Tuan Sing Holdings - DBS Research 2021-03-08: Undervalued Property Play; Firing On All Cylinders

TUAN SING HOLDINGS LIMITED (SGX:T24)

Tuan Sing Holdings - Undervalued Property Play; Firing On All Cylinders

Tuan Sing's FY20 net profit (excluding exceptionals) rose to S$13.8m from S$0.01m in FY19.
GulTech poised for growth after 13.3% y-o-y rise in FY20 profit before tax and fair value changes.
Peak Residence and Opus Bay look set for launch in 1H21.

Tuan Sing (SGX:T24)'s FY20 earnings rose 77.7% y-o-y to S$59.0m as a result of a fair value gain of S$45.2m. Stripping out this gain, Tuan Sing would have recorded net profit of S$13.8m (FY19: S$0.01m)
The hotel investments business reported a loss before tax and fair value changes of S$17.0m in FY20. The segment owns 2 hotels in Australia and was hurt by low occupancies as a result of interstate and international border closures in Australia.
Still, the property business saw a pickup due to higher occupancies at 18 Robinson and sales of Mont Botanik Residence.
Gultech continued to see good growth with profit before tax and fair value changes (PBTFV) rising 13.3% y-o-y to S$24.7m. Gultech was able to capture orders during the initial COVID-19 closures in China.
Tuan Sing's net-debt equity improved to 1.01, helped by the classification of borrowings associated with the sale of Robinson Point

The 90-unit Peak Residence was originally slated for launch in 2020 but was delayed due to COVID-19. We now believe the property could be launched in 1H21 and estimate that Tuan Sing could fetch sales of ~S$190m from the project.
In addition, occupancies at Tuan Sing’s commercial properties appear to be improving. 18 Robinson recorded better occupancies in FY20 while media reports have reported that a key tenant at Hyatt Regency Perth had completed an expansion.
Overall, we are forecasting Tuan Sing’s property segment’s PBTFV (profit before tax and fair value change) to more than double to S$44.5m in FY21F.

The hotel investments business, which owns both Grand Hyatt Melbourne and Hyatt Regency Perth, was the main drag on Tuan Sing’s performance in FY20.
While the COVID-19 situation remains uncertain in Australia given that vaccination efforts are only just beginning, interstate travel restrictions to Melbourne have been relaxed partially and Grand Hyatt Melbourne has reopened since November 2020.
On the other hand, Hyatt Regency Perth has served as a quarantine facility since March 2020 and its occupancies have been partially supported by the government.
For FY21F, we are forecasting occupancies to range between 50% - 70% and for the segment to avoid a loss compared to the S$17.0 loss before tax and fair value change recorded in FY20.

Tuan Sing’s received a dividend of S$9.4m in FY20 from GulTech, marking a major milestone in its efforts to unlock the associate’s value. In the longer term, barring a full sale of GulTech, we see these dividend payments becoming a recurring feature and potentially contributing to Tuan Sing’s dividends or share buybacks.
Notably, the dividend from GulTech is already more than the S$7.1m that Tuan Sing’s is paying out for FY20. Operationally, GulTech is primed to benefit from higher demand for printed circuit boards as China’s integrated circuit production continues its charge up. As a result, we have penciled in an earnings growth of ~10% for FY21F.

Indonesia’s new omnibus law could boost demand for Tuan Sing’s Batam Opus Bay project. A slew of measures including a relaxation in foreign ownership rules have been announced to attract investments. While details on the project have been scarce, the project is expected to launch in 1H21 and could deliver a further boost to the property business given Tuan Sing’s 125-ha land exposure in the project.

Tuan Sing’s net debt-equity decreased to 1.0x as at end-FY20, the lowest level since 1Q17 as borrowings attributed to Robinson Point were classified as held for sale. A completion of the Robinson Point sale could further improve Tuan Sing’s net debt-equity with some of the cash proceeds possibly being used to repay debt.
Historically, Tuan Sing's share price has shown an inverse relationship with borrowing levels and so a lower debt level could possibly boost Tuan Sing's share price.

We have raised Tuan Sing’s FY21F earnings forecast by ~286% mainly due to the recognition of a gain on sale of Robinson Point and projected improved performances across all of Tuan Sing’s business segments. Our target price is also higher as we applied a lower discount to RNAV of 60% (prev: 65%), in line with the observation of a narrowing in discount to RNAV of property names in Singapore.
See Tuan Sing Share Price; Tuan Sing Target Price; Tuan Sing Analyst Reports; Tuan Sing Dividend History; Tuan Sing Announcements; Tuan Sing Latest News.

At a P/NAV of 0.3x, we believe Tuan Sing offers compelling value. Indeed, the current Tuan Sing's share price appears to be at a strong support level with the Group having performed share buybacks around this price consistently.
In addition, office fundamentals favour a completion of the S$500m sale of Robinson Point which could drive a re-rating in valuation following its improved balance sheet.

Woon Bing Yong DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-03-08

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