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These Could Be Signs of Better Things to Come for Boustead Singapore Limited

Boustead Singapore Limited (SGX: F9D), which was established in 1828, is a global service provider of infrastructure-related engineering services and geo-spatial technology solutions. It has three business divisions: energy-related engineering; real estate solutions; and geo-spatial technology. Boustead Singapore owns 51% of Boustead Projects Ltd (SGX: AVM), the company’s separately-listed real estate solutions division.

The stock price of Boustead Singapore has fallen by more than 55% from a high of S$1.93 in April 2014 to S$0.80 currently. The depressed oil and gas industry, and the slowdown in Singapore’s industrial real estate sector, are the main reasons for the poor performance of Boustead Singapore’s business and thus, its share price.

How long will the slump in Boustead Singapore’s business continue? No one can know for sure, but there are clues we can look at.

Sign 1: Order book recovery

Boustead Singapore’s business is mostly order book-based. Due to the nature of the company’s business, it is important to track its order book for signs of improvement. A growing order book could mean that the company’s customers are in need of the services it is providing, and that the industries it is operating in are recovering.

As can be seen from the chart below, Boustead Singapore’s order book has fallen from S$406 million in FY2014 (financial year ended 31 March 2014) – where a record level of orders was secured due to the-then favourable oil and gas investment climate – to S$180 million in FY2017.

Source: Boustead Singapore FY2018 earnings presentation

In FY2018, Boustead Singapore’s order book has recovered to S$313 million, a 74% year-on-year increase. Boustead Singapore said there had been a recovery in orders at its energy-related engineering and real estate solutions divisions.

Sign 2: Better prospects

In Boustead Singapore’s FY2018 fourth quarter earnings update, the company mentioned the following (emphases are mine):

“Given the healthier order book backlog and an improvement in the outlook across the sectors that the Group operates in, the Group is cautiously optimistic about business prospects. Global events in recent months indicate a slight improvement in the outlook for the Energy-Related Engineering Division.”

Meanwhile, Boustead Projects said that there is “an improvement in construction activities in the industrial real estate sector in Singapore” and that it can “capitalise on opportunities in its growing design-and-build and real estate development enquiry pipelines both in Singapore and overseas”.

The improving sentiment in the oil and gas industry and Singapore’s industrial real estate sector are pleasing to note.

Sign 3: Improving net cash position

In the business world, you may have heard of the maxim, “Cash is king.” While revenue and profit growth may sound exciting, there is a need to generate sustainable cash flow.

Source: Boustead Singapore FY2018 earnings presentation

Boustead Singapore has historically been able to generate strong streams of free cash flow, thus enabling it to have a high cash position on its balance sheet, which allows it to weather through tough times. An improving net cash position could point to a recovery for Boustead Singapore’s business as well. The company’s net cash position has improved from S$165.9 million in FY2014 to S$194.9 million in FY2018, as seen above.

Sign 4: Higher dividend

When a company’s management increases its dividend, it could mean two things: (1) management does not see a need to keep extra cash for the business, or (2) management is positive about the prospects of the company. I think it is the latter for Boustead Singapore.

In FY2018, the company’s net profit tumbled 24% to S$25.4 million. However, its core net profit (which excludes one-off gains or losses) for FY2018 would have been around S$4.4 million, or 18% higher year-on-year than FY2017.

Boustead Singapore’s board had proposed a final dividend of S$0.02 per share for FY2018. Together with the interim dividend of S$0.01 per share, the total dividend for the year would be S$0.03 per share. This is a 50% increase over FY2017’s total dividend of S$0.02 per share. The higher core net profit is one of the reasons for the higher dividend for FY2018, as stated by the company.

The Foolish takeaway

The growth in Boustead Singapoe’s core net profit for FY2018 is a welcome change to Boustead Singapore’s dwindling earnings in the past few years. The company said that it “expects to continue to improve its performance in FY2019”. The order book recovery, improving sentiments in the industries Boustead Singapore operates in, and higher net cash position and dividends, may point to a better FY2019.

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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 Sudhan P owns shares in Boustead Singapore Limited and Boustead Projects Ltd.