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Tiong Woon - UOB Kay Hian 2022-08-29: Healthy Double-Digit Earnings Growth In FY22; Expect A Better FY23

TIONG WOON CORP HOLDING LTD (SGX:BQM) | SGinvestors.io TIONG WOON CORP HOLDING LTD (SGX:BQM)

Tiong Woon - Healthy Double-Digit Earnings Growth In FY22; Expect A Better FY23

  • Tiong Woon’s FY22 earnings of S$11.4m (+15% y-o-y) is achieved on the back of a 9% y-o-y growth in revenue and 2.6ppt increase in gross margin due to better demand for crane and higher crane rental rate. However, FY22 earnings fell short of our expectation due to higher-than-expected impairment loss for receivables.
  • We believe Tiong Woon is a beneficiary of the construction industry upcycle in Singapore and expect FY23 EPS to grow by 54% y-o-y. Maintain BUY with a 3% lower target price of S$0.85 (0.7x FY22 P/B).



Tiong Woon's FY22 Results

  • 15% earnings growth from better revenue and gross margin. Tiong Woon Corporation (SGX:BQM) reported FY22 earnings of S$11.4m, which grew 15% y-o-y due to an increase in revenue of 9% y-o-y from better demand for cranes. In addition, gross margin also improved 2.6ppt to 40.2% as a result of higher crane rental rate. Similar to FY21, close to 80% of Tiong Woon’s revenue is still generated from Singapore.
  • FY22 results fell short of our expectation due to higher-than-expected provisions. Despite the commendable growth, FY22 earnings fell short of our expectation mentioned in the initiation report Tiong Woon - UOB Kay Hian 2022-08-23: Market Leader Set To Benefit From Strong Growth In The Construction Sector due to higher-than-expected impairment loss for receivables made amounting to S$2.2m (+43% y-o-y) in FY22 as a result of higher provision made for a few customers amid the uncertain credit environment.
  • In addition, Tiong Woon's revenue for 2HFY22 was around S$10m lower than expected, only growing 2% y-o-y and flat h-o-h, due to work stoppages by customers in the construction sites because of dengue infections, workplace accidents and heavy rain.
  • Also, Tiong Woon’s customers in the oil & gas industries, which typically offer higher margin, have yet to commence their construction activities.
  • Expect 54% y-o-y EPS growth in FY23 as more construction projects in Singapore drive demand for cranes. We expect Tiong Woon’s FY23 earnings to grow by 54% y-o-y, driven by the improved utilisation rates and higher rental rates of its cranes due to demand from contractors. This will lead to an increase in its gross margin, followed by better earnings.
  • Tiong Woon is in a good position to benefit from the strong resumption of activities in Singapore’s construction sector, which will have strong demand for cranes in the coming years driven by accelerating construction of public housing and new mega infrastructure projects.


Well-positioned to benefit from construction industry upcycle.

  • With comprehensive ownership of more than 500 cranes, some of which can have a capacity of up to 1,600 tonnes each, Tiong Woon is in a good position to benefit from the strong resumption of activities in Singapore’s construction sector and rising capex in the oil & gas industry.
  • Read also the industry outlook as mentioned in our initiation report: Tiong Woon - UOB Kay Hian 2022-08-23: Market Leader Set To Benefit From Strong Growth In The Construction Sector. The construction sector will have strong demand for cranes in the coming years driven by accelerating construction of public housing and new mega infrastructure projects including the Cross Island Line, Changi Airport T5, Tuas Mega Port and the North South Corridor. The Housing & Development Board plans to launch up to 23,000 flats a year in 2022-23, a huge jump from the 48,509 flats launched in 2019-21 (16,170 flats per year). In addition, construction of more petrochemical plants could further boost crane demand.

Tiong Woon - Earnings forecast revision and recommendation

  • We reduce our FY23/24 revenue estimates for Tiong Woon by 14%/17% as we reduce the utilisation rate of cranes due to results miss. In addition, we add in additional impairment loss for receivables amounting to S$2.1m for FY23 and FY24 to reflect a more conservative accounting stance on trade receivables. As a result, our FY23/24 earnings forecast for Tiong Woon are reduced by 39%/36%.
  • Combined with revenue growth of 12%/11%/10%, this gross margin expansion will drive earnings growth of 54%/25%/20% for FY23/24/25 respectively.
  • See
  • Catalysts:
    • Better-than-expected earnings from higher crane rental rates and utilisation rate.
    • Better-than-expected dividend and share buybacks.
    • Potential takeover offer by other larger crane companies given the attractive P/B valuation.
  • Risks include:
    • Slowdown in the construction industry,
    • termination of construction works or major delays due to COVID-19, and
    • shortage of labour.





John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-08-29
SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 DOWN 0.880



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