Boustead Projects Limited (‘BP’) is a leading industrial real estate solution provider listed on the SGX. It provides high-specifications industrial projects that are built to suit its clients’ needs on a turnkey basis. It is also the real estate business arm of mainboard-listed, engineering services group Boustead Singapore. By way of issuance of dividends in specie of BP shares from Boustead Singapore, BP IPO-ed on 30 April 2015 at 88 cents with ticker code SGX:AVM. As at 21 June 2019, it has a market capitalisation of SGD$285 million. The business model of BP is plain and simple; it offers 2 types of services to its clients.
Business Model of Boustead Projects Limited
Diagram 1: Business model of Boustead Projects Limited
As seen its Diagram 1, BP offers (i) Design and Build services and (ii) a Leasehold Portfolio for its clients to lease office space from.
1) Design And Build
Boustead Projects E & C Pte Ltd, BP’s wholly-owned subsidiary, offers a full suite of industrial real estate solutions to meet every client’s unique requirements and specifications. It engages the clients at a very early stage of development so that it can consider, interpret and understand their needs, processes and strategies and then help to carry out the financial and feasibility studies. BP can design and build industrial facilities, business parks and commercial buildings. Its track record include over 3 million square meters of industrial real estate spanning over 170 projects in Singapore, Malaysia, Vietnam and China. In addition, BP is one of the few approved developers by Singapore Building & Construction Authority (‘BCA’) to execute construction contracts of unlimited value.
The Design and Build industry is actually a niche segment with fewer participants in the market compared to construction industry. Most importantly, BP serves as the overall Project Manager and outsources the labour-intensive construction works to general construction companies. It is therefore less reliant on cheap foreign labour and less plugged in to the razor-thin margins commonly associated with the construction sector.
2) Leasehold Portfolio (Design And Build And Lease)
Besides helping its clients to design and build their facilities, BP also offer to own these buildings on their behalf. This is known as “Design, Build and Lease (‘DBL’). BP’s clients span from a wide spectrum of industries such as Aerospace, Precision Engineering, Logistics, Healthcare, Pharmaceutical etc.
The DBL solution helps BP’s clients to free up capital so that they can focus on their core businesses and maintain an asset-light strategy. This is a highly popular solution as BP is there throughout the entire customer journey; from designing, building, and maintaining the asset. Typically, before proceeding with a custom DBL project, BP would have already secured its end-customer and fixed the commercial leases terms. This allows BP to have a good gauge of the profitability of the project before it even commences.
In taking over this burden on behalf of the client, BP needs significant balance sheet ammunition. That is why it has utilised fund management platforms where strategic investors to provide the necessary equity for BP to scale quickly. Some of these strategic partnerships worth highlighting are:
A) Boustead Development Partnership (BDP)
This is a partnership with Abu Dhabi Investment Council (ADIC) since 2014 with an initial development target of over $600 million when fully leveraged. Since its inception, its has secured 6 development projects, the most notable of which is ALICE@Mediapolis.
B) THAB Development Sdn Bhd
This is a partnership platform with AME Construction Sdn Bhd, Tat Hong Holdings and CSC Holdings Ltd established in 2013. It recently completed a logistics hub at the Port of Tanjung Pelepas which caters to corporations looking for quality logistics space at the port.
C) Echo Base JV
Established in 2018, this is a real estate fund management and services platform focused on the development, investment and management of smart buildings and integrated developments across Asia Pacific in global gateway cities. One of the investors is the CEO of Razer. Not surprisingly, its maiden project is the Razer SEA HQ announced in late 2018. This strategic partnership could potentially pave the way for BP to enter into non-industrial asset classes and enhances its geographical reach.
With all these additional firepower, BP has built up a sizeable leasehold portfolio consisting of 24 properties, of which 19 are completed and 5 are under development.
Investment Merits of Boustead Projects
1.Record Order Book
Since end 2018, news of BP’s multiple contract wins have come fast and furious. As at FY2019, BP’s order book backlog stands at $660 million. Diagram 2 will tell the story best.
