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Boustead Singapore Engineers Higher Profit

Ser Jing - Boustead Singapore Engineers Higher Profit (pic) Boustead Singapore (SGX: F9D), a provider of geo-spatial solutions and infrastructure-related engineering services, reported its first quarter results yesterday. It posted a 14% rise in quarterly revenue to S$128.7m compared to a year ago. Profits were up 45% year-on-year to S$17.7m.

The company breaks up its revenue stream into four divisions: Energy-related Engineering; Water & Wastewater Engineering; Real Estate Solutions; and Geo-Spatial Technology.

Energy-related Engineering brought in S$34m in sales for the quarter, up 38% from a year ago. The growth was generated by the upstream and downstream oil & gas business.

Revenue at the Water & Wastewater Engineering division dropped 25% year-on-year to S$3.9m as the company remains intent on taking on businesses in only very niche areas of industrial water and wastewater engineering due to a strategic refocus.

Driven by a progressive completion of the company’s order book backlog, the Real Estate Solutions division grew its top-line by 23% to S$63.4m compared to a year ago. For the division, management had continued to successfully increase Boustead’s portfolio of owned-properties, which it then leases to third parties.

This is done to increase recurring rental income, albeit at the expense of a reduction in design-and-build project revenue.

Lastly, Geo-Spatial Technology brought in S$27.4m in revenue for the quarter, a slide of 14% from a year ago. The decline was largely due to two factors: a weakening Australian dollar in relation to the Singapore dollar; and a slowdown in demand for the division’s product and services in Australia – a major market for the division – as a result of the run up to the country’s 2013 Federal Elections, which will take place on September 2013.

Despite the overall growth in Boustead’s top-line, its gross margins had suffered as its gross profit slipped 5% year-on-year to S$38.3m. The primary reason for the drop was due to challenging conditions in the industrial real estate market, itself a victim of pricing-pressure from competitors as well as higher labour costs in Singapore stemming from a tight labour market.

Even with smaller gross margins, the company had managed to post a 45% increase in profits, as mentioned earlier. The profit-growth was predominantly due to a one-time S$9.1m gain derived from the sale of assets related to a subsidiary that holds an industrial property in Tongzhou, China, as well as paper-gains on the company’s foreign exchange contracts and financial investments (a.k.a. profits that are mostly not related to the company’s main business operations).

Boustead’s balance sheet ended the quarter in the pink of health, with a cash hoard of S$242m and total debts worth only S$33m. In addition, the company had also recently secured additional funds for any expansion activities by establishing a $500m multicurrency debt issuance programme, from which it can tap into when needed.

Investors will also be happy to know that as of 13 August 2013, Boustead’s order book backlog stands at S$475m, a 57% increase over the S$303m that was stated in last year’s earnings release for the corresponding period. The backlog is where part of future-revenue will come from, so growth in the order book should be welcome news in most cases.

Management “expects profits in [the current financial year] to remain satisfactory but unlikely to match the record level [of S$81.4m] achieved in [the previous financial year].”

Shares of Boustead closed at S$1.385 on Tuesday, representing a trailing Price-Earnings ratio of 8 and a dividend yield of 5% based on the full-year pay-out for the last completed financial year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.