TTJ Holdings Ltd - CIMB Research 2016-10-10: Visit to TTJ

TTJ Holdings Ltd - CIMB Research 2016-10-10: Visit to TTJ TTJ HOLDINGS LIMITED K1Q.SI

TTJ Holdings Ltd - Visit to TTJ

  • According to TTJ, the company is one of the largest structural steel fabricators in Singapore.
  • Reported 45% yoy increase in FY7/16 revenue, with 66% yoy increase in net profit.
  • Declared 1.7 Scts DPS. Net cash of US$65m.
  • Management guides that non-renewal of its dormitory at Terusan Lodge I will have a material impact on FY17 results.
  • Trades at 5.3x historical FY16 P/E and 1.08x historical P/BV.


BACKGROUND 


What it does 

  • Established in 1981 and listed on the Mainboard of the Singapore Stock Exchange on 1 April 2010, TTJ Holdings Limited (“TTJ” or the “group/company”) claims it is one of the largest structural steel fabricators in Singapore. The group has two core businesses: a structural steel business and a dormitory business.
  • According to the company, TTJ is a reputed leading structural steel specialist in Singapore. Both of its factories are specially designed around an in-line production concept based on computerised numerically controlled (“CNC”) machinery. In addition, TTJ’s Singapore factory on Pioneer Road has a waterfront loading area, which enables the loading of heavy materials and large assemblies onto barges for transport by sea.
  • The group is S1-graded by the Singapore Structural Steel Society and has a combined annual production capacity of 42,000 tonnes for normal structural steel at its two fabrication facilities in Singapore and Johor, Malaysia.
  • According to the company, it is ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 certified.
  • According to TTJ’s management, over the years, the group has built up substantial experience and expertise, equipping it to deliver highly sophisticated structural steel solutions. Its solutions are used in diverse industries ranging from commercial building construction and offshore oil and gas facilities to industrial plants as well as iconic landmarks, such as the National Art Gallery, the Orchard Gateway bridge, the Supertrees and the OCBC Skyway at Gardens by the Bay, The Helix at Marina Bay, Pinnacle@Duxton, Henderson Waves, the Supreme Court and Changi Airport Terminals 2 and 3, amongst others.
  • The group’s comprehensive manufacturing capabilities include, among others, heavy lifting cranes, ship-lift platforms, structures for high-rise buildings and petrochemical complexes, heavy roof trusses, civil defence shelter doors, steel moulds and launching girders for bridges and highways, pressurised vessels and tanks, vehicular aluminium parapets, expansion joints and bearings for highways and roads.
  • TTJ also operates a dormitory in Singapore that provides a stable and recurring income stream for the group. Located at 5A Jalan Papan, Terusan Lodge I has a capacity of approximately 5,300 persons.

Major shareholders 

  • According to Bloomberg, Mr Teo Hock Chwee is the single largest shareholder with an 84.38% stake in the company. Mr. Teo is one of the founding shareholders of TTJ.

Segmentals 

  • TTJ’s financial year ends in July. In FY16, the structural steel business segment accounted for 86.4% of sales. According to management, this segment’s revenue grew 59% yoy due to more work completions and largescale projects. Examples cited by management included the DUO, Tampines Town Hub and Jurong Island projects.
  • The dormitory business segment accounted for 13.2% of FY16 sales.
  • According to management, revenue for this business segment fell 6% yoy due to lower occupancy rates.


OUTLOOK 

  • According to TTJ’s management, as at 26 September 2016, the group’s projects order book stood at US$35m, which it expects to substantially complete between FY17 and FY18. This includes the provision of structural steel works for projects on Jurong Island, the liquefied natural gas (“LNG”) project at Pengerang, Johor, and civil defence doors for MRT stations along the Thomson Line, among others.
  • TTJ’s management also highlighted that the tenure for the dormitory at Terusan Lodge I expires in January 2017 and the Building and Construction Authority has not approved the group’s application for a renewal of a further term of tenancy. TTJ expects the non-renewal of the said dormitory to have a material impact on its financial and operating results for FY17.
  • Going forward, TTJ’s management expects the operating environment to be increasingly challenging due to economic uncertainties and generally weaker sentiment in Singapore. While the group continues to receive enquiries for a mix of public and private sector projects, the industry has become more competitive. In view of this, the group will continue to actively pursue projects and also explore new areas of business.
  • On 8 September 2016, TTJ incorporated a new subsidiary in Singapore named TTJ Green Energy Pte. Ltd.


RISKS 

  • According to TTJ’s management, risks include being liable for delays in the completion of projects. A construction contract between TTJ and the main contractor normally provides for the payment of liquidated damages by TTJ in the event the project is completed after the date of completion stipulated in the contract. In the event of any delay in the completion of the project attributable to TTJ, the company could be liable to pay liquidated damages under the construction contract and this will adversely affect TTJ .
  • Other risks highlighted by TTJ’s management are disputes to its claims and variation orders, incorrect estimation of its project costs, costs overruns and delays in project implementation. According to management, its revenue is largely derived from project-based contracts. The company manages and monitors the costs of its projects closely starting from the tender stage until installation and commissioning of the project. In preparing for tenders, TTJ carries out internal costings and estimates of labour and material costs.
  • According to management, if TTJ underestimates its project costs and/or there is an unanticipated increase in any of its cost components and/or if there is a delay in executing the project resulting in cost overruns, the profitability of that project will be adversely affected. Any delay in the progress or completion of a project may result in liquidated damages being imposed on TTJ and this will also delay the recognition of revenue for that project. Under such circumstances, TTJ’s profit margin for the project will be reduced or eroded and, accordingly, its profitability and financial performance may be adversely affected. Management also highlighted that it is not uncommon for customers to request for changes in design that require additional work. In the event there are disputes arising from such variation orders and if TTJ is unable to claim the additional costs incurred by itself from such change(s) in design, the group’s financial performance and operating results may be adversely affected.


COMPETITORS 

  • According to TTJ’s management, within the structural steel industry, competition prevails from both domestic and foreign companies. Examples of competitors cited by management are Yongnam Holdings Limited and its subsidiaries, Alfasi Constructions (Singapore) Pte. Ltd., Zamil Steel Buildings Vietnam Co Ltd and China Jingye Engineering Corporation Limited (Singapore Branch).


BALANCE SHEET

  • As at end-FY17, the net cash position was US$65m. According to management, the group is actively exploring new business opportunities. If it is successful in clinching these opportunities, management noted that its working capital requirements might increase. 
  • The group incorporated a new subsidiary in Singapore named TTJ Green Energy Pte. Ltd. on 8 September 2016.


HISTORICAL VALUATION 

  • TTJ is trading at 5.3x historical FY16 P/E and 1.08x historical FY16 P/BV.
  • Historical FY16 ROE is 20.5% and historical FY16 EV/EBITDA is 1.8x.
  • Historical FY16 dividend yield is 4.38%.
  • Over CY10-15, the historical average forward P/E was 5.4x and the historical average forward P/BV was 0.9x.


NOT RATED
Target Price: N/A




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-10-10
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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