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9 Key Takeaways from Boustead Projects Limited’s AGM

Boustead Projects Limited (SGX: AVM) held its Annual General Meeting (AGM) on 26 July 2019. Here are nine takeaways from that AGM.

1. The cyclical headwinds have not abated for the industrial real estate sector in Singapore yet this year. The expectation last year was that the cycle will turn up by this year, but this has not happened because construction companies are still bidding for low-end construction jobs and undercutting the more established firms. Instead of going bust, these smaller players are somehow still hanging on.

2. BPL has worked on building up its capabilities, technological know-how, and competencies in the last few years, and it has moved up the value chain over time, leaving its competition behind. The idea is to be able to eventually bid for higher-value contracts such as data centres. BPL also intends to target more public-sector projects in Singapore, building on its recent wins from JTC Corporation and Surbana Jurong Pte Ltd.

3. The lower GPM for FY 2019 was due to cost savings unlocked for both FY 2017 and FY 2018 as a result of raw material costs declines. Such declines were not present in FY 2019. BPL seldom, if ever, incurs any overruns as it’s very strict on cost control. The GPM usually cannot be determined exactly at the point when the contract is signed or starts but is only determined once the project ends and all variation orders are settled and accounted for. This is also why some additional margins may even be “unlocked” from projects that have been completed in prior periods.

4. Gross debt stood at around S$146.3 million as of the end of March 2019, up from around S$70 million a year ago. This was due to the additional debt being taken up to bid for the land parcel at Braddell Road. However, the group is in the midst of selling a portion of the Braddell Road project to de-risk the project and will end up with a 50% stake.

5. For lower-tech industrial properties, management has to assess if the land tenure is long enough, whether there is unutilised plot ratio, and whether the property can undergo asset enhancement initiatives (AEI) or redevelopment before deciding whether or not to dispose of it. If the land tenure is short, then the property will be sold as not much more can be done for it.

6. The plan to unlock value from the leasehold property portfolio has to be “sustainable,” and there has to be an element of growth, too. It’s not as though BPL simply wants to “dump” the assets into a structure just to cash out; in fact, if that was the intention, then the group may as well just sell all the properties and walk away. Management hopes to announce something within a few months, but no firm timeline has been set.

7. For the joint venture with Malaysia Airport Holdings Berhad (MAHB) (KLSE: 5014), this is intended to be a multiyear project where each parcel of land is developed in phases and then leased out to corporations. Therefore, the leasing income from this project will slowly increase over time, and over different fiscal years.

8. For the property vacated by AusGroup Limited (SGX: 5GJ) at 36 Tuas Road, recall that this lease was terminated in January 2017 as the client was facing financial difficulties. Management is negotiating with JTC to amend the use of the property, as it is strictly designated for logistics purposes only, and BPL has problems finding a replacement tenant.

9. The latest update is that JTC may relent on this, and there is also a chance that BPL can increase the plot ratio for this property, thereby increasing the net lettable area. However, whatever the outcome, BPL will still need at least 12 months to redevelop the property even if they find a new tenant, so this asset will not be contributing to any rental income anytime soon. The group is in discussions with two potential parties, but these are still in preliminary stages.

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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. The Motley Fool Singapore has recommended shares of Boustead Projects Limited.