Why Did Boustead Projects Ltd Fall 8.2% Today?

When Boustead Projects Ltd (SGX: AVM) was spun-off from Boustead Singapore Limited (SGX: F9D) earlier this year (the de-merger had been mulled over as early as 2014) and started trading on 30 April 2015, shares of the company reached a high of S$1.14.

Unfortunately, that was when the good news ended for investors.

Boustead Projects’ stock has since tumbled, and is down by some 36% from the high of S$1.14 at the current price of S$0.725. The 36% decline includes a sharp fall of some 8.2% that happened today.

Much of Boustead Projects’ poor stock market performance might be due to its declining earnings over the course of 2015. The company had experienced a 27% year-on-year decrease in net profit for the first-half of FY2016 (fiscal year ending 31 March 2016).

Even though Boustead Projects had seen a 3% improvement in revenue, a lower gross margin and higher finance expenses had brought down the profit number significantly. If Boustead Projects logs a profit decline for the whole of FY2016, it will be the firm’s third consecutive fiscal year of falling profits.

However, all might not be lost for the firm, which provides industrial real estate solutions. Since its listing this year, Boustead Projects has been repairing its balance sheet. As of 30 September 2015, the firm is close to being in a net-cash position.

More importantly, the company is not seeing any huge increase in its accounts receivables, indicating that there have not been major delays in customers making payment. This also shows that Boustead Projects has been able to control its credit risk very well, which is something extremely important during weak market conditions.

Although it is unclear if or when Boustead Projects can turn around its business in the near future, the company is in a good and strong position to weather through the storm. But when the rainbow will appear after the rain is anyone’s guess.

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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.