Broker's take: CGS-CIMB raises TP for Boustead Projects, sees special dividend potential

CGS-CIMB has raised its target price (TP) on Boustead Projects to S$1.33 from S$0.95 previously following the establishment of its private business trust.

In a research note on Monday, analyst Ong Khang Chuen reiterated his "add" call on the infrastructure-related engineering and technology group. He also flagged the possibility of special dividends in the near term.

On Dec 31, Boustead Projects announced that it established Boustead Industrial Fund (BIF) with the objective to invest in, and manage investments in business parks as well as industrial and logistics properties.

The group holds an initial 25 per cent stake in BIF, and will inject 14 of its industrial properties to form the fund's initial portfolio. Other investors include Metro Holdings, which acquired a 26 per cent stake in the fund's portfolio for up to S$76.6 million.

Boustead Projects is forecasting net cash proceeds of about S$137.2 million from its divestment of properties comprising BIF's initial portfolio. The sum will be used to pursue future growth in its design-and-build business, fund working capital requirements and potentially declare a special dividend out of the balance, said the group in its Dec 31 filing.

In his report, Mr Ong said he views the establishment of BIF as a positive move that will enable Boustead Projects to unlock the value of its leasehold portfolio and strengthen its balance sheet, while also creating a platform to house industrial properties to be completed in the future.

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In particular, he sees a "high possibility" of special dividends being declared after the transaction is approved, given the group's strong balance sheet of S$56 million net cash as at end-September 2020.

"Assuming 50 per cent of the net cash proceeds are paid out as special dividends, dividend per share could amount to S$0.22 or a dividend yield of 26.6 per cent for FY3/21F," said Mr Ong.

While the total portfolio consideration of S$332 million is at a slight premium over the initial market valuation of S$331 million, he has lowered his earnings per share forecasts for FY21-FY23 by 16.3-66.1 per cent on the account of lower rental income from investment properties after the disposal.

"Boustead Projects' valuation of 0.43 times FY21F RNAV is attractive, in our view. Re-rating catalysts include the announcement of special dividends or further asset injection into BIF; downside risks include lacklustre order wins for Boustead Projects' design-and-build business," the analyst added.

Shares of Boustead Projects were 0.5 Singapore cents or 0.5 per cent higher at 96 cents prior to the midday trading break.