SHS Holdings Ltd - Phillip Securities 2018-11-19: A Setback In Solar Plant

SHS HOLDINGS LTD. (SGX:566) | SGinvestors.io 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.


  • 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 ACCUMULATE DOWNGRADE BUY 0.24 DOWN 0.290