Brokers’ take: CGS-CIMB lowers price targets on Boustead stocks while maintaining ‘add’ calls

CGS-CIMB has lowered its target prices on Boustead Singapore : F9D 0% (Boustead) and its real estate subsidiary Boustead Projects : AVM 0%, while reiterating its “add” call on both stocks after viewing their valuations as attractive.  

In a report on Wednesday (Jun 8), CGS-CIMB analyst Ong Khang Chuen lowered his target price on Boustead Singapore to S$1.30 from S$1.40 on weaker order wins.

The engineering and technology company’s FY2022 core net profit of S$32.3 million fell short of the analyst’s estimates by 11 per cent, due to a drop in revenue across key segments and a weaker order backlog from the pandemic and volatile macro environment.  

The analyst added that Boustead’s geospatial business had a “tough comparative base” compared to last year as Covid-19 accelerated adoption of geospatial technologies. 

However, Ong noted potential structural tailwinds ahead, including Singapore’s smart-city trend and push for ESG (environmental, social and corporate governance) initiatives and therefore, predicts Boustead’s geospatial segment to resume “a high single-digit” growth rate from 2023.  

Going forward, Ong believes 2023 will be a more “promising” year for the engineering segment due to an orderbook replenishment from the global energy sector, aided by improved sentiments on higher oil prices. 

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In a separate report, Ong cut Boustead Projects’ target price to S$1.25 from S$1.40, as he had assumed lower margins in FY2023 and FY2024, resulting in reduced earnings per share (EPS) estimates.

Despite an improvement in construction demand along with Boustead Projects recovering order backlog to a “healthy” level of S$235 million as of end March 2022, Ong remains cautious due to escalating cost pressures.  

“We expect engineering and construction segment’s margins to remain depressed in the first half of 2023 before improving in the second half of 2023 as Boustead Projects completes projects secured pre-Covid-19,” he said.

However, Ong also noted positive upside following Boustead Projects’ better-than-expected core net profit of S$11.3 million in FY2022 and its strong balance sheet of S$203 million by end-FY2022.

Ong believes the real-estate solutions provider, following a strategic collaboration with local partner Khai Toan Joint Stock Company to acquire a 60 per cent stake in an industrial real estate fund, is poised for expansion in Vietnam and benefit from growth of the income-yielding portfolio as a developer-owner.

As at 3.03 pm, shares of Boustead Singapore were trading 1.1 per cent or S$0.01 higher at S$0.96, while shares of Boustead Projects were up 0.6 per cent or 0.5 Singapore cent at S$3.86.