Boustead Singapore Limited (SGX: F9D), or BSL, is an engineering conglomerate that has four main divisions: Energy-Related Engineering, Real Estate Solutions, Geo-Spatial Technology, and Healthcare Technology. The group was founded in 1828 and is one of the oldest companies listed here.
BSL reported a surprisingly good set of earnings recently for its Q1 2020 (the group has a 31 March year-end). The oil and gas business under Energy-Related Engineering finally turned around after suffering from tough challenges over the last few years with the collapse of oil prices. With so many levers within the business, investors may be hard-pressed to understand what the group is planning and what growth drivers can be expected. Here, I’ve broken down BSL’s prospects into several easily-digestible sections.
Oil and gas order book
With many oil and gas companies still facing stress from the low oil price, it was surprising that BSL managed to report a 70% year-on-year jump in revenue for its Energy-Related Engineering division. The division managed to register a profit before tax of S$1.8 million (stripping out currency effects) for Q1 2020 and has turned the corner after posting a full-year loss for FY 2019.
BSL also recently announced the clinching of a significant contract worth around S$100 million by its unit Boustead International Heaters (BIH) for waste heat recovery systems. Since the beginning of the current fiscal year, the division has already captured over S$161 million in new contracts, and investors can look forward to better days ahead.
Higher real estate rental income
Over at the real estate division under separately-listed Boustead Projects Limited (SGX: AVM), or BPL, the team is busy with several concurrent projects that should boost rental income in the years to come. One of them is the Braddell Road project which BPL won the tender for S$53.6 million from JTC. This project has been “de-risked” as BPL has found a partner to take up a 51% stake in the development, with the group taking up the remaining 49%.
Leasing activity at ALICE @ Mediapolis continues, and management expects asset stabilisation to occur in due course, thereby contributing rental income to BSL. A third project, a joint venture at Subang Aerotech Park together with Malaysia Airport Holdings Berhad (KLSE: 5014) to develop industrial real estate for aerospace companies, has commenced marketing activities.
Evolution of Healthcare Technology
BSL’s newest division, Healthcare Technology, will see a gradual evolution for the rest of 2019, transitioning from a product-led model to a more rental-centric model. This should eliminate the lumpiness in revenue and profit recognition for the division and allow for more steady recurring income to flow through. BSL is working with hospitals and partners to make this happen, and I believe a gestation period of 12-24 months is necessary.
Strong balance sheet and burgeoning order book
Investors have a lot to look forward to as the group is busy with these strategic initiatives. In the meantime, BSL continues to maintain a healthy balance sheet with S$248.4 million in cash. With the clinching of the recent significant contract for BIH, the group’s order book has hit S$823 million. The group pays a total dividend of 3 Singapore cents a year and at the last traded price of S$0.72, offers a dividend yield of 4.2%.
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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 recommended shares of Boustead Singapore Limited and Boustead Projects Limited. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Singapore Limited and Boustead Projects Limited.