Boustead Singapore Limited - Steady contract wins belie slow quarter (KE)

Event

? Boustead experienced a slow second quarter with revenue coming in at $91.0m (-30.3% YoY, +0.3% QoQ) and net profit at $9.1m (+12.7% YoY, +7.0% QoQ). Net profit of $17.6m for 1HFY Mar12 made up about 38% of our full-year forecast. We expect its strong outstanding orderbook of $335m to bolster the second half year to make up for the weak first half. An interim dividend of 2 cents per share was also declared. We maintain our BUY recommendation with the target price lowered to $1.32.

Our View

? The Real Estate Solutions division was the underperformer during 2QFY Mar12 with only $22.7m in revenue recognised, a 66% YoY decline. This was due to slower recognition of major projects this year, unlike last year when there was rapid revenue recognition on two sizeable contracts. The Geo-Spatial Technology division, however, continued to perform well with revenue growth of 27% YoY and PBT increase of 65% YoY. On the whole, Boustead’s divisions were all profitable.

? Contract momentum for Boustead has been stable in 2QFY Mar12 despite the uncertain economy. To-date, it has secured total contracts amounting to $272m, surpassing that for the whole of last year. Its orderbook currently stands at $335m. Earlier this year, we had lowered our contract win assumptions on concerns that the average contract size for the Real Estate Solutions division has shrunk. Based on current figures, however, chances are that Boustead will surprise on the upside.

? Boustead has preserved its balance sheet strength with a net cash position of $168.4m, which makes up 41% of its market capitalisation. The stock currently trades at ex-cash FY Mar12F PER of only 5.8x. The fluid economic conditions could present M&A opportunities and we think it is high time Boustead puts its huge cash hoard to good use.

Action & Recommendation

We cut our FY Mar12-14 net profit forecasts by 1-8% but continue to expect a stronger 2HFY Mar12. We have also made minor adjustments to our RNAV valuation for the Real Estate Solutions division. Our SOTP-based target price is thus lowered to $1.32 from $1.36 previously. Dividend yield remains attractive at 6.1%. Maintain BUY.