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Hawker Pacific is a much smaller development compared to IBM, hence absolute comparisons are meaningless. There is no doubt competition has heightened and clients are also becoming more aware of lease terms and their need to protect themselves from potentially lucrative landlords.

On a overall perspective, this DBL concept really means nothing if one compares Boustead Project's achievement to the rest of the construction sector since 2007. The rest of the sector has made tonnes of profits during the past years of construction boom. For the more daring contractors that jumped on residential prop bandwagon, the rewards are even more.

Hence, there are valid concerns as to why Boustead as a whole has been accorded very low ratings notwithstanding its strong net cash holdings, generation capability and quality asset holdings. If any investors need a direct construction, property or even REIT exposures, they have better quality picks.

(31-03-2012, 07:57 PM)greengiraffe Wrote: [ -> ]Hawker Pacific is a much smaller development compared to IBM, hence absolute comparisons are meaningless. There is no doubt competition has heightened and clients are also becoming more aware of lease terms and their need to protect themselves from potentially lucrative landlords.

On a overall perspective, this DBL concept really means nothing if one compares Boustead Project's achievement to the rest of the construction sector since 2007. The rest of the sector has made tonnes of profits during the past years of construction boom. For the more daring contractors that jumped on residential prop bandwagon, the rewards are even more.

Hence, there are valid concerns as to why Boustead as a whole has been accorded very low ratings notwithstanding its strong net cash holdings, generation capability and quality asset holdings. If any investors need a direct construction, property or even REIT exposures, they have better quality picks.

I am not looking at absolute value, which of course is meaningless.

2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

(31-03-2012, 08:09 PM)freedom Wrote: [ -> ]

(31-03-2012, 07:57 PM)greengiraffe Wrote: [ -> ]Hawker Pacific is a much smaller development compared to IBM, hence absolute comparisons are meaningless. There is no doubt competition has heightened and clients are also becoming more aware of lease terms and their need to protect themselves from potentially lucrative landlords.

On a overall perspective, this DBL concept really means nothing if one compares Boustead Project's achievement to the rest of the construction sector since 2007. The rest of the sector has made tonnes of profits during the past years of construction boom. For the more daring contractors that jumped on residential prop bandwagon, the rewards are even more.

Hence, there are valid concerns as to why Boustead as a whole has been accorded very low ratings notwithstanding its strong net cash holdings, generation capability and quality asset holdings. If any investors need a direct construction, property or even REIT exposures, they have better quality picks.

I am not looking at absolute value, which of course is meaningless.

2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

give and take lah - bird in the hand better than writing off and still need to worry about loss of lives (Middle East nightmare). Haha

I think Freedom has made a good point. I also began to wonder if DBL is really as attractive as what Boustead made it out to be. The margin for the Hawker deal, if its purely for design and build only, is quite respectable. But with funding thrown in, it may not be worth the while. If Boustead does not have any better ideas, it can consider paying out the cash as dividend, rather than invest in even higher risk assets such as the Libya deal. So comparison to the Libya loss is not exactly a good one.

Furthermore, at the rate that customers are exercising their options, I think it may not be easy for Boustead to reach 300k sqm of DBL properties to sell into a REIT. Such a REIT may also not be that attractive for potential investors because of the options in the hand of the tenants [the reit manager will not have much say in the sale of such properties as their hands are tied by the options already signed.

(31-03-2012, 08:26 PM)greengiraffe Wrote: [ -> ]

(31-03-2012, 08:09 PM)freedom Wrote: [ -> ]

(31-03-2012, 07:57 PM)greengiraffe Wrote: [ -> ]Hawker Pacific is a much smaller development compared to IBM, hence absolute comparisons are meaningless. There is no doubt competition has heightened and clients are also becoming more aware of lease terms and their need to protect themselves from potentially lucrative landlords.

On a overall perspective, this DBL concept really means nothing if one compares Boustead Project's achievement to the rest of the construction sector since 2007. The rest of the sector has made tonnes of profits during the past years of construction boom. For the more daring contractors that jumped on residential prop bandwagon, the rewards are even more.

Hence, there are valid concerns as to why Boustead as a whole has been accorded very low ratings notwithstanding its strong net cash holdings, generation capability and quality asset holdings. If any investors need a direct construction, property or even REIT exposures, they have better quality picks.

I am not looking at absolute value, which of course is meaningless.

2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

give and take lah - bird in the hand better than writing off and still need to worry about loss of lives (Middle East nightmare). Haha

what I am really afraid is that there was cost over-run or underestimation of cost when they signed the deal with and granted the call option to Hawker Pacific.

