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HOLD

BOUSTEAD SINGAPORE (BOCS SP) Path Is Paved For Property Division To Grow

Share Price

S$1.805

VALUATION

Target Price

S$2.00

 Maintain HOLD and target price of S$2.00. We value Boustead Singapore

Upside

+10.8%

(Boustead) using a SOTP model and at 16.6x FY15F PE (ex-cash 14.1x). Entry price is S$1.74. INVESTMENT HIGHLIGHTS

COMPANY DESCRIPTION

 Boustead partners sovereign wealth fund Abu Dhabi Investment Council (ADIC). Boustead announced that its wholly-owned subsidiary, Boustead Projects (BP), has established the Boustead Development Partnership (BDP). The BDP is a co-investment partnership between BP and the ADIC, an investment arm of the Government of Abu Dhabi. The Real Estate Department of ADIC manages a diversified global real estate portfolio and invests in all mainstream property sectors.

 Potential initial investment target in excess of S$600m. The parties will contribute a combined S$250m of equity (50% stake each) which, with leverage, is expected to allow for an initial investment target of over S$600m. The BDP has a strategy to develop and redevelop modern logistics and high-quality industrial facilities in Singapore. It will also be the proposed investor for future design-buildlease projects, development projects and redevelopment projects brought in by BP.

 Boustead entities to earn various property-related income. BP will be the design-and-build partner for the BDP pipeline of projects while other Boustead entities will earn asset management, development, project management and property service fees from the BDP.

 Strategic vehicle to build a sizeable industrial property portfolio. We view the BDP as in line with management’s strategy of growing its leasehold portfolio, which we currently value at close to S$400m (163,218sqm GFA), through acquisitions, collaborations or redevelopment projects. The BDP will boost the capabilities of BP in financing a significantly larger pipeline of projects, particularly for larger scale projects with higher capital requirements. Furthermore, the BDP may also support other strategic real estate objectives which Boustead may undertake. We continue to see the potential for future unlocking of this portfolio.

 1QFY15 net profit up 29% yoy, margins improved. Boustead’s overall gross margin improved to 34% from 29% in 1QFY14, mainly due to cost savings on several property projects. Adjusted PBT rose 30.5% yoy on profit growth from all operating divisions and PBT margin is higher at 14.5% from 11% in 1QFY14.

 S$295m orderbook backlog is comprised of energy (S$138m), real estate (S$105m) and water (S$52m) projects. While there was a slower award of contracts in 1QFY15, management maintains that its enquiry pipeline remains healthy. We expect the energy division to continue its momentum in FY15 while the geo-spatial division will enjoy a recovery in Australia and stronger demand in Southeast Asia. KEY FINANCIALS Year to 31 Mar (S$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)

FY13

FY14

FY15F

FY16F

FY17F

513.2 100.3 95.0 84.5 81.4 16.1 11.2 2.9 7.3 3.9 15.9 (62.9) 81.2 29.3

513.7 97.7 84.8 74.0 70.7 13.9 13.0 2.6 7.8 3.9 13.8 (47.0) 101.9 21.6

530.1 82.7 74.2 65.3 62.7 12.2 14.8 2.4 9.6 2.8 11.8 (39.6) 91.0 17.1 68.8 0.9

557.7 89.6 80.1 70.0 67.2 13.0 13.8 2.1 8.5 2.8 12.0 (44.1) 75.0 16.8 70.2 1.0

581.3 93.5 83.5 73.8 70.8 13.7 13.1 1.9 7.4 2.8 12.2 (55.8) 63.0 16.0 72.6 1.0

Boustead Singapore is an investment holding company whose subsidiaries provide information technology, engineering, and investment services. The company's services include process control systems, terminal automation systems, fire detection systems, geographic information system (GIS), E-solutions, IT education, property development and logistics services. GICS sector

Energy

Bloomberg ticker:

BOCS SP

Shares issued (m):

525.8

Market cap (S$m):

949.1

Market cap (US$m):

760.7

3-mth avg t’over (US$m):

0.3

PRICE CHART (lcy)

BOUSTEAD SINGAPORE LTD

Boustead Singapore Ltd/FSSTI Index

2.20

(%) 170 160

2.00 150 140

1.80

130 1.60 120 110

1.40

100 1.20 90 80

1.00 6 Volume (m) 4 2 0 Aug 13

Oct 13

Dec 13

Feb 14

Apr 14

Jun 14

Source: Bloomberg

ANALYST Andrea Isabel Co, CFA +65 6590 6624 [email protected]

Source: Boustead, Bloomberg, UOB Kay Hian

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MONEY TALK

Bloomberg Consensus Recommendation 8/29/2014 Target Price Upside Income Statement Revenue Gross Income Operating Income Pretax Income Net Income Adjusted* EPS Adjusted Dividends Per Share Payout Ratio (%) EBITDA

3/13 513 177 67 97 81 0.16 0.05 43 73

Buy 100%

Sell 0%

Hold 0% 2.13 18%

3/14 514 175 80 91 63 0.12 0.05 51 88

3/15E 548 189 76 89 69 0.13 0.06 44 95

3/16E 540 181 81 89 70 0.14 0.06 45 97

Valuation Ratios P/E EV/EBIT EV/EBITDA P/S P/B Div Yield Profitability Ratios % Gross Margin EBITDA Margin Operating Margin Profit Margin Return on Assets Return on Equity

3/13 9.1 8.2 7.6 1.4 2.5 3.4%

3/14 13.5 10.0 9.0 1.9 2.7 2.7%

3/15E 13.6 8.3 1.7 2.5 3.2%

3/16E 13.4 8.1 1.8 2.2 3.4%

34.6 14.1 13.1 15.9 13.9 29.3

34.1 17.1 15.5 13.8 11.0 21.6

34.4 17.4 13.9 12.6 10.6 18.7

33.6 18.1 15.0 13.0 9.3 16.9

Price to Book Ratio (3 years average)

Price Earnings Ratio (3 years average) 3.50

25.00

3.00 20.00

2.50 15.00

2.00 1.50

10.00

1.00 5.00

0.50 0.00

0.00 Au Oc De Fe Ap Ju g- t c- b- r- n11 11 11 12 12 12

Au Oc De Fe Ap g- t - c- b- r12 12 12 13 13

Ju Au Oc De Fe Ap Ju n- g- t c- b- r- n13 13 13 13 14 14 14

PE Rat io (x)

Au Oc De Fe Ap Ju Au Oc De Fe Ap Ju Au Oc De Fe Ap Ju g- t - c- b- r- n- g- t - c- b- r- n- g- t - c- b- r- n11 11 11 12 12 12 12 12 12 13 13 13 13 13 13 14 14 14

3 Yr Average

PB Rat io (x)

3 Yr Average

Source: Bloomberg, UOB Kay Hian

Technical View

Boustead Singapore (BOCS SP, F9D) Resistance: S$1.87 Support: S$1.75 The stock has gapped down on 31 Jul 14 but the retracement appears to stop short of its 200-day EMA. The potential dead cross formation could be negated as the stock looks poised to trade towards S$1.87 and could attempt to cover the gap down that was formed on 31 Jul 14. The next resistance level could be at S$1.95. The next support level after S$1.75 could be S$1.60.

Source: Nextview

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