Boustead Singapore Limited (SGX: F9D) is an engineering conglomerate with four main divisions: energy-related engineering (which deals with oil and gas and wastewater treatment), real estate solutions (which deals with the design and build of industrial properties), geospatial technology, and healthcare technology. The group was incorporated in 1828 and has done work for major multinational corporations all around the world.
BSL recently released its annual report for 2019, and its CEO, Wong Fong Fui, delivers his usual candid assessment of the business in his “Chairman’s Message” section. In addition, the report provides additional details on some interesting aspects of the group’s business. I learned three interesting insights from this report that could help you determine if BSL deserves a spot in your portfolio.
1. Geospatial technology and healthcare technology have the highest potential growth
There are two progressive megatrends in the world today that will benefit both the geospatial technology and the healthcare technology divisions, and BSL believes these two divisions will be poised to ride on these megatrends for strong growth in the years ahead.
The first megatrend is that of the transition from the Information Age to the “Age of Deep Insight” brought about by the ushering in of big data, industry 4.0, artificial intelligence, and the Internet of Things. The geospatial technology division can tap into this trend to educate the markets and potential clients on the need for embracing this technology to enable positive change and efficiency improvements to their work processes.
The second megatrend is that of baby boomers becoming an ageing (but more affluent) group, resulting in a significant strain to existing national healthcare systems and requiring more investment into ensuring quality of life as we live longer. Healthcare technology is poised to benefit from this as its solutions are designed to address currently underserved or unmet needs in long-term healthcare.
2. The US-China trade war may actually benefit the group
BSL only has a minor presence in China, and it’s thus not significantly affected at all by the ongoing US-China trade war; the group only distributes products locally in China through its healthcare technology division. However, if medical technologies from the US are embargoed or placed under tariffs upon entering China, this could have a negative effect on BSL’s operations, which is why the group is striving to manufacture simpler medical devices to mitigate this risk.
On the other hand, the trade war may even benefit BSL indirectly if more multinational companies shift out of China and into the countries where BSL has a strong presence. This is especially true for the energy-related engineering and real estate solutions divisions.
3. The healthcare technology division is planning strategic initiatives for better recurring income
The healthcare technology division is BSL’s newly acquired division, and it contributed maiden revenue of S$11.4 million for nine months of FY 2019 along with S$0.6 million of profit, before tax, for a profit before tax margin of around 5.3%. The division’s revenue would have been even better if not for the delay in the award of two large contracts.
BSL has outlined strategic initiatives for the division in FY 2020 and beyond to grow its recurring income portion from the current 20% of total division revenue. These involve growing its service-led business to provide sleep care management services for chronic disease patients, and also services that address the unmet needs of elderly patients in healthcare facilities (e.g., compression therapy, vital signs monitoring, and wound care). In the future, as the recurring income portion grows more significant, this division will morph into a defensive sector that’s anti-cyclical in nature.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Boustead Singapore Limited. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Singapore Limited.