Boustead Singapore

[Musicwhiz]

I bought in at 93.5 after seeing John Lim do a director buy-in last week. The market seems to be reacting positively to the Coy and director purchases now.

I believe it is also in part due to the privatization offer for Sinomem announced over the weekend. More attention is now being focused on water treatment companies and those which have a strong business, good reputation and are profitable (most importantly) will stand in good stead. Boustead has a gem in Salcon which was acquired in 2002, and only recently in FY 2010 was it turned around.

If Salcon continues to be profitable through FY 2012, I see the possibility for Boustead to "spin-off" Salcon in an IPO to realize more value for Boustead shareholders.

[Nick]

I don't think it is fair to compare Salcon with the likes of Sinomem or United Envirotech. Salcon margins are terribly weak, their earnings are spotty and they don't have any experience of owning and managing a BOT water plant yet. I don't think there is any links between the 2 news. I would believe that the Management and Company share buy-back is the main driver behind the share price recovery today. A spin-off is unlikely to occur any time soon. A divestment, on the other hand, might be possible if there is a willing party seeking exposure to waste water engineering.

[Musicwhiz]

Salcon margins are terribly weak, their earnings are spotty and they don't have any experience of owning and managing a BOT water plant yet. I don't think there is any links between the 2 news. I would believe that the Management and Company share buy-back is the main driver behind the share price recovery today. A spin-off is unlikely to occur any time soon. A divestment, on the other hand, might be possible if there is a willing party seeking exposure to waste water engineering.

I'd like to draw your attention to Boustead's latest 3Q FY 2011 results release. For Salcon, revenue for 9M 2011 was S$20.4 million, while PBT was a very respectable S$2.9 million, giving a PBT margin of 14.2%. For FY 2010, Salcon's revenue hit S$54.9 million with PBT of S$7.8 million, yielding a PBT margin of 14.2% as well. Though Salcon's track record is only 2 years of profits, note that previous years' losses were brought about by many legacy issues which have since been settled. The PBT margin is also consistently high for a water treatment company. BOT have their own set of problems as the upfront capital requirements are very high, and I believe Boustead's investment in Bio-Treat will offer them exposure to BOT projects mainly in China.

A spin-off of Salcon was proposed as far back as FY 2006, when FF Wong postulated on the turn-around of Salcon back then (which did not materialize). He realizes the value of the business and knows that if it manages to turn around, it would be a very valuable business indeed and would be perceived as such by interested buyers. You are not wrong to say a Trade Sale may be a mode of exit for Boustead, but then again they can also wait for at least 3 years of consecutive profitability to try to IPO the company.

[Nick]

Salcon margins are terribly weak, their earnings are spotty and they don't have any experience of owning and managing a BOT water plant yet. I don't think there is any links between the 2 news. I would believe that the Management and Company share buy-back is the main driver behind the share price recovery today. A spin-off is unlikely to occur any time soon. A divestment, on the other hand, might be possible if there is a willing party seeking exposure to waste water engineering.

I'd like to draw your attention to Boustead's latest 3Q FY 2011 results release. For Salcon, revenue for 9M 2011 was S$20.4 million, while PBT was a very respectable S$2.9 million, giving a PBT margin of 14.2%. For FY 2010, Salcon's revenue hit S$54.9 million with PBT of S$7.8 million, yielding a PBT margin of 14.2% as well. Though Salcon's track record is only 2 years of profits, note that previous years' losses were brought about by many legacy issues which have since been settled. The PBT margin is also consistently high for a water treatment company. BOT have their own set of problems as the upfront capital requirements are very high, and I believe Boustead's investment in Bio-Treat will offer them exposure to BOT projects mainly in China.

A spin-off of Salcon was proposed as far back as FY 2006, when FF Wong postulated on the turn-around of Salcon back then (which did not materialize). He realizes the value of the business and knows that if it manages to turn around, it would be a very valuable business indeed and would be perceived as such by interested buyers. You are not wrong to say a Trade Sale may be a mode of exit for Boustead, but then again they can also wait for at least 3 years of consecutive profitability to try to IPO the company.

Margins don't exist in a vacuum. To some companies, a margin of 2% may be extremely high (supply chain managers) while to others, a margin of 15% may look relatively weak. So lets compare Salcon margin with its peers -

United Envirotech PBT margin:

FY 09: 10.1%
FY 10: 27.3%
9M 11: 28.4%

Hyflux PBT Margin:

FY 08: 12.7%
FY 09: 15.8%
FY 10: 17.6%

Sinomem PBT Margin:

FY 08: Loss (due to impairment). 13.2% excluding impairment.
FY 09: 26.7%
FY 10: 28.0%

Salcon PBT Margin:

FY 09: Loss-Making
FY 10: 14.2%
9M 11: 14.2%

Salcon margins have under-performed each of its peers for the past 3 years. However, I am very impressed by the significant improvements made in the division. I hadn't expect its margins to improve to double digit figures so rapidly. Credit must go to Boustead Management (and its workers) for turning this company around over the past few years but nevertheless, I wouldn't go head over heels over its performance and its potential impact on Boustead bottom-line in the future. We are not doing its competitors any justice by saying Salcon margins is strong etc. Strong is just too powerful an adjective to describe it ! As FF Wong alluded in the past about divestment - doesn't this clearly show that Salcon isn't part of Boustead future ? Why would you say this unless you understand that there is a limit to Salcon growth and its ability to truly innovate itself into becoming a regional water leader ?

