Boustead Singapore Company Update: A Comprehensive Analysis

Published by OCBC Investment Research on 15 November 2024

Overview of Boustead Singapore

Boustead Singapore Limited, one of the oldest continuous businesses in Singapore, operates as a progressive engineering and technology group. The company has a diverse portfolio spanning Energy Engineering, Real Estate, Geospatial Technology, and Healthcare. Boustead’s strategic positioning allows it to capitalize on significant secular trends such as climate action, smart cities, and the burgeoning demand for healthcare solutions in Asia Pacific. The company’s strong balance sheet and net cash position provide a robust foundation for potential investments and acquisitions, enhancing shareholder value.

Financial Performance and Market Position

Boustead’s performance in the first half of fiscal year 2025 (ending 31 March 2025) demonstrated resilience amidst challenging global conditions. The company reported a 20% year-on-year decline in revenue to SGD295.2 million, primarily due to reduced contributions from its Energy Engineering and Real Estate Solutions divisions. Despite this, Boustead’s Profit After Tax and Minority Interest (PATMI) surged by 34% year-on-year, reaching SGD38.3 million, driven by margin expansion and a reversal of impairment loss.

Key Divisions and Their Performance

Geospatial Technology Division

The Geospatial Division emerged as the most significant contributor to Boustead’s revenue in 1HFY25, witnessing a 4% year-on-year increase to SGD108.4 million. The division’s deferred services backlog also grew, reflecting strong demand for its technology and smart mapping capabilities across Asia Pacific.

Energy Engineering Division

The Energy Engineering Division faced challenges with a 15% year-on-year decline in revenue to SGD74.8 million, attributed to a dwindling order backlog. Despite securing approximately SGD96 million in new contracts, the division’s order backlog decreased from SGD247 million as of 31 March 2024 to SGD157 million as of 30 September 2024.

Real Estate Solutions Division

The Real Estate Solutions Division, operating under Boustead Projects, reported a 38% year-on-year decline in revenue to SGD105 million. This decrease was primarily due to a significantly lower order backlog carried forward from FY24.

Healthcare Division

The Healthcare Division showcased a remarkable 47% year-on-year increase in revenue to SGD6.9 million, driven by a turnkey contract in a non-core business line. Without this contract, the division’s revenue would have remained relatively flat.

Investment Thesis and Recommendations

Despite the global economic uncertainties, Boustead Singapore is viewed as an undervalued gem with substantial growth potential. The company has been rated as a “BUY” with a revised fair value estimate of SGD1.39 per share, down from SGD1.47. This revision accounts for a conservative outlook due to the current order backlog but leaves room for upside should contract win momentum improve in the second half of FY25. Boustead’s strategic focus on eco-sustainable solutions and technological advancements positions it favorably for future growth.

ESG and Corporate Governance

Boustead Singapore is committed to environmental stewardship, developing high-performance teams, and maintaining high corporate governance standards. The company actively engages in philanthropic activities and has donated over SGD4 million to various causes over the past 15 years. Boustead’s adherence to a stringent Code of Conduct ensures transparency and ethical business practices.

Potential Catalysts and Risks

Key potential catalysts for Boustead include strong contract win momentum, accretive acquisitions to enhance business scale, especially within the Healthcare Division, and the possible spin-off of real estate assets into a REIT. However, risks such as cost overruns affecting profit margins, widening losses from the Healthcare Division, and macroeconomic weaknesses impacting fiscal and corporate spending remain.

Valuation Analysis

The sum-of-the-parts (SOTP) valuation method estimates Boustead’s total valuation at SGD759.4 million, with significant contributions from the Energy Engineering and Geospatial Technology divisions. A notable conglomerate discount of 10% has been applied in the valuation process.

Conclusion

In conclusion, Boustead Singapore Limited presents a compelling investment opportunity despite the challenging external environment. With its diversified portfolio and strategic focus on long-term secular trends, Boustead is well-positioned to unlock value for its shareholders. The company’s commitment to ESG principles and strong corporate governance further enhances its attractiveness as a sustainable investment.