5 Quick Things I Learned from Boustead Singapore’s EGM 2015

I’ve attended all of Boustead’s AGMs since being a shareholder for close to five years now. Without fail, shareholders in the AGM will always question how management will unlock the value of Boustead.

Recently, Boustead announced a proposed demerger (a spin-off) of their real estate solution business to unlock shareholder value through issuance of dividend in specie. Therefore, if the transaction is completed, Boustead will own 51% of the newly listed company called Boustead Projects Limited (BPL) while the rest of the entitled shareholders own the remaining 49%.

I attended Boustead’s EGM regarding the proposed demerger and here are some of the insights during the EGM:

5 Quick Things I Learned from Boustead Singapore’s EGM 2015

  1. Demerger is part of the succession plan. BPL will have more autonomy to move on its own with less constraints reporting to Boustead’s board. Hence, with this in place, BPL is able to make decisions faster making them more competitive as its marketplace is changing very fast.
  1. Properties held for sale and investment properties stated in the financial statement are based on historical cost. Boustead does not revalue their properties because they do not want the revaluation to cause their profits to fluctuate with market prices. The historical cost of the property value stated on the balance sheet is approximately S$162.5 million. A 3rd-party independent valuation of the same properties is approximately S$367.8 million. Hence, the book value of Boustead is understated due to their conservative approach in accounting.
  1. Currently, BPL is facing some industry headwinds. The Singapore property market is not as buoyant as before. BPL is facing stiff competitions for their construction and lease back projects, which may see margins affected in the near future. BPL recently expanded out of Singapore into Iskandar, Malaysia with reasonable penetration success.
  1. BPL’s investment properties may see positive rental reversion in the future. Most of the properties are built for single tenants specific to their needs. Mr. Wong, CEO of Boustead, feels that BPL has room for rent increases in the near future as rental prices now are below the current market rates.
  1. Boustead will not spin off its geo-spatial business segment at the moment. Wong feels that the geo-spatial business balance sheet is not mature yet but mentioned that the business may have the chance to spin off in the future if it grows to a size where it can stand on its own.
Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

1 Comment

  1. Gursharan Singh

    April 21, 2015 at 11:04 am

    You have mentioned 5 Quick Things I Learned from Boustead Singapore’s EGM 2015.
    However it will be better if you would provide your views on the benefits or otherwise of the practice of Boustead.
    Properties held for sale and investment properties stated in the financial statement are based on historical cost. As an example you have stated that

    ‘Boustead does not revalue their properties because they do not want the revaluation to cause their profits to fluctuate with market prices. The historical cost of the property value stated on the balance sheet is approximately S$162.5 million. A 3rd-party independent valuation of the same properties is approximately S$367.8 million. Hence, the book value of Boustead is understated due to their conservative approach in accounting.’

    Though this practice is in line with the Approved Accounting and Reporting Standards and also the Regulatory Authorities is this not in contravention of the principle of TRANSPARENCY AND DISCLOSURE that is part of CORPORATE GOVERNANCE? The non-disclosure and understatement of value of real estate would create a ‘SECRET RESERVE’ which can be abused or misused by the Board which may be influenced by the substantial holder and thus not be in the best interest of the investors especially the minority shareholders.

    It may be noted that several Bursa listed property development companies that followed the ‘historical cost’ method of their land holdings resulted in the share price to remain low over long periods. Ultimately these companies were taken private or shall I say ‘piratized’ at values where the sale price was perceived to be a fraction of the real market value of the real estate resulting in a few benefiting while the minority shareholders losing. All the objections were of no avail.

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