• 3Q10 results were below expectation as weak GBP hit sales
• FY10 earnings trimmed by 8% but FY11 growth remains intact as S$575m order backlog underscores future earnings stream
• Maintain Buy with 31% upside to our FY11-based SOTP target price of S$1.00

3Q10 profit weaker than expected. Boustead posted net profit of S$8.7m (-16% y-o-y, -20% q-o-q), compared to our forecast of S$10.5m. The underperformance was attributed to weaker than expected revenue of S$104m
(-10% y-o-y, -9% q-o-q), which was partly due to a weaker sterling pound for the Energy-related engineering division and slower than expected progress at the Libya township. Excluding forex impact, revenue for the segment would have been 7% higher. Gross margin of 30.9% was an improvement from 25.6% in 3Q09 and 27.5% in 2Q10 but SGA expenses at 19.4% of sales was a tad higher than our forecast for 16.4%. Segmentally, both Real Estate and Energy related engineering weakened y-o-y whereas Water performed well. Boustead generated S$16.8m of free cashflow, ending the quarter with a net cash of S$173.8m (33.7Scts/share).

FY11 growth intact, maintain Buy. Although the Libya township had faced some technical difficulty, progress is being made and should contribute positively to future earnings. Boustead’s order backlog of S$575m would
also underpin growth for the next two years. Further, the company should benefit from the slow recovery at industrial real estate and the steady rebound in energy related business. For FY11, Boustead would book a divestment gain of S$17m from the sale of an industrial property. All in, we expect FY11 net profit to expand 30% y-o-y to S$56.6m. We have trimmed
FY10 earnings by 8.6% but maintained our SOTP target price of S$1.00 (12x FY11 P/E), which is pegged to FY11 earnings.