SINGAPORE (Jan 17): Having made its name as a real estate solutions provider, Boustead Projects’ focus is naturally on its core engineering expertise.

The group’s Design-and-Build segment, which provides turnkey solutions to clients for custom-built smart eco-sustainable business park and industrial developments, accounted for nearly 90% of total group revenue in 1HFY2020 ended Sept 30, 2019.

The segment also contributed to just over 69% of Boustead Projects’ total profit before tax during the period.

But while the group is favoured for its “niche expertise” and “competitive advantage” in the Design-and-Build segment, market watchers say it is Boustead Projects’ lesser-known segment – the real estate business – that could propel it to the next level.

“Boustead Projects’ portfolio of 24 wholly-owned and jointly-owned properties – 20 completed and four under construction – has hit a sizeable asset base,” says UOB Kay Hian lead analyst Lucas Teng in a Jan 16 report.

Teng notes that the market value of Boustead Projects’ completed properties is over $800 million, of which wholly-owned assets made up around $366 million.

“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.

In particular, Teng highlights that Boustead Projects’ wholly-owned properties have an occupancy rate of approximately 93% and a weighted average lease expiry (WALE) of more than five years – higher than that of listed industrial REITs.

“We have reached a stage where various options to monetise the value of our leasehold portfolio are under active review by the board,” the group had said in its annual report for FY2019 ended March 2019.

Meanwhile, Teng also notes that Boustead Projects is in good financial health.

As at 2QFY2020 ended September 2019, the group was in a net cash position of $51.1 million. According to Teng, Boustead Projects has also had a low gearing ratio historically, with a five-year average of 15.8% from FY2015 to FY2018.

“The stock is trading at 1.0x FY20F P/B, below its five-year average and at a discount to industrial REITs’ average of 1.3x P/NAV,” Teng adds.

As at 2.56pm on Friday, shares in Boustead Projects are trading 1 cent lower, or down 1.1%, at 94 cents.