SINGAPORE (July 15): CGS-CIMB Research has maintained its “add” recommendation on Boustead Projects Limited (BP) with a lower target price of 88 cents, compared to 93.1 cents previously.

This came on the back of the company releasing its FY20 results, which came in below expectations. 

For the 2H20 period, BP’s core net profit came in at $13.4 million, representing a 7% increase from the same period a year ago. But on a full year basis, FY20 core net profit fell 10.4% y-o-y to $23.0 million, below expectations at 90% of CGS-CIMB’s full-year forecast.

Despite the strong topline growth of $426.2 million or 92.5% y-o-y in 2H20, analysts Ong Khang Chuen and Caleb Pang noted that BP saw weaker profitability due to lower gross margins on ongoing projects, and a lower quantum of cost savings from previously-completed projects. 

Furthermore, BP has lowered its FY20 dividend per share to 0.8 cents from FY19’s 2 cents per share, to preserve cash to buffer against Covid-19. 

As the BP slowly returns to normalcy after the circuit breaker, the company has kept a healthy order backlog of $496 million as of end-FY20. This is higher compared to the past five-years’ average of $330 million.

However, with foreign worker dorms in Singapore being the most affected by the Covid-19 outbreak, the construction industry in Singapore was put on hold for two months from April 7 to June 1, as part of the circuit breaker (CB) measures, causing slower construction progress. The analysts expect this to cause a 44% revenue drop in BP’s design-and-build segment for FY21. 

In the post CB-era, the analysts said they “expect a staggered return to normalcy post-CB, given labour constraints and new conditions for working in the post-CB era.” They also expect lower project margins in FY21, given the need for additional safety measures in accommodation and transportation of workers. 

Meanwhile, the analysts are hopeful that a REIT listing from BP’s leasing segment in the near term is possible. 

“We think such a move could unlock significant value, as BP’s investment properties are accounted for at cost less depreciation,” adds Ong and Pang, who expects BP’s leasing segment to remain resilient in FY21F as the majority of its industrial properties are single-tenanted and leased to blue chip multinational corporations. 

This comes despite the analysts noting that BP’s rental collection rate remains high, but is actively working with a handful of tenants affected by Covid-19 to assist them with deferment of rental payments.

Due to overall slower progress completion and lower order win assumptions, the analysts have lowered FY21-22 earnings per share forecasts by 38-63%. But the stock’s current valuation of 0.55 times FY20 RNAV is deemed as attractive. 

As at 11.35am, shares in Boustead are trading at 80 cents, or at 0.8 times FY21 book with a dividend yield of 1.0%.