seeing the mainboard-listed engineering group as being hugely undervalued given its strong balance sheet, growing order book and accelerating earnings outlook.

In a report released on Wednesday, analyst Ong Khang Chuen pinned a target price of $1.40 on the stock, representing a massive 73.9 per cent upside on its last closing price of 80.5 cents on Wednesday.

He noted that Boustead’s second-half 2023 core profit after tax and minority interest (Patmi) grew 35 per cent year on year to $18 million, helped by stronger performance in its energy engineering and real estate segments, while the geospatial technology segment saw stable earnings despite forex headwinds.

“Excluding exceptional items (one-off disposal gain, forex impact, etc), financial year 2023 core Patmi of $32 million was a slight miss versus our forecast of $35 million, mainly due to higher-than-expected start-up losses for its new Bideford Road property (which is under real estate segment),” the report said.

In May, Boustead Singapore reported a 145 per cent increase in net profit for its second half, driven by higher revenue, interest income and other gains.

Net profit for the six months ended March 31 rose to $22.7 million, from $9.3 million in the year-ago period.

For the full year, earnings surged 48 per cent to $45.3 million.

The board, led by chairman and group chief executive Wong Fong Fui, proposed a final dividend of 2.5 cents per share, unchanged from the preceding financial year, taking the dividend for the full year to four cents per share, also matching the previous financial year.

Mr Wong has led the 195-year-old Boustead for almost three decades. 

When he bought the company in 1996, its market capitalisation was barely $14 million, and it posted a profit of about $1 million. Today, its market value is more than $400 million.

CGS-CIMB noted that Boustead’s energy engineering segment saw strong order win momentum during the current financial year (at around $165 million, which is more than the past two years combined), benefiting from the demand for greater energy security globally.

Meanwhile, its increased stake in subsidiary Boustead Projects following a voluntary conditional offer (VCO) would boost the parent’s earnings by 9.2 per cent. Following the VCO, Boustead’s stake in Boustead Projects has increased from 54 per cent to 75.5 per cent.

CGS-CIMB expects positive earnings drivers, including completion of contracts secured pre-Covid-19 pandemic, allowing Boustead to focus on executing its higher margin order book (of around $400 million as at end-FY2023), and asset stabilisation of the Bideford Road property by the second half of 2024.

This should offset the non-recurrence of the $8.4 million one-off disposal gain recorded in the second half of the current financial year.

In June 2022, Boustead Projects acquired an 18-storey freehold luxury mixed-used development at 28 and 30 Bideford Road through a 50 per cent-owned joint venture (JV).

While the property – at the site of the former Thong Sia Building – was independently valued by Savills at $550 million as at June 20, it was acquired for a consideration of $515 million, excluding goods and services tax.

Boustead plans to further grow its real estate portfolio by building its development pipeline, especially in Vietnam via its JV with local partner KTG, and optimising assets through active management and leasing efforts.

The investment house reiterated its “add” call on Boustead Singapore, citing stronger FY24 forecast earnings with core Patmi seen growing at over 52 per cent year on year on its strong order backlog.

“Valuation is undemanding, in our view, as Boustead is holding net cash of $0.67/share (83 per cent of market cap),” Mr Ong wrote, adding that potential re-rating catalysts included further energy segment order wins.