(31-03-2012, 08:50 PM)freedom Wrote: [ -> ]what I am really afraid is that there was cost over-run or underestimation of cost when they signed the deal with and granted the call option to Hawker Pacific.

Brot, an lah. B Project has no physical construction ability - they leave it to their sub-con. They are high value added D24 style engineering outfit that sells on design and project management capabilities.

It is probably due to its focus that they totally missed the boom years in the local construction sector since 2007. They are equivalent to a bond while other listed construction cos are equities - taking direct bets and speculate (taking position in developments).

Even then, your concerns are valid - competition has intensified and there are less sorchai clients around.

Hence, there is also pressure for Boustead to evolve and hence new special projects and ventures are worth watching.

(31-03-2012, 08:09 PM)freedom Wrote: [ -> ]2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

A closer look at the numbers, if you will.

For FY 2012, the recent announcement of the sale of Hawker Pacific's leasehold facility yielded $14.6m in cash, of which $2.2m was recognized as gain. Therefore, cost would have been $12.4m ($14.6m - $2.2m).

For FY 2011, the legal completion of the sale of IBM Singapore Technology Park yielded cash proceeds of $67.8m, of which $17.3m was recognized as profit. Therefore, cost was $50.5m ($67.8m - $17.3m).

Therefore, margin on sale of property is as follows:-

FY 2012 (Hawker Pacific) - $2.2m/$12.4m = 17.7%
FY 2011 (IMB Techno Park) - $17.3m/$50.5m = 34.2%

So, yes, the margin did go down rather significantly if you compare the last two most recent transactions where the client exercised their option to purchase the property rather than leasing it from Boustead Projects. Though I would say a margin of 17.7% is not shabby either.

But let's look even further back on other such sale of property deals which were undertaken by Boustead Projects:-

Jan 2007 (101 Alps Avenue) – Consideration $27.5m, gain on disposal $13.5m, cost $14m; margin = 96%
Sep 2007 (40 Changi North Crescent) – Consideration $12.39m, gain on disposal $6.07m, cost $6.32m, margin = 96%
Jan 2008 (80 Alps Avenue) – Consideration $46m, gain on disposal $11.93m, cost $34.07m, margin = 35%
June 2008 (Ubi Avenue 1) – Consideration $200m, gain on disposal $26m, cost $174m, margin = 15%

It appears that the deals which were completed in 2007 (the peak of the bull market in both equities and property) yielded the best margins (of 96%); while those completed in 2008 yielded margins significantly lower, with the one in June 2008 (during the GFC) yielding just 15%.

So it would appear that the Hawker Pacific deal is somewhat lousy as the margin is only 15% and the current equity and property markets are doing reasonably well.

Then again, the contract with Hawker Pacific was signed on Feb 1, 2011; so a gain of 17.7% within a year will still pass Boustead’s usual hurdle rate of 15% for projects, and the cash can be recycled back for further opportunities. All in all, I am not disappointed with the result as a shareholder.

Let's not forget that their DB&L portfolio is but one segment of Boustead, and the recent win by Bombardier shows that this division can continually win contracts with renowned companies in the biotech and aerospace industries. As to whether all of these deals have a clause for option to purchase, I believe there is but Boustead Projects would have factored in some margin so that they are able to achieve their required rate of return (knowing FF Wong's conservatism in structuring such deals).

That said, we must remember that the 200,000 sqm mark for Boustead to "REIT" the portfolio is not supposed to be a sprint, but a marathon. Therefore, as a shareholder, I am willing to wait; all the while enjoying very healthy dividends from the Company.

I only compare Hawker Pacific deal with IBM deal as both were DB&L, but the customer chose to exercise their call option. Others are kinda different as they are not structured as DB&L. It would not make much sense for Boustead Project to grant the customer a cheap call option, as it would be difficult for the other party not to exercise it. And what's the point to structure it as DB&L. D&B would be much better, as the investment from Boustead Project would be small, as milestone payment would apply normally.

my guess is probably the option granted to hawker pacific was not cheap, but the cost has overrun, thus lower profit margin.

(31-03-2012, 10:58 PM)Musicwhiz Wrote: [ -> ]

(31-03-2012, 08:09 PM)freedom Wrote: [ -> ]2 million/ 14 - 15 million and 20 million / 67 million, there is huge difference in margin

A closer look at the numbers, if you will.

For FY 2012, the recent announcement of the sale of Hawker Pacific's leasehold facility yielded $14.6m in cash, of which $2.2m was recognized as gain. Therefore, cost would have been $12.4m ($14.6m - $2.2m).

For FY 2011, the legal completion of the sale of IBM Singapore Technology Park yielded cash proceeds of $67.8m, of which $17.3m was recognized as profit. Therefore, cost was $50.5m ($67.8m - $17.3m).