Diagram 2: Boustead Projects’ order book backlog from FY2015 to FY2019
With its Design and Build division ending FY2019 with thrice the usual order book, it is the main reason why Heartland Boy bought into this stock. It is not just the size of the order book, but the number of firsts that it achieved in the recent contract wins:
- 10 Dec 2018- First public sector contract to build JTC multi-storey recycling facility awarded via the GE BIZ tender process
- 21 Dec 2018- Awarded contract to build the iconic Razer SEA HQ
- 18 Jan 2019- Largest private sector construction project in BP history as it was awarded the contract to develop Surbana Jurong Campus
Heartland Boy believes that BP is finally reaping the fruits of years of investing substantially in advanced capabilities with industry 4.0 transformation and market-leading standards. Assuming that it had not been overly aggressive in its bid submissions, these contract wins will have significant positive impact to its bottom line. Assuming a net profit margin of 9%, the current orderbook will translate into profits of ~$60 million to be recognized progressively in FY2020 and FY2021. That means the contribution from D&B division alone will match the Group’s annual profits of previous years.
2. Leasehold portfolio recorded at cost less depreciation
BP’s wholly-owned properties are recorded on its balance sheet at cost less depreciation. It therefore does not have the accounting practice of marking its investment properties to fair market value. Therefore, what is recorded on its balance sheet is not a true reflection of the value of its properties. For instance, in its FY18 annual report, BP’s Chairman and Managing Director revealed that the market valuation of its leasehold portfolio has already approached $800 million. (Note that this could potentially include properties which BP do not hold 100% shareholding)
When compared to its balance sheet, the total value of its investment projects (10 projects) and properties held for sale (5 projects) was only $159.5 million. In its 4Q19 results announcement, the total value of its investment projects and property held for sale have since grown to $208 million as it was boosted by some property completions in year passed. As the FY2019 Annual Report is not yet published at the time of this blogpost, Heartland Boy is unable to derive the professional valuers’ valuation of its investment properties and properties held for sale.
Nonetheless, going by FY2018, it is acknowledged that a significant gap exists between what is recorded on the books and the true economic conditions. This suggests that BP’s shares are significantly undervalued. However, there is little value talking about such a discount gap unless the portfolio can be unlocked to return value to the shareholders- i.e. the properties must be sold in order for shareholders to enjoy the capital appreciation.
3. Possible REIT Listing In The Short Term
When BP was spun off from Boustead Singapore, a possible medium goal was to seek an industrial REIT listing by spinning off its leasehold portfolio. It was a medium-term goal because it takes time to build up a portfolio (close to $1 billion) that is sizeable enough to be spun off into a REIT. As Viva Industrial Trust and ESR-REIT have shown, it is necessary to have scale to command a decent market valuation.
As the various fund platforms have allowed BP to scale up quickly, the REIT dream is no longer a medium-term goal anymore. In fact, Heartland Boy feels that this could potentially take place in the next couple of years. If that happens, the severely undervalued leasehold portfolio will then be able to reward shareholders (perhaps by way of a special dividend) with the capital gains that it has made over the years. In addition, the establishment of a REIT platform would accelerate BP’s future capital recycling efforts and it will allow them to consider taking on even more development projects under its leasehold portfolio.
Investment Risks of Boustead Projects
1. Government Policies And Regulations
BP operates in the industrial segment and like any other real estate sector, it is exposed to government’s policies and regulations. As Heartland Boy found out via APAC Realty and Roxy-Pacific, the Singapore government will not hesitate to take a strong interventionist approach if it sees the need to. So far, the government continues to promote high-value industrial sectors that BP is focused on.
2. Bitten Off More Than It Can Chew?
While the recent contract wins and record order backlog is definitely something to rejoice about, Heartland Boy is mindful that this could also invite questions such as compressed margins and execution capability. It is important to consider whether:
- BP had been too aggressive in its bids? If that is the case, its operating margins could be compromised.
- Would BP be able to execute these contracts in time since current backlog is almost 3 times of what it has traditionally handled? If it fails, it might face liquidated damages or reputation losses.
