Building a Greater China

04/21/2010 12:01 am EST


Ryan Irvine


Boyuan’s construction business is booming, though you might not guess that from its share price, writes Ryan Irvine in KeyStone’s Small-Cap Stock Report.

Based in Jiaxing City, China, Boyuan Construction Group (Toronto: BOY.V) is in the business of commercial and residential building con­struction, municipal infrastructure, and engineering. The company was formed in February 2004 and listed in Canada in March 2009 after completing a reverse takeover. (The company has just announced plans to move the listing from TSX Venture to the main Toronto Stock Exchange—Editor.)

In its last four fiscal years, Boyuan has completed more than 125 projects for a number of private and public sector clients, including Cargill (one of North America’s largest private companies) and the Dalian Shide Group (a billion-dollar conglomerate.) Boyuan’s current backlog includes commercial, residential, industrial, and mixed-use developments (including a five-star hotel and a project at the Qingshan Nuclear Plant, China’s first and largest nuclear facility). From its operating bases in Zhejiang Province and on Hainan Island, Boyuan focuses on construction projects in China’s fast-growing regions of the Yangtze River Delta, the city of Sanya, and Shandong Province.

The first “pure-play” construction company based in China to become publicly traded in North America, Boyuan is a builder of com­mercial, residential, and municipal infrastructure projects. While there is fierce competition due to low barriers to entry at the low end of the construction market in China, Boyuan focuses on the high-end marketplace, where there are fewer players. The majority of Boyuan’s projects are completed on a cost-plus basis, which largely protects the company from increases in raw material costs.

Over its past three fiscal years, Boyuan has seen annual revenue grow from US$49 million to $101 mil­lion, and the company expects to see this number hit around $139 million in fiscal 2010. The company showed strong growth over its first quarter of fiscal 2010.

With a forward looking price/earnings ratio [below eight times and] given its growth rate and strong order backlog, the company appears to be attractive long term. Boyuan expects to generate adjusted after-tax net income of at least US$12.4 million, or approximately $0.40 Canadian per fully diluted share in fiscal 2010, a figure the company may beat given its recent strong contract wins. In the near term, the company’s shares continue to be relatively illiquid. (Management and directors own around 70% of the shares.)

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