Boustead Singapore

[freedom]

Thanks for the update MW. Their real estate development division will be busy for the next 1 year ! Any idea how much of their revenue comes from recurring rental ? The margins will definitely be high but is the returns good ? Overall, a mixture of EPC works backed by recurring income would be a good business model to ensure profitability even when the orderbook is completely depleted in bad times.

the downside is that Boustead will be asset-heavy...

and assets must be depreciated and re-valued regularly

[valuestalker]

Thanks for the update MW. Their real estate development division will be busy for the next 1 year ! Any idea how much of their revenue comes from recurring rental ? The margins will definitely be high but is the returns good ? Overall, a mixture of EPC works backed by recurring income would be a good business model to ensure profitability even when the orderbook is completely depleted in bad times.

the downside is that Boustead will be asset-heavy...

and assets must be depreciated and re-valued regularly

By that time, we shall see the industrial REIT coming.

Btw, the continential project is in Business Times today, one full page of it.

[Musicwhiz]

Any idea how much of their revenue comes from recurring rental ? The margins will definitely be high but is the returns good ? Overall, a mixture of EPC works backed by recurring income would be a good business model to ensure profitability even when the orderbook is completely depleted in bad times.

That's a very good question! I don't know at this point in time as the Company did not disclose it, but will raise it up at the AGM or audiocast.

Thanks!

[nitenite]

Thanks for the update MW. Their real estate development division will be busy for the next 1 year ! Any idea how much of their revenue comes from recurring rental ? The margins will definitely be high but is the returns good ? Overall, a mixture of EPC works backed by recurring income would be a good business model to ensure profitability even when the orderbook is completely depleted in bad times.

the downside is that Boustead will be asset-heavy...

and assets must be depreciated and re-valued regularly

hi newbie here, just wondering though assets are to be depreciated over time but if economy is at steady growth rate, wouldn't the re-evaluation increased its value before one dispose of it at a "right" time?

[Nick]

Thanks for the update MW. Their real estate development division will be busy for the next 1 year ! Any idea how much of their revenue comes from recurring rental ? The margins will definitely be high but is the returns good ? Overall, a mixture of EPC works backed by recurring income would be a good business model to ensure profitability even when the orderbook is completely depleted in bad times.

the downside is that Boustead will be asset-heavy...

and assets must be depreciated and re-valued regularly

hi newbie here, just wondering though assets are to be depreciated over time but if economy is at steady growth rate, wouldn't the re-evaluation increased its value before one dispose of it at a "right" time?

Perhaps MW can answer this ?

I am under the impression that the leased assets are investment properties so there will be no depreciation. Instead it will be revalued annually and changes in the fair value will be recorded in the P&L Statement. If the assets are classified as PPE (Property Plants and Equipments), then it will be depreciated steadily until it reaches its terminal value. Hotel companies classify their hotel assets under PPE so their RNAV is significantly larger than their reported NAV.

[Musicwhiz]

I believe investment properties are revalued, not depreciated. But let me check that up to confirm as I need to read through the Accounting Standard once more.

Business Times - 18 Mar 2011

Boustead to build R&D centre for Continental Automotive

By JERMAINE NG

BOUSTEAD Singapore, through Boustead Projects, has won a contract to design, build and lease to Continental Automotive Singapore an advanced research & development and technology centre.

The seven-storey centre will be built to cater specifically to R&D and product development for interior electronic systems in automobiles, and aims to drive the product creation process from conception to realisation, and finally on to the mass production of instrumentation clusters and displays, multimedia devices, radio navigation devices, centre stacks, interior modules and control systems.

The R&D centre will also house a specialised product verification and validation laboratory, and a test-car space for quality control management.

With a gross floor area of about 11,250 square metres, and structural provisions for an eighth floor to support future expansion plans, the centre is expected to be completed by the first quarter of next year.

The knowledge-intensive facility will be located at Kallang iPark, a new industrial park situated on the fringe of the Central Business District and close to the Kallang Riverfront.

