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Boustead, Standard Chartered maintained OUTPERFORM:
Potential upside from forming a REIT
We reiterate our Outperform rating on Boustead Singapore
with a new price target of SGD 2.02 (SGD 1.26 previously),
which partially reflects the valuation upside of Boustead
spinning off its property portfolio into a REIT.
If Boustead forms a REIT, it would boost our valuation by
4.7% to SGD 2.07/share. We incorporate half of this upside
potential in our final PT.
We value Boustead using an SOTP methodology and our PT
translates into 16.2x 2015E PER. We estimate Boustead’s
net cash and property portfolio is worth SGD 393mn, or 43%
of its market cap.
OUTPERFORM (unchanged)
Potential property spin-off. Boustead’s property portfolio
(including properties to be completed) now totals 163k sqm. In the
past, management said it would like to spin off the property
portfolio into a REIT when it reached 200-300k sqm. We believe
Boustead may accelerate this plan, as management indicated it is
open to acquiring existing properties (as opposed to expanding the
company’s portfolio via its design-build-and-lease solution), or
partnering with another company with an industrial property
portfolio to form a REIT.
Overall strong outlook for the company’s businesses.
Boustead’s energy engineering and design-and-build industrial
estate businesses are experiencing strong demand. We forecast
new orders for these segments to grow by a respective 53% and
27% YoY in FY14. Boustead’s energy engineering business is
experiencing robust demand in North America from new shale gas
and oil sands projects. Boustead’s chairman and CEO FF Wong
said he is bullish on industrial property in Iskandar, as he believes
many manufacturers and SMEs in Singapore could shift there,
leading to further projects for the company in both Iskandar and
Singapore.
Upside from a REIT. We partially factor in the valuation upside of
Boustead spinning off its property portfolio into a REIT (we take the
average of our base-case valuation and the valuation following a
property segment spin-off). We believe our assumptions are
prudent, as we value Boustead’s property portfolio using a net
property income margin of 70% and a cap rate of 7%.