Boustead Singapore Limited (“Boustead”) (SGX: F9D) released its third-quarter fiscal year 2019 (3Q FY 2019) earnings yesterday. The reporting period was from 1 October to 31 December, 2018.
As a recap, Boustead was established in 1828 and is a conglomerate with four key divisions – energy-related engineering, real estate solutions, geo-spatial technology and healthcare. Here are 11 takeaways from Boustead’s latest earnings and press release:-
1. Revenue for the quarter surged 43% from S$102.2 million to S$145.6 million. All four divisions contributed to revenue growth. However, due to cost pressures and higher overhead expenses, gross profit rose by a smaller 11% from S$38.9 million to S$43 million. Gross margin tumbled from 38% a year ago to 30%.
2. Total overhead expenses increased by 18% year on year to S$25.9 million, mainly due to higher overheads from the acquisition of the new Healthcare division and team expansions at Boustead Projects Limited (SGX: AVM). The Geo-Spatial Technology division also increased spending to support and execute strategic growth plans. The increases were offset slightly by higher interest income and also exchange gains. As a result, net profit attributable to shareholders increased by 12% from S$7.8 million to S$8.7 million.
3. Net profit after adjusting for one-off gains and losses saw a decline of 15% from S$9.1 million to S$7.7 million. Net asset value per share stood at 66.6 Singapore cents, up 6% from 62.8 Singapore cents nine months ago.
4. Boustead’s balance sheet remains solid with cash balances of S$231 million. Net cash position was S$115.4 million, which translates to net cash per share of 23.4 Singapore cents. Net cash per share makes up almost 30% of Boustead’s share price of S$0.795 as of 13 February 2019. In addition, Boustead also holds around S$32.1 million worth of highly-liquid investment securities (around 6.5 Singapore cents per share). Taken together, cash and highly-liquid investments make up almost 38% of Boustead’s market capitalization.
5. Operating cash flow came in at negative S$2.4 million for the quarter, compared to positive operating cash flow of S$9.6 million in the same quarter last year. The decline was due to working capital requirements and an increase in net contract assets (due to a major project undertaken by Boustead Projects on a deferred payment arrangement). However, for the first nine months of the fiscal year, operating cash flow was positive at S$27.5 million for the current fiscal year, compared to S$19.4 million in the prior year.
6. On a divisional level, energy-related engineering (i.e. the oil and gas division) saw a 21% year on year increase in revenue from S$25.4 million to S$30.8 million. Client enquiries continued to be under more active review, implying that contracts may be awarded more quickly as a result of recovering oil prices.
7. Real estate solutions division’s performance has been largely explained in my previous article written on Boustead Projects. For geo-spatial technology division, revenue increased slightly by 3% to S$29.3 million. Segment sales could have been higher if not for currency headwinds. The new healthcare division under WhiteRock Medical delivered a decent revenue of S$4 million for the quarter.
8. For profit before tax by division, energy-related engineering has turned the corner by registering a profit of S$2.4 million, almost quadruple of what it achieved on a year on year basis. Even after stripping out currency gains of S$1.1 million, the division still managed to achieve a profit before tax of S$1.3 million. Geo-spatial technology saw profit before tax rise an impressive 22% year on year to S$6.6 million, while healthcare division contributed its maiden profit of S$0.3 million, reversing from a loss of S$0.1 million in the previous quarter.
9. Boustead has been awarded a record S$690 million in new contracts since the start of fiscal year 2019, as a result of a string of high-profile contract wins by Boustead Projects, the 53%-owned subsidiary of Boustead. The current order book stands at a record S$765 million as at 31 December 2018, of which S$86 million is under energy-related engineering and S$679 million is under real estate solutions division.
10. At the last done share price of S$0.795 yesterday, Boustead is trading at a trailing 12-month dividend yield of 3.8% and a price-to-book ratio of 1.2. Dividends are paid twice-yearly (S$0.01 in interim dividends and S$0.02 in final dividends).
11. Wong Fong Fui, chairman and Group CEO of Boustead, had this to say:-
“While we continue to see gradual improvement in the outlook of the respective industries that we operate in, the business environment remains challenging with global geo-political headwinds. Behind the scenes, we continue to diligently evaluate good acquisition and investment opportunities that may arise and are also in the process of reviewing the best avenues of working capital deployment for our Healthcare Division’s various proposed programmes for strategic growth.”
The Foolish Bottom Line
Boustead’s performance was dragged down mainly by higher expenses this quarter, while their real estate solutions side saw lower gross margins and also a timing difference in terms of recognition of leasing income versus depreciation for their new property ALICE @ Mediapolis. The company does caution investors not to focus too much on quarterly results as their business is contract-based, therefore a year on year comparison would be more appropriate.
With the gradual improvement in oil and gas prospects, better leasing revenue to flow soon for real estate solutions from the fiscal year 2020 onwards, and also steady demand for geo-spatial technology services across Asia, Boustead should continue to see a recovery in all divisions despite continued cost pressures and lingering geopolitical tensions.
Another piece of good news is that healthcare has reported a profitable quarter (reversing from losses in the second quarter) and Wong is committed to exploring how to best allocate capital to grow the division through several proposed programmes.
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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in both Boustead Singapore and 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 recommendations for both Boustead Singapore and Boustead Projects. The Motley Fool Singapore writer Chin Hui Leong does not owns shares in the companies mentioned.