Boustead Singapore

[greengiraffe]

Hi GG,

Thanks for recounting your long experience with Boustead, and it is indeed good to know of someone who has been a shareholder for the past 11 years.

Reply: Its difficult being a Boustead shareholder initially especially when Boustead had to rely on lumpy earnings like sale of properties to ensure earnings track record. While growth from lower bases are good, the quality is definitely not there. In addition, the black hole due to red ink at Water division is a constant worry for shareholders.

No doubt what you said is very true, Boustead has steadily transformed itself after the GFC with FF Wong's commitment to finding investment opportunities for the cash and to build up Boustead Project's DB&L portfolio. What I do find puzzling, however, is their doggedness with regards to Salcon. As you yourself mentioned, it is a pale shadow of what it used to be and even after legacy issues were cleared up in recent years, the division has difficulty pulling in a decent profit; and has been a drag to the Group. I seriously hope FF Wong can give a good explanation for holding out with Salcon for so many years, even when it is becoming increasingly apparent that Salcon is not a good idea!

Reply: If you had went through so much just to stem legacy contractual obligations from previous management of Salcon plus numerous attempts to revive the fortunes, then I think it will be difficult to chop and go. In fact over the years, you would have notice attempts to embark on mega projects at the Water division. Unfortunately, these contracts were clinched in exotic regimes where regulatory environment are lacking and hence cashflow certainties are simply not there. I think the last ditch efforts to integrate with other divisions to provide an integrated infrastructure solution also went up in smokes with the Arab Spring in Libya.

Wow you must have held Boustead through the Easycall cum China Education days, and seen the dividend in specie offered by Boustead of Easycall shares which then went up 10x after the privatization offer! That was a good deal I missed out as I only bought in late-2006.

Reply: Even Easycall is a toughcall. Share price did nothing post the free distributions of shares to Boustead holders. As I am holding on to a Boustead share cert, I also received a Easycall share cert that is sitting in my biscuit tin. I even went to Mr Wong and the then CEO Chia Yew Boon for autograph. Easycall only saw its last hurray when ex darling Raffles Edu came in with the midas touch. That if I remembered was after at least two years of wait. By then, due to investor fatigue I sold at least half of easycall before the final frantic jump from 10 cents to 80 cents.

As for real estate, now that D&B will be more competitive and projects harder to come by, I am not sure if they can easily grow this division consistently. While it is true that they have recurring income from their current stable of DB&L projects, it has been increasingly tough for Boustead to secure more of such contracts to add to their recurrent income. I suspect FF Wong may need to pull another rabbit out of the hat to ensure the cash hoard does not just lie around earning next to nothing.

Reply: Never say never. Even now B Projects are still getting design and build projects. Presently, the portfolio size is around 100k sqm. Management has indicated that they need at least 300k sqm in order to create a REIT platform. It is such an ambitious target but with a quality portfolio and many established funds out there, the options to unlock value remains galore.

True, Geo-Spatial is the under-stated winner for Boustead, and seeing PBT increase about +20% for 9M 2013 is indeed pleasing and encouraging. This division has never failed to grow every single year and brings in most of the FCF for Boustead Group.

Reply: ESRI has been flying under the radar for a long time and I think its leadership down under will continue to underpin its prospects. Should emerging mkts such as resources rich Asean neighbours start to embrace the technology, we may then see the next phase of growth.

Currently, Boustead has a few investments on its plate; namely Hankore (which just announced decent results today), OMH (still in limbo regarding the Sarawak Smelter) and the most recent integrated development in Tongzhou district in Beijing with Perennial Real Estate. Whether these eventually bear fruit remains to be seen, but my concern is whether Boustead may stray too far from its core competencies in their pursuit for "growth" and "returns". As a shareholder I hope to be able to articulate these concerns to Management and receive a satisfactory answer. The litigation in Libya is also another wild card and would represent a bonus of sorts if they won it as the amount had already been written off.

Reply: Never look down on these here and there investments. Strategically there are synergistic impact. I personally do not share your view that Boustead has strayed from its core. Hankore and Water, OMH and engineering and the mickey mouse stake in mammoth project in Tongzhou (building). Somehow,if you look at it from the option theory perspective, its a cheap option with high exercise price. If they pay off, then we may be in for an unexpected windfall in the future. Does anyone knows where on earth did Boustead realise a windfall in Q313?


Regards.