CGS-CIMB ups Boustead Projects' TP on strong order book and stronger-than-expected 1HFY2023 earnings

CGS-CIMB's Ong Khang Chuen has also upped his EPS estimates for FY2023 to FY2025 by 41% to 56%.

CGS-CIMB Research analyst Ong Khang Chuen is keeping his “add” call on Boustead Projects after the company reported earnings of $7.7 million for the 1HFY2023 ended Sept 30, 30% higher y-o-y.

Based on Ong’s estimates, Boustead Projects’ half-year earnings stood above his expectations at 65% of his full-year forecast.

As at end-September, the company’s order backlog grew to $452 million following a major contract win that’s worth around $300 million.

“With this, coupled with the progressive clearing of projects secured pre-pandemic, we expect engineering and construction (E&C) margins to improve in 2HFY2023 and return to a healthier level of mid-single-digit profit before tax (PBT) margin by FY2024,” Ong writes.

“Boustead Projects looks to selectively rebuild its order backlog in the high value-added sectors where is maintains a competitive advantage (i.e. pharmaceutical and technology), to better navigate potential margin risks amid the current volatile macro environment of tighter local conditions for manpower, materials and supply chain,” he adds.

Further to his report, the analyst notes that Boustead Projects has a strong net cash of $155 million as at the end of the FY2022 to fund acquisitions. In Singapore, the company’s 50%-owned joint venture (JV) has completed the acquisition of a $515-million Bideford Road mixed-development that has targeted hospitality, healthcare and commercial components.

“The building is currently undergoing alteration and additions (A&A) and we expect it to start contributing in FY2024,” says Ong. “In Vietnam, Boustead Projects is also currently in final phases of completing the acquisition of a 60% stake in an industrial real estate fund (to be jointly set up with a local JV, with Boustead Projects injecting six assets worth US$84 million ($116.0 million) and cash payment of US$28 million).”

“The fund plans to grow through a combination of mergers and acquisitions (M&As) and greenfield developments, and Boustead Projects could benefit from growth of the income-yielding portfolio as a developer-owner,” Ong adds.

To reflect the company’s higher order backlog, Ong has upped his earnings per share (EPS) estimates for FY2023 to FY2025 by 41% to 56%. Accordingly, his target price is lifted to $1.35 from $1.25 previously. Ong’s new target price is still based on a 25% discount to his revised net asset value (RNAV) estimate for FY2023.

The analyst is also expecting the company to post a stronger showing in the 2HFY2023 and a further recovery in the FY2024 with progressive margin recovery for its E&C segment. He is also expecting the company to log higher rental income as its new investments start to contribute to its financials.

In Ong’s view, stronger order wins are a key re-rating catalyst for the company while a slow ramp-up of Bideford property’s occupancy and execution risks in Vietnam are downside risks.

Shares in Boustead Projects closed flat at 79.5 cents on Nov 24.

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