Therefore, margin on sale of property is as follows:-

FY 2012 (Hawker Pacific) - $2.2m/$12.4m = 17.7%
FY 2011 (IMB Techno Park) - $17.3m/$50.5m = 34.2%

So, yes, the margin did go down rather significantly if you compare the last two most recent transactions where the client exercised their option to purchase the property rather than leasing it from Boustead Projects. Though I would say a margin of 17.7% is not shabby either.

But let's look even further back on other such sale of property deals which were undertaken by Boustead Projects:-

Jan 2007 (101 Alps Avenue) – Consideration $27.5m, gain on disposal $13.5m, cost $14m; margin = 96%
Sep 2007 (40 Changi North Crescent) – Consideration $12.39m, gain on disposal $6.07m, cost $6.32m, margin = 96%
Jan 2008 (80 Alps Avenue) – Consideration $46m, gain on disposal $11.93m, cost $34.07m, margin = 35%
June 2008 (Ubi Avenue 1) – Consideration $200m, gain on disposal $26m, cost $174m, margin = 15%

It appears that the deals which were completed in 2007 (the peak of the bull market in both equities and property) yielded the best margins (of 96%); while those completed in 2008 yielded margins significantly lower, with the one in June 2008 (during the GFC) yielding just 15%.

So it would appear that the Hawker Pacific deal is somewhat lousy as the margin is only 15% and the current equity and property markets are doing reasonably well.

Then again, the contract with Hawker Pacific was signed on Feb 1, 2011; so a gain of 17.7% within a year will still pass Boustead’s usual hurdle rate of 15% for projects, and the cash can be recycled back for further opportunities. All in all, I am not disappointed with the result as a shareholder.

Let's not forget that their DB&L portfolio is but one segment of Boustead, and the recent win by Bombardier shows that this division can continually win contracts with renowned companies in the biotech and aerospace industries. As to whether all of these deals have a clause for option to purchase, I believe there is but Boustead Projects would have factored in some margin so that they are able to achieve their required rate of return (knowing FF Wong's conservatism in structuring such deals).

That said, we must remember that the 200,000 sqm mark for Boustead to "REIT" the portfolio is not supposed to be a sprint, but a marathon. Therefore, as a shareholder, I am willing to wait; all the while enjoying very healthy dividends from the Company.

I salute you sir. Very hardworking and its really a waste that you are not a equities securities analysts - very well paid (but little choice over securities coverage though).

Jokes aside, I just want to add that, you have not added debt as part of the analysis. Since last year starting from Safran DBL, Boustead has assumed full equity in their DBL projects, hence the margins are no longer comparable to previous deals when they are leveraged up.

Moreover, after so many years, end clients have became smarter when structuring DBL deals with originator like B Projects. Rightly so as they also want to have flexibility to buy out their facilities when their cashflows from their greenfield projects turned more visible. Bear in mind, the world has changed following repeated crisis and there is no doubt that with many tighter factors, lucrativeness in margins will also be tightened.

I am happy as well. Cash returns means more flexibility. White or black cats doesn't matter so long as they catches the mice - Chairman Mao

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(31-03-2012, 11:18 PM)freedom Wrote: [ -> ]I only compare Hawker Pacific deal with IBM deal as both were DB&L, but the customer chose to exercise their call option. Others are kinda different as they are not structured as DB&L. It would not make much sense for Boustead Project to grant the customer a cheap call option, as it would be difficult for the other party not to exercise it. And what's the point to structure it as DB&L. D&B would be much better, as the investment from Boustead Project would be small, as milestone payment would apply normally.

my guess is probably the option granted to hawker pacific was not cheap, but the cost has overrun, thus lower profit margin.

Using option theory, B Projects has written a put option to Hawker Pac. The writing of the put option is free to B projects and it enhances the deal that was awarded by Hawker Pac during contract negotiations last year in the face of competition.

In hind sight, should not have written a put option but if not written, the DBL contract may have landed in competitors lap and B project didn't even have a chance to earn a single cent.

Be happy. I am really contented. Its hard cash returning.

Hmm yes GreenGiraffe you have a very good point there in terms of the structuring of the deals. If one uses debt to compute, then you will be looking at ROIC (the base would include BOTh debt and equity) and thus the return on investment using equity alone as a denominator would be much higher (most companies' ROI just uses equity and not ROIC).

Since recent projects have been fully equity funded from internal cash reserves, returns should understandably be lower.

Nevertheless, Boustead's hurdle rate of 15% has still been achieved and as you say, it's cold hard cash coming in which is not a bad thing. Just makes it look as though they are hoarding the cash!