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.