SHS HOLDINGS LTD. (SGX:566)
SHS Holdings Ltd - A Setback In Solar Plant
- SHS's 3Q18 revenue improved 43.5% y-o-y, but earnings dragged down operational expenses.
- The construction of the Bangladesh solar farm is delayed three quarters and is estimated to complete end FY19e.
- We revised FY19e earnings downwards by 36% due to delay in the solar plant. Downgrade to ACCUMULATE with a lower target price of S$0.24. Our valuation is derived from a 10X PE of FY19 earnings.
The Positives
Revenue improvement is driven by better contributions from all business segments.
- Revenue from Engineering & construction (E&C) increased 7% y-o-y to $7m. The modular segment helped offset the weakness in the structural steel business which is still suffering from lacklustre conditions and margin compression.
- Solar energy revenue in Singapore enjoyed 62.5% y-o-y growth to $2.5m as a result of new contracts secured in FY18 and previously delayed projects.
- Corrosion Prevention (CP) segment jumped 44% y-o-y to $2.5m due to increased orders from plant operations. The increased orders are a result of improving sentiment in the marine & offshore sector supported by stronger oil prices.
The Negatives
Substantial delay in the Bangladesh solar project.
- The Bangladesh solar project was slated to be completed early FY19. Complications such as land issues, regulatory approvals and weather conditions have set the completion date back approximately three quarters.
- We expect the completion by the end of FY19. Anticipated earnings for the project are $4mn/year.
Operational expense is higher than expected.
- Total OPEX increased 27% y-o-y to $4.8m. The increase is in part due to business development and travelling expenses. These expenses are incurred for the ramp-up of the modular business. Other operating expense increased 58% due to the depreciation of the redeveloped Hetat office building used by the E&C segment.
- We expect these expenses to decrease once the modular business is operating at a steady state. This is achieved by operational efficiencies in relation to the design, knowledge and repetitive nature of projects.
Outlook
- We expect modular to continue its contribution towards the E&C segment, while structural steel remains in a challenging environment.
- Key risks include further delays in the construction of the solar project.
Downgraded to ACCUMULATE with a lower target price of S$0.24
- We downgraded our BUY recommendation to ACCUMULATE with a lower target price of S$0.24.
- We made a downward revision of FY19e earnings by 36% given the delay in the construction of the solar project. Our valuation is derived from a 10X PE of FY19 earnings. This is in line with the Singapore construction industry.
Alvin Chia
Phillip Securities Research
|
https://www.stocksbnb.com/
2018-11-19
SGX Stock
Analyst Report
0.24
DOWN
0.290
