Boustead Projects: NAV discount with catalyst

I recently bought 2,5 % position in Boustead Projects. The business operates from Singapore, so I’m quite far away from my self imposed North Europe mandate. I didn’t do much research on it though, because the idea is so simple.

Firstly, Boustead Projects’ net financial assets, including real estate and real estate development JVs measured at fair values net of financial debt, is 1,47 SGD / share*.

Management more or less directly says that real estate portfolio within the net financial asset portfolio will be monetized.

Market rumor is that it will happen through REIT, already in 2020. They formed fund management subsidiary already in October, so there’s clearly some activity.

Secondly, Boustead Projects’ commercial project development business is nicely profitable, expanding to emerging Asia and has record order book.

At 5x EBT, to allow for some cyclicality and potential decrease in margins, the project development business would be worth 0,38 SGD / share.

As a whole, then, the project development busines and the net financial portfolio would be worth about 1,47+0,38=1,85 SGD / share. Current market price is 0,9 SGD / share, so my very rough back of the envelope valuation indicates nice upside.

Singapore is new market for me and with so obvious undervaluation I’m wary of fraud risk but I don’t think it’s the case here. Boustead Projects pays dividends and buys back shares.

More over, I watched this video where the founder speaks about his life and investments, many focused on turnarounds, and got convinced that he is true entreprenaur and cares about his shareholders and the world.

So, in summary, good management, good business, good growth market in emerging Asia, undervalued stock with catalyst and lot of asset value backing the stock price. 

Merry Christmass,

-Backoftheenvelope

ps. Hat tip for @Finansnovis and @aceglobalvalue for the lead.

* I excluded big cash position from the net financial asset calculation as I assume some or even most will be used in new projects in the project development business (which has record order book)

Disclosure: Long with 2,5% position and might buy more.

3 thoughts on “Boustead Projects: NAV discount with catalyst

  1. Are you including both properties held for sale and investment properties in your financial assets valuation? And is the book value of JVs/Associates the right value? Do you know what properties are included within the JVs and how much additional capital needs to go into them?

    Also, why choose BP over its parent, Boustead Singapore? BS is under-earning in significant way and seems even cheaper, especially if BP is marked up to your fair value.

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    • Yeah I included properties held for sale, investment properties and the fair value investments. I also adjusted the JVs for my estimate of fair value (you can find their fair value from some presentation) by adding 20 % to the book value. My clipping and gluing and some educated guess math indicates that probably the adjustment should be about 50% but there’s some uncertainty so I scaled it back.

      The properties in JVs are announced in annual report and those that are ready of course doesn’t need any capital but those that are not ready, I don’t know. Partly because of this I excluded the big cash position from the net financial asset calculations. There’s probably some information on the contingent liabilities/commitments to the JVs/projects in the notes but I didn’t read them (quickly skimmed through).

      I did valuation for Boustead Singapore assuming Boustead Project at my fair valuation and got similar 100% upside as Boustead Projects. But if you put say 20% complexity discount on the Boustead Singapore structure, then Boustead Project as a simpler structure has higher upside. Also Boustead Project has the direct catalyst so there might be market action faster. I think they are both good but at this stage selected the Boustead Project.

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