'Having announced two contracts worth $72 million (on Wednesday), along with today's announcement of the R&D and technology centre for Continental, we feel confident that we have a strong footing for the upcoming FY2012,' Thomas Chu, managing director of Boustead Projects, said yesterday.

This is the eighth industrial facility in Boustead Projects' portfolio of industrial leasehold facilities, and the fourth industrial leasehold facility design- build-lease contract secured by Boustead Projects in the last twelve months.

It is 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 or the next financial year ending March 31, 2012.

'As the above contract is not on a design-and-build arrangement, it will not be added to the Boustead Group's order book backlog (as at the end of Q3 FY2011 plus new orders in Q4 FY2011), which currently stands at $262 million,' said Boustead.

Boustead shares closed trading down half a cent at 93.5 cents yesterday.

[freedom]

Thanks MW.

I always wonder about that.

[Musicwhiz]

Please refer to attached FRS 40 on Investment Property (warning: it's pretty technical!). Apparently, a property can be classifed as an investment property using the Cost model or Fair Value Model. For Cost model, there IS depreciation to be charged on the property, while for Fair Value it will be revalued periodically at market value and the difference is taken to Profit and Loss account.

http://www.asc.gov.sg/frs/attachments/2005/FRS_40.pdf

Looking at Boustead's FY 2010 Annual Report Page 70, "properties held for salë" are stated at lower of cost (SI method) or NRV. This would indicate properties such as IBM Technology Park are classified under this category.

For Page 72, it states that Investment Properties are "completed leasehold properties which are held to earn rentals and/or for capital appreciation. They are stated at cost less accumulated depreciation, over a useful life of 40 to 57 years using Straight Line method, and the impairment test is also carried out to see if the recoverable amount is lower than its carrying amount (at cost in the Balance Sheet)".

Further, the useful life and depreciation method are also reviewed every year and gain or loss on disposal is the difference between sales proceeds and the carrying amount of the asset and is recognized in Profit & Loss.

So to conclude, I was wrong to say that investment properties are not depreciated. They are depreciated, but this depreciation is written back once the property is disposed, to compute the gain/loss on disposal which is then taken to Profit and Loss account. The same way that PPE is accounted for currently, I believe.

Comments are welcome, thanks!

[nitenite]

Please refer to attached FRS 40 on Investment Property (warning: it's pretty technical!). Apparently, a property can be classifed as an investment property using the Cost model or Fair Value Model. For Cost model, there IS depreciation to be charged on the property, while for Fair Value it will be revalued periodically at market value and the difference is taken to Profit and Loss account.

http://www.asc.gov.sg/frs/attachments/2005/FRS_40.pdf

Looking at Boustead's FY 2010 Annual Report Page 70, "properties held for salë" are stated at lower of cost (SI method) or NRV. This would indicate properties such as IBM Technology Park are classified under this category.

For Page 72, it states that Investment Properties are "completed leasehold properties which are held to earn rentals and/or for capital appreciation. They are stated at cost less accumulated depreciation, over a useful life of 40 to 57 years using Straight Line method, and the impairment test is also carried out to see if the recoverable amount is lower than its carrying amount (at cost in the Balance Sheet)".

Further, the useful life and depreciation method are also reviewed every year and gain or loss on disposal is the difference between sales proceeds and the carrying amount of the asset and is recognized in Profit & Loss.

So to conclude, I was wrong to say that investment properties are not depreciated. They are depreciated, but this depreciation is written back once the property is disposed, to compute the gain/loss on disposal which is then taken to Profit and Loss account. The same way that PPE is accounted for currently, I believe.

Comments are welcome, thanks!

thanks for the clarification and further infor
guess that it's up to how the company treat such assets but overall seems like depreciation will be 'deal with' if they manage to dispose it at a good price.

[edragon]

If and when they dispose of depreciated properties, in most cases there will be an extra gain OR they will not be disposed in the first place. Loss in disposal is less likely IMO.