Contracts win by Salcon
Two substantial water and wastewater engineering projects. Boustead recently announced (on 24 March 2008) that it's fully owned subsidiary, Salcon Pte Ltd, had secured two water and waste water engineering projects worth S$32 million.
Contracts awarded by major players speaks volume of Salcon's experience and expertise; more contracts expected. These contracts from Samsung and Toshiba further enhanced Salcon's credibility as one of Asia's leading water and wastewater engineering specialists. While we believe Salcon will win more contracts in the near term (within 6-12 months), we expect most of them to be of smaller sizes, with one or two significant projects of sizeable amount.
Still a BUY; fair value estimate revised down but fundamentals remain strong. Together with the collective S$24 million contracts awarded from the global oil and gas industries announced on 10 March 2008 by its Energy-Related Engineering Division, Boustead's total outstanding order book stands in excess of S$400 million (recognition expected over the period FY08-10). In view of its experience and strong technical expertise, we are confident that Boustead will continue to secure contracts, particularly from its Energy-Related Engineering Division and from Salcon.
Our FCFE valuation yields a fair value of S$2.47 which translates to a FY09 P/E of 13.0x and P/B of 3.1x. We maintain our earnings estimates for the period FY08-10 as our prior assumptions have already factored in potential contracts wins by Boustead (recognisable over the FY09-10 period) as well as rising costs environment. However, our valuation assumptions are tweaked to reflect current volatile market conditions and lower long term growth due to perceived slow down in the global economy. Although with a revised down fair value estimate, we continue to like Boustead in view of its experienced management, strong balance sheet, and net cash position. We reiterate our BUY recommendation on Boustead and would view further significant contracts win as catalyst for potential upgrade in our fair value estimate.
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