Tiong Seng Holdings - Establishing itself as a "Green Contractor" in Singapore (DBSVickers)

BUY S$0.19 STI : 2,778.97

Price Target : 12-Month S$ 0.31

Tiong Seng announced that the group has been awarded the S$147m Housing Development Board (HDB) contract for the construction of 804 units for "Waterway Terraces II" in Punggol West. This follows the group's first contract win of S$192m for the construction of 1,072 units (in a development known as "Punggol Terraces I" back in Apr'11). These 2 projects are part of HDB's vision of turning Punggol into an Eco-Town with Eco-friendly features.

The contract will include the construction of electrical substations, basement car parks, rain garden, green front, external works and related civil engineering works.

Our thoughts

This is another feature on the cap for Tiong Seng, which has gain traction in the development of "eco-building" niche with HDB. The group's continued focus in promoting work efficiency and productivity and its established track record in the construction of "green buildings" in Singapore, will ride on the emerging trend in the construction industry as developers focus on environmental sustainability.

The average cost/dwelling for this contract is estimated to be S$182k, which is a slight increase to the S$179k/unit that was awarded to Tiong Seng back in April. This could imply that gross margins on this project will remain relatively stable in an environment of increasing cost pressures (from raw materials, labour, etc).

While not expected to have a significant impact on the group's earnings in the current financial year, this contract will boost Tiong Seng's order book to S$1.2bn, which is well ahead of peers in the construction industry, providing the group with good earnings visibility over the next 2 years.

We maintain our BUY call and TP of S$0.31 (based on 35% discount to its SOTP).

UE E&C: No surprises expected (OCBC)

3Q earnings preview. Construction firm UE E&C is set to announce its 3Q results early next month. We do not anticipate any surprises this quarter, unlike in 2Q11 when it booked a S$2.5m gain from disposal of investment properties. We believe the group should report revenue of about S$70-80m and net profits of about S$8-10m.

Construction contribution should hold steady. UE E&C's construction segment, which constitutes about 79% of the group's total revenue as of 1H11, should continue to deliver through consistent execution of its projects in its order book. Its declared order book of S$632m (as of 31 Dec 2010) should provide sufficient earnings stability over the near term. Looking forward, the management believes that Singapore's construction activity would remain healthy due to the number of large projects in the pipeline, such as the South Beach mixed development, expansion of MRT lines and construction / upgrading of public schools.

Lumpiness in M&E engineering. While we believe that the group's results should come in line with our estimates, the lumpy M&E engineering segment could throw our forecasts off. As the volume of its M&E engineering work (FY10: S$31m) is only about one-tenth of its construction business (FY10: S$324m), lumpy revenue recognition on a single M&E contract could easily swing the quarterly results. That said, normalized revenue contribution of M&E engineering should come up to around 10-15% over an average oneyear period.

Power business will take time to ramp up. We think it is unlikely to see any meaningful contribution from the new power business. Recall that UE E&C has injected S$5m (part of its IPO proceeds) into its whollyowned subsidiary UE-Tradetec (Singapore) Pte Ltd to expand its power solutions business. Although we like the move to diversify the group's income streams, we believe it will take some time to overcome the learning curve and cultivate business relationships with clients and partners before the new business can take off.

Maintain HOLD. While we are seeing some softening of demand in the property segment, construction demand seems fairly stable for now. Thus, we are keeping our FY11F and FY12F estimate intact. Maintain HOLD with fair value unchanged at S$0.41.

Biosensors International Group: On a growth trajectory (OCBC)

JWMS acquisition augurs well for China growth prospects. We believe that Biosensors International Group (BIG) is set to make further headways in China's growing drug-eluting stent (DES) market, having recently completed its acquisition of the remaining 50% equity stake in JW Medical Systems (JWMS) from Shandong Weigao. Besides the opportunity to capture the full earnings contribution from JWMS, we believe that BIG would further be able to leverage on JWMS' distribution networks to launch its BioMatrix DES once it gains approval from China's State Food and Drug Administration. In addition, welcoming Shandong Weigao as one of its major shareholders would also allow BIG to tap on the former's expertise and influence in China's healthcare market.

Possible upside surprise on licensing revenue front. We believe that BIG could experience an upside surprise on royalty fees from Terumo Corp (Terumo) moving forward, after seeing the solid penetration made by the Nobori DES (incorporates BIG's DES technology in exchange for a licensing fee) after its launch in Japan on 5 May 2011. Terumo highlighted that it managed to capture 30% of the Japan DES market share in two months after its launch. Terumo has also targeted global sales of JPY20b for its Nobori DES for FY12 (FYE 31 Mar, similar to BIG), of which BIG would be a key beneficiary. We opine that Terumo's strong initial penetration in the Japan DES market is set to continue. This is supported by the fact that the Nobori DES is the first made-in-Japan DES, thus allowing it to take advantage of Japanese physicians' loyalty to strong local brands. Furthermore, the Nobori DES had been launched outside of Japan since 2008. Thus there is already positive clinical data to back its efficacy and safety records. In light of these factors, we are increasing our market share gains assumption for the Nobori DES in Japan.

On a growth trajectory; maintain BUY. As such, our revenue forecasts are bumped up by 11% and 6.3% for FY12 and FY13 respectively, while our core earnings estimates for FY12/13F are consequently raised by 11.1%/ 9.6%. We believe that BIG is well-placed to deliver revenue growth that would exceed management's guidance for FY12, which would provide a catalyst for its share price should this materialise. Our new forecasts, coupled with the recent appreciation of the USD versus the SGD, translate into a higher FCFE-derived fair value estimate of S$1.86 (previously S$1.68). Maintain BUY.