Update: Emerging Asia growth play Boustead Projects

  • Bought more Boustead Projects today @ 0.905 to 8,0% position
    • High quality industrial building design and build service provider from Singapore
    • Has done design and build projects since 1996 to “high value” industrial buildings and thus has competitive design and contracting operation that can win projects over time
    • Understood that the expansion to overseas will happen through JVs, case Malaysia airport development partnership (need to build contractor network etc., which takes some time) 
    • Expect same will happen in Vietnam and Indonesia over a decade, this is what I see in the horizon
    • Earned in development business about 20 MSGD a year on average last 5 years
    • Then the rental/JV businesses earns normally about 15 MSGD (before tax)
    • So historical group earnings average about 35 MSGD (before tax)
    • Current market cap is 281 MSGD, so the earnings multiple is 8x earnings
    • Note that this includes very low leverage and stable earnings from the own real estate portfolio
    • Moreover, fair value adjusted book value is 500 MSGD+
    • If we think over next decade and the business earns 350 before tax cumulatively (the historical average 35 MSGD x 10) and 280 MSGD after tax cumulatively, the fair value adjusted book value increase to 800 MSGD by end of the period (assuming no increase or decrease in the underlying fair value)
    • If there’s earnings growth / valuation increases to JV/design-build-lease projects, the adjusted book value would be more than billion Singapore dollars by end of the 10 year period
    • More-over, emerging Asia is growing and manufacturing is moving there, including from China, so long-term growth prospects from market perspective are good
      • Given these market dynamics, Boustead Projects’ design-build-and lease attractive offering for manufacturers(they can get customized facilities without own financing with one order)
    • My long term expectation is that the business will grow in Emerging Asia over time
    • Almost certain that the propco will be spun out wholly or partly as REIT, has been the plan since 2015 and recent developments indicate that it will happen sooner or later
    • I like the entrepreneur main owner

Earlier blog post from here.

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