CGS-CIMB Research analyst Ong Khang Chuen has maintained his “add” recommendation on Boustead Projects Limited with a higher target price of $1.33 from 95 cents previously after the company announced the establishment of the Boustead Industrial Fund (BIF) on Dec 31, 2020.

See: Boustead Projects establishes Boustead Industrial Fund


The fund is a private business trust that is set up to invest and manage investments in business parks and industrial and logistics properties.

Boustead Projects will hold an initial 25% stake in the fund through the subscription of units and notes issued, along with other initial investors including AP SG 21 Pte Ltd and Metro Holdings.

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The way Ong sees it, the establishment of the fund is a “positive move” as it will enable Boustead Projects to “unlock the value of its leasehold portfolio and strengthen its balance sheet while also creating a platform to house industrial properties to be completed in the future”.

Boustead Projects will inject 14 of its industrial properties into the fund as the latter’s initial portfolio properties, with a total consideration of $332 million, putting the properties’ at a slight premium of their market valuation of $331 million.

“As Boustead Projects’ investment properties are accounted for at cost less depreciation, gain of disposal from this transaction is expected to be around $136m. Nevertheless, given the lower rental income from investment properties post disposal, we reduce our FY2021- 2023F core earnings per share (EPS) forecasts by 16.3-66.1%,” says Ong.

Ong also sees the possibility of special dividends from the company.

“After netting off cash required to pay off existing encumbrances of these properties and initial injection of capital into BIF, Boustead Projects forecasts cash proceeds of $137 million, which the company plans to use to 1) pursue further growth in its design-and-build business, 2) fund working capital requirements, and 3) potentially declare special dividends,” he says.

“As Boustead Projects already possesses a strong balance sheet (end Sept 2020: $56 million net cash), we see high possibility of special dividends being declared after the transaction is approved. Assuming 50% of the net cash proceeds are paid out as special dividends, DPS could amount to 22 cents or a dividend yield of 26.6% for 3Q2021 or FY3/2021F,” Ong adds.

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Ong’s revised target price is now based on a 30% discount to his FY2021F revalued net asset value (RNAV) estimate of $1.89 per share (previously 50%).

Boustead Project’s valuation of 0.43x FY2021F RNAV is attractive, in his view.

To Ong, Boustead Projects’ share price could go further up with the announcement of special dividends, or if it further injects more assets into the fund.

Shares in Boustead Projects closed 1 cent higher or 1.1% up at 96 cents on Jan 5, with a price-to-book value of 0.58x, according to CGS-CIMB’s estimates.