Overall, Boustead is a great company but I think its other divisions are the true engines of growth for the future.

Thank you for taking time to share more about Boustead water division

(Not Vested in any water companies)

[Musicwhiz]

Salcon has its own place in contributing to Boustead's bottom line as a Group, and with the successful turn-around of the business, it is still too early to tell if Salcon can contribute even more to Boustead's PBT pie in future. The technology it has and awards that it has won put it in good stead to steadily improve its performance.

What you have compared with are historical numbers, and granted some of the companies may have differing technologies and/or different business models and Balance Sheets to begin with. Moving forward, with Salcon able to contribute meaningfully to Boustead's PBT, I see possibilities for the Division to do much better.

The reason for divestment is to realize the value of the business. Since Salcon is currently part of a listed entity as just a business division, it may not be valued very highly as compared to if it was spun off in its own listing. I guess it's just a matter of perception, but Boustead did also mention possibly divesting its real-estate arm or sub-divisions in their O&G portfolio in an interview with The Edge. So does this imply these divisions are not contributing meaningfully? I think as a CEO, he comes from the point of view of realizing value and raking in more cash (after all, he owns 30% of the Group).

But since the cash stash has been unable to be deployed (with failed BT CN and the fallout of Big Box), it is noteworthy that Boustead has started to buy back shares.

Perhaps it would take another 2-3 years to see the potential in Salcon, but I am willing to wait. After all, I've waited since 2006!

[Musicwhiz]

Boustead just announced a share buy-back of 217,000 shares at around 94.2 cents this evening. The buy-back was done today (March 7, 2011) and increases the number of treasury shares to 10,987,000 shares.

Adjusted issued share cap less treasury shares = 504,758,524 shares.

[mightyreds]

Fantastic news. Good management in my opinion.

Hopefully the chaos in the middle east won't erupt further.

[Musicwhiz]

I am wondering what is SDV from Boustead's new subsidiary BP-SDV refer to?
Maybe a good idea for them to buy more share back with their current war chest.

Now we know what BP-SDV is for! Please see attached announcement this evening from Boustead. They have won a S$55 million contract from SDV Logistics.

(Vested)

[Jon-san]

*clap clap clap* for Boustead...

[Musicwhiz]

OK, Boustead won 2 contracts instead of just one, but I missed the second one today until I read this article in Business Times!

I guess there is a very good reason why Boustead increased their stake in Boustead Projects from 91.7% to 100%!

Business Times - 17 Mar 2011

Boustead bags contracts worth $72m

Jobs won through unit Boustead Projects

By MINDY TAN

BOUSTEAD Singapore's subsidiary Boustead Projects has won two contracts worth $72 million.

The first was a $55 million contract with SDV Logistics (Singapore) to design, construct, and develop an integrated logistics facility in Singapore.

This is earmarked to be the first local facility in the logistics industry to be awarded Leadership in Energy and Environmental Design Gold. This is an internationally recognised green building certification system developed by the US Green Building Council.

With a gross floor area of approximately 42,110 square metres, the five-storey ramp-up facility will comprise sections for supply chain management and administrative offices. Completion is expected in August 2012.

The facility will be developed by Boustead Projects' wholly owned subsidiary, BP-SDV. Upon completion of the facility, Boustead Projects will transfer its shares in BP-SDV to SDV Logistics.

Its second commission involves a $17 million design-and-build contract for an integrated high-tech production and research and development centre located at Tukang Innovation Park.

Due for completion in Q4 2011, the high-tech facility has a gross floor area of approximately 20,000 square metres across four floors designated for production, R&D laboratories, clean rooms, and administrative offices.

'Our business development efforts have borne fruit since the start of 2011,' saidThomas Chu, managing director of Boustead Projects. He added that with the two contracts, Boustead Projects had secured five industrial real estate contracts since the start of the year.

'We will continue to drive business development efforts in niche growth industries in Singapore and regionally,' he said.

Both contracts are not expected to have a material impact on the profitability, earnings per share, or net asset value per share of Boustead in the current financial year ending March 31, 2011.

In February, Boustead evacuated 31 of its non-Libyan staff from Libya. They were working on the Al Marj Township Project, east of the capital of Libya, Tripoli.

Boustead is currently a 35 per cent shareholder of the township project, having previously held a 65 per cent interest prior to restructuring. Boustead, together with General Construction & Building Company, was awarded the $300 million contract to build the 1,164-villa Al Marj township in 2007.

As a result of the political unrest, Boustead announced last month that it has suspended all operations in Libya. It placed its financial exposure in the North African nation to be between $15.5 million and $39.6 million.

Boustead's share price closed trading up one cent at $0.94 yesterday.