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Why Boustead Projects Ltd May Be A Big Hidden Bargain

Industrial real estate owner and developer Boustead Projects Ltd (SGX: AVM) was spun-off from Boustead Singapore Limited (SGX: F9D) on April 2015.

It’s been a rough time for the company in its short life as an independent entity – its stock price has fallen by over 40% since the spin-off. While that’s not a welcome development for the company’s early investors, that sharp decline may have made Boustead Projects a potential bargain at the moment for those who are looking beyond the surface.

Hidden value

Boustead Projects’ last reported financials was for its fiscal year ended 31 March 2016 (fiscal 2016). Given its current share price of S$0.62 and latest book value per share of S$0.606, the company has a price-to-book ratio of 1, which does not seem very low at all.

But, there’s more than meets the eye with Boustead Projects’ asset value.

The company reported a total asset value of S$417.2 million for fiscal 2016. Of that sum, S$146.2 million came from its investment properties, all of which are industrial properties based in Singapore.

Thing is, Boustead Projects’ annual report showed that these properties also have a market value of S$259.8 million. In other words, the accounting value of Boustead Projects’ investment properties on its balance sheet is not an accurate reflection of economic reality.

If we adjust Boustead Projects’ book value of S$193.9 million to account for the market value of its investment properties, we end up with a book value of S$307.5 million (S$193.9 million plus S$259.8 million minus S$146.2 million). This translates into a book value per share of S$0.96 and thus an adjusted-PB ratio of just 0.65.

Envious peers

Comparing Boustead Projects’ adjusted-PB ratio with the PB ratios of other industrial real estate investment trusts is not an apples-to-apples comparison.

Beyond the ownership of industrial properties, Boustead Projects’ business also involves the provision of engineering expertise and know-how for the development of such properties; this is different when compared to industrial REITs, which earn their keep mainly by renting out real estate they own.

But since REITs revalue their properties frequently and base their reported book values on the revaluations, a comparison of Boustead Projects’ adjusted-PB ratio with the PB ratios of industrial REITs that own predominantly Singapore-based properties can still provide useful insight.

The industrial REITs I’m using for this exercise are: Ascendas Real Estate Investment Trust (SGX: A17U), Mapletree Industrial Trust (SGX: ME8U), AIMS AMP Capital Industrial REIT (SGX: O5RU), Cambridge Industrial Trust (SGX: J91U), and Viva Industrial Trust (SGX: T8B).

Boustead Projects and Industrial REITs PB table
Source: S&P Global Market Intelligence and Boustead Projects’ annual report

As you can see, all of the REITs carry significantly higher PB ratios than Boustead Projects’ adjusted-PB ratio of just 0.65.

Of course, having a low PB ratio alone is not sufficient to make Boustead Projects a true bargain. But, it does make the company a mighty candidate for further research, at the very least.

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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 Chong Ser Jing doesn't own shares in any companies mentioned.