UOB Kay Hian analysts John Cheong and Heidi Mo are keeping their “buy” call on Tiong Woon Corporation BQM , but with a lower target price of 87 cents from 90 cents after the company’s FY2024 ended June results missed expectations.
On Aug 27, Tiong Woon reported a total profit of $18.3 million for the FY2024, 17% higher y-o-y, while revenue inched up by 5% y-o-y to $143.1 million.
The bottom line fell short of Cheong and Mo’s expectations by 14% due to the lower-than-expected revenue growth from project delays. Tiong Woon’s FY2024 revenue stood at 90% of Cheong and Mo’s forecasts.
That said, the company’s management remains upbeat on its outlook as it sees “buoyant demand” for its heavy lift and haulage services in Singapore, especially in the petrochemical and construction sectors and its other operating markets such as India, Saudi Arabia and Thailand.
“We expect Tiong Woon to continue to add on higher-margin heavier tonnage cranes to its fleet with its pipeline of business opportunities, as well as an uptick in utilisation as it meets customers’ project requirements,” the analysts write in their Sept 24 report.
Tiong Woon is the 15th-largest crane-owning company globally as of June 30, up from 19th place in 2023. This demonstrates its “noticeable increase” in its crane fleet capacity and commitment to sustained growth, observe Cheong and Mo.
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With this in mind, the analysts see a better FY2025 ahead with higher demand for construction in Singapore and growth in Tiong Woon’s regional markets. Singapore makes up 75% of the company’s revenue and annual construction demand in the country is projected to reach $31 billion to $38 billion from 2025 to 2028, according to the Building and Construction Authority (BCA).
In Thailand, Tiong Woon saw revenue increasing fourfold in two years to $6.2 million.
“Management has identified Thailand as a fast-growth market, and is taking on module and jacket fabricator projects which require significant heavy-lifting capabilities,” write Cheong and Mo.
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Revenue from the Middle East has also doubled to $6.3 million and the analysts see “moderate growth” for the market as Tiong Woon continues to take part in projects in the region. In India, revenue may see a slowdown, however, as the monsoon period and logistical challenges have led to project delays.
To this end, the analysts still like Tiong Woon’s prospects thanks to its strong balance sheet. In FY2024, the company’s net gearing ratio more than halved to 3.8%, down from 8.1% in FY2023. The group has also consistently generated strong operating cash flows. In addition, it has a history of increasing its dividend payments since FY2018.
To be sure, the company proposed a record dividend of 1.5 cents per share in FY2024, up from 1 cent per share in FY2023. “We note that both absolute dividends and payout ratio have trended higher from FY18, in line with earnings per share (EPS) growth,” say the analysts. “We are of the view that Tiong Woon is well positioned to sustain its dividend payout ratio.”
Meanwhile, the analysts have lowered their FY2025 to FY2026 revenue estimates by 11% as project delays in the industry may persist. They have, however, raised their gross profit margin (GPM) estimates slightly by 1 percentage point as they expect to see greater use of Tiong Woon’s higher-margin heavy lifting cranes. Accordingly, the analysts’ earnings forecasts for FY2025 and FY2026 have dropped by 5% and 7% respectively.
Cheong and Mo’s new target price is pegged to a lower FY2025 P/B of 0.6 times, down from 0.7 times its FY2024 P/B before. “This is based on 1 standard deviation (s.d.) above Tiong Woon’s historical 15-year average P/B, due to a solid earnings growth trajectory backed by the construction upcycle,” they say.
Shares in Tiong Woon closed 1 cent higher or 1.96% up at 52 cents on Sept 27.