If Heartland Boy were to hazard a guess, it is likely that BP was not in any desperate situation to secure these contracts. He doesn’t see it worthwhile to ask its Investor Relations department as such a question would generally elicit a standard response. Instead, if Heartland Boy is able to make time for its upcoming Annual General Meeting (‘AGM’), he would like to ask the Board of Directors these questions directly. Meanwhile, he will continue to monitor the margins going forward as shown in Diagram 3.
Diagram 3: Boustead Projects’ historical margins and ROE
3. Receipt of Writ Of Summons
In Nov 2018, YCH Holdings filed a claim that it suffered damages in the sum of S$2.33 million between 2012 to 2014 as a result of a breach of contract from BP. BP has stated that it will defend the claims vigorously but the result of which is only likely to be made known in FY2020. Viewed in totality, this represents less than 10% of its annual profits and Heartland Boy assesses this risk event to be small.
Review of Boustead Projects
BP is led by an experienced management team (MD is Thomas Chu) and has reported solid financials since it debuted as a listed entity. According to Bloomberg, at a share price of 0.915 cents, Boustead Projects has a dividend yield of 2.2% and a Price/Book Ratio of 0.91. Shares buyback was last done at March 2018 at a stock price of $0.80. It is unlikely that this will continue in the near term as BP would require plenty of cash to carry out the development works (eg: Braddell Road GLS tender that it won end of last year)
Employing a discounted cashflow methodology to value Boustead Projects, Heartland Boy derived at a target price of $1.20. This does not factor into the scenario that BP is able to unlock the value of its undervalued leasehold portfolio. There is currently no analyst research report that covers Boustead Projects although CGS-CIMB recently released a “non-rated” report on it.
Vested at an average price of 0.93 cents since early June 2019. He will continue to share his thoughts of Boustead Projects on forums such as InvestingNote.
This article was published on 23 June 2019.
hi, given their lumpy cash flow, I would like to ask if discounted cash flow is still a suitable way to value BP?
Hi Poon,
It is probably one of the ways to value it besides RNAV. I took the current order book and rental cashflow to perform the DCF. I then compared it to the average annual operating cashflow since its listing and found it to be quite reasonable. Thanks.
Oh okay. alright thanks for the clarification.
Do you have the estimation of the total RNAV ? I suspect the RNAV would have crossed $2 by now. Few years ago, CIMB analyst report estimated RNAV to be $1.70. But this was before the recent leasing projects (e.g Alice, etc ) as well as the series of big development project wins, which would have greatly boosted the RNAV at least by 20 to 30%…
What would the valuation of BP be if we factor in value realisation from REITS listing ? $1.40 to $1.60 ?
Hi Mystery Investor,
I am waiting for the Annual Report to be published. It will help me to get a more accurate internal estimate of its RNAV.
Assuming BP lists 50% of its leasehold portfolio into a REIT today, my TP would be in the range of $1.60- $1.70
If Boustead Project is conservatively valued at say $1.50, then Boustead’s share of BP would be $0.50.
Boustead Group net cash was $99.3 mil (end of Fy2019). Adding back the net investment outflow from Boustead project to arrive at Boustead company level net cash = $99.3mil + $93mil = about $ 200mil net cash (at Boustead company level) or $0.40. worth of Boustead.
We have not yet accounted for the very profitable Geo-spatial and its Engineering segment (Oil & Gas etc).
is Boustead at $0.785 even more undervalued than Boustead Project???
just to add that Boustead has been buying back aggressively at 77 cents recently.
Healthcare is the up and coming segment.
also, Boustead has quite a bit of near-cash holdings….
Today, our leasehold portfolio has 24 wholly-owned and jointly-owned properties (19 completed and five still under construction) spanning over 370,000 square metres of gross floor area in Singapore, China, Malaysia and Vietnam, with a projected total market valuation surpassing S$1 billion. We have reached a stage where various options to monetise the value of our leasehold portfolio are under active review by your Board.
if Boustead project is worth say $2.40, Boustead’s share will be one-third or $0.80.
