Boustead Singapore has risen by 45% for the past 12 months. The P/E and P/Cash flow ratio are estimated by S&P Capital to be 12 and 10.8 respectively. These suggest that the stock is expensive. The good thing is that net gearing remains at 0%.
Although this counter seems overvalued, fundamental business prospect still looks good. Boustead Singapore is a global engineering specialist in energy, water infrastructure, industrial real estate and geo-spatial solutions. The main driver for the business is the real estate division, which contribute 24% to its top line in Q1FY14 to SGD101.2 million. Oil and gas division is the second main contributor, reporting revenue growth of 38% year-to-year. Water infrastructure and geo-spatial technology were the weaker divisions, reporting negative revenue growth of 25% and 14% respectively.
I like Boustead because it is financially strong with net current assets of $150million and has consistently paid out dividends to shareholders for the last ten years. It is well managed with sound corporate strategies. Although Boustead has no formal dividend policy, it has a tradition of paying dividends linked to long-term net profit growth. Boustead has achieved respectable growth in dividends over the past ten years, with a compounded annual growth rate of 21% over that period.
Their history of annual dividend payments includes:
1)Ten consecutive years of dividend payments;
2) Growth in the ordinary dividend to 5 cents per share in FY2012 after maintaining the ordinary dividend at 4 cents per share for four consecutive years; and
3) Paying a total of 33.75 cents in cash dividends over ten consecutive years, equivalent to almost 200% of the purchase price of the Boustead share at 17 cents at the beginning of FY2003.
A key development that investors should take note is that the group is acquiring Ausgroup’s Singapore property at 36 Tuas Road for SGD39.4 million. Boustead Singapore is planning to fund this acquisition through bank borrowings, external investors and internal cashflows. Boustead will lease the property back to the vendor until May.14, 2025. Upon completion, this projected is expected to provide an annual rental of SGD3.3-3.5 million per annum.
Boustead's current total order book is estimated to be SGD475 million with SGD265 million new orders secured since the start of FY14. This represented an increase of SGD303 million in Q1FY13. The key risk for the company is the execution of these projects. In light of the challenging economic situation, shortage of foreign workers and fluctuating forex, the group must manage costs effectively and exercise prudent financial control to prevent project overruns.
In summary, Boustead Singapore is good stock to invest in but is currently overvalued. At this moment, I don't see much potential for the stock to go higher and will only invest in it if there is a major correction in its value. The engineering company has a strong niche in industrial real estate and oil and gas sector, so I expect the business to be profitable and sustainable for the medium term.