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9 Key Takeaways From Boustead Projects Limited’s Latest Earnings

Boustead Projects Limited (BPL) (SGX: AVM) released its third-quarter fiscal year ended 31 March 2019 earnings yesterday. The reporting period is from 1 October 2018 to 31 December 2018.

As a recap, 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.

Here are nine takeaways from the latest earnings report.

1. Revenue was up 70% year on year from S$47.9 million to S$81.3 million. This was attributable to two large and sizeable contracts which BPL worked on during the quarter which were not present during the same period last year.

2. Gross margin, however, was impacted by higher costs, an absence of cost savings and also the expiry of the lease on 85 Tuas South Avenue 1. As a result, margins fell from 36% to 23% and gross profit increased by only 7% from S$17.4 million to S$18.6 million. Although a new lease agreement has been signed for 85 Tuas South Avenue 1, the property is currently undergoing additions and alterations and will only contribute rental income from 1 April 2019 onwards.

3. Profit before tax declined by 5% due to a higher share of loss from associates and higher finance costs from an increased level of borrowings. At the same time, net profit attributable to shareholders declined by 15% due to higher tax expenses.

4. For BPL’s balance sheet, cash declined to S$89.3 million from S$111.4 million nine months ago, mainly due to the payment of S$56.5 million for a property along Braddell Road. The company also took up higher levels of debt to finance the purchase of the property, resulting in the company going from a net cash position of S$40.9 million at the start of its fiscal year to a net debt position of S$26.3 million.

5. Under segment revenue, design and build division saw revenue surging by 85% year on year during the quarter, from S$40 million to S$73.8 million. This was due to the two sizeable contracts brought over from the beginning of fiscal year 2019. However, for real estate segment (previously “leasing” segment), this fell by 6% due to the expiry of the lease at 85 Tuas South Avenue 1 on 1 January 2018.

6. For segment profit before tax (PBT), design and build registered a healthy 28% year on year increase in PBT to S$7.7 million from S$6 million. For real estate segment, PBT declined by 61% due to the lease expiry as mentioned coupled with depreciation expenses incurred on the newly completed ALICE @ Mediapolis property.

7. Current order book for BPL stands at a quarterly record level of S$679 million, with a record S$615 million worth of contracts secured in fiscal year 2019 alone. This order book will contribute significantly to revenue and profitability for fiscal years 2020 and 2021 (commencing April 1, 2019 and April 1, 2020 respectively).

8. 60% of ALICE’s net leasable areas is either committed or under advanced negotiations. Once full leasing and asset stabilization has been achieved, this asset is expected to contribute positively to net profit for BPL in the future.

9. Mr. Thomas Chu, managing Director of BPL, commented as follows:-

“As a result of our recent success in winning these (four) major projects, we have reinforced our position as a market leader in the industrial real estate sector. We have invested substantially in advanced capabilities with Industry 4.0 transformation standards and market-leading methodologies including 7D building information modelling, virtual design and construction, design for manufacturing and assembly, augmented and virtual reality, drone technology and integrated digital delivery. These initiatives are visibly advancing our real estate partnership credentials with industry leaders and furthering our competitive edge. We look forward to keeping the market updated on our business development efforts as we continue to help our clients to transform their business capabilities with Industry 4.0-ready centres of excellence.”

The Foolish Bottom Line

While this quarter’s results were somewhat downbeat due to lower gross margins, higher finance costs incurred and also the depreciation for ALICE commencing, future prospects for the company continue to remain bright due to their swelling order book. Leasing inquiries remain healthy for ALICE and once all the net leasable area is taken up by tenants, the asset should start contributing healthily to net profit.

Investors should also look forward to the commencement of the lease at 85 Tuas South Avenue 1 beginning first quarter of fiscal year 2020 as this would stabilize leasing revenue. Coupled with additional leasing revenue trickling in slowly from the pre-committed space for ALICE, as well as progressive recognition of leasing income from the newly-signed contracts, there definitely seems to be much to look forward to in the next two years.

At BPL’s last done share price of S$0.925, the company is trading at a price-to-book ratio of 1.04x (net asset value increased from S$0.78 at the start of the fiscal year to S$0.887 currently) and a trailing dividend yield of 1.6%.

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

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has a recommendation for Boustead Projects. The Motley Fool Singapore writer Chin Hui Leong does not own shares in the companies mentioned.