TUAN Sing (TS) is primarily a property developer, deriving 85 per cent of its group earnings in FY12 from the property segment.
Despite the latest property cooling measures, sales of Sennett Residence, which is near the Potong Pasir MRT station, sold well with a take-up rate of 79 per cent since the project's launch in March 2013.
The remaining projects launched with unsold units are Seletar Park Residence (95 per cent sold) and Phase III of Lakeside Ville in Shanghai (86 per cent sold).
Based on confirmed sales, unrecognised profits (as at last Dec 31) from sold units in these projects are expected to enhance RNAV per share by about 12 Singapore cents.
Tuan Sing plans to launch Cluny Park Residence, a 52-unit freehold premier residential project in July.
Management guided a launch price of $2,600 per square foot (psf), which is a tad aggressive in our opinion.
However, this small-scale project in a choice location by a quality developer could appeal to a certain pool of buyers.
A full take-up rate of this project alone will enhance RNAV per share by 2.5 cents.
There are currently no plans to launch two projects, located in Fujian and Shandong provinces, in China.
The proposed redevelopment of Robinson Towers, its annex and the International Factors Building into a single commercial development comprising an office tower and a retail podium will commence in Q4 FY13, once existing tenants vacate the premise, at the latest, by the end of this month.
Upon completion expected in 2016, the redevelopment will enhance the lettable floor area of the redeveloped buildings and investment property portfolio by 65 per cent to 261,000 square feet and 37 per cent to 320,000 square feet respectively.
Tuan Sing will enjoy a sharp uplift in recurring rental income from about $11 million in FY12 to an estimated $28 million in FY17, assuming full occupancy in the new commercial building and a conservative average rental of $8.20 psf and $12.50 psf for office and retail spaces respectively.
Going forward, Tuan Sing plans to participate in land acquisition in Singapore through the government land sale programme.
It is also looking to pursue opportunities to acquire commercial buildings as part of the group's strategy to build up recurring income.
Its balance sheet strength and low gearing of 0.47x as at March 31 bode well for the group, providing it with the financial resources to pursue investment plans.
Adopting a conservative stance and valuing only the property development and investment division, we value TS at RNAV per share of 78 cents per share and a target price of 47 cents, taking a 40 per cent discount to valuation to account for TS' small market capitalisation, illiquidity and, particularly, policy risk.
Taking our conservative stance further to account only for completed sales of existing development projects Seletar Park Residence and Sennett Residence, our fair value and target price of 74 cents and 44 cents still offer upside of about 24 per cent.
This also does not account for the other businesses, including hotel ownership in Australia, growth prospects of the printed circuit board manufacturing operation at Gul Technologies and commodity trading at SP Corporation.
Downside risk to share price is also supported by low P/B of 0.57x, compared to P/B of 1.0x of small-cap property peers. Tuan Sing is relatively undervalued.
OVERWEIGHT
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