By paying the current market price of less than $0.80 for Boustead, we still get the following for free:-
1. Geo-spatial (cash cow => largest profit maker after BP segment)
2. Health Care (up and coming with lots of potential)
3. Engineering segment (oil and gas plus others)
4. Net cash position !!!!!!!!!!!!!!!!!
need to be able to unlock this value first but i am increasingly optimistic.
If the company cannot unlock the value, then no point listing Boustead Project as a separate entity in the first place….
I am sure it will be unlocked, its just a matter of when and whether shareholders can wait 😀
i am sure it can be unlocked, the question is whether shareholders can afford the wait
What is your take profit price level now that the annual report is out ?
$1000 mil => more than $3 RNAV. Boustead Project’s share is probably 60 to 70%.
Assuming 60%, BP’s RNAV = $1.80 (portfolio alone). => conservatively
How about the design and build profits ? (book order of ~$700mil)
Hi Roland,
I have estimated the design and build profits before by using net margin of 9%. It can translate into $60mil profits!
How about the take profit level for BP, now that it has revealed that the total market valuation for all leasing properties has exceeded $1 billion?
I suspect BP should own at least 65 to 70% of this portfolio….
And the big upcoming project at Malaysia (Subang airport, etc) => not included into the leasing portfolio yet I suppose…
the current share price for both Boustead and Boustead Project is really a STEAL!!!!!!!!!!
Did u go for the recent AGM ?
Hey nope, caught up w work
with so many companies going for REITS listing, not sure when if BP is going to do it soon…
INCORPORATION OF SUBSIDIARY IN SINGAPORE
Singapore, 25th October 2019
The Board of Directors of Boustead Projects Limited (the “Company”) wishes to announce that the Company has incorporated a wholly-owned subsidiary in Singapore known as Boustead Industrial Fund Management Pte. Ltd. (“BIFM”).
The principal activity of BIFM is that of property fund management. BIFM’s initial paid-up capital is S$250,000.
The incorporation and registration of BIFM are not expected to have any material impact on the Group’s earnings per share or net tangible asset value per share for the financial year ending 31 March 2020.
None of the Directors or controlling shareholders of the Company has any interest, direct or indirect, in the above transactions.
With the US-China trade war having dragged on for nearly two years now, the global supply chain, particularly in electronics manufacturing, is being reconfigured. This trend will be irreversible, regardless of what US President Donald Trump says, according to veteran fund manager Wong Koi Hoi of APS Asset Management.
Even if manufacturers stay put in China, they will be looking for other locations if they are building new capacity. “They cannot subject their companies to such huge political risks. Trump’s successor may do the same thing,” Wong, founder and group chief investment officer of the firm, tells The Edge Singapore. “You don’t want your viability to be influenced by political decisions, which can be made just like that. So, especially for manufacturing companies making products in China to export to the US, they have this fear that the levies, tariffs on their products will increase.” For these manufacturers, the Plan B forced upon them is to go to other Asian countries. Vietnam has emerged as the big winner, although other countries such as Malaysia are enjoying spillover effects too.
According to Wong, industrial estates near Kuala Lumpur are seeing new demand from Chinese companies. Unfortunately, this big shift will be costly for everyone. The production of goods such as shoes and garments can be shifted quite easily to other countries. Not so, however, for electronics. For example, a smartphone has about 100 different components. If all the suppliers were to move, it would take four or five years for the whole ecosystem to do so. “That’s a humongous task,” says Wong.
Having established itself in overseas countries such as Vietnam and Malaysia, BP should benefit from the China USA Trade war…
Mr Thomas Chu, Managing Director of Boustead Projects said, “We are extremely pleased to have completed this acquisition under the Boustead Development Partnership, adding yet another high quality property to the Partnership’s portfolio, which currently numbers seven properties with reputable global tenants. The securing of a new tenant for the latest Property is also a significant step that underpins the long-term prospects of our investment in this Property. Our overall leasehold portfolio – both wholly-owned and jointly-owned – has also grown to 25 business park and industrial properties with over 410,000 square metres in expected gross floor area.”
