Sunday, August 12, 2007

Boustead – Award of Design, Build & Lease Contract for Panalpina Worldwide

On August 10, 2007, Boustead announced that its 91.7%-owned subsidiary, Boustead Projects, was awarded a contract to design, build and lease a logistics facility for Panalpina Worldwide Transport at Changi North Industrial Park in Singapore. The contract amount was not disclosed and the project will be completed by the third quarter of 2008 (i.e. by 1H FY 2009). The groundbreaking ceremony included distinguished representatives from the EDB, JTC as well as the Swiss Embassy.

This is Boustead Project’s second design, build and lease project, the first being awarded on April 5, 2007 for a production facility for Berg Propulsion Pte Ltd. Incidentally, that contract also did not specify the contract value; maybe due to the nature of the contract (i.e. design, build and lease rather than simply design and build). This most recent contract win is the sixth for Boustead Projects this year and their order book is building up significantly. With a 91.7% stake in Boustead Projects, the Boustead Group is set to reap good benefits to their bottom line once the profits are recognized for these contracts.

I have managed to compile a list of their 4 projects which have contract values (according to $ value per square metre) and used an average rate to extrapolate to the two design, build and lease contracts without values. Please refer to the table below:-
Applying the average rate of S$1,173.18 per square metre, I managed to calculate the approximate contract value(s) of the 2 design, build and lease contracts. They are about S$12.9 million for the 11,000 m2 Berg Propulsion Facility and S$13.3 million for the most recent Panalpina Logistics Facility (which is 11,300 m2). Adding these contract values up (including the S$126 million above) gives a grand total of S$152 million. This is the total contract value secured for FY 2008 so far, though only part of it will be recognized in FY 2008 as such contracts normally span more than one financial period. Still, a quick comparison with FY 2007 showed that the division revenue for FY 2007 was S$124.8 million and contracts secured during FY 2007 amounted to S$211 million. Thus, at S$152 million within 5 months of FY 2008, Boustead has already achieved 72% of FY 2007’s achievement and are set to beat last year’s record as there are 7 more months to go for FY 2008.

Assuming they manage to secure at least one design and build contract per month (as has been the case since the beginning of FY 2008), then we can extrapolate the S$152 million by dividing it by 5 and multiplying by 12. This will give us an annualized contract figure of S$364.8 million. For FY 2007, the revenues recognized were 59% of the contracts secured (S$124.8 million divided by S$211 million); therefore, applying this 59% gives a contract revenue of S$215.2 million for Boustead Projects for FY 2008. Assuming a very conservative net profit margin of 10% for Boustead Projects (the lower margin was due to the high cost of sand for FY 2007, a one-off event), we get a net profit of S$21.5 million just from Boustead Projects alone for FY 2008. Adjusting for minority interests of 8.3%, profit attributable to shareholders will be around S$19.7 million.

Readers should take note of the assumptions I have used to arrive at this figure, and it is probably just a very rough (and conservative) guide to estimating the net profit for this rapidly growing segment of Boustead’s business. Please note that I have not even factored in potential contributions from their engineering and wastewater arms yet, which are also poised to see strong growth due to the buoyant oil and gas market. The Group may have other surprises up its sleeve, and shareholders are awaiting more good news from Dinh Binh in Vietnam and the Water Solutions Alliance in the Middle East.


Anonymous said...

lolipop wrote:

Hi Musicwhiz, whats your take on current US sub-prime mortgage turmoil? How is Singapore gonna be affected?

Just like to hear from your view, Thanks!

musicwhiz said...

Hi lolipop,

The reason why I have not mentioned anything about the sub-prime issue except for a passing statement is because I believe it will not affect individual companies so much (except of course fund houses, banks and investment firms).

However, I am still reading up and monitoring the situation but am not ready to dedicate a blog post about it as yet. The contagion will spread, no doubt, but no one knows the full impact and subsequent ramifications yet. Of course, it might probably turn out to be a lot worse than expected, but one must ask if this affects the ability of listed companies to borrow or obtain loans at reasonable rates. If the sub-prime problems spill over into the general market, then we should also review the impact and possible negative effects on companies.

Till then, I take this correction as positive and will look to load up on fundamentally sound companies who do NOT have high leverage (as a precaution against the subprime mortgage issues).


kolslorr said...

kolslorr aka lolipop:

Thanks for your view, I agree with you. :)

Right now I am looking at counters with good fundamentals... especially on the cash flow...

As for my old counters which loaded some time ago... are thinking if i should sell on strength to cut loss... because the drop was so sudden and quick I miss all my cut loss prices... :(

Am hoping GV report will not be red, if it is, will have to cut loss.

fishman said...

Hi musicwhiz,

I'm both impressed by your committment to calculate the value of the contracts. Really impress uppon me your dedication to be a value investor! However, as I'm not comfortable with project companies like Booustead, I found your calculation too technical, though I appreciate the efforts behind it.

As for the current turmoil, I'm actually hoping to use this chance to see which are the "strong" counters that can weather this storm!

musicwhiz said...

Hi kolslorr,

I suggest reviewing your holdings to see if they have long-term potential for increased earnings. If not, perhaps it would be better to cut losses. I have had to make such painful decisions before so I sympathise, but remember that every day that you keep such "losers" means an opportunity cost for you to buy truly good companies as your cash is "locked up".

Good luck !

musicwhiz said...

Hi fishman,

Thanks, I am just trying to project the earnings but as you can see I do not have enough information to really make an informed computation; but I would rather be roughly correct than precisely wrong !

The reason why I like project-based companies is because of the certainty of revenue recognition over the future. The only unknown factor will be cost of goods sold so I track this closely in all my calculations.

Any recommendations so far for counters which can "weather the storm" and see good continuous growth for 3-5 financial years ? :)

fishman said...

hi musicwhiz,

recommendations? not really cos I'm still searching and have yet to do proper analysis. But at the moment I'm thinking of SingPost...

musicwhiz said...

Hi fishman,

Singpost is good as a dividend play but not sure about its future growth potential. They are going into properties now I think and that is the main growth driver....but what happens when the property cycle starts to turn down ? Hmm....