Boustead Singapore

[Musicwhiz]

2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

A closer look at the numbers, if you will.

For FY 2012, the recent announcement of the sale of Hawker Pacific's leasehold facility yielded $14.6m in cash, of which $2.2m was recognized as gain. Therefore, cost would have been $12.4m ($14.6m - $2.2m).

For FY 2011, the legal completion of the sale of IBM Singapore Technology Park yielded cash proceeds of $67.8m, of which $17.3m was recognized as profit. Therefore, cost was $50.5m ($67.8m - $17.3m).

Therefore, margin on sale of property is as follows:-

FY 2012 (Hawker Pacific) - $2.2m/$12.4m = 17.7%
FY 2011 (IMB Techno Park) - $17.3m/$50.5m = 34.2%

So, yes, the margin did go down rather significantly if you compare the last two most recent transactions where the client exercised their option to purchase the property rather than leasing it from Boustead Projects. Though I would say a margin of 17.7% is not shabby either.

But let's look even further back on other such sale of property deals which were undertaken by Boustead Projects:-

Jan 2007 (101 Alps Avenue) – Consideration $27.5m, gain on disposal $13.5m, cost $14m; margin = 96%
Sep 2007 (40 Changi North Crescent) – Consideration $12.39m, gain on disposal $6.07m, cost $6.32m, margin = 96%
Jan 2008 (80 Alps Avenue) – Consideration $46m, gain on disposal $11.93m, cost $34.07m, margin = 35%
June 2008 (Ubi Avenue 1) – Consideration $200m, gain on disposal $26m, cost $174m, margin = 15%

It appears that the deals which were completed in 2007 (the peak of the bull market in both equities and property) yielded the best margins (of 96%); while those completed in 2008 yielded margins significantly lower, with the one in June 2008 (during the GFC) yielding just 15%.

So it would appear that the Hawker Pacific deal is somewhat lousy as the margin is only 15% and the current equity and property markets are doing reasonably well.

Then again, the contract with Hawker Pacific was signed on Feb 1, 2011; so a gain of 17.7% within a year will still pass Boustead’s usual hurdle rate of 15% for projects, and the cash can be recycled back for further opportunities. All in all, I am not disappointed with the result as a shareholder.

Let's not forget that their DB&L portfolio is but one segment of Boustead, and the recent win by Bombardier shows that this division can continually win contracts with renowned companies in the biotech and aerospace industries. As to whether all of these deals have a clause for option to purchase, I believe there is but Boustead Projects would have factored in some margin so that they are able to achieve their required rate of return (knowing FF Wong's conservatism in structuring such deals).

That said, we must remember that the 200,000 sqm mark for Boustead to "REIT" the portfolio is not supposed to be a sprint, but a marathon. Therefore, as a shareholder, I am willing to wait; all the while enjoying very healthy dividends from the Company.