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QuestionsCategory: Business QuadrantBoustead Project
KL asked 4 years ago

Hi Victor / Rusmin,
Refer to Boustead Project, will you considered their competencies and track records in real estate solutions as their economic moat and served as growth driver? Their leasing income is increasing and even contributed more than the design & build segment in term of operating profit. The leasing segment generated about 9.5% yield for FY 31.3.2017 (Segment results / Segment assets), which is considering high compared to industrial REIT? Will you consider Boustead Project as income stock or value-growth? What would be the reasonable valuation method to value BP? And, what is the reasonable range?
Thank you very much.

2 Answers
Victor Chng answered 4 years ago

Hi KL,
I think Boustead project is more for value growth. As for economic moat is as what you have mentioned the core competence of the management which is their intangible know how. 
You can use PB ratio to value them since they are a property business. You can plot out their PB ratio chart and see what is their average trading range. The important thing is to buy below the average trading range.

KL replied 4 years ago

Hi Victor,
Thanks for your quick reply. BP generally trading above NAV since it listed. The average P/B I get was 1.18. How much margin of safety will you give to BP? If assuming 30% margin, does it means that 1.18*0.7 = 0.8 P/B, is the reasonable entry point?
Thank you.

Victor Chng answered 4 years ago

Hi KL,
Your take on 30% is reasonable. So basically, you just take their book value multiply by their average PB of 1.18 to get the intrinsic value (IV). Once you have the IV just discount it by 30%.