410,000 sqm x 10.76 x$250 psf = $1 billion worth of industrial properties
REITS listing should be coming soon…..Counting down…..:)
I hope so too! my biggest component in my portfolio
Pls take a look at the parent company Boustead too, which owns 53% of Boustead Project. it has a net cash of $0.40 and share price is only $0.76. Dividend is much higher too.
https://research.sginvestors.io/2019/12/boustead-singapore-ltd-cgs-cimb-research-2019-12-09.html
Hi, would like to check (since the annual report is out) that the RNAV is holds at 1.50? and given the slowdown in the industrial real estate, do you still think the margin of safety is wide enough for people to go in at the current price?
Noting that 53% of the company is owned by Boustead Limited, would it be better since an increase in Boustead projects will also lift the price up of boustead limited? And would it be possible to check if you are vested in Boustead Limited.
Cheers
Hi Jayden,
Unfortunately I am not a licensed financial advisor and cannot offer financial advice. I am not vested in Boustead Limited.
Both Boustead and BP are undervalued. As to which counter is a better investment, it is up to the individual.
https://sginvestors.io/sgx/stock/avm-boustead-proj/target-price
https://sginvestors.io/sgx/stock/f9d-boustead/target-price
U may wish to read up more details at the above link.
I am not here to promote any stocks. Please always do your own research before embarking on any investment decision. I will not be liable for any of your own decisions. Your use of any information or materials is entirely at your own risk. It is your responsibility to ensure that any products, services or information meet your specific requirements. I do not produce material which meets the objectives of any specific financial and risk profile of investors.
https://www.theedgesingapore.com/capital/investing-ideas/boustead-projects-started-buy-strength-overlooked-assets-possible-reit-spin
“Monetising the asset portfolio will be a highly anticipated catalyst,” Teng says. “A spin-off into a REIT platform could also help unlock value for Boustead Projects in various forms, such as receiving recurring management fees.”
As such, UOB Kay Hian is initiating coverage on Boustead Projects with a “buy” recommendation and a target price of $1.18, representing a potential upside of more than 24% from its last closing price of 95 cents on Jan 16.
Price Action may indicate that the REITS listing is probably impending….
(I am not here to promote any stocks. Please always do your own research before embarking on any investment decision. I will not be liable for any of your own decisions. Your use of any information or materials is entirely at your own risk. It is your responsibility to ensure that any products, services or information meet your specific requirements. I do not produce material which meets the objectives of any specific financial and risk profile of investors.
BP should be ready to take off any time soon, once the COV-2019 measures in Singapore are removed and DORSCON level is restored to normalcy….
I’m researching on this company. You mentioned BP has a total of 19 + 5 under construction leasehold projects, Where do I find this information? Can’t seem to find it.
Hi John,
I believe you can find it in the annual report.
https://www.valuebuddies.com/thread-6-page-126.html
useful website with tons of valuable information.
If Boustead Project takes off with REITS listing, its parent company with 53% share of BP will take off too.
Currently, Boustead is extremely undervalued with market cap close to 90% covered by net cash+ investment.
Possible for another shark investor buy out Boustead on the cheap ?
e.g. Pay only 80 cents and get the following?
1. Net cash of 40 cents
2. Investment security (10 cents)
3. BP with RNAV close to $2 dollars.
4. geo spatial and health care segments => essential services
5. engineering arm
Industrial REITs could ride out Covid volatility
https://www.theedgesingapore.com/capital/reits/industrial-reits-could-ride-out-covid-volatility
SINGAPORE (Apr 3): A large diversified tenant base, long weighted average lease expiries (WALEs), and manageable aggregate leverage levels — coupled with a degree of geographical diversifica-tion with assets that require limited human in-tervention — are likely to be the most defensive among the REITs.
In this respect, Keppel DC REIT springs to mind. Most of its properties are leased on a core and shell basis which is equivalent to double or triple net leases. As the population in developed markets and places like China work from home (WFH) and broadband us-age increases for video-conferencing and tel-ecommuting, Keppel DC REIT’s tenants will benefit from the higher usage trend rather than the REIT itself.
