1Q09 earnings as expected. Net profit of S$9.5m, was up 68% y-o-y and in line with our forecast of S$10m. Gross margin of 27.4% was lower than 37.8% in the year ago period because of competitive pressure and unfavourable exchange rates in the quarter. Sales grew 49% y-o-y to S$118.9m, mainly driven by a 242% surge in industrial real estate, which completed several landmark industrial projects and more than 20% completion of the Libyan's township project.

Balance sheet remained healthy. Net cash dipped slightly to S$145m from S$151m at end of 4Q09 but Boustead expects cash inflow amounting to S$40m from sale of development property before fiscal year end.

More from Energy & Water, less of Real Estate. As of now, FY10 revenue is currently backed by S$525m of net order backlog. Management noted slow recovery in business conditions, but remains optimistic of further negotiations for Energy related contracts as well as increased contribution from Water & Wastewater. However, Real Estate is expected to remain challenging amid curtailed infrastructure spending in the private sector. The absence of gains (FY09: c. S$30m) from sale of industrial properties would also affect earnings adversely.

FY10 cut by 20%, Downgrade to HOLD. In view of the subdued new order win - S$42m YTD compared to our previous forecast of S$280m - and the absence of property divestments, we have cut FY10 earnings by 20%. Accordingly, our SOTP target price was revised to S$0.77. Considering the limited upside, we are downgrading Boustead from Buy to HOLD.