SINGAPORE (Sept 23): CGS-CIMB Research is initiating coverage on Boustead Singapore with an “add” recommendation and a target price of $1.00 – representing an upside of more than 36%.

In an initiation report on Friday, lead analyst Ong Khang Chuen notes that the group’s real estate and energy-related engineering order book backlog is currently at a five-year high, while its geospatial segment continues to expand steadily.

In FY20, Boustead’s energy-related engineering segment has secured $161 million worth of contracts to-date, compared to $89 million secured in FY19.

"We believe Boustead is an alternative proxy to the global oil & gas industry recovery trend, as its prequalification status for a global list of engineering, procurement and construction (EPC) contractors could allow the group to capitalise on oil majors’ higher capex in the years ahead,” Ong says.

Meanwhile, the group’s geospatial segment is riding on macro tailwinds, as big data, internet of things (IoT) and smart cities trends are booming globally. This trend has called for the need to have more advanced global positioning systems and navigation platforms to capture location-based data.

At the same time, Boustead is riding on the "smart city" wave, as government agencies are driven to invest in geographic information system (GIS) solutions.

“Stripping out foreign exchange impact, we forecast Boustead’s geospatial segment to record 7% revenue CAGR over the next 3 years,” says Ong.

The analyst also predicts that the group’s existing projects under development would bring the leasehold portfolio asset base of its 52.8%-owned subsidiary Boustead Projects to $1 billion by next year.

This could put the group on track for an eventual REIT listing, which Ong expects to materialise as early as CY20.

“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,” adds Ong.

As at 11.05am, shares in Boustead are trading 3.4% higher at 76 cents, or 1.0 times FY20 book with a dividend yield of 4.08%.