Boustead Singapore Limited - All eyes on its cash pile (KimEng)

Event

 Boustead reported a 53% drop in revenue to $90.7m for 1QFY Mar12. Corresponding net profit came up to $8.5m, 73% lower YoY. Excluding a $67.8m one‐off industrial leasehold property sale in 1QFY Mar11, revenue and net profit decline would have been 27% and 18%, respectively. The results were largely in line with our expectation. With the recent fall in share price, valuation has grown more attractive than ever. Maintain BUY and target price of $1.36.

Our View

 The lower revenue for the quarter was due to two key factors: (1) absence of one‐time property sales as compared to a $67.8m industrial leasehold property sale last year, and (2) slower revenue recognition as many projects were secured towards the end of FY Mar11 and are in the initial stages of execution this quarter. We expect revenue and profit recognition to spill over to the subsequent quarters.

 Boustead’s latest orderbook stands at $270m. Another $93m worth of turnkey developments are not included in the orderbook. Just prior to the release of its 1QFY Mar12 results, the company announced two new contract wins – $22m worth of contracts under the Energy‐related Engineering division and a $42.45m design‐and‐build contract secured under its Real Estate Solution division. Contract win momentum has been steady and this should underpin the level of revenue we expect for the full year.

 Net cash position has risen further this quarter to $200m, buoyed by strong operating cash flow of $34.5m. Net cash currently makes up 44% of its market capitalisation. We are keeping a close watch on how Boustead intends to use this huge cash pile to generate value for its investors. It has always maintained that it is on the lookout for M&A opportunities but nothing concrete has emerged so far.

Action & Recommendation

We are keeping our forecasts intact. The recent share price pullback has made the stock look more attractive than ever. At its current share price, the stock is trading at an ex‐cash FY12F PER of only 5.5x with an appealing dividend yield of 5.6%. Reiterate BUY with target price of $1.36.