TAI SIN ELECTRIC

UOBKayhian on 9 May 2014


VALUATION

• Maintain BUY and target price of S$0.435

RESULTS

• More than 100% jump in 3QFY14 net profit. Despite a dip in revenue (-4.5% yoy), adjusted profit before tax for 3QFY14 jumped 155.3% to S$5.6m attributable mainly to an expansion in gross margins from 15.3% in 3QFY13 to 19.9% in 3QFY14.
• On track for fourth consecutive year of growth. Excluding (mostly one-off items) other operating income and other operating expenses, adjusted profit before tax for 9MFY14 jumped 36.5% yoy to S$20.9m, forming 82% of our full-year forecast.
• Strong free cash generation with a solid balance sheet. Tai Sin continues to maintain a strong balance sheet with negligible net debt/asset of 3.4%. Free cash flow generation remained robust, with S$10.8m free cash flow generated for 9MFY14, underpinning Tai Sin’s ability to pay out generous dividends.

OUR VIEW

• Cautiously optimistic outlook. While Tai Sin’s cable segment continues to be affected by the weakening residential segment, expansion in the commercial, industrial and infrastructure sectors are expected to help offset part of the weakened demand. According to the Building & Construction Authority, an increase in construction demand from the industrial, institutional and civil engineering sectors is expected to offset the drop in demand from the residential segment. Construction demand is expected to remain strong with S$31b-38b worth of contracts to be awarded in 2014. (FY13P: S$35.8b). Management is also optimistic on the outlook for its distribution segment, with the growth in the electronics industry likely to drive the segment’s profitability.
• Maintain BUY. Tai Sin is currently trading at an undemanding valuation of 7.3x FY14F PE with an attractive dividend yield of 6.6%. The latest 9MFY14 earnings continue to affirm Tai Sin’s excellent growth record (FY02-FY13 net profit CAGR 26.7%). We continue to like Tai Sin for its strong growth record, solid balance sheet, robust cash flow generation and attractive dividend yield. With local construction demand expected to remain strong and with new upcoming public sector projects (eg. HDB’s electrical infrastructure upgrade plans and Singapore Power’s S$2b transmission cable tunnel project), we believe Tai Sin is able to continue with its stable earnings growth.