Published August 17, 2009

Boustead's Q1 showing may be harbinger of what's to come

By VEN SREENIVASAN
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MAINBOARD-listed engineering group Boustead Singapore recently announced that it had raked in revenue of some $118.9 million and net profit of $9.5 million for its April- June first quarter. These were rises of some 49 per cent and 68 per cent respectively over the same period last year. This despite the challenging economic circumstances during the period.

Yet, there was scant attention paid to the results, either by analysts or the media. One investment house downgraded the stock to a 'hold', from 'buy', citing a slower year ahead.

Boustead, with its multiple business platforms, complex technical capabilities and global presence in a dozen countries stretching from Venezuela, through the Middle East, and into Australasia and South-east Asia, does not fit simplistic labels that define single-business companies.

This 181-year-old company has within itself the capabilities to sustain steady long-term growth.

Boustead came into the second quarter with a strong balance sheet comprising some $145 million in net cash. This could be boosted to $200 million by fiscal year-end from sale of more development property. Meanwhile, its orderbook - which now stands at some $525 million - continues to grow steadily.

Its real estate division remains the biggest business unit, with its orderbook in the region of some $245 million. During the April-June quarter, this unit's revenue surged some 242 per cent to $71.1 million, attributed largely to landmark projects, and a portion of the township project in Libya.

The company added an interesting preamble in its notes to its results. 'Reporting financial results on a quarterly basis may not accurately reflect the performance of the group's project-oriented businesses whose revenue and profit are recorded according to stages of project completion.

'Full-year to full-year comparisons are more appropriate for analytical purposes.'

Indeed, one characteristic of Boustead's business is the 'lumpiness' of earnings recognition. For example, its first quarter included only a small portion of its massive $300 million Al Marj project in Libya.

Similarly, its water and wastewater management unit, Boustead Salcon, reported revenue of just over $2 million, despite sitting on a massive orderbook of $170 million. This unit is working on several major global water projects which are only in their early stages.

There are also the fluctuations in forex rates. Boustead's geo-spatial technology unit's Q109 revenue fell 12 per cent to $19 million, due entirely to weakness of the Australian dollar during that period.

Its energy-related engineering division recently boosted its orderbook to some $110 million after it secured contracts totalling $27 million from refineries and gas processing plants located in Algeria, Australia, Canada and Saudi Arabia.

Last year, Boustead posted full-year net earnings of a record $60.1 million, a 16.8 per cent rise from FY2008's $51.5 million. This came on the back of an 18 per cent rise in full-year revenue to $516.6 million. Since then, the group has snared more projects around the world.

But the challenge for this cash-rich company is to find a way of converting its cash horde into a sustainable stream of recurrent income. It can do this either through acquisitions or by changing parts of its business model.

In the past, it derived a significant portion of its income from the sale of completed or partially completed projects.

This build-and-sell model has ensured seven consecutive years of record earnings and revenue. But with the changed global economic landscape, it has to transition to a build-and-lease or build-and-operate model. This is already happening: about $25-30 million of the current year's bottom line is likely to come from recurrent income streams.

Boustead may not be a company which fits into simple definitions which many market watchers have gotten used to. Rather, this is a global player with complex multiple business models, and technical capabilities.

And those who appreciate it for what it is will know that this technology-driven engineering, resource management and energy company has built up significant traction in the resource-rich and populous growth markets of the developing world.

Its first-quarter performance may just be a teaser of what is yet to come.