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Boustead Projects’s Latest Earnings: A Fresh Look Ahead

Boustead Projects (SGX: AVM) released its fiscal fourth-quarter earnings for the financial year ended 31 March 2015 (FY2015) yesterday evening.

This is the first ever earnings release from Boustead Projects, an industrial real estate developer that has two business models: design-and-build; and design-build-and-lease.

Boustead Projects was spun-off from Boustead Singapore Limited (SGX: F9D) earlier this year (the de-merger had been mulled over as early as 2014) and only started trading on 30 April 2015. Boustead Singapore, which also released its fiscal fourth-quarter earnings yesterday evening, remains a majority owner of Boustead Projects with a 51.2% stake.

With that, let’s take a closer look at Boustead Projects’ latest set of numbers.

Financial highlights

For the whole of FY2015, Boustead Projects enjoyed a 22% jump in revenue to S$255.4 million largely on the back of the delivery of the company’s largest ever design-and-build project.

But, “challenging and competitive” conditions in the industrial real estate solutions market in Singapore had ate into Boustead Projects’ gross profit margin; the company ended FY2015 with a gross profit of S$57.3 million, up just 8% from a year ago.

As a result of the lower gross profit margin, non-recurring gains in FY2014, and increases in costs across the board (including higher administrative expenses, finance costs, and income taxes), Boustead Projects’ net profit attributable to shareholders in FY2015 fell by 31% from S$35.8 million a year ago to S$24.7 million. Consequently, Boustead Projects’ annual earnings per share fell from S$0.11 to S$0.08 over the same time period.

Even after adjusting for major non-recurring items, the company’s net profit still fell 4% in FY2015 when compared to FY2014.

Elsewhere, Boustead Projects had brought in S$20.6 million in operating cash flow for the whole of FY2015 and doled out only S$324,000 in capital expenditures; this gives the company S$20.3 million in free cash flow for the year. While the presence of free cash flow is always welcome, this is a big step backwards from FY2014 when the firm had S$46.3 million in operating cash flow, S$281,000 in capital expenditures, and thus S$46.0 million in free cash flow.

Boustead Projects also saw its balance sheet weaken considerably over the fiscal year. As of 31 March 2015, the real estate outfit had a net-debt to equity ratio (where net-debt refers to total borrowings minus total cash) of 28.6%; a year ago, Boustead Projects was in a net-cash position. The company had to resort to borrowings as it built its industrial leasehold portfolio.

The board of directors has elected to not propose any final dividends for FY2015 as the company would like to “conserve its cash holdings for development and investment opportunities.”

Business highlights

Currently, Boustead Projects has two business segments, namely, Design-and-Build, and Leasing.

Revenue from the Leasing segment is recurring in nature and because of that, investors might be happy to note that the segment’s revenue in FY2015 had grown by 21% from S$21.9 million a year ago to S$26.5 million. Management attributed the growth to the “partial contribution of two design-build-and-lease projects completed during FY2015, and three other industrial leasehold properties which provided full-year rental in FY2015.”

The higher revenue from the Leasing segment had resulted in a 25% spike in its profit before tax (PBT) to S$13 million.

Meanwhile, the Design-and-Build segment had a mixed FY2015. While its revenue was up a healthy 22% to S$228.9 million (due to the delivery of the largest design-and-build project as mentioned earlier and the commencement of several new projects during the year), its PBT actually fell by 30% to S$20.4 million.

A fresh look ahead for Boustead Projects

The current fiscal year (FY2016) will mark the first year for Boustead Projects as a standalone entity and it’s off to a good start; in FY2015, Boustead Projects managed to win eight contracts with a collective value of S$284 million, which is a record for the company.

That said, the company did acknowledge that it’s caught in a “highly challenging and competitive industrial real estate market” and expects that “the difficult business conditions of the past three years are set to continue in FY2016 and will likely have an impact on future gross margins.”

In FY2015, Boustead Projects had expanded into Malaysia through a joint-venture to develop a business park in Nusajaya, Johor. During the year, the company also established the Boustead Development Partnership with the Abu Dhabi Investment Council; according to the press release for the partnership, the initial investment target is “in excess of S$600 million.”

Moving forward, the company’s actively looking to grow its business in Singapore, Malaysia, China, and “potentially” other countries in South East Asia.

Lastly, Boustead Projects commented that it should be able to deliver “a reasonable level of profit in FY2016.”

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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 writer Stanley Lim does not own shares in any companies mentioned.