Tiong Woon Corporation’s earnings of $11.4 million for the FY2022 ended June, which was up 15% y-o-y, was deemed “healthy” by UOB Kay Hian Research analyst John Cheong.
However, despite the “commendable growth”, the company’s earnings for the year fell short of the analyst’s expectations, due to higher-than-expected impairment loss amounting to $2.2 million for receivables. The higher receivables, which stood 43% higher y-o-y, was due to higher provisions made for a few customers amid the uncertain credit environment.
Tiong Woon Corporation Holding and its subsidiaries provide heavy lift, heavy haulage, transport services and engineering services. The company also offers crane services, and provides wharfing and stevedoring services.
In an Aug 29 note, Cheong believes Tiong Woon is a beneficiary of the construction industry upcycle in Singapore; the analyst expects the company’s FY2023 earnings per share (EPS) to grow by 54% y-o-y.
Tiong Woon’s revenue for the 2HFY2022 was around $10 million 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.
In addition, gross margin also improved 2.6 percentage points to 40.2% as a result of higher crane rental rate. Similar to FY2021, close to 80% of Tiong Woon’s revenue is still generated from Singapore, writes Cheong.
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Cheong adds that Tiong Woon’s customers in the oil and gas industries, which typically offer higher margin, have yet to commence their construction activities.
In his note, Cheong is maintaining “buy” on Tiong Woon Corporation with a lower target price of 85 cents, down from 88 cents previously. The new target price represents a 57.4% upside.
Singapore’s construction bounces back
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Cheong believes 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.
“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 and gas industry,” says Cheong.
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 addition, the Housing and Development Board plans to launch up to 23,000 flats a year in 2022-2023, a huge jump from the 48,509 flats launched in 2019-2021, or 16,170 flats per year, says Cheong. “In addition, construction of more petrochemical plants could further boost crane demand.”
Cheong has reduced his FY2023/2024 revenue estimates by 14% and 17% respectively, as he reduce the utilisation rate of cranes. “In addition, we add in additional impairment loss for receivables amounting to $2.1 million for FY2023 and FY2024 to reflect a more conservative accounting stance on trade receivables. As a result, our FY2023/2024 earnings are reduced by 39% and 36% respectively.”
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In an unrated note, CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen note that Tiong Woon stands a “good chance” of participating in the second phase of the Hengyi Petrochemical refinery project in Brunei.
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This is given the company’s strong track record and prior participation in the first phase, according to its minutes from its FY2020 annual general meeting (AGM).
Tiong Woon had previously supported the project, which was completed in November 2019. The total size of the project had come up to US$3.4 billion ($4.78 billion) at the time. The second phase of the project will see Hengyi expanding further via additional oil refining capacity and more downstream petrochemical plants. This time, the total project size is estimated to be around US$13.7 billion.
Further to their report, Tan and Ong note that Tiong Woon is the 23rd largest crane operator globally, with operations in 13 countries across Asia and the Middle East as at end-FY2022.
Tiong Woon’s largest core markets, as a percentage of FY2018-FY2022 revenue, are Singapore (73%), Brunei (4.2%), Malaysia (4.1%), and Indonesia (2.6%). “Locally, the group sees opportunities in prefabricated, prefinished volumetric construction, as Singapore continues to promote technologies which improve construction productivity. Singapore is targeting a 70% adoption rate for design for manufacturing and assembly (DfMA) methods by 2025, compared to 39% in 2020, as announced by the Minister of State for National Development in April 2020,” write Tan and Ong.
Tiong Woon recorded consecutive y-o-y EPS growth since FY2018, posting a four-year CAGR of 76% from FY2018-2022 as the group engaged in more higher-margin projects. Based on Bloomberg consensus estimates, the group currently trades at 5.1x FY2024F P/E. Tiong Woon commenced share buybacks on Aug 30, 2022, the first time in their listing history.
As at 2.44pm, shares in Tiong Woon are trading 0.5 cents higher, or 1.06% up, at 47.5 cents.
