Boustead Singapore: BUY (Upgrade from HOLD) S$2.36
Price Target : 12-Month S$ 2.85 (Prev S$ 2.46)
Strengthening foothold in Libya
Story: Boustead announced its largest water contract to date with its wholly owned-subsidiary, Salcon being awarded a S$175m contract to design, construct and upgrade a major water infrastructure system in Libya. Salcon will hold a 65% stake in the Joint Venture with a state-owned utilities company as partner. This contract comprises two phases under which the JV will fulfill all water and wastewater needs of a 731 hectare township in Tarhunah, 80 km east of Tripoli. The contract is commencing in July 2008 and expected to be completed by 1Q 2011.
Point: With the contract, new order wins to date stand at ~S$200m, or about 44% of our full year order win assumption of S$450m. Apart from being on track to meet our orderbook expectation for the full year, this contract would immediately boost FY09 and FY10 earnings by 7% and 9% respectively since project commencement and earnings accretion is ahead of schedule.
Relevance: In addition to contribution from this contract win, we have also factored in an expected S$26m gain ( vs our previous forecast of S$13m) from the proposed sale of a building under construction and land at Ubi Ave1 for a consideration of S$200m. Consequent to our earnings upgrade, our SOTP target price is now revised to S$2.85, translating to 10x FY09 PE and 21% potential upside from current price.
Upgrade to Buy.
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