Boustead Part 1

How could I have been so mistaken as to have trusted the experts?

-John F.Kennedy after the Bay of Pigs fiasco

The past 2 weeks have been hectic as I had to get use to my new summer schedule. Apart from getting used to my summer internship, I have to plan for my exchange program and also finish up some reading. Currently, the market is reversing from the bullish trend due to weak investor sentiments as a result of the Euro-debt crisis. Coupled with the additional funds from selling Adampak’s shares, I decided to focus on analysing new potential buys instead of providing a detailed analysis of my holdings. One of the companies that are currently on my watch-list is Boustead and I will be covering the financial statements here. In subsequent parts, I will cover detailed segment analysis and also Boustead's prospects in the future.

From FY 2007 to FY 2011, CAGR is about 13% and one anomaly that dragged CAGR down is FY 2010 where revenue was -15.4%. This was mainly due to the global economic recession where financial markets crashed a second time in March 2009. However, Boustead was fast to recover from the dip and they recorded record revenue of S$560.6 million in the subsequent year. Net profit for FY 2011 was S$52.2 million even after setting aside provisions for Libya Civil War. Other newsworthy events such as Europe debt crisis, and the severe earthquake, tsunami, and nuclear problems that hit Japan did not manage to affect Boustead as much. Gross margin remains high at ~31% in FY2011 supporting Boustead’s cost-conscious strategy.

Looking at its balance sheet, Boustead has a large cash hoard of about 200 million which translates to about 41c per share. This large cash hoard will allow Boustead to finance its acquisition and investments. More will be elaborated in part 3 with regards to their acquisition strategy thus far. At a market price less net cash per share of 44.5c, Boustead is a value buy at ex cash PER of 4.3 implying that you can make back your investment in just 4.3 years at its current profitability and cash flow. Current ratio is at a high of 1.96 and the all-important metric –Return on equity- stands at 22.8%. It is much less as compared to its high of ~30% in FY08 & FY09 but nevertheless still respectable.

Looking at its cash flow statements, Boustead always had strong operational cash flows. Boustead still managed to record a positive net cash flow even during 2009 which was a difficult year for most businesses. In FY 2011, net cash flow was negative but this was due to significant purchase amount on held for trade securities and acquisitions. Dividends also form the bulk of financing activities which is seen in previous years also. Dividends pay-out has been around 5-8% per annum for the past 5 years and Boustead is able to consistently maintain its dividend pay-out even during difficult years such as 2009. I have confidence that Boustead will be able to maintain its strong cash position in the foreseeable future as Boustead’s management has been proven to be capable in this aspect.

This wraps up my analysis for the key numbers and ratios for the P/L, BS and cash flow statements for the past 5 years. Part 2 will cover segmental analysis on Boustead’s divisions and subsidiaries, and part 3 will cover Boustead’s industry outlook.

Disclaimer: Buy and sell at your own risk. Please feel free to correct any error in my post. I am not liable for anything. Do your own research.