Boustead Singapore – A Small-Cap Gem?
|March 18, 2016||Posted by Oddmund Grøtte under Stock Analysis|
Stock price when article published: 82 cents (SGD)
Boustead Singapore (BS) is listed on Singapore Stock Exchange with ticker F9D (you can find it on Yahoo! with F9D.SI). It’s also listed on OTC market in the US with BSTGF and BSTHY.
Market cap is about 425 mill. SGD. The company has been around for a long time and can track its roots back to 1828 (!) and has been listed since 1975. In 2008 and 2009, Boustead was recognised in the prestigious Forbes Asia 200 Best Under A Billion as one of the Asia Pacific’s 200 best public-listed corporations under US$1 billion in revenue.
BS has two divisions: Engineering services (80%) and Geo-spatial technology (20%). In april 2015 the spun off a division called real estate solutions and listed it as a separate entity on the exchange.
Energy related engineering:
- Downstream oil&gas 75-80% of revenue (track record: 190 projects in 50 countries)
- Upstream oil&gas 5-10% of revenue (track record: 210 projects in 28 countries)
- Water and wastewater 5-10% of revenue (800 projects in 60 countries)
- Mini-power/waste energy 5% of revenue
All in all they have taken on infrastructure projects in 84 countries.
The other division is Geo-spatial technology (press link for description).
The financial year ends in March. Thus, this article is based on the latest quarterly report until 31. December 2015. As expected the latest 9 month period showed a drop of 14% in revenue and 29% drop in net profit to 33.9 million SGD. This is 6.5 cents per share. Annualized this is about 8.5 cents per share. It has been profitable every year last 10 years.
Bear in mind that the SGD has weakened against the USD over the last two years and is now at the lowest level since 2010.
The business is not very capital-intensive and in good times offers a high cashflow yield. Capex is low and they have flexible capacity. This can be seen comparing revenue and free cashflow generation:
On average it has generated 13% of turnover into free cashflow, a decent number. In addition, on average 93% of operating cashflow ends up as free cashflow: very low capex.
Here are CAGR numbers from 2005 until 2015:
|Revenue SGD Mil||6.762244|
|Gross Margin %||-1.1742|
|Operating Income SGD Mil||5.004737|
|Operating Margin %||-1.66142|
|Net Income SGD Mil||9.683185|
|Earnings Per Share SGD||9.149343|
|Book Value Per Share SGD||13.26881|
|Operating Cash Flow SGD Mil||-3.74733|
|Cap Spending SGD Mil||-14.866|
|Free Cash Flow Per Share SGD||4.974868|
Average ROE is 21% and ROIC is 18%. Very solid numbers considering low financial gearing.
Balance sheet analysis:
Book value has increased steadily over the years at 13% per year. At today’s price P/B is 1.05. There is no goodwill nor intangibles in their balance sheet. 64% of their assets are in cash (30%), plant/equipment (2%), property (19%) and property and financial assets for sale (13%). Receivables is 17%. In other words, P/B should offer a floor on the value of the company. In the latest annual report from 2015 the notes indicate properties/assets for sale is valued at the lowest of cost or net realizable value. In addition they have several investment properties rented out to non-related parties. These are valued at cost minus depreciation in the balance sheet. Note 22 says independent valuations estimated value to properties to 264 millions, compared to book value of 159 million.
BS is in a terrific shape. Total long-term debt is 89 million and short-term debt is 15 million. It has 231 million in cash. This means that Excess cash is 86 million. This translates into 17 cents a share, 20% of todays share price.
Historically BS has paid out a lot in dividends: average yield over the last decade is 5,7% (according to their website). The drawback is that the dividend is going up and down in relation to profitability because they have no formal dividend policy.The board makes an informed decision on proposing the payment of dividends based on its evaluation of operating cash requirements, acquisition opportunities and global business environment. The dividend is paid out twice: a smaller preliminary dividend paid out in November January and final dividend usually in August.
I can only trace dividend payments back to 2003. However, they have paid out dividends every year with CAGR 29% increase over that period. In total they have paid out 69.15 cents since 2003 which is 417% of the stock price of 13 cents in 2003 (!). They paid 1 cents as interim dividend before christmas 2015. I would assume 2 cents will be final dividend (have to wait for general meeting). That is a yield of 3.6% (3 cents in total dividend for the year).
Stock price today: 82 cents
SB reached a peak of 1.63 SGD in 2014. Since then the stock price has gone down together with the oil price.
Based on latest quarterly report from 15.12.2015 PE is about 9.5.
This is historical valuation from 2006 until now. Blue line PE and pink line P/FCF:
Based on the historical chart it seems like BS is fairly priced at todays level. However, if the oil price stabilizes around 40-60 USD I would assume business gradually picks up again. That means EPS will grow and we can fairly quickly see a price of 1-1.1 SGD again. I believe that at this price much negative factors are already priced in and risk/reward seems pretty good.
I believe the P/B ratio is worth considering in this company because they have so much tangibles. Here is last 9 years P/B ratio:
It’s clearly in its lower part of historical valuations. Only 2008/2009 was lower. Hence, I believe buying at P/B about 1 could be a good entry point.
If you have long-term view I believe that an entry at todays prices offers good risk/reward and has a decent margin of safety. It’s a fairly shareholder friendly company and has just recently divested a division which was more capital-intensive.
Obviously the price of oil and real estate prices are important. The company has very little economic moat, but with its long history I would assume their brand more is worth more than many other competitors. This is a business where experience and connections are important.
I own shares in BS.