Boustead Singapore Limited FY 2007 Results

I was expecting PAH to report its FY 2007 results today, but to my surprise it turned out to be Boustead instead ! Anyhow, a quick glance at the results showed strong growth in net profit, as it was up 41% from S$24.8 million to S$35.2 million. Revenues also showed strong growth of 18.9% from S$289.2 million to S$343.9 million. Gross margins dropped from 37.7% to 34.1%, and the company attributed this to the increased cost of sand due to the sand export ban from Indonesia, which pushed up prices of concrete for Boustead Projects, as well as higher global commodity prices which raised the cost of fabrication.

Net margins (excluding MI) were 10.2% for FY 2007, as compared to 8.6% for FY 2006. I feel this was primarily due to Boustead buying up a larger stake in their subsidiaries, thus reducing the MI portion of profits. If they can manage to lift up gross margins (the problems mentioned were temporary in nature and are not likely to affect long-term gross profitability), then they can probably achieve a higher net margin of about 12-14% (optimistic view).

Currently, the EPS based on FY 2007 results (and total shares of 254,837,000) is 13.8 Singapore cents. Thus, at a closing price of $2.05 the company is trading at 14x PER, which is very reasonable if you think of its growth potential. Boustead has three main arms: Engineering Services, Water and Wastewater Treatment as well as Industrial Real Estate Solutions. The demand for engineering services is increasing in many parts of the world and Boustead has an edge in terms of recycling various waste products back into fuel or electricity. For their wastewater treatment, they are involved in the Water Solutions Alliance to explore opportunities in the Middle East, and that should yield positive results in FY 2008. Also, with the property boom,the industrial real estate arm with its world-renowned expertise in designing industrial buildings is poised to benefit from the boom. Thus, taking into account the above factors, a higher PER of about18x should justify Boustead's growth. This would price the company at $2.63 base on FY 2007 earnings.

Earnings clarity for FY 2008 are not too obvious, but already there have been 2 projects secured since March 2007, which are going to be fully recognized in FY 2008. The Annual Report will probably yield more insights into the company's prospects and their current and future projects which may be partially or fully recognized in FY 2008. Mr. FF Wong has done a good job of selling off unrelated businesses and positioning Boustead for future growth. This is Boustead's fifth consecutive year of record revenues and profits, and FY 2008 is set to be its sixth if all goes well.

Currently, there is also the Binh Dinh power station awaiting approval from the prime minister. If confirmed, this could be Boustead's single largest contract and will significantly boost its order book and demand a re-rating of its intrinsic value. A final gross dividend of 4.5 cents less 18% tax (net 3.69 cents/share) was declared to utilize their remaining s44 balance, and it will be payable on August 20, 2007. More insights should be revealed at their AGM which of course I will attending. The date is as yet unknown as the Annual Report has to come out first. I will probably dedicate one whole posting to analyzing the Annual Report as I feel this is key to understanding a company and its strategies. Also, the next few days may find me posting more insights about Boustead based on analysts' comments and some experienced forumers' analysis, whichever is more relevant. Stay tuned !

Ezra orders new Deep-water vessel for FY 2009

Ezra continues with its fleet expansion plans by announcing today that it has ordered a pipe-laying, accommodation, well-service and maintenance vessel (the "vessel") from Labroy Marine for delivery in the first half of FY 2009 (i.e. anytime from September 2008 till February 2009). I was a little surprised by this as I had not expected another vessel order coming so soon after their May 3, 2007 order for 2 ultra-large 30,000 bhp AHTS. Initially, during the early part of FY 2007, I was worried that Ezra had fallen behind on ordering vessels for FY 2009 to spearhead their continued growth. Now, it seems that Management has got it well-planned by ordering vessels for deep-water oil exploration, a sign that they are looking to the future prospects of chartering out such vessels. There is a shift towards deep water exploration and this is becoming increasingly important as time passes. It is estimated that by FY 2009 more than 50% of oil exploration will move into deepwater (up from 10% currently).

This is Ezra's second pipelay vessel after their first order called Hull 600 which will be delivered in FY 2007. This would build up their capabilities in the pipe-laying area and allow for more deepwater support (as stated in their announcement which describes many technical aspects of the vessel in great detail). The cost of the vessel is US$25.6 million which will be funded by bank borrowings and internal funds. I suspect that some of the placement proceeds should also be used for this vessel, as I am concerned over Ezra's gearing and whether it has gone up too high.

The company will only report quarterly results from FY 2008 onwards, thus we must wait till about Oct 2007 before the earnings report is out. In the meantime though, it will still be possible to email their IR to enquire on their gearing. Also, the EGM for the bonus issue should be a good opportunity to engage the Management and chairman/CEO on issues.