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8 Highlights From Boustead Projects Limited’s Full-Year Earnings

Boustead Projects Limited (SGX: AVM), or BPL for short, 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. BPL is also 53%-owned by Boustead Singapore Limited (SGX: F9D). The group released its full-year 2019 (FY 2019) earnings yesterday. The reporting period was from 1 April 2018 till 31 March 2019.

Overall, it was a mixed report but the media release did hint at reasons for optimism. Here are eight highlights from BPL’s earnings.

1. Group revenue was up 38% year-on-year from S$169.6 million to S$234.2 million. The cost of sales, however, rose by a higher 57% year-on-year. As a result, gross profit was up marginally (+2% year-on-year) to S$60.6 million. Note that revenue, cost of sales and share of loss/profit from associated companies and joint ventures had been restated due to a change in accounting policy for the elimination of unrealised gains and losses on transactions between BPL and its associated companies and joint ventures.

2. FY 2019 saw a S$5.9 million gain on disposal of property which the prior year did not report. If we strip this out, profit before tax would have been lower at S$29.7 million versus S$35.5 million a year ago. All categories of expenses (selling & distribution, administrative and finance) also increased more on a percentage basis than gross profit.

3. Net profit attributable to shareholders minus the exceptional gain would have been S$24.7 million, down 15% year-on-year from S$29.2 million.

4. The group’s gross debt increased significantly from S$70.5 million a year ago to S$146.3 million. Cash stood at S$108.3 million as at 31 March 2019. BPL thus swung to a net debt position of S$37.9 million. This was due to additional borrowings taken up to finance the Braddell Road land purchase (and subsequent development), as well as working capital for a sizeable project under a deferred payment scheme.

5. In terms of cash flow, FY 2019 saw BPL generate a slightly negative operating cash flow of S$139,000. This was mainly due to increased working capital requirements for a sizeable project under a deferred payment scheme as well as payments to subcontractors for work done, all of which drained cash. This seems to be a temporary situation, as BPL has a record number of contracts that have entered the construction phase and which therefore tie up large amounts of working capital.

6. In view of BPL’s good performance, the board has recommended a final dividend of 1.5 Singapore cents and a special dividend of 0.5 Singapore cents, for a total of 2.0 Singapore cents. At BPL’s last traded price of S$1.02, this represents a historical dividend yield of around 2%.

7. Digging into BPL’s divisions, design and build division saw a 48% year-on-year increase in revenue to S$205.1 million, while real estate division (previously known as “leasing”) saw a 5% year-on-year decline in revenue, mainly due to the lease expiry at 85 Tuas South Avenue 1. In terms of profit before tax (PBT) by division, design, and build saw a healthy increase of 23% year-on-year, while the real estate division’s PBT plunged by 61% year-on-year. The reason for this was due to depreciation for the newly-completed ALICE at Mediapolis property, while rental income has yet to be recognised even though approximately 80% of the net leasable area has been committed or is under advanced negotiations.

8. Mr Thomas Chu, managing director of BPL, was upbeat on the group’s prospects. He said:

“We delivered healthy results for FY2019 while achieving significant progress on several business development fronts. A record S$633 million worth of contracts was secured and are expected to be progressively recognised over the next two years. These milestone contracts have reinforced our position as one of Singapore’s market leaders in the industrial real estate sector. On the real estate front, we completed ALICE @ Mediapolis, which in the short-term has been a dampener on our leasehold portfolio’s profitability but once fully stabilised and tenanted, is expected to contribute meaningfully to profitability. We also successfully secured land for our new Braddell Road development, along with joint development projects for Amcor, Bombardier and Razer. Together with the new lease for 85 Tuas South Avenue 1 commencing soon, we expect the latest development projects to boost our leasehold portfolio’s cash flow, income, quality and size as each project comes online over the next two years.”

BPL’s results for FY 2019 was impacted by a few negative short-term factors – the depreciation on ALICE with no associated rental income, higher debt levels to finance the development and construction of their new contracts, as well as cash utilised as working capital to finance the construction of a property on a deferred payment scheme. These, I feel, are short-term pain points to be endured as BPL gears itself up to significantly expand its leasehold property portfolio. The contracts will come online over the next two years and bolster BPL’s rental income base.

Partnerships drive growth

The group also forged several notable partnerships during the year to build a strong foundation for future growth. There was the Echo Base joint venture, providing the group with the potential to enter into non-industrial asset classes across a wider geographic reach. In Malaysia, BPL entered into a joint venture with Malaysia Airports Holding Bhd (KLSE: 5014) to develop an aerospace and high-tech park at Subang Aerotech Park in Selangor. And after the close of FY 2019, BPL completed a strategic investment in DSCO, which is a provider of specialised building engineering consulting services in Asia-Pacific.

With BPL’s order book at a record full-year high of S$660 million, and the group’s progressive stance with regards to being on top of things in terms of knowledge and capabilities, I feel there are more exciting times ahead in FY 2020 and beyond.

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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 Royston Yang owns shares in Boustead Projects Limited and Boustead Singapore Limited. The Motley Fool Singapore has recommended shares of Boustead Projects Limited and Boustead Singapore Limited.