SHS Holdings Ltd - Phillip Securities 2018-08-24: Growth Engines Intact

SHS Holdings Ltd - Phillip Securities Research 2018-08-24: Growth Engines Intact SHS HOLDINGS LTD. SGX:566

SHS Holdings Ltd - Growth Engines Intact

  • SHS Holdings' 2Q18 revenue weaker by 13% y-o-y.
  • The corrosion prevention segment is benefitting from the improved sentiment in marine & offshore sector. The growth engines solar and modular are gaining traction.
  • Maintain BUY with an unchanged target price of S$0.29.

The Positives

+ Improving sentiment in the marine & offshore sector.

  • Revenue for corrosion prevention (CP) segment increased 6% to S$3.4m q-o-q. 
  • The improvement in oil prices led to increased activity in the marine & offshore sector. SHS witnessed more construction of new vessels, which resulted in more contracts being awarded. Utilisation of plant capacity improved which led gross margins to increase to 27% from 15.7% a year ago.

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+ Growth engines Solar Energy & Modular gains traction.

  • Revenue from the solar energy segment rose to S$1.8m in 2Q18 from S$0.15m in 2Q17, the increase is due to the delivery of delayed projects and new contracts secured in FY18. We expect the Bangladesh solar farm project to commission in 1H19.
  • Modular recorded higher revenue for the delivery of pre-fabricated bathroom units for the Lendlease Paya Lebar project. The group has also fully acquired TLC modular the subsidiary for the modular business.

The Negatives

- Structural steel segment faced with margin compression.

  • Revenue for the engineering & construction sank 49% y-o-y to S$3.2m from S$6.3m due to the structural steel segment. The segment is faced with margin compression from lackluster environment, cost overruns and a one-off revenue adjustment in 2Q18.


  • We remain positive on the two growth drivers of the group solar energy & modular construction and expect significantly higher contributions in FY19. 
  • We expect order books to build up for modular construction. The Cosa hotel is on track to deliver the turnkey project in 2H18. 
  • We expect the structural steel segment to continue to face challenges from lackluster environment and margin compressions.

Maintain BUY with an unchanged target price of S$S0.29

  • We maintained our BUY recommendation with an unchanged target price of S$0.29. 
  • We have adjusted FY19e revenue downwards by 10% in light of the recent result, earnings unchanged as we expect margin expansion from corrosion prevention (CP) segment and the growth engines.

Alvin Chia Phillip Securities Research | https://www.stocksbnb.com/ 2018-08-24
SGX Stock Analyst Report BUY Maintain BUY 0.290 Same 0.290