Tuan Sing Holdings - DBS Research 2021-08-10: Raising Tuan Sing's Target Price As Gultech IPO Progresses

TUAN SING HOLDINGS LIMITED (SGX:T24)

Tuan Sing Holdings - Raising Tuan Sing's Target Price As Gultech IPO Progresses

1H21 net profit soars to S$99.9m as Robinson Point sale completes
Further step taken towards potential GulTech IPO, raising our valuation multiples as IPO nears
Balmoral Tower, Cluny Villas and Peak Residence soft launches to boost share price
Maintain BUY with higher target price of S$0.66.

Tuan Sing (SGX:T24)'s 1H21 earnings came in at S$99.9m or ~14x 1H20 earnings largely due to a gain on disposal of Robinson Point of S$89.0m. Without exceptional items, Tuan Sing would have recorded a net profit of S$10.6m (1H20: S$3.4m).
The Property business saw a pick-up in revenue as occupancies at 18 Robinson and Link@896 continue to improve and development projects were sold. Kandis Residence is now fully sold while we estimate that ~85% of Mont Botanik has been sold (as at 30 June 2021).
Interestingly, adjusted EBIT for the Real Estate Development segment was low at S$1.0m. Tuan Sing has attributed this to showflat costs and promotional expenses for its new projects in Batam and Peak Residence.
The Hospitality business turned profitable with adjusted EBIT at S$2.7m, increasing by S$4.9m y-o-y due to the low base last year and improved business as Hyatt Regency Perth serves as a quarantine hotel.
The Other Investments segment, which mainly consists of the GulTech business, reported faster-than-expected growth. Adjusted EBIT rose 19% y-o-y to S$16.9m, driven by a mix of higher revenue and scrap sales income.

In our view, the strong private property market in Singapore could buoy sales of the 90-unit Peak Residence and fetch sales of an estimated ~S$190m for Tuan Sing. Along with Peak Residence, Tuan Sing’s projects of Balmoral Tower and Cluny Villas in Batam have also been soft launched. We estimate that the two projects could generate combined sales of ~S$180m.

The sale of a 13% stake in GulTech Jiangsu to the strategic partners (Wens Capital and Yonghua Capital) is almost complete with the aggregate consideration held in escrow pending payment of withholding tax and completion. GulTech also announced on 6 August that a further 2.5% stake in GulTech Jiangsu was to be sold to the investment arm of the local authorities as part of its efforts for a potential listing in China.
Operationally, China’s integrated circuit production continues to rise amid the chip boom which has boosted GulTech’s adjusted EBIT as mentioned earlier. As a result, we have pencilled in an earnings growth of ~16% for GulTech in FY21F.

Tuan Sing’s balance sheet has progressively improved since we initiated coverage on the stock last year. Its net debt-equity has decreased from ~1.4x at the end of FY19 to ~0.8x in 2Q21, the lowest level in the past five years. Historically, Tuan Sing's Share Price has shown an inverse relationship with net debt-equity. We see the stake sale in GulTech and a potential IPO as possible drivers for further deleveraging that could boost its share price. While we believe that Tuan Sing still has room to deleverage, we think there could be a gradual shift in focus from its balance sheet to the success of its business segments and new projects in the future.

In the medium term, we see the the Group’s Batam project as a potential driver of share price. Batam Opus Bay is a 125-ha integrated mixed development township project which if successful, could form a pipeline of projects for the Group for many years to come. Recent developments, including the government designation of Batam Nongsa Digital Park as a special economic zone and investments by various multinational corporations, are positive for the project although risks such as the elevated COVID-19 cases in Indonesia remain.

We have raised Tuan Sing's FY21F earnings forecast by ~7% mainly due to the recognition of a gain on sale of a further 2.5% stake in GulTech Jiangsu, offset by a softer performance from the Australian hotel business as COVID-19 restrictions in the country return.
For FY22F, we have decreased Tuan Sing's earnings forecast by 25% due to the reduced share of profit of GulTech (post sale to partners) and an assumed slower pick-up in the Australian hotel business given the lower vaccination rates.
See
As the potential GulTech IPO approaches, we think the time is ripe to peg GulTech’s valuation to 16x FY22F P/E. The valuation peg will bring our GulTech valuation closer to its China peers, most of which are trading above 20x FY22F P/E.

Woon Bing Yong DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-08-10

SGX Stock Analyst Report BUY MAINTAIN BUY 0.66 UP 0.540