Tuan Sing Holdings - DBS Research 2020-08-11: Pointing The Right Way; Robinson Point Sale A Massive Boost


Tuan Sing Holdings - Pointing The Right Way; Robinson Point Sale A Massive Boost To Tuan Sing

  • Proposed Robinson Point sale to reap c.S$125m gain.
  • Improvement of net debt-equity to 0.90 post-sale could spark P/NAV re-rating closer to peers.
  • GulTech remains on track to see record year.
  • Maintain BUY on Tuan Sing (SGX:T24) with higher Target Price of S$0.44.

Robinson Point sale a massive boost to Tuan Sing

  • Tuan Sing has announced that it has entered into an option agreement with One South Bay Group for the sale of 39 Robinson Road Pte Ltd, the owner of Robinson Point, for an aggregate consideration of S$500m. The sale represents a 33.5% premium to Tuan Tuan Sing’s Robinson Point book value of S$374.4m.
  • While we had previously pointed to the divestment of businesses such as GulTech (high growth PCB-manufacturer) as a catalyst for the stock, the divestment of Robinson Point at a valuation representing a 33.5% premium to book value is very positive in Tuan Sing’s efforts to optimise capital and deleverage the balance sheet. We opine that a key overhang on Tuan Sing's share price, especially amidst COVID-19, has been its high gearing and low interest coverage ratio that resulted in the stock trading at a P/NAV of 0.3x, a discount to peers’ average of 0.5x.
  • Tuan Sing has said that the proceeds will be used to pay borrowings of S$294.4m, with net proceeds (before transaction fees but after repayment of borrowings) of S$128.3m remaining that could be further used to repay the Group’s other borrowings and also help the company tide through COVID-19 (given the losses at the Australian hotels business). We estimate that net debt-equity could improve to 0.90 from 1H20’s 1.37, with NAV uplift to S$1,252.7m (vs S$1,129.5m in 1H20).
  • Overall, the improvement in gearing puts Tuan Sing in a good position to re-rate closer to its peers and at the same time benefit from GulTech’s high growth.

COVID-19 expectedly impacted Australian hotels and property business

  • Tuan Sing's 1H20 revenue of S$91.9m (-39.3% y-o-y) recorded as the hotels and industrial services segment suffered.
  • Tuan Sing’s Australian hotels saw lower occupancies as a result of travel restrictions, which led to the segment reporting a 58.1% decline in revenue and net loss of S$6.4m.
  • The industrial services segment, which historically has been very low margin, saw a 71.7% decline in revenue to S$14.8m in 1H20 on lower sales volume and logistics for commodity trading. However, segmental profit inched up by c.S$0.4m.
  • The Other Investments segment, which largely comprises PCB-maker Gultech, beat expectations and grew segmental profit to S$14.2m (+35.1% y-o-y).
  • Overall, Tuan Sing reported a 1H20 net profit of S$6.6m (reversal from S$0.5m loss in 1H19).

State of Victoria reimposes lockdown measures

  • A key risk highlighted during the initiation (Tuan Sing Holdings - DBS Research 2020-06-16: Under-Appreciated Asset Play) was a resurgence in COVID-19 cases. This has played out in Australia’s state of Victoria as cases soared to around 15,000 in the state. As a result, the Victoria state has reinstated lockdown measures that will last for another six weeks from 2 August. The state of Western Australia has also closed its interstate borders although recreational travel within the state is allowed.
  • The new restrictions are likely to delay the resumption of operations at Grand Hyatt Melbourne and may dampen occupancies at Hyatt Regency Perth. As a result, we are now forecasting FY20F occupancies to range between 35% and 42.5% (down from 45-50%), with Grand Hyatt Melbourne leaning towards the lower end of the range.

Construction continuation of Mont Botanik to drive 2H20

  • Tuan Sing's revenue for the property segment came in at S$58.0m for 1H20, up c.15% y-o-y.
  • Revenue for this segment could pick up in 2H20 as construction activities for Kandis Residence and Mont Botanik resume. Revenue could thus be recognised based on the progress of completion revenue recognition model.

PCB-maker GulTech a bright spot

  • Data storage demand, which partially drove GulTech’s 1H20 growth, is expected to remain robust into 2021 especially given Micron’s positive guidance for 3Q20 (revise up to US$5.2-5.4bn from US$4.6bn-5.2bn).
  • World Semiconductor Trade Statistics forecasts net billings for memory integrated circuits to grow 15.0% y-o-y in 2020 vs 5.3% y-o-y growth for all integrated circuits.
  • As a result of GulTech’s outperformance, we revise FY20F segmental profit before tax and fair value changes (PBTFV) up by c.9%.

Maintain BUY call with higher SOTP-based Target Price of S$0.44.

  • A key risk previously highlighted (resurgence of COVID-19) has played out in Australia. This has resulted in a revision of FY20F Australian hotel occupancies to between 35% and 42.5% (down from 45-50%) and PBTFair Value to a loss of S$10.8m (down from -S$4.4m).
  • SP Corporation (SGX:AWE)’s revenue unexpectedly collapsed as a result of COVID-19 although segmental profit inched up. We revise our revenue estimates for this industrial segment down to S$35.0m. We caution that revenue for this segment can fluctuate. That said, while the industrial segment contributes a sizeable portion of Tuan Sing’s revenue, the segment has historically been a small contributor to Tuan Sing’s net profit and valuations.
  • The announcement of the proposed Robinson Point sale and GulTech’s outperformance more than mitigate the downsides from Australia and SP Corporation. We revise Other Investments segment’s FY20F PBT Fair Value up by c.9% and expect Tuan Sing to reap c.S$125m gain on disposal of Robinson Point this year.
  • See Tuan Sing Share Price; Tuan Sing Target Price; Tuan Sing Analyst Reports; Tuan Sing Dividend History; Tuan Sing Announcements; Tuan Sing Latest News.
  • Overall, we raise our Tuan Sing's target price to S$0.44 from S$0.38 on the back of a higher GulTech valuation and NAV uplift from the Robinson Point sale. GulTech’s valuation (based on 11.0x FY20F PE) was increased to S$666.4m due to higher FY20F earnings estimates while NAV was increased by c.S$130m due to the Robinson Point sale. The increase in NAV led to a higher discounted RNAV of S$236.9m which, together with the higher GulTech valuation, boosted market value to S$525.2m.
  • See more about Tuan Sing in our previous initiation coverage report: Tuan Sing Holdings - DBS Research 2020-06-16: Under-Appreciated Asset Play.

Singapore Research Team DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-08-11
SGX Stock Analyst Report BUY MAINTAIN BUY 0.44 UP 0.380