Monday, December 26, 2011

Boustead Singapore Limited – 1H FY 2012 Analysis Part 3

Part 3 will be interesting, as I delve into Boustead’s leasehold property portfolio and also its dividend history. I guess I had already mentioned quite a bit about Boustead’s prospects based on its divisions in prior reviews and analyses, therefore I shall not dwell too much on the same facts again in case I start putting readers to sleep! Basically, the underlying thrust of the Group’s strategy is still the same, though of course they are shifting their focus to earn more recurring income from their real-estate portfolio rather than endure the lumpiness from their Water and Oil and Gas divisions. This will be a slow and ongoing process and I am willing to wait as “Rome was not Built In A Day” to use the popular phrase.

Boustead Leasehold Property Portfolio

As can be seen in the table above, Boustead currently has nine leasehold properties in its portfolio, and this is set to rise further next year if it manages to clinch more of such deals. Note that as at 1H FY 2012, six are already completed and thus should be contributing rental income to Boustead’s top and bottom line from 3Q 2012 onwards. Another fact is that their clients are all heavyweights and multi-nationals, therefore the risk of default or late payment is also significantly reduced. Most, if not all, of them are in the technology, aerospace or logistics industries, and attests to Boustead Projects’ reputation as a design specialist which can customize facilities to meet international clients’ needs. Though this may seem like a niche market, remember that there are still many companies which are eager to enter and set up base in Singapore, as we are a very business-friendly country (with tax rates at 17%). Recent news also mentioned Rolls Royce (one of the largest engine producers in the world) setting up shop here at Seletar Aerospace Park, and looking to hire 500 staff to work in its new production facility. With the Government thrust to develop more areas of Singapore and add in hotels, entertainment and industrial sectors, this trend looks set to continue into the foreseeable future. Some examples which immediately come to mind are the Kallang Riverside Project and Jurong Lake District Rejuvenation Project, both of which have been envisioned and are in the pipeline for development in the next five years.

The remaining three properties will be completed in 2012, with the latest being June 2012 (1Q FY 2013). Therefore, the financial impact of the entire portfolio will only be felt in late FY 2013, and this does not include possible additions to the portfolio during the first six months of 2012. The total square metres of the properties has exceeded 90,000, and it is Boustead’s aim to grow it to 200,000 to 300,000 sqm before the entire portfolio can be considered for sale to an industrial REIT. I had attempted to compute a blended rental income per square metre using information from CommerciaGuru dot com, but apparently different areas of the industrial park can command different rental rates, and the variance can be rather pronounced as it is also tied to the age of the building. Therefore, I have not been able to pin down a rate which is “reasonable” and which I can use to forecast rental income for each property. Rather than use an estimate which may be way off the mark, I will just leave it as it is and wait for the Group to state the amount of recurring income it receives from its properties, or perhaps I can drop an email to the IR for more clarifications.


In the interest of brevity, I shall not discuss too much about dividends as I believe the above table already summarizes most of what I have to say regarding dividend history. Boustead supplements a lot of their recent dividends with special dividends, and FF Wong repeatedly makes it clear that these should be labelled “special” and thus one-off, and shareholders should not expect something of an SPH-type “special” dividend situation which seems to repeat every year (then why call it “special” in the first place??). One can notice that except for FY 2006 and FY 2007 (where there was a dividend in specie of Easycall shares and a booster final dividend respectively), dividends have trended up quite smoothly over the years.

Interestingly, dividend payments only started back in 2003 when the Group turned around under FF Wong’s leadership and overhaul. Previously, there was a lot of deadwood and the Group had many unrelated businesses which were dragging down the bottom line and consuming unnecessary resources (sounds somewhat similar to MTQ in this respect, though MTQ has since taken on a lot more leverage than Boustead). FF Wong streamlined all the businesses and divested the under-performing ones, and it was only in FY 2009 that Salcon turned around (there were too many legacy issues relating to it). Note that interim dividend payments commenced in FY 2005, and interim dividend has steadily climbed from just 0.5 cents/share in FY 2005 (split-adjusted) to 2 cents/share in FY 2012. Final dividend has been a little more erratic, with FY 2011 seeing a drop in final which was “replaced” by a very high special dividend of 3 cents/share.

However, from a total dividend per financial year perspective, it has been steadily rising except for a minor “blip” from FY 2008-2009 (drop of 1 cent/share). Therefore, I feel that shareholders can reasonably expect another 2 cents/share final dividend and also perhaps another special dividend to equal last year’s payout.

Another possible scenario (which I had mentioned that I will talk about during Part 1) is that Boustead may require more upfront capex investment into its three leasehold properties, as well as set aside additional cash for any planned upcoming projects, and so has less to pay out in the form of dividends for FY 2012. Therefore, dividend per share may fall to perhaps a total of 5.5 cents to 6 cents/share; but unless the cash is being earmarked for a major M&A, I feel that the payout should be quite similar to the previous year.


