SEE HUP SENG

UOBKayhian on 20 Dec 2013

VALUATION

• See Hup Seng is trading at 12.0x 2013F PE and 1.4x P/B. Ytd, SHS has outperformed the market, returning +51.2% vs the FSSTI’s -3.1%.

INVESTMENT HIGHLIGHTS

• It was a dramatic year for See Hup Seng (SHS), as the company saw a change in its key management. Founder, Mr Thomas Lim, returned to helm the company, following the resignation of Managing director, Mr Jimmy Tan.
• Business as usual. Executive director, Mr Ng Keng Sing, was tasked to take over the operations at Tat Petroleum (TAT), after the departure of Mr Tan. According to SHS, there was no major impact on operations or the distribution agreements as a result of the change in management. Exxon Mobile remains as TAT’s major supplier of refined petroleum products. Tat Petroleum contributed to 58.9% of SHS’s profit after tax for 9M13. 
• Proposed acquisition of Hetat Holdings. Based on 7.7x Hetat’s 2013F PE, the acquisition price of S$42.4m looks fair when compared with its structural steel peers’ average PE of 8x. The deal includes a profit guarantee of S$5.5m and S$6.3m (+14.5% yoy) for 2013 and 2014 respectively. 
• A third revenue driver. Led by industry veteran Mr Henry Ng, Hetat is a leading structural steel specialist in Singapore. Mr Ng was part of the senior management of Yongnam and Mero Gmbh, playing an influential role in the explosive growth of both companies. For FY10-12, Hetat’s net profit grew at a CAGR of 11.8% to S$4m. Its portfolio also boasts projects such as Resorts World Sentosa, Singapore Grand Prix F1 and structural steelworks at various MRT stations. 
• Complementary business. As a leading provider of corrosion prevention (CP) services to the marine and oil & gas industries, SHS can now cross-sell the structural steel services of Hetat to customers in those industries, expanding its revenue base. Hetat had worked on structural steel work projects for Exxon Mobil Singapore Parallel Train Project (In-refinery facilities) in 2009.

Financial Highlights

•  For 9M13, SHS’s net profit to owners rose 61% yoy to S$7.4m. Revenue growth was seen in both CP and distribution of refined petroleum products. Net profit was also boosted by one-time gains in other income. Excluding the gains in other income, 9M13 profit before tax would have been 40% higher yoy at S8.1m.