Similarly, Mapletree Industrial Trust (MINT), which now has around 26% of its portfolio by value in data centres, has these mainly tenanted on a core and shell basis. Its tenants could benefit from more use of data centres, and the data centres have a longer WALE than MINT’s multi-tenanted business parks and flatted factories. Its data centre portfolio is 7.7% by value in Singapore, and 18.5% in the US. Ascendas REIT’s IT and data centres account for 17% of value, 12.4% of net lettable area and 11.2% of gross rental income.
The big three – Ascendas REIT, Mapletree Logistics Trust (MLT) and MINT – are probably the most defensive along with Keppel DC REIT. Ascendas REIT has 1,490 tenants, with the top 10 tenants contributing 17.9% to gross rental income (GRI) or gross revenue and a WALE of 3.9 years. MINT has an even more diversified tenant base — 2,200 tenants, with its top 10 tenants contributing 28.5% to GRI. Its WALE is also 3.9 years. MLT has a WALE of 4.4 years, 670 tenants and a geographically diversified portfolio of logistics properties in nine countries. Its largest tenant is CWT which accounts for 9.5% of GRI. (CWT is part of the troubled HNA Group.) Geographically, MLT’s largest contributors to revenue are Singapore (36%), Hong Kong (23.6%) and China (10.1%).
Impact of Covid-19 on valuations
The truth is, we just do not know how Covid-19 will affect valuations. During the 2007–2008 global financial crisis (GFC), the valuations of the individual properties of both Ascendas REIT and MLT did not fall. Still, both REITs announced equity fund raising. Ascendas REIT announced a $400 million placement and preferential equity fund raising in 2009. MLT announced a rights issue in July 2008 to raise more than $600 million to fund acquisitions and refinance debt. As at June 30, 2008, MLT’s gearing was at 56.3%. In those days, rated REITs could have gearing ratios of 60%.
***
Boustead Project is NET CASH. ZERO gearing.
With RNAV close to $2.00, BP may be ready to launch a REITS when the COVID is over, probably early next year.
Boustead’s management has not stinted on rewarding shareholders in the past!!!
https://research.sginvestors.io/2020/04/boustead-projects-cgs-cimb-research-2020-04-13.html
Possible REIT launch remains the key catalyst
We estimate existing projects under development would bring BP’s leasehold portfolio asset base to S$1bn this year, putting it on track for an eventual REIT listing. With the help of higher occupancy rate after the completion of the ALICE (ALICE@Mediapolis) asset stabilisation, we continue to see REIT listing in 2020/2021 as a possibility. We think this could unlock significant value, as the investment properties are accounted for at cost less depreciation. A special dividend is also a possibility after a successful REIT listing, in our view.
Reiterate Add with a lower TP of S$0.93 We lower our FY20-22F EPS forecasts by 20.5%-21.8% mainly due to downward revisions of our order win forecasts. BP’s valuation of 0.35x FY20F RNAV is attractive, in our view. We reiterate our Add call with a lower TP of S$0.93, based on a conservative 50% discount to our FY20F RNAV estimate of S$1.86 per share. Re-rating catalysts are: 1) more large-scale order wins, and 2) updates on potential REIT listing. Downside risks are prolonged disruptions to ongoing construction works.
BOUSTEAD PROJECTS AWARDED SIGNIFICANT DESIGN-AND-BUILD CONTRACT IN MALAYSIA
https://links.sgx.com/FileOpen/BP_Announcement_Boustead%20Projects%20Awarded%20Significant%20Design%20and%20Build%20Contract%20in%20Malaysia_08.05.2020.ashx?App=Announcement&FileID=609866
• Design-and-build contract awarded to Boustead Projects’ subsidiary in Malaysia, BP Engineering Solutions Sdn Bhd to deliver advanced high-tech industrial facility • Boustead Projects extends track record in delivering high-end facilities for technology industry to over 584,000 square metres • Boustead Projects Group’s order book backlog raised to S$710 million
The above contract is expected to have a positive material impact on the profitability and earnings per share of the Boustead Projects Group in the current financial year ending 31 March 2021 (“FY2021”). [/b] However, it is not expected to have a material impact on the Boustead Projects Group’s net tangible asset value per share for FY2021.