CGS-CIMB lowers Boustead Singapore's TP to $1.30 due to weaker order wins in FY2022

Boustead Singapore’s valuation still remains “attractive”, says CGS-CIMB analyst Ong Khang Chuen.

CGS-CIMB Research analyst Ong Khang Chuen is keeping his “add” call on Boustead Singapore as he expects the company to record a better performance in the FY2023.

“We see FY2023 to be a year of recovery. Geospatial segment, Boustead’s key profit contributor, should resume growth with structural tailwinds intact,” he writes in his June 8 report.

The company’s geospatial segment saw profit before tax (PBT) decline 9% y-o-y to $36.9 million in the FY2022 due to a “tough comparative base” in the year before. In the FY2021, the segment saw vastly increased adoption of smart mapping technologies to support critical activities in combatting Covid-19, coupled with front loaded revenue recognition of enterprise agreements.

In addition, Covid had accelerated adoption of geospatial technologies, which led to a segment revenue CAGR of 11% for the FY2020 to FY2022, outpacing the historical average growth rates of the segment at 7.4% from FY2016 to FY2020.

“With structural tailwinds intact (smart-city trend, push for ESG initiatives), we expect the segment to resume a high single-digit growth rate from FY2023 onwards,” says Ong.

Ong’s positive outlook is also based on Boustead Singapore’s improving outlook for its engineering segment.

The company’s management has noted that its energy engineering segment had received more enquiries “recently” with improved sentiments on higher oil prices despite the orderbook at a relatively low level of $39 million as at end-FY2022.

“We believe FY2023 will be a more promising year for Boustead’s engineering segment, with potentially more final investment decisions by the global energy sector aiding orderbook replenishment,” says Ong.

Lowered target price

However, Ong has reduced his target price to $1.30 from $1.40 previously as the company’s results for the FY2022 came in below expectations.

For the period, Boustead Singapore’s earnings fell 73% y-o-y to $30.6 million. The company’s core net profit fell 28% y-o-y on the back of weaker performance across the board. Its distribution per unit (DPU) remained healthy at 4 cents, or a dividend yield of 4.2%.

Ong has also lowered his earnings per share (EPS) estimates for the FY2023 to FY2024 due to weaker order wins in the FY2022.

To the analyst, Boustead Singapore’s valuation still remains “attractive”.

“Stripping out its stake in Boustead Projects ($150 million based on market value) and net cash of $185 million, investors are essentially paying 4x [calendar year] 2023 P/E for the geospatial segment (which is a high-margin, cash generating business that offers structural growth), while getting the energy and healthcare segments for free,” Ong writes.

According to the analyst, a successful merger by Boustead Projects to boost international expansion, as well as order wins in its energy segment are potential re-rating catalysts to Boustead Singapore’s share price. On the other hand, weaker property segment margins given escalating cost pressures and slower than expected orderbook replenishment are downside risks.

As at 2.51pm, shares in Boustead Singapore are trading 0.5 cent lower or 0.52% down at 95.5 cents.

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