UOB Kay Hian Group Research analyst John Cheong has initiated a “buy” rating on Tiong Woon Corp with a target price of 88 cents.
Tiong Woon is the second-largest crane operator in Singapore with a strong regional presence, such that the analyst believes the group is well-positioned to benefit from the construction and oil & gas upcycles. “We expect earnings per share (EPS) to double in FY2022 and grow 37% y-o-y in FY2023, driven by higher utilisation rates and double-digit growth in crane rental rates,” writes Cheong.
The group has been listed on the Singapore Exchange (SGX) since 1999 and has over 40 years of a track record. Headquartered in Singapore, the company has a strong regional presence with establishments in 12 other countries, in addition to being ranked 23rd in the IC50 2021 survey. “We expect a strong construction upturn and resumption of more oil & gas capex to be the key growth drivers,” Cheong says.
For FY2022-FY2024, the analyst estimates Tiong Woon’s total revenue to come in at $133 million-$189 million (18.0% CAGR) and net profit at $21 million-$34 million (12.3% CAGR). This comes on the back of double-digit increases in crane rental rates and higher utilisation of crane operations, driven by demand from more construction activities in the property, infrastructure and oil & gas sectors.
Additionally, Cheong estimates that Tiong Woon’s crane rental rates are to grow around 10% for FY2022-FY2024, while the rest of the revenue growth will be driven by higher utilisation rates. “As a result, Tiong Woon will enjoy positive operating leverage as cost increases will remain largely limited,” says the analyst.
“We expect gross margin to expand to 42%, 42% and 41% for FY2022, FY2023 and FY2024 respectively,” Cheong adds. “Combined with revenue growth of 18%, 20% and 15%, this gross margin expansion will drive earnings growth of 113%, 37% and 19% for FY2022, FY2023 and FY2024 respectively.”
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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, says the analyst. This is because 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.
In Singapore, the Housing & Development Board (HDB) plans to launch up to 23,000 flats a year from 2022-2023, a huge jump from the 48,509 flats launched in 2019-2021. In addition, construction of more petrochemical plants could further boost crane demand.
Cheong thinks that current valuations of FY2023 P/E of 4.4x and P/B of 0.4x are attractive, given the group’s market-leading position and strong EPS growth in an industry upcycle.
As at 11.10am, shares in Tiong Woon are trading flat at 54 cents.
