Event
Tuan Sing Holdings (TSH) reported 1H11 revenue of $121.0m (+29% YoY), which met 29% of our full‐year forecast. The bulk of the revenue came from the industrial services division. Management, however, is less optimistic about the residential property markets in Singapore and China. We reduced our FY11F earnings by 53% on slower recognition of sales at Mont Timah and Seletar, and ascribe a higher discount to RNAV of 20%. Maintain BUY with target price of $0.58.
Our View
Profit before tax jumped almost fourfold in 1H11 to $13.3m. The property segment was the largest contributor followed by Gul Technologies (GulTech), TSH’s 43.3%‐owned associate. GulTech’s capacity expansion and shift towards the production of higher‐margin products will continue to extract a higher value for TSH.
Even though the industrial services division made up the bulk of 1H11 revenue, its 2Q11 earnings were hit by lower margins in commodity trading due to disrupted coal supply as a result of site issues faced by SP Corp’s (80.2%‐owned subsidiary) coal supplier. Management expects the division’s performance to improve in 3Q11 as the issue is being resolved. Overall, we expect all segments to improve in 2H11.
The good news from yesterday’s results announcement was that the Strata Titles Board has approved the collective sale of Serene House (including the adjoining state land), and TSH expects to complete the purchase in October. The total breakeven cost for this project is estimated to be $1,962 psf. As a result, our estimate for development profit from this project remains intact.
Action & Recommendation
The redevelopment of Robinson Towers and International Factors Building to yield 218,439 sq ft of office space, expected to be announced by 1H12, remains the key re‐rating catalyst for TSH. The stock is trading at a 24% discount to NAV. Maintain BUY with the target price lowered from $0.64 to $0.58, pegged at a 20% discount to its RNAV of $0.73.
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