How much is this Fast Growing Company Boustead Singapore Worth?

This is a thought exercise to determine the value of Boustead Singapore. The company is a conglomerate with operations in the 4 areas of: (i) Real Estate/Construction, (ii) Engineering in water treatment and offshore gas, (iii) Distribution in Geospatial Technology Solutions and (iv) Healthcare. Over time, the company has experienced profit growth due to the trend of increasing technology use and a booming Singapore Property Market. 

Boustead Singapore's FY 21 Results

I will try to determine the value of each business segment and then adding them.

Real Estate/Construction

Boustead singapore owns through its 53% stake in the listed subsidiary of Boustead Projects (BP). BP has captured investors attention recently because it injected some assets into an industrial fund which potentially means a future REIT. BP has a large number of properties such as Razer HQ, ALICE@mediapolis it owns and can be injected into the fund. All these properties amount to a billion dollar valuation and can be injected into the newly formed industrial fund to monetize. For its construction arm, despite a COVID year, the construction segment was still profitable; hence one can expect BP to be consistently profitable.

The company is now sitting on a net cash of 86% of its current market cap and with a billion dollar portfolio of properties to inject into the fund and strong construction order book due to Singapore's property demand, I personally expect BP to be worth $1.60 per share. This is because the RNAV of its remaining assets which it can sell to its fund is in the $2 range.

Hence BP is worth $542 million, and proportioning to Boustead Singapore's 53% stake, that is $288 million.

Engineering

Boustead provides engineering services to refineries as well as has water treatment plants worldwide. The company has been experiencing high revenue and profit growth over the years with the latest FY seeing an increase of 37% revenue growth ($198 mil vs $144.5mil) and its profits before income tax has tripled. Engineering segment profits is now $28 million, as compared to FY20's of $7.9 million

Annual Report for FY 20's Engineering Results

While this segment has lumpy revenue due to it being a book order based, the revenue and profit growth is still commendable. Based on a price earning ratio of 10 times at current profits of $28mil.  Its market value is $280 million.

Geospatial

The geospatial segment has been seeing constant growth and Boustead is the sole distributor of ESRI software in this region. There has been a mass uptake in the ESRI software Boustead is selling. Revenue has been growing year on year. For FY 21, revenue was $170 million with net profits before income tax of $40 million. This means since FY16, the CAGR for revenue and profits are 11% and 14%.

It is also the key profit contributor to Boustead Singapore in FY20 (contributed 45%) and this segment has been growing rapidly due to the move towards the increasing use of technology in this region. It has set another record revenue and profits for FY21.

                                                 Annual Report for FY 20's Geospatial Results

Its clients in the region are governments and MNCs; hence it is stable. With its continuing high digit growth in profits due to operating leverage, one can reasonably ascribe a 15 times price earning to account for this segment's continuous high profit growth. At 15x PE of $40 million PBIT, this segment is worth $600 million.

Healthcare

The healthcare is a new segment which is still making losses. It is difficult to value it now. For simplicity, I will consider its assets as zero value

                                                Annual Report for FY 20's Healthcare Results

Sum of Part Valuation

Adding (288+280+600) million, I expect the company to be worth $1.16 billion. Its current market cap is $568 million at a share price of $1.17. 

Based on the SOTP valuation, Boustead is worth $2.39 per share. It represents an upside of 100%.

<Author is invested in Boustead Singapore> 

Portfolio Addition (May 2021): Alibaba and Ascendas India Trust

 For the month of May, I have decided to venture into the Hong Kong to pick up Alibaba.

The investment thesis was less of a quantitative approach but of a qualitative reasons. Firstly, Alibaba's cloud provider segment has started to EBITDA positive and with operating leverage, this segment can be a billion dollar profit sector through revenue growth. Amazon Web Services, Amazon's cloud provider sector has been profitable and is now generating annual profits of $13 billion. Personally, I think China and its companies will choose Alibaba or other China Cloud Providers. However, it will be enough for Alibaba to have a billion dollar profit in this pie. This points to a potential 10% growth from current earnings.

Secondly, China's middle class disposable income is growing and this means a larger e-commerce market. This also means higher earnings. With that, I have taken some position in Alibaba through the Hong Kong Exchange.

Second Addition: Ascendas India Trust (AIT)

Without getting the ire of the local online community, I personally feel Ascendas India business park's business will continue to grow especially due to the growth of India's e-commerce segment and IT support industry. AIT's holds a few good assets in India's IT hub and has the space and financial capability to build more buildings to expand these business parks.

Once India has recovered from it current COVID situation, I expect the dividends per share to stabilize and be slightly higher than FY 20's (8.8 cents). I am expecting 9 cents dividends. At current share price of $1.38, the REIT is a 6.3% yield which is pretty good in the Singapore REIT's sector. While AIT is an industrial REIT, its current yield is higher relative to smaller and higher levered peers such as Sabana (about 6%) and ESR (6.1%). In my view, the assets held by AIT (while in India) are of better quality than Sabana's and AIT's tenants are of quality MNCs. 

It is probably due to the COVID situation in India that resulted in the beat down price. Otherwise, in my view, AIT is a 5% yield industrial REIT.