TA Corporation - Tayrona Financial Research 2018-10-02: Solid Business Backed By Real Assets

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TA CORPORATION LTD SGX:PA3

TA Corporation - Solid Business Backed By Real Assets

Balance sheet hold significant hidden upside.

• We highlight TA Corporation Ltd as an undervalued counter with the potential of returning S$123.53m of development profit and fair value gains (S$44.7m from Singapore and S$78.8m from Cambodia) from its equity of S$182.76m as at 30 June 2018. Conversely, the group trades at a market capitalisation of S$124m (32% discount from book value).
• Factoring in the full value of its property portfolio, we derived a fair value of S$222.24m (S$0.350 per share on a fully diluted basis). Hence, TA Corp presents significant upside from its current share price of S$0.240.

Background

A venerable brand name in property and construction.

• TA Corporation Ltd (TA Corp) is an established property and construction group with almost 50 years of history tracing back to 1972. Starting out as a contractor undertaking projects for government agencies, its first project was the construction of a hawker centre at Empress Place.
• In 1992, its construction arm Tiong Aik Construction Pte Ltd obtained a BCA grading of Class 1 and A1 for general building, allowing it to bid for public and private building contracts of unlimited value.
• In 1995, the group ventured into property development with the development of an office and retail property New World Centre at Jalan Berseh. To-date, the group’s offices continue to be located on the third floor of New World Centre.

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Expanding overseas since late 2000s.

• In the last 15 years, TA Corp has been steadily growing its overseas property development business through joint ventures in China, Cambodia and Thailand.
• After the group’s listing on the Main Board of the SGX on 21 November 2011, the group expanded into the distribution of passenger and commercial vehicles, petroleum fuels, lubricants and tyres in Myanmar to capitalize on the growth of this emerging market.

Plans.

• Looking ahead, TA Corp plans to grow its property development business in Singapore and regionally, by acquiring more land, as well as expand its distribution business in Myanmar, while focusing on upgrading its construction capabilities in Singapore, through the adoption of new construction technologies.

Fair value losses from Tuas South Dormitory have stopped.

• We are mindful that TA Corp has been loss making for several years, mainly due to fair value losses from its Tuas South Dormitory. However, these losses have stopped in 2018.
• Higher crude oil prices have led to a recovery in the local offshore and marine sector, which is supportive of demand for workers’ dormitories. (https://sginvestors.io) With improving asset performance, there is the possibility of TA Corp reversing these fair value losses in the future.

Cambodia project worth US$267m to drive 2019 turnaround.

• Another reason for the lacklustre financial performance in recent years (https://sginvestors.io)is that TA Corp has been developing its 70,600 sq. m. integrated development in the CBD of Phnom Penh, Cambodia, without the benefit of progressive revenue recognition. 
• Property prices in Phnom Penh have appreciated sharply on the back of Chinese demand in recent years. Therefore, we expect TA Corp to return to profitability in 2019 after the completion of this project.

Distribution business has spin-off potential.

• TA Corp has been expanding its presence in IndoChina via the distribution of equipment and lubricants in the 2010s. Currently, this business is profitable and generates about S$25m of revenue per year.
• Most recently, TA Corp was awarded the license to produce its own ‘Repsol’ products in Thailand. This business can potentially be listed to unlock value in the future.

Strong construction capabilities.

• Finally, we found that TA Corp is probably one of the few builders capable of fully taking on large scale residential projects in Singapore (https://sginvestors.io), following new rules that encourage the use of new technologies such as prefabricated components.
• On balance, we rate TA Corp Overweight with a high-average return and low-average risk classification.
• Downside is limited by TA Corp’s conservative share price and its strong dividend track record, (https://sginvestors.io)while upside can be enhanced if the group provides higher visibility over plans to e.g. redevelop some of its properties or spin-off its distribution business.
• Key risks include the group’s gearing and macroeconomic risks.

Refer to the 39-page PDF report attached for complete analysis on TA Corporation.

Liu Jinshu Tayrona Financial Research | http://tayronafinancial.com/ 2018-10-02

SGX Stock Analyst Report OVERWEIGHT Initiate OVERWEIGHT 0.35 Same 0.35