REIT launch will be a rerating catalyst for this builder cum developer

SINGAPORE (March 27): CIMB is initiating coverage of Boustead Projects with S$1.04 target price, for its attractive valuation, net cash position and possible REIT launch.

In a note last Friday, CIMB says Boustead Projects’ recent project wins at Mediapolis and Continental phase III will bring the total asset base to S$750 million (RM2.37 billion) by FY2019.

This marks a significant step of Boustead Projects towards its goal of an eventual REIT listing.

“Factoring in roughly two years of gestation, we believe Boustead Projects could be ready for a REIT listing by FY20-21,” says CIMB.

And this could be expedited if Boustead Projects pools its portfolio with private property owners.

“We estimate a potential REIT launch could re-rate Boustead Projects to S$1.30-S$1.39 based on 20% to 25% discount to FY18F RNAV,” says CIMB.

Boustead Projects is a market leader in the industrial Design & Build field, with a proven track record in the delivery of  high-specifications built-to-suit industrial facilities.

MNC clients include Rolls Royce, Airbus, Applied Materials and GSK across various industries including aerospace, pharmaceutical, high-tech manufacturing and logistics.

As at end 3Q2017, its order book stands at S$170 million.

Currently, Boustead Projects’ leasehold portfolio comprises 18 industrial facilities in Singapore with total GFA of 238,000 sq m. Seventeen out of the 18 facilities being built-to-suit buildings with 15 occupied by single tenants. Over 80% GFA caters to MNCs from high value industries with long WALE of seven years.

“We expect the portfolio to bring in steady operating cash flow of S$20-S$23 million p.a. in FY17-19F,” says CIMB.

Meanwhile, Boustead Projects trades at a 0.47x FY2018F RNAV, vs Singapore industrial REITs of 1.02x RNAV and developers at 0.68x RNAV.

As at 3Q2017, Boustead Projects is in a net cash position of S$8.6 million.

“We expect BP to recognise one-off gains of S$13.7 million in 4QFY2017F for the disposal of its TripleOne Somerset stake and compensation from an early lease termination,” says CIMB.

“We forecast the one-off gains to boost Boustead Projects’ FY2017F net profit to S$37.8 million vs FY16’s S$22.9 million. Any special dividend should be a positive surprise. Stiffer competition is a key risk,” adds the research house.

Shares of Boustead Projects are up 1 Singaporean cent at 82 cents. — theedgemarkets.com.sg

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