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Boustead Projects’ Latest Earnings Update: Results Don’t Look Good, But Outlook Is Bright

On Monday, 5 November 2018, Boustead Projects Ltd (SGX: AVM) released its second quarter earnings update for its fiscal year ending 31 March 2019 (FY2019). The reporting period is from 1 July 2018 to 30 September 2018.

As a quick introduction for more context later, Boustead Projects was established in 1996 and is a leading industrial real estate solutions provider in Singapore, with core engineering expertise in design-and-build services and the development of industrial facilities.

Financial highlights

Revenue for the second quarter of FY2019 was up 21% year-on-year to S$60.6 million, while gross profit was up just 5% to S$19.5 million due to higher costs incurred for projects. The higher overall revenue for Boustead Projects came from a 26% year-on-year increase in design and build revenue to S$52.3 million that was offset by weaker leasing revenue, which fell by 6% to S$7.4 million. The lower leasing revenue was due mainly to the lease expiry of the company’s property at 85 Tuas South Avenue 1 in January 2018; development management fees from the Boustead Development Partnership provided some positive offset.

Boustead Projects’ net profit attributable to shareholders declined by 16% for the reporting quarter from S$9.5 million a year ago to S$8.0 million, due to a 13% increase in overhead expenses which were incurred in line with the company’s regional growth initiatives.

Boustead Projects’ balance sheet showed a S$9 million increase in total debt from the previous quarter, while cash increased slightly to S$132.1 million. All told, the company’s net cash position declined from S$59.8 million in the first quarter of FY2019 to S$53.3 million in the second quarter. But, Boustead Projects’ operating cash flow was stronger year-on-year at S$4.2 million, compared to S$1.2 million the same time last year; free cash flow for the reporting quarter stood at S$4.1 million, up from S$1.1 million a year ago.

The company’s net asset value was S$0.865 per share in the reporting quarter, up from S$0.858 in the first quarter of FY2019 and S$0.742 a year ago.

Future plans

During the reporting quarter, Boustead Projects achieved good progress in growing its development business and leasehold portfolio, even though this may not be reflected in the company’s near-term results. The Boustead Development Partnership secured its fifth development project (the client is the Australia-listed Amcor), to build an integrated warehouse and production facility, and continues its successful run of contracts secured. In late-September this year, Boustead Porjects also secured a piece of land at Braddell Road in Singapore for a new high-tech industrial development, for which the company is still in negotiations for development plans and leasing.

Thomas Chu, the managing director for Boustead Projects, shared the following comments on the company’s outlook in the latest earnings update:

“We are cautiously optimistic that our market leadership, sound financial position and strong business development efforts will allow us to capitalise on a steady pipeline of opportunities both in Singapore and overseas for the remainder of FY 2019. We continue to invest in smart and eco-sustainable building capabilities, drive cost and productivity improvements, and intensify our efforts in securing strategic partnerships and acquisition targets that can extend our capabilities and support our market expansion. We look forward to keeping the market updated on our business development efforts.”

Boustead Project’s order book rose 21% from S$175 million at the end of FY2018’s second quarter to S$212 million at the end of FY2019’s second quarter. Moreover, there was a sequential increase from an order book level of S$202 million in the first quarter of FY2019.  The company’s orderbook in the reporting quarter was boosted by a contract secured in September 2018 to build an integrated R&D and office business park in Singapore’s One-North area.

Foolish bottom line

Boustead Projects’ latest results does not look very good, but the company has long advised investors to look at full year comparisons as its revenue is derived mainly from project-based contracts, which can lead to uneven recognition of revenues and costs. The company’s outlook continues to be good and its order book has improved both year-on-year and sequentially. Boustead Projects’ share price is currently at S$0.825. This translates to a price-to-book ratio of 0.95 and a trailing dividend yield of 1.8%.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Boustead Projects Limited.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in Boustead Projects Limited.