TA Corporation

UOBKayhian on 12 Apr 2012

Valuations
· TA Corporation (TA) is currently trading at 3.2x FY11 earnings and 0.7x FY11 P/B. We view that TA should be trading near S$0.33/share, pegged to the sector average PE of 4.1x.

Investment highlights
· TA is an integrated construction and property developer with projects spanning Singapore, China and Cambodia.
· TA has a 40-year track record in the construction business, holding the highest Building & Construction Authority (BCA) A1 grading (general building) contractor which allows unlimited tender value. Some of its customers include Keppel land, Capitaland, Allgreen, Housing Development Board (HDB) and Ministry of Information, Communications and the Arts (MICA). Currently, the group has a construction orderbook of S$526m under its belt, spanning across 34 months.
· TA also undertakes small to medium residential property projects, targeted at the middle and upper middle markets. It has three projects under development in Singapore, namely Parc Seabreeze, Auralis, Coralis and Starlight Suites as well as one development by associate coined Singapore Garden in Dalian, China. On top of these, TA has numerous landbanks across Singapore, China and Cambodia with planned gross floor area (GFA) of 8,484 sqm, 96,398 sqm and 4,977 sqm respectively.
· For 2011, the group’s revenue rose 17.2% to S$284.7m as it recognised revenue from ongoing residential developments such as Parc Seabreeze, Coralis and Auralis. Revenue from construction business rose 11.8% to S$160.2m due to contributions from projects such as Nouvel 18, Viva, Foresque Residences and Starlight Suites. However, net profit was flat at S$35.8m as TA recorded several non-recurring gains and expenses in 2010 and 2011. These include a fair value gain on investment properties and disposal of available for sale investment of S$5.4m and S$3.7m respectively in 2010 and listing expenses of S$2.3m in 2011. TA Corp also declared a first and final dividend of 1.2 S cents, a payout of 20% of net profit, twice the dividend payout recommended in the prospectus.

Our View
· Macroeconomic factors to cause share price overhand The Urban Redevelopment Authority’s (URA) latest flash estimates indicate that private home prices declined by 0.1% qoq in 1Q12, compared with a 0.2% gain in the previous quarter. Prices in the high-end segment declined the most (-0.9% yoy) impacted by the sharp drop in foreign demand followed by the mid-tier segment which saw a price decline of 0.7%. According to our UOB Kay Hian property analyst, prices are likely to weaken by a further 8-10%. Foreign worker levy and higher raw material prices are also likely to erode gross margins for the group.