Deep-dive 2023-3: Boustead Singapore (BOCS SP)
Singapore small-cap conglomerate run by a legendary entrepreneur
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Boustead Singapore (BOCS SP - US$311 million) is a small-cap conglomerate based in Singapore run by a legendary entrepreneur called FF Wong.
The company was founded in 1828 as a British trading house, active across rubber plantations, tin smelting, trading of oil products, shipping, distribution of consumer goods and more. After Singapore become an independent country, Boustead Singapore was spun off from its Malaysian and British counterparts.
In 1996, the company became controlled by entrepreneur FF Wong. Prior to Boustead, he had successfully engineered a turnaround of Singapore food conglomerate QAF and sold it to Indonesia’s Salim Group. Flush with cash from the divestiture, he acquired Boustead Singapore and has built it into a successful conglomerate with relatively high returns on capital.
Today, the company has four main businesses:
Industrial property development and leasing: Boustead Singapore has a 54.8% stake in separately listed Boustead Projects (BOCJ SP), which develops industrial property in Singapore, Malaysia, Vietnam and China. It builds industrial properties on behalf of multinational companies. Most of these assets end up in 25%-owned Boustead Industrial Fund, while Boustead Projects itself focuses more on property development and related services.
Geospatial software services: Boustead Singapore is one of the top distributors of US-based ESRI’s geo-spatial mapping software, which governments use to help make decisions where geography is an important factor. Boustead Singapore customises the software according to customer demands. This is a high-margin segment growing on a secular basis.
Energy sector engineering services: The company acts as a supplier of direct-fired process heater systems for the distillation of crude oil, as well as waste-heat recovery units for upstream and downstream oil & gas and petrochemical companies. Due to weak oil prices since 2014, profitability has weakened.
Healthcare equipment: Boustead Singapore also entered the healthcare business in 2018 by acquiring US-based Whiterock InCorp. It sells exoskeleton legs, and treadmills for rehabilitation but remains unprofitable.
The geospatial software services business has grown nicely over the past ten years. And the asset base of the industrial property segment has also grown nicely over time. Yet due to losses in the energy services business, Boustead Singapore’s overall earnings growth does not look impressive.
Some investors are now speculating that high oil prices could lead to a turnaround in the oil & gas industry’s capital expenditures, with a rebound in the number of greenfield projects. So far, Boustead Singapore’s energy segment order backlog remains weak.
It’s also possible that Boustead Singapore could end up acquiring its industrial property developer subsidiary Boustead Projects. In early February 2023, Boustead Singapore offered to acquire remaining shares in Boustead Projects at SG$0.90/share, at a discount to NAV. Since shareholder Association SIAS is protesting the offer, it’s possible that the offer price will be raised.
Sell-side analysts believe that the NAV of Boustead Projects is around SG$1.79/share. If true, an acquisition below this level would be accretive to Boustead Singapore’s own NAV.
A simple sum-of-the-parts puts Boustead Singapore’s intrinsic value per share at around SG$2.0. Assuming a certain recovery in the energy engineering services business and a 50% payout ratio, the P/E would end up at a mid-single-digit level with a high-single-digit dividend yield.
The key risk is that oil & gas industry capex doesn’t recover in the near- to medium-term. Another risk is weakness in the Australian dollar, since most of the earnings in the geospatial software segment come from its Australian subsidiary.
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