Eh, you stop putting your legs up okay!
I tell you ah, you better stop okay!
Well, I probably didn’t expect that altercation amongst members of the audience during the Boustead Annual General Meeting.
You would have thought that a fight was going to break out in the audience.
But on that balmy Friday, Deputy Chief Executive Wong Yu Loon, politely said,
Okay, okay. Calm down.
Can I continue?
It’s probably testament to the composure in the leadership at Boustead.
If you’ve followed Boustead for sometime, you would know that it’s hard to shoehorn them into any single business, especially when they are in areas as diverse as:
- Energy engineering
- Real Estate (Boustead Projects)
It’s also meant that for any investor looking to understand them, it might be tough.
I will try though, starting with what I observed at the 2023 Annual General Meeting.
The privatisation of Boustead Projects
There were a number of questions related to the privatisation of their subsidiary. Many questions pertained to the how, but what was probably missed was the rationale for this re-privatisation, considering that it was once part of the Boustead group.
I asked this question in advance of the AGM, and got the following reply.
But Keith Chu, the Group Investment Officer, also shared a great slide showing the returns one would have gotten if one had bought into Boustead when the venerable Wong Fong Fui took over in 1996.
It would have gone up more than 700%.
Of course, that’s over 27 years.
But what’s important to note is that this privatisation would likely result in a greater return over time.
Chairman Wong also stated unequivocally that he wasn’t (and I repeat, he is not) holding out for a better offer, contrary to what the media had rumoured.
He was willing to do what was best for the wider Boustead Group, rather than try to enrich himself.
The varying performance of Boustead’s business units
The “young Wong”, as one shareholder referred to, notably shed greater color on the various businesses of Boustead and how it had done over the past year.
- Green, firing on all cylinders – Energy engineering
- Yu Loon shared about how energy engineering had won more projects over the year, courtesy of two things.
- Firstly they had expanded their product line.
- Secondly they had acquired an after-purchase servicing business Birwelco, a group of 15 engineers who was now making great contribution to the wider energy engineering business.
- Orange, okay, but more can be done – Geospatial
- Attrition was cited as the major issue, with Chairman Wong sharing an attrition rate of 25% because of how this was actually similar to the IT business, where good talent was hard to come by; and that many of their clients ended up poaching the talent they had trained up.
- Chairman Wong shared how in the whole of Singapore, there wasn’t any ‘geospatial course’ to train up a pool of talent. He was however happy to share that his alma mater, UNSW, had started a course.
- Red – Healthcare
- Yu Loon shared how efforts were being made to streamline the business.
Of course the question is where the next leg of growth would come from, given that the healthcare business that Chairman Wong had announced as the ‘fourth leg’ in their FY2018 Annual Report was not panning out as well as hoped.
Yu Loon announced that a strategic review was scheduled, but that it was still premature to axe the business whilst it was still being turned around.
What was particularly smart was how Yu Loon chose to axe certain aspects of the business, rather than desperately trying to throw more money at the problem. Many people in business, (me included) often face the difficulty of knowing when to quit, and when to push harder.
The management team instead decided to chop off the weeds, and streamline the entire business.
It is smart.
But I think what was the most interesting to know was how Chairman Wong shared about his thinking about what kind of businesses to operate.
Mature technologies, in niche markets.
If you look at their businesses, it’s panned out extremely well. They have taken several mature technologies, and made a name for themselves by being the market leader in it. Geospatial is one good example.
They also continue to be one of the few developers that have really brought their expertise in the environment to their designs.
The less mentioned Boustead Industrial Fund (BIF)
I thought it was interesting that none of the shareholders spoke about BIF, which is actually smoothening out the cashflows of the company significantly.
If you look at the Boustead business, their revenues can be lumpy, especially as it is project-based.
When I asked Keith Chu, the investment chief about what the longer term game plan with BIF was, and whether it was to spin it off as a REIT, he politely demurred and deflected the question.
For now, that doesn’t matter, whether or not it’s spun off.
What matters is that it’s on the Boustead balance sheet, and delivering rental income.
If you look at the numbers on record, the total size of this real estate portfolio under management by Boustead Projects (including via Joint Ventures) is about $2 billion.
Of course, they have varying percentages of interests in the various properties, but it does show the longer term thinking of this management.
They don’t just worry about taking up projects, but they think more widely about how to grow in their skill in:
- Financing the development
- Building and developing the project
- Renting out the development
See the similarities between this and your typical REIT? Except the typical REIT would outsource the design and build to someone else, rather than doing it themselves.
Personally I think this is a beautiful business model because Boustead brings in their own design expertise.
Judging from the many awards they have won, it is definitely great to see.
The quality of management
But perhaps the intangible asset is the quality of the management team. If you look at how Wong Fong Fui turned around QAF from a struggling business to a thriving one today, your money would definitely be on them moving Boustead’s healthcare business to the next level too.
And more importantly, Yu Loon personally took responsibility for the poor performance of the healthcare group, rather than deflecting it to market conditions.
The character trait of integrity is certainly strong in this management team.
Funnily enough, during the presentation on energy engineering, Yu Loon even offered a pair of AirPods Pro to the person who could explain more about the energy engineering business to him.
Again, the sense of humour and the lightheartedness they show, balanced with the severity of running a huge business, does show a considerable poise.
They don’t get flustered just because people have traded their stock down.
Would they grow?
Of course the question is whether this investment would eventually make sense for you.
For the past 5 years, you have seen the share price lag the STI. The reason given is that it’s because of the splitting up of Boustead Projects.
With them deciding to consolidate Boustead Projects, this will definitely be a deeper source of growth.