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Kevin Scully: 'Current prospective PER of TSH will be about 6 times which is reasonable if earnings are sustainable.'
The following text was posted on Kevin Scully's blog on Saturday (Sept 11). Visit www.nracapital.com


On August 23, 2010, I wrote in my Blog about TSH...."a golf course recommendation".  The share has risen sharply over the last week on good volume.

I received a number of telephone calls last week on the stock from investors - asking me whether they could buy.  A number of them shared with me "market talk" that they were told that the company was going to be taken private at $0.24.   

I don't have any information about the privatisation - but I think this is unlikely at $0.24 as the current NAV is about S$0.20.   The rise is probably due to its winning of a new contract from Taiwan Defence Ministry worth US$8.7mn to be completed in 2011 and which management has indicated will have a positive impact on 2010 earnings

Let me do some simple annual report analysis on this contract.....assuming the same margin as Singapore - this contract should bring in net profit of S$1.2mn to S$1.5mn.  It could be higher as the Singapore homeland security business also includes fireworks activities in Singapore.  On this assumption, the contract should increase the homeland security profit by about 15-20%.  The more important business is its ODM business because a large portion of 2009 earnings came from non-core activities. If ODM can deliver another S$4mn, the share will look interesting.

Assuming that they can deliver S$8mn net profit is 2010, the same as 2009 but from operations - the current prospective PER will be about 6 times which is reasonable subject to earnings being sustainable, the share price should hold.

As to the privatisation story at S$0.24,  I think its possible but unlikely.  The 2009 annual report shows that the two controlling shareholders have about 35% and my guess up to 40-45% if we include friendly parties.  It will be quite a tough exercise to take it private.  So it could be risky to come in above the $0.20 for a S$0.24 takeout that may or may not happen. 

The good news is that S$0.20 is supportable by fundamentals if my forecasts for 2010 is ontrack at about S$8mn net.......so if you have acquired the shares below S$0.20 and if current valuations hold.....you can probably wait and see whether the privatisation rumour is true. 


Recent story: TSH wins US$8.72 m contract from Taiwan defence ministry

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