Excerpts from CGS CIMB report

Boustead Projects Ltd (SGX: AVM)

• Boustead Projects (BP) reversed from losses in FY21 to post a core net profit of S$11.3m for FY22, above our expectations.
• While construction demand has improved, BP remains cautious in tendering due to escalating cost pressures. We think margins could improve in 2H23F.
• BP has a strong war chest to chart its next leg of growth by expanding its presence in Vietnam.

Reiterate Add with a lower TP of S$1.25.

Boustead Projects FY22 results above expectations

BP’s FY22 core net profit of S$11.3m (FY21: S$3.1m loss) came in slightly above expectations at 109% of our forecast. While Engineering and Construction (E&C) segment saw margins negatively impacted by higher cost pressures, this was offset by higher profits in the real estate segment due to

• higher occupancy of asset portfolio which led to stronger recurring income, and
• capital recycling initiative with the sale of 351 on Braddell to Boustead Industrial Fund (BIF).

Construction margins to recover in 2HFY23

While BP has observed an improvement in construction demand for the private sector, it has been erring on the side of caution when it comes to project tendering in view of escalating cost pressures, including labour, construction material and supply chain costs. BP is focusing on securing contracts from high value-added sectors where it has a competitive advantage (i.e. pharmaceutical and technology); contract wins of S$148m in FY22 brought order backlog to a healthy level of S$235m as of end-Mar 2022. We expect E&C segment margins to remain depressed in 1HFY23F before improving in 2HFY23F as BP completes projects secured pre-covid-19.

Boustead Projects strong balance sheet to chart the next leg of growth

With its strong net cash of S$203m (end-FY22), BP looks to grow further in Vietnam. It has inked strategic collaboration with a local partner, Khai Toan Joint Stock Company (KTG, Unlisted), to acquire a 60% stake in an industrial real estate fund (to be jointly set up with initial injection of 6 assets worth US$84m). The fund plans to grow through a combination of M&A and greenfield development, and BP could benefit from growth of the income-yielding portfolio as a developer-owner. We expect the transaction to be completed by 1H23F. Locally, BP intends to ramp up industrial property development efforts when there is more visibility on the current inflationary cycle and its cost impacts.

Valuation/Recommendation

Reiterate Add with lower TP of S$1.25. BP remains attractively valued, with net cash of S$0.65/share as of end FY22 (72% of market cap). With a portfolio of industrial properties worth c.S$500m (mostly JV arrangements where BP holds c.50% stakes) that can be potentially injected into BIF or other property trusts to further unlock value in future years. We lower our FY23-24F EPS due to lower margin assumptions. Our TP falls to S$1.25, based on a 25% discount to our FY23F RNAV estimate of S$1.66 per share. Re-rating catalysts include stronger order wins; downside risks include further escalation of cost pressures and execution risks in Vietnam. You can find the full report here and the company website here