Monday, August 19, 2013

Tiong Seng Holdings: Leading contractor, superior margins (DBSV)

Tiong Seng Holdings:
Buy S$0.25,
Leading contractor, superior margins
Price Target : 12-Month S$ 0.33

•2Q13 PATMI of S$3.4m in line
•Robust construction orders; stable margins
•New pre-cast plants in Iskandar and Myanmar to be ready in phases over 2013-2014
•Maintain BUY rating and S$0.33 TP

Highlights
2Q13 PATMI in line. Tiong Seng Holdings (TSNG) reported 1% topline growth to S$131.6m. It booked less construction revenue in 2Q13 (S$103.7m,-18% y-o-y) but that was compensated by higher revenue recognition from the sale of development properties (S$25.1m, >100% y-o-y), attributed to the sale of 230 units at Sunny Int’l Cangzhou.
At the operating level, higher construction margins (14% vs 9% a year ago) lifted group operating profit by 16% y-o-y to S$4.3m. But associate contribution fell 99% y-o-y to S$0.05m due to the completion of several construction JV projects a year ago. Hence, net profit tumbled 65% to S$3.4m. The group declared a final dividend of 1sct per share (30% payout ratio, similar to a year ago), which translates into 3.9% yield.

Our View
Construction orderbook remains robust; stable margins with the use of pre-casts and construction technology. The construction division – with a secured S$1.3bn orderbook – will remain a consistent contributor over FY13-14F, when the bulk of revenues will be recognised. The management expects labor costs - due to levies and tighter man-year-entitlements (MYE) - to pressure margins in the next two years, but forecasts construction margins to remain stable (relative to peers) at c.10% with increasing use of automation and technology (automated pre-cast factory and formworks).

New facilities in Iskandar and Myanmar to drive grow of overseas business. TSNG has construction of two more pre-cast facilities in Iskandar and Myanmar. The former is meant to meet the group’s requirement in Singapore, and the latter to cater to expected strong demand for housing in Myanmar. The facilities are expected to be ready and contribute to earnings in phases by the end of 2013 and in 2014.

Recommendation
Maintain BUY, S$0.33 TP. Our TP is based on 45% discount to SOTP value, with the construction division pegged to 8x P/E.



Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 15/08/13

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