DBS Group Research has kept its “buy” call with a higher target price of 66 cents for Tuan Sing Holdings after it announced its 1HFY2021 ended June results on August 6.
See: Tuan Sing reports 15-fold increase in 1H21 earnings
DBS analysts Woon Bing Yong and Derek Tan note that Tuan Sing’s 1HFY2021 earnings of $99.9 million, driven by the disposal of Robinson Point, was in line with their expectations in an August 10 research note.
But the analysts view Tuan Sing’s GulTech business as a key standout. “[Tuan Sing’s] Other Investments segment, which mainly consists of the GulTech business, reported faster-than-expected growth. Adjusted EBIT rose 19% y-o-y to $16.9 million, driven by a mix of higher revenue and scrap sales income,” they highlight.
Following the results, Yong and Tan are upbeat on Tuan Sing’s prospects. “Since our initiation back in June 2020, Tuan Sing’s share price has risen 132% and we still see upside with a few catalysts ahead,” they say.
One of these is the potential initial public offering (IPO) of GulTech Jiangsu Electronics, which the analysts believe is drawing nearer following the sale of a 13% stake in GulTech to strategic partners.
Noting that GulTech’s earnings have grown by a compound annual growth rate (CAGR) of 17.7% in the past five years, Yong and Tan anticipate even better growth ahead following the sale. ”While Tuan Sing’s effective interest in GulTech Jiangsu will fall to an estimated c.38% after the divestment to the strategic partners, GulTech’s earnings growth may accelerate with help from its partners,” they opine.
The analysts also note that the Singapore private property market has held up well amid the pandemic, and a successful sales launch of Peak Residence could catalyse Tuan Sing’s share price.
They estimate that sales at Tuan Sing’s residential projects could deleverage its balance sheet to a more conservative 0.6 times by FY2022.
Given the catalysts in place, Yong and Tan raise their target price for Tuan Sing to 66 cents, up from 54 cents previously. “As the potential IPO nears, we raise our TP to 66 cents as we repeg our valuation multiple for GulTech to 16 times FY2022 P/E, still a conservative valuation considering GulTech’s peers trade at over 20 times FY22F P/E,” they explain.
The analysts have also tweaked their earnings forecasts. “We have raised FY2021 earnings by c.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,” they say.
“For FY22F, we have decreased earnings 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,” they add.
Shares in Tuan Sing closed 1 cent or 1.85% lower at 53 cents on August 11.
