Tiong Seng Holdings

UOBKayhian on 28 Aug 2012

Valuation
· Tiong Seng Holdings (Tiong Seng) is trading at 5.8x 2011 earnings with a dividend yield of 4.9%. Based on Bloomberg’s consensus estimate, the stock has a 12-month target price of S$0.29 and is set to report S$26.3m of earnings in 2012. Investors should also note that the stock is trading at a 27% discount to its book value of 28.0 S cents.
Investment Highlights
· Tiong Seng recently reported a 5.9% increase in 2Q12 net profit to S$9.7m on strong revenue growth though this was partially eroded by higher construction costs.
· Last week, the company secured a S$137m construction contract for Singapore Institute of Management’s (SIM) campus extension of a four-story Multi-purpose Hall and nine-storey extension to Linear building. This increased its total orderbook to S$1.43b to be completed in the next 12 to 30 months.
· In order to reduce cost and foreign workers reliance, Tiong Seng has started operations of the S$36m Prefab Hub in May with a production capacity of more than 100,000cu m annually. According to management, using pre-cast components can reduce labour requirement by 50-70%.
· As for the property development business in China, the group is in the midst of the construction and sales of a few projects including the Xu Shu Guan project in Suzhou, Equinox, Zizhulin Commercial development and Tianjin Eco-city in Tianjin and lastly Sunny International in Cangzhou.

2Q12 Financial Results
· Revenue grew by 54.9% yoy to S$130.0m as the group was engaged with work on The Wharf Residences, The Volari and NUS Staff Housing at Kent Vale. Tiong Seng also managed to record higher sales of Cobiax products of S$2.6m (+27% yoy) in the quarter.
· However, gross profit slumped 22.3% yoy to S$12.9m with gross profit margins declining almost 10% to 9.9%. This is due to higher construction costs and as the group had recorded no sales from higher-margin development properties. Management also shared that the group has revenue of S$32.8m from newly commenced projects in Singapore to be recognised in the next quarter.

Our View
· According to the Building and Construction Authority, construction demand in 2012 is projected to be between S$21b-S$27b, albeit lower than the S$32b in 2011. In the next two years, the industry is projecting an average construction demand of between S$19b to S$27b p.a..
· However management expects the operating environment to remain challenging in the next two quarters as the industry faces rising material costs, foreign workers’ levies and the influx of competition from foreign contractors.

Tiong Seng Holdings

Kim Eng on 21 Feb 2012


Tiong Seng Holdings (TSNG SP) – Meeting expectations
Previous day closing price: $0.215
Recommendation – Buy (maintained)
Target price – $0.33 (maintained)


Growth in all segments. Tiong Seng reported full-year FY11 net profit of $27.2m, in line with what we had expected. Revenue soared by 64% YoY to $414.5m, from $252.3m a year ago, due to improvements across all business segments. The construction division saw a 55% jump in revenue to $350.7m for the full year, thanks to a higher amount of work done on existing contracts and the commencement of new contracts secured last year. Revenue from sales of development properties also more than doubled to $53.8m as a total of 456 home units were sold in FY11, up from 55 home units the previous year.


New contracts worth $784m. In FY11, Tiong Seng increased its orderbook by a total of $784m, beating our forecast of $600m. The new contracts brought its outstanding orderbook to approximately $1.4b. They comprised high-profile contracts from both the private and the public sectors. The Housing and Development Board (HDB) has awarded Tiong Seng two of its most expensive projects to-date, Waterway Terraces I and II, with a combined contract value of $339m. The company has also won the building contracts for private residential projects such as The Glyndebourne in Bukit Timah, The Luxurie in Sengkang and The Archipelago at Bedok Reservoir.


Raising productivity. The government has implemented a slew of measures to raise productivity in Singapore’s construction sector. This included reducing the foreign worker quota and imposing higher foreign worker levies. Tiong Seng’s investments in technology, such as the building of its pre-cast manufacturing hub, are expected to mitigate the impact from the government’s push. Its fully automated factory, which can double its current output of precast concrete and at the same time reduce labour requirement by 50-70%, has come in for special mention by the government as an example of how the industry can adopt technology to be more productive.
Reiterate Buy. Tiong Seng has announced a full-year dividend per share of 1 cent. Based on the current share price, it implies nearly 5.0% yield. We reiterate our Buy recommendation and target price of $0.33.