Initiating coverage: TIONG WOON -- Target 45 c; GALLANT -- 57 c

Excerