Tuan Sing Holdings - DBS Research 2021-05-05: Crystallising Hidden Gold (GulTech)


Tuan Sing Holdings - Crystallising Hidden Gold (GulTech)

  • RMB435m GulTech stake sale marks another step to unlock value.
  • Potential GulTech IPO could almost double Tuan Sing’s market cap in theory.
  • Office and hotel business fundamentals improving.
  • Maintain BUY call on Tuan Sing with higher target price of S$0.54.

Tuan Sing to divest ~13% of total issued shares in Gul Technologies Jiangsu (GulTech) for RMB435m.

  • Tuan Sing (SGX:T24) has entered into a Sales and Purchase Agreement to divest 13% of total issued shares of GulTech Jiangsu to Yonghua Capital and Wens Capital for RMB435m. This comes shortly after the Robinson Point divestment announced in 2H20. Completion of the proposed transaction is expected by 31 July 2021. The consideration values GulTech Jiangsu at RMB3.35bn (S$688.6m).

Tuan Sing evaluating IPO of GulTech in China.

  • Tuan Sing also announced that it is currently in the process of evaluating a potential listing in China for GulTech and has appointed Minsheng Securities as financial advisers and AllBright Law Offices as legal advisers. Post-sale of the ~13% stake in GulTech Jiangsu, Tuan Sing will still hold an effective interest of ~38.7% in GulTech Jiangsu.

Strategy of extracting hidden value unfolds.

  • The strategy of selling a stake in GulTech is in line with our expectations of management looking to realise value in its balance sheet. In our initiation report, we had highlighted the possibility of Tuan Sing unlocking value through a stake sale in GulTech. Our most recent update values GulTech at S$696.1m which is close to the ~S$688.6m valuation that the 13% stake is being divested at. We estimate that Tuan Sing stands to reap a gain of ~S$70m upon completion of the deal. The partners in the deal, Yonghua Capital and Wens Capital, are also reputable investors in China with the former possessing an AUM of over RMB400bn and the latter being the investment arm of Wens Foodstuffs Group. GulTech’s earnings have grown at a CAGR of 17.7% in the past five years but may see further acceleration with help from its strategic partners.

GulTech IPO could almost double Tuan Sing’s market cap in theory.

  • Our ~S$700m valuation of GulTech was based on 11.0x FY21F P/E which translates into a historical P/E of ~12x. GulTech’s peers in China are however trading at a higher historical P/E of between 20x and 43x (average ~29x).
  • Assuming a conservative P/E of 22.0x, GulTech would be worth S$1.3bn and Tuan Sing’s remaining stake (after the divestment above) would be worth ~S$486m vs Tuan Sing’s current market cap of ~S$480m. Accounting for this GulTech valuation, Tuan Sing’s potential market cap could surge to ~S$830m.

What is Gul Technologies (“GulTech”)?

  • It is an established printed circuit board manufacturer with three manufacturing plants in China. GulTech’s earnings have grown steadily at a CAGR of 17.7% in the past five years with FY20 net profit at US$42.6m. GulTech’s customer base come from the automotive, computer peripherals, consumer electronics, telecommunication, healthcare and instrument & control sectors. Customers include Visteon Corporation, Continental AG and Wistron Corporation.

Overview of Tuan Sing's business segments

  • The property development business is awaiting the launch of Peak Residence and multiple other projects at Opus Bay. Kandis Residence is now fully sold while Mont Botanik is 74% sold.
  • The investment property business is on track for a better showing in FY21F. 18 Robinson and Link@896 had committed occupancies of 88% and 89% as of end-FY20. We note that Dimbulah Coffee has vacated its space at 18 Robinson but do not believe this will have a significant impact.
  • The hotel investment business appears to be picking up. Australia has managed the COVID-19 pandemic well since August 2020 while interstate travel restrictions have been relaxed (with a few exceptions). This should buoy occupancies for Grand Hyatt Melbourne and Hyatt Regency Perth.
  • GulTech looks set to show good growth in FY21F although this may be tempered by the high base last year. Integrated circuit production in China continues to find new highs.

Maintain BUY with higher SOTP-based target price of S$0.54.

  • We further raise our Tuan Sing's FY21F earnings forecast by ~16% to account for the gain in sale of GulTech although this was slightly mitigated by deferred growth for the property segment due to construction slowdowns.
  • On the valuation front, we were previously conservative with our valuations of 18 Robinson and Link@896 Dunearn Road as the macro outlook was uncertain due to COVID-19. However, given that both properties are nearing 90% in committed occupancy and an improved macroenvironment, we have revised our valuations for both properties.
  • Together with the gains expected to be recognised on sale of Robinson Point and the GulTech stake, total change in fair value in our SOTP-based valuation for Tuan Sing now stands at S$31.4m which translates into a S$0.54 target price.
  • See
  • While the stock price is now nearing +1 standard deviation from its 3-year historical mean PNAV, we continue to think the Tuan Sing compelling value especially if the IPO of GulTech takes place. Management has also shown a knack for unlocking value through its divestments of Robinson Point and the stake in GulTech.

Woon Bing Yong DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-05-05
SGX Stock Analyst Report BUY MAINTAIN BUY 0.54 UP 0.460