HRnetGroup
Price targets:
Maybank Securities ‘hold’ 80 cents
PhillipCapital ‘buy’ 85 cents
Resilient numbers
Maybank Securities and PhillipCapital are mixed on HRnetGroup (HRnet) following the company’s FY2023 ended December 2023 results, which saw a core patmi of $28 million in 2HFY2023.
Maybank’s Eric Ong has kept his “hold” call with an unchanged target price of 80 cents, saying that the group has been resilient compared to its peers given the economic conditions of last year.
On the other hand, Paul Chew of PhillipCapital expects “growth to creep up” and has lowered his target price to 85 cents from 88 cents while maintaining his “buy” call.
Ong highlights that the employment market remains cautious. HRnet’s professional recruitment (PR) revenue fell 30% y-o-y for the 2HFY2023 to $31 million amid hiring freezes and cautious sentiment across key markets.
In FY2023, the group placed 5,774 (–19% y-o-y) candidates while gross profit per placement also declined 16% to $11,300. Flexible staffing (FS) turnover was flat at $250 million, although gross profit margin dipped by 0.4 percentage points (ppts) to 13.7% in 2HFY2023 along with the rolling back of the Covid-related healthcare business in Singapore.
FY2023’s average contractor volume was down 7% to 16,141, but gross profit per contractor ticked up by 2%.
Ong notes that HRnet is experiencing a shift in its revenue mix towards flexible staffing, as the revenue proportion of FS rose to 88% in FY2023, up from 83.4% in FY2022.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
“We note that Hong Kong, Jakarta and Taipei continued to register FS growth but this was offset by reduced demand elsewhere, while its Mainland China PR business bore the brunt of the slowdown in economic activity,” says Ong.
Meanwhile, HRnet’s balance sheet remains “rock solid” with net cash of $312 million, which Ong says allows the group to fund growth in FS and its other businesses using annual recurring revenue. These include its payrolling services YesPay! workforce management solutions at Octomate and Octomate Staffing.
Ong says that HRnet plans to leverage its cash position to take market share from weaker competitors and pursue investments in HR-related outsourcing. As such, he keeps his “hold” call with an unchanged target price of 80 cents, still based on 15 times FY2024 P/E.
Likewise, Chew from PhillipCapital notes that FS is HRnet’s key performer while its PR segment is still its weak spot with placements at the “lowest since listing”.
While hiring in technology roles from start-ups to semiconductors has been a growth vertical for HRnet, the pace of hiring in the segment has slowed significantly, says Chew. He adds that growth will now come from capturing a larger share of the customer budget.
In addition, general hiring conditions are weak, particularly in China, he adds.
With more “tepid growth” on the horizon, Chew is reducing his valuation to 11 times P/E ex-cash FY2024 from 12 times.
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“We lowered our FY2024 earnings by 11% to $57 million,” says Chew. “Target price lowered from 88 cents to 85 cents. It remains at a huge discount to global peers trading at an average P/E of 19 times.”— Nicole Lim
Nanofilm Technologies International
Price targets:
DBS Group Research ‘fully valued’ 63 cents
CGS International ‘reduce’ 75 cents
UOB Kay Hian ‘sell’ 60 cents
Margin pressures, slow recovery
Ling Lee Keng of DBS Group Research has cut her target price for Nanofilm Technologies International MZH from 83 cents to 63 cents, following FY2023 ended December 2023 earnings that came in below her expectations.
While there are signs of h-o-h recovery for 2HFY2023, Ling, who has a “fully valued” call on the counter, believes that the company is still facing margin pressures and that new businesses are still in their respective developmental stages.
In 2HFY2023, the company, which provides coating services for parts used in consumer electronics and other equipment, recorded earnings of $10.8 million, down 56.9% y-o-y, but reversing from a loss of $7.6 million incurred in 1HFY2023.
This brings FY2023 earnings to $3.1 million, down 92.8% y-o-y, and revenue for the same year to $177 million, down 25.4% y-o-y.
Gross margin in 2HFY2023 reached 40.6% from 32% in 1HFY2023 but was still below 48.7% fetched in 2HFY2022, as operational savings were offset by higher material costs.
The company plans to pay a final dividend of 0.33 cents, on top of the 0.33 cents already paid as an interim dividend.
In her Feb 27 note, Ling states that Nanofilm’s various new ventures such as those servicing the renewable energy industry will only see significant contribution in FY2025 onwards.
The company’s various new operation sites outside China, such as a second site in Vietnam and a relatively smaller site in India, are just starting to get off the ground.
As such, Ling has cut her FY2024 and FY2025 target price by 15% and 16% respectively on the back of the still challenging environment and margin pressure as the group continues to put in place new initiatives for long-term growth.
Her new target price of 63 cents is based on 18 times FY2024 P/E.
John Cheong and Heidi Mo of UOB Kay Hian are similarly bearish as they foresee slow recovery despite new projects. They have kept their “sell” call and lowered their target price to 60 cents from 66 cents previously.
The company sees higher revenue and profit in the current FY2024 with its China+1 strategy of customers, improving project pipeline visibility and more meaningful contributions from its hydrogen joint venture with Temasek, Sydrogen.
“However, macro headwinds persist with geopolitical tensions, inflationary pressures and rising interest rates,” state the analysts.
Their lowered target price of 60 cents is based on 16 times 2024 EPS, pegged to –1 standard deviation (s.d.) to its long-term forward mean, down from 17.5 times as they felt the company’s P/E mean multiple has deteriorated due to several quarters of disappointed earnings.
“While Nanofilm’s new projects and initiatives point to a recovery, we think this will take some time. Additionally, the challenging environment it faces could lead to further de-rating of its P/E multiple,” state Cheong and Mo.
William Tng of CGS International is relatively not as bearish. He has kept his “reduce” call but his target price of 75 cents has been kept as well and is higher than the other analysts.
Writing in his Feb 28 note, Tng points out that the company’s FY2023 earnings of $3.3 million is better than the loss of $0.7 million he had projected.
Nonetheless, with the typical first-half seasonal weakness, there will be a limit to how much Nanofilm’s share price can rerate, particularly given how consumer spending remains cautious on weak macroeconomics.
Tng’s target price of 75 cents is based on FY2025 P/E of 12.1 times, 2 s.d. below its average P/E in FY2021 to FY2023. — The Edge Singapore
Bumitama Agri
Price targets:
RHB Bank Singapore ‘buy’ 70 cents
UOB Kay Hian ‘buy’ 70 cents
OCBC Investment Research ‘buy’ 74 cents
Undemanding valuations
Analysts from RHB Bank Singapore, UOB Kay Hian and OCBC Investment Research are positive about the Indonesian palm oil company Bumitama Agri P8Z following its 2HFY2023 results ended December 2023 which saw earnings rise 94.7% y-o-y to IDR1.26 trillion ($108 million).
All three brokerage firms have kept their “buy” calls. RHB has an unchanged target price of 70 cents, UOBKH has a target price of 70 cents and OCBC has a higher target price of 74 cents from 73 cents.
In FY2023, Bumitama’s earnings declined by 13.3% y-o-y to IDR2.45 trillion and revenue decreased by 2.4% to IDR15.44 trillion, mainly due to weakening palm product sales price offset by the increase in its sales volume.
RHB says the group’s earnings for FY2023 come below their estimates but are in line with Street’s expectations at 90%–100% of FY2023 forecasts.
The group’s fresh fruit bunches (FFB) declined 11.8% q-o-q in 4QFY2023, lowering its FY2023 FFB to 3%. However, external FFB output and some inventory drawdown resulted in crude palm oil (CPO) sales volume rising 13.4% y-o-y for FY2023.
RHB has reduced its nucleus FFB output assumptions to reflect lower 3%–4% growth for FY2024–FY2025, down from 5%–6% but raises their external FFB output projection to reflect a 5% growth in the same period.
RHB notes that the CPO average selling price (ASP) came in stronger y-o-y in 4QFY2023 while unit costs rose 22% y-o-y in 4QFY2023 due to lower output during the quarter.
“Post-adjustment for FY2023 results, we tweak our FY2024–FY2025 forecasts by –1.4% to +6.2%, after reducing FFB output, increasing external FFB output and reducing unit cost assumptions,” says RHB. “Valuations look attractive as Bumitama is trading at just 6.7 times 2024 P/E — at the low end of its peer range of 6–12 times, while it offers a handsome FY2024 dividend yield of 7.1%.”
RHB is maintaining its “buy” with an unchanged target price of 70 cents, based on eight times 2024 P/E.
Contrary to what most other oil palm companies are doing, Bumitama says it will pay a dividend for FY2023 but has yet to disclose the actual quantum. RHB expects a dividend payout ratio of at least 45% for FY2024, based on their projected 5.8 cents for FY2023, which translates to a dividend payout ratio of 47% and yield of 8.8%.
Meanwhile, UOB analysts Jacquelyn Yow and Leow Huey Chuen say that Bumitama’s 2HFY2023 results came in within their expectations with strong sales volume and CPO production.
Despite a higher external FFB, the group still managed to deliver a good milling margin, they say. “Bumitama’s milling margin remains remarkably high at 14%–15%, a standout performance in contrast to competitors who operate at single-digit margins,” say the analysts.
Yow and Leow say that this success stemmed primarily from the group’s ability to procure ample FFB despite facing escalating competition from commercial millers, which ensured that its mills operated at optimal efficiency.
“We reckon that this was mainly undergirded by its proactive engagement with and support for smallholders,” they add.
The analysts highlight that Bumitama will face 6%–9% y-o-y higher costs of production in 2024 mainly due to higher fertiliser application volume as the group only applied 75%–80% of its initial target in 2023.
UOB is maintaining their earnings forecast. They say the potential upcoming dividend is expected to be at 3.5 cents per share, translating to a dividend yield of 5%.
“With the company’s strong cash flow and low gearing, there may be a high possibility that the payout ratio may be higher than 40%, which would bring the total dividend for 2023 4.75 cents, bringing to a dividend yield of 7%,” they note.
Finally, OCBC analyst Ada Lim says that despite sequentially weaker 4QFY2023 financial and operating metrics, Bumitama’s FY2023 key figures were the second highest in the company’s history.
“Bumitama’s superior productivity, high-quality plantations and continued focus on maximising its current plantations place it in a good position to deliver on above industry average yields and to capitalise on supportive long-term industry fundamentals, where the dynamics of constrained supply and growing demand should provide some resilience to CPO prices,” says Lim.
Taking into the group’s FY2023 performance and fine-tuning assumptions, Lim has increased her target price to 74 cents.
She says the stock is trading at a forward 12-month P/E ratio of six times, which represents around three-quarters of a standard deviation below its five-year historical average and current valuations remain undemanding. — Nicole Lim
Venture Corp
Price targets:
DBS Group Research ‘buy’ $16.90
CGS International ‘add’ $15.93
Maybank Securities ‘buy’ $15.80
UOB Kay Hian ‘buy’ $16.37
No surprise, outlook remains bright
Most analysts have kept their calls on Venture Corp following FY2023 earnings that did not throw up any surprises. Despite lower earnings, Venture has maintained its final dividend at 50 cents, bringing the full-year payout to 75 cents, implying a yield of 5.3%.
In his Feb 23 note, Maybank Securities’ Jarick Seet, citing management, flags that the 2HFY2024 ended December should be “stronger” than 1HFY2024 as production of new products starts. Venture is also confident it can maintain net margins between 8% and 10% for FY2024.
The company continues to see “significant” growth opportunities in life sciences, test instrumentation, data centres, semiconductor equipment, and advanced industrial, networking and communications. In 1QFY2024, Venture has also launched luxury lifestyle and wellness products.
Even as Seet has kept his “buy” call, he has raised his target price to $15.80 from $15.50, pegged to an unchanged 16 times forward FY2024 earnings to consider revised earnings estimates.
On their part, John Cheong and Heidi Mo of UOB Kay Hian have maintained their “buy” call and $16.37 target price on the stock. They note that Venture is expanding its services, including design, sourcing and supply chain management. “This will deepen collaboration with many of Venture’s class-leading customers,” say the analysts in their Feb 23 note.
William Tng of CGS International calls the company a “free cash flow generator” as it has no borrowings and sits on a record cash hoard of $1.06 billion while free cash flow hit a record $473.9 million.
Like Seet, Tng has slightly raised his target price to $15.93 from $15.90 after he projected higher earnings per share to consider a smaller share base following a series of share buybacks. His valuation multiple is kept at 14.6 times.
Ling Lee Keng of DBS Group Research is more bullish than her peers. In her Feb 23 note, she flags how Venture can capture new opportunities with its diversified product mix and blue-chip customer base.
With an eye on the longer term, Venture continues to invest and develop new differentiating capabilities across multiple technology domains, she adds.
Her new target price of $16.90, from $15.10 previously, is based on 16 times FY2024 earnings, which, thanks to the improving outlook, is a higher multiple versus 14 times previously. — The Edge Singapore
China Aviation Oil
Price target:
Lim & Tan ‘buy’ $1.20
Attractive valuations, strong earnings growth
Lim & Tan Securities have initiated a “buy” on China Aviation Oil with a target price of $1.20. The target price is pegged to 11.5 times CAO’s FY2024 P/E representing a 10% discount to its five-year average P/E of 12.7 times. The target price also presents a potential upside of 29.7% to CAO’s share price of 92.5 cents as at the brokerage’s Feb 22 report.
CAO is the largest physical jet fuel buyer in Asia Pacific (APAC). It is also the main supplier of imported jet fuel to China’s civil aviation industry.
“After several years of a weakened aviation industry, CAO now stands as a beneficiary of rising international air traffic and jet fuel demand in China,” say analysts Chan En Jie and Nicholas Yon, who note that domestic flights within the country have recovered to their pre-Covid-19 levels since mid-2023. Outbound flights, however, have seen a slower pace of recovery so far, reaching 65% of its pre-Covid-19 levels as at December 2023.
That said, the Civil Aviation Administration of China (CAAC) estimated that China’s international air market will hit 80% of its pre-Covid levels by the end of 2024.
In addition, CAO’s 33%-owned Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), which is seen to be a “key asset” within the company, is also tipped to benefit from the return of international travellers. SPIA is the exclusive supplier of jet fuel and into-plane services at Shanghai Pudong International Airport. The airport is also one of the busiest airports in China in terms of air passenger numbers.
Furthermore, the positive mid-term outlook in China’s aviation fuel market is also set to be a plus for CAO.
“Civil airports [in the country] have grown at a 3% compound annual growth rate (CAGR) over the past decade and is targeted to reach 270 civil airports in 2025, up from 259 in 2023. Domestic jet fuel consumption has grown by 5% CAGR over the past decade and with current consumption levels of 744k barrels/day about 10% below 2019 levels, the return of international flights will provide the impetus for further growth in trading and supply volumes,” say Chan and Yon.
At its current share price levels, CAO is trading at 8.9 times its FY2024 P/E and 0.65 times P/B.
“CAO’s valuations are attractive given its strong earnings potential where we forecast profits to double over the next two years. CAO’s cash pile of US$534 million ($716.8 million) is impressive, representing 91% of current market cap and with zero interest-bearing debt,” the analysts write. — Felicia Tan
Japan Foods
Price target:
RHB Bank Singapore ‘neutral’ 29 cents
Earnings missed, maintains outlook
RHB Bank Singapore’s Shekhar Jaiswal is keeping his “neutral” call on Japan Foods Holdings but with a lower target price of 29 cents from 30 cents previously, following the company’s 9MFY2024 ended Dec 31, 2023, results. For the period, Japan Foods’ patmi came in “well below” expectations no thanks to higher than estimated tax.
Japan Foods reported a patmi of $587,000 in 3QFY2024, reversing the previous quarter’s loss of $130,000. Despite this, due to the “sharp rise” in tax expenses for the quarter, Japan Foods’ 9MFY2024 patmi accounted for only 65% of Jaiswal’s full-year estimate.
In 9MFY2024, Japan Foods’ revenue of $65 million was 12% higher y-o-y, driven by its expanded halal offerings and a higher number of operating restaurants, accounting for 78% of the analyst’s FY2024 estimate.
“We maintain our FY2024 estimates as we expect some near-term improvement in consumer spending amid recovering domestic economic growth and the supportive measures announced in the 2024 Singapore budget,” writes Jaiswal.
The company remains focused on growing its number of halal-concept restaurants.
In 3QFY2024, it added nine new restaurants, of which six were halal-concept restaurants, also shutting down three non-halal restaurants during the quarter.
With a net addition of six restaurants in the quarter, Japan Foods’ total restaurant count stands at 78, of which 38 are now halal-certified, representing 48% of its total.
In its 1HFY2024 results announcement, Jaiswal notes that the company said that about 45% of the company’s revenue came from its halal-concept restaurants, versus 25% in 1HFY2023.
The analyst writes: “Japan Foods aims to capture a bigger share of the halal restaurant market, and it will continue to explore opportunities to open more restaurants under its existing halal concepts as well as launch new concepts.”
Upside risks include the continued strong performance of the company’s halal-concept restaurants while downside risks include the growth of increased competition in the F&B industry, a manpower crunch, and higher cost of operations due to inflationary pressures. — Douglas Toh
Genting Singapore
Price targets:
Citi Research ‘buy’ $1.16
Maybank Securities ‘buy’ $1.16
DBS Group Research ‘buy’ $1.15
Higher bad debts; below expectations
Analysts are mixed on Genting Singapore G13 following the group’s results in 4QFY2023 ended Dec 31, 2023. During the period, Genting’s adjusted ebitda came in “below expectations” due to a significant increase in bad debt losses.
Citi Research and Maybank Securities have lowered their target prices but DBS Group Holdings has raised its target price. All analysts have kept their “buy” calls.
Citi’s George Choi and Ryan Cheung have a target price of $1.16 from $1.20 while Maybank’s Yin Shao Yang has lowered his to $1.16 from $1.21. Meanwhile, DBS has raised its target price to $1.15 from $1.05.
Choi and Cheung from Citi note that Genting’s results for the 4QFY2023 were a miss.
“Luck-adjusted ebitda was about $179 million, which misses our estimate of $319 million as we were overly aggressive on its opex management,” the analysts say. They note Genting’s non-gaming revenues also came in lower than expected due to outbound Singaporean tourists in December.
The analysts say that the lower-than-expected net profit has led Genting to declare a final dividend of 2 cents per share, a figure that is unchanged since 2022 and less than consensus of 2.5 cents per share.
“Although management remains committed to staying conservative on its credit extension policy, we conservatively model its FY2024 bad debt provision to at least amount to $120 million in a base-case scenario,” they note.
That said, Choi and Cheung still expect Resorts World Sentosa (RWS) to be one of the major beneficiaries of the Singapore-China visa-free arrangement and the concert event lineup in Singapore.
Likewise, Yin from Maybank has trimmed his ebitda and core net profit estimates by 6% and 11%–12% to reflect the higher impairment of trade receivables and depreciation and amortisation.
“The shortfall in core net profit was due to FY2023 depreciation and amortisation coming in 21% above our expectation driven by accelerated depreciation as some attractions were discontinued to make way for the $6.8 billion expansion plan,” he notes.
However, he is still “cautiously optimistic” for Genting’s FY2024 as he does not expect its impairment of trade receivables to be as large going forward and, like Citi, he believes Genting will benefit from the Singapore-China visa-free deal.
Finally, DBS analysts say Genting’s “overall business momentum remains sound”. Unlike Citi and Maybank, DBS says the 6.2% q-o-q revenue moderation aligns with seasonal trends as tourist arrivals peak in the third quarter while outbound travel by Singaporeans peaks in the fourth quarter.
DBS remains optimistic about Genting’s ongoing phased renovations and upgrades across hotels, F&B outlets, attractions and its casino.
“Our FY2024/FY2025 adjusted ebitda estimates remain mostly unchanged, as stronger expected top-line growth offsets an increased bad debt loss projection. We raise our target price to $1.15 as we lift our EV/Ebitda peg to 9.0 times FY2024, up from 8.3 times FY2024 previously, to factor in our optimism on Genting’s medium-term growth prospects,” they say. — Nicole Lim
Pan-United Corporation
Price targets:
CGS International ‘add’ 64 cents
PhillipCapital ‘buy’ 55 cents
Solid showing
Analysts remained positive about Pan-United Corporation and have raised their target prices after the company’s financial results in 2HFY2023 and FY2023 ended Dec 31, 2023, outperforming their expectations.
CGS International analysts Kenneth Tan and Ong Khang Chuen have kept their “add” call as Pan-United’s net profit of $20 million in 2HFY2023 was a “solid beat”, with the company’s full-year net profit coming in 19% above their forecasts. Pan-United reported a net profit of $36.5 million for FY2023.
In FY2024, Tan and Ong expect Pan-United to sustain its elevated revenue and margins thanks to the strong demand for construction and improved operating leverage.
“We think elevated ebitda margins could sustain into FY2024–FY2025 as volume growth should drive improved operating leverage,” they write in their Feb 8 report.
The Building and Construction Authority (BCA) expects the total nominal construction output to increase from $34.8 billion in FY2023 to $37 billion in FY2024, the highest level seen since 2015.
“We believe this to be driven by healthy construction demand, elevated industry order books and productivity improvements following the cessation of the Heightened Safety Alert. BCA expects healthy construction demand in 2024 with contracts awarded of $32 billion–$38 billion (2023: $33.8 billion) and at $31 billion–$38 billion per annum (p.a.) through 2025 to 2028,” the analysts write.
In addition, the robust sector fundamentals should benefit Pan-United’s ready-mix concrete (RMC) sales volumes in Singapore, given its leading market share of around 40%, according to the company.
Ong and Tan have raised their FY2024 and FY2025 earnings per share by 18% to 19% as they factor in better concrete margin assumptions, higher depreciation expenses from increased capital expenditures in FY2024 and lower interest expenses from reduced net gearing.
The analysts’ target price has also been lifted to 64 cents from 55 cents previously as they roll their valuations to 5.8 times 2025 EV/Ebitda based on the average from 2012 to 2014, Singapore’s previous construction upcycle. The higher target price also comes from the higher EPS estimates.
According to the analysts’ report, Pan-United traded at 38 cents, which they deem “attractive” at 2.7 times 2025 EV/Ebitda. At the time, the company is also trading some 1.5 standard deviations (s.d.) below its five-year historical mean.
PhillipCapital analyst Peggy Mak kept her “buy” call as Pan-United’s FY2023 profit stood 6% above her expectations.
Following Pan-United’s results, Mak likes the company’s prospects as it achieved a higher average selling price of 5% compared to the sector’s average of 1%.
The company’s stronger gross margins — at 20.8%, 1.9 percentage points higher y-o-y — is another plus. “We think the higher gross margin can be maintained, as low-carbon concrete products could gain wider acceptance to offset the higher carbon tax. In addition, demand for batching services, from which Pan-United earns a fee, is likely to be sustained. HDB has committed to launching 20,000 to 23,000 units per year through 2025,” she notes in her Feb 13 report.
Finally, Pan-United saw an improved return on equity (ROE) of 16.5%, up from FY2022’s 11%. This is despite its net cash of $43 million on its balance sheet.
“[Pan-United] generated funds from operations (FFO)/share of 9.1 cents. We expect net cash to reach $58 million at the end of FY2024, even with a higher projected capex of $40 million to construct a new batching plant,” says Mak.
Another tailwind in Pan-United’s favour is the size of construction awards, which rose by 13.4% y-o-y to $33.8 billion in 2023 and will translate into output in the next 12–18 months, thereby supporting output growth in 2024.
“About 60% of these are public infrastructure projects, mitigating the risk of customer default. We expect a higher carbon tax to drive greater adoption of low-carbon products, further differentiating the RMC suppliers,” she says.
Mak has also raised her target price to 55 cents from 50 cents previously to reflect the company’s strong cash flow.
Pan-United’s total dividend of 2.3 cents in FY2023 represents an annual yield of 5.6% based on the company’s share price of 41 cents as at Mak’s report. — Felicia Tan
Tiong Woon Corporation
Price target:
UOB Kay Hian ‘buy’ 90 cents
Beating expectations
UOB Kay Hian analysts John Cheong and Heidi Mo have kept their “buy” call on Tiong Woon Corporation BQM with a higher target price of 90 cents from 85 cents previously.
In a report dated Feb 16, which came after Tiong Woon’s results for the 1HFY2024 ended Dec 31, 2023, the company reported a 49% y-o-y growth in earnings of $10.8 million, beating Cheong and Mo’s expectations and forming 57% of their full-year estimates.
The analysts expect Tiong Woon’s earnings and earnings per share in FY2024 to grow by 32% y-o-y supported by the higher level of construction activity in Singapore. The Building and Construction Authority (BCA) in January projected Singapore’s demand for construction to reach $31 billion to $38 billion from 2028 to 2028.
“As a prominent integrated heavy lift specialist and service provider, Tiong Woon is in a favourable position to benefit from Singapore’s Covid-19-related construction demand. The strong demand by contractors will drive up utilisation rates and rental rates of cranes, leading to both top-line and bottom-line growth for Tiong Woon,” they write.
“As of FY2023, the average utilisation rate of the company’s cranes was only 48%. We anticipate growth in Tiong Woon’s utilisation and rental rates in FY2024, which will be the key earnings growth driver,” they add. The company has over 500 cranes, some of which can have a capacity of up to 1,600 tonnes.
Tiong Woon is also tipped to benefit from the rising capital expenditures in the oil and gas industry. This is evidenced by the company’s new contract awarded by Sinohydro Corporation for providing crane services for the construction of the Integrated Waste Management Facility project in Tuas. The project will commence in the 2HFY2024 and is expected to contribute to Tiong Woon’s revenue for FY2024 and FY2025.
“Additionally, 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 analysts write.
Another plus, they say, is Tiong Woon’s strategic alliance with Thai-based Mammoet Asia Holding B.V. (Mammoet). Mammoet has the world’s largest fleet of heavy lifting equipment including over 1,000 cranes in Thailand.
“This will enable Tiong Woon to increase its customer outreach in the region and expand its service offerings to both existing and new customers in Thailand. The company has also successfully acquired multiple assets from Mammoet, such as transportation and heavy lifting equipment, to boost its revenue from Thailand. Management expects the alliance and asset acquisition to capture growth in Thailand, from which revenue contributions made up 3.7% of 1HFY2024 revenue,” say Cheong and Mo.
In addition to their earnings upgrade, the analysts have also raised their revenue estimates for FY2024 to FY2026 by 4% as they expect more projects to drive crane utilisation rates during the year. The company’s gross profit margin (GPM) estimates are kept at 40% to 41%, bringing their overall earnings estimates across FY2024 to FY2026 higher by 9% to 10%.
The analysts’ new target price is pegged to an unchanged 0.7 times FY2024 P/B above Tiong Woon’s historical 15-year average P/B to capture the strong earnings growth potential in the industry upcycle. — Felicia Tan