This analysis may be the last which I will post on my blog, for reasons which I will explain in a later post next month. Typing out and posting analyses on my blog is very stimulating for the mind, but unfortunately is also very time-consuming and tedious as I have to collate the necessary information in Excel sheets and also write out everything in a Word doc. Plus, I have to proofread every line for grammatical errors (I hate those) and punctuation errors. Considering the New Year is coming and I may be busier than ever, I may have to take a back seat on these detailed analyses. Anyway, I also realize that hardly anyone comments on them (unlike the more popular personal finance series), so I assume no one will miss them!

For Boustead, the Group may yet be on the cusp of something big, as long as FF Wong and his team can remain focused on the Group’s core competence and channel its resources into value-added activities. Though Boustead is sitting on a large cash hoard which is being eroded by inflation, it allows them to be ready to pounce on any opportunities which may be thrown up by the ongoing European crisis. Their well-managed Cash Management Program also means that at least some of the cash is earning higher rates of returns as provided by blue-chip corporate bonds, while an increasing amount of cash is also funnelled into their growing leasehold property portfolio. This will, in time, increase their ROE and allow for better returns. Considering the Group is already achieving admirable rates of return despite having a huge cash hoard and negligible leverage, I guess with proper Management and direction, this can only improve in future. I am happy to have been a shareholder of Boustead for the past five years, and if the business continues to remain resilient, I may remain a shareholder for very much longer.


setan said...

Hi MW,

Sad to know that you will stop blogging detailed company analysis.

Hope to hear from you when time allowed.

Regarding Boustead lease portfolio, Berg Propulsion lease, I understand they had a retrenchment recently this year. Is Berg shift out of Singapore?

Again, thanks for enriching my knowledge of those companies that you blogged regularly and really benefitted from them


Jaded Jeremy said...

"Anyway, I also realize that hardly anyone comments on them (unlike the more popular personal finance series), so I assume no one will miss them!"

Hi, just want you to know that I've been reading the analysis done by you on Boustead and I do appreciate the great effort put in. There may be silent readers out there like me out there :)

Jojo said...

Good analysis again esp on the leasehold properties. It will be a loss if you stop writing your analysis though.. I'm one of them that read your analysis on Boustead and have found it very insightful and well written. Wish you can continue with the writings... I'm one of the silent readers out there too...


XuCloudy said...

May i say that it is because you have written so detail that we (I) have nothing to add?

In most of the time, i feel like commenting: "Well done, thanks for the effort".
I believe most of us would feel the same, but I personally have concern that it might deviate the comment from the more important/related to the subject matter.

Anyway, hope you continue to write on Boustead (biased as i am also vested).

and thanks for all efforts put in writing detail analysis on Boustead.

Ben said...


It's a pity that you opted to stop blogging. It takes time to build a legacy and I believe that this blog has made existing and new investors know more details about investing philosphy.

Hope that you can re-consider your decision.



Musicwhiz said...

Hi Setan,

Not very sure about Berg. I hadn't read anything about the retrenchment honestly. Will find out more if I can.

You're most welcome, and thanks for the support all these years!


Musicwhiz said...

Hi Jaded Jeremy,

Thanks very much for your comment, it's heartening to know that there are silent readers like yourself out there!


Musicwhiz said...

Hi Jojo,

Thanks too. Blogging really does take a lot of time and effort, and not only that, but to crystallize the thoughts into words is also not easy. I also suffer writer's block sometimes or perhaps am "not in the mood" haha. With more commitments coming on-stream next year, I think it's best I give blogging a break to focus on other aspects of my life.

Thanks for your support. :)


Musicwhiz said...

Hi XuCloudy,

Haha ok good to hear your inner thoughts! And glad that you are appreciative of my efforts all these years. You're welcome with regards to Boustead, but unfortunately I do not think I will be able to continue writing on the Company.


Musicwhiz said...

Hi Ben,

Yes, you are right regarding the "legacy" haha, but I hope that the blogging and details I had presented all these years prove that value investing is indeed a viable investment strategy that still very much works in "modern" markets.

My original intention of starting and maintaining the blog (and being so open about my personal portfolio) was to demonstrate that prudent, conservative investing is able to carry one through. Detailed company analysis should be part and parcel of investing as the market is simply a place to transact.

I feel that over the years, this objective has been achieved. I will now soldier on with my investments using the same focus, style and discipline, and I also wish to focus on other aspects of my life such as career and family.

Thank you for your support all these years. It's been a pleasure.


Candy said...

Hi Musicwhiz,

Commendable efforts to present such exquisite masterpiece analysis that allow the silent readers to savour the essence.

Agree that one should try to attain work-life balance so that happy investors can evolve into successful investors.


"My original intention of starting and maintaining the blog (and being so open about my personal portfolio) was to demonstrate that

- PRUDENT, CONSERVATIVE Investing is able to carry one through.

- DETAILED COMPANY ANALYSIS should be part and parcel of investing as the market is simply a place to transact.

I feel that over the years, this objective has been achieved.

I will now soldier on with my investments using the same focus, style and discipline,

and I also wish to focus on other aspects of my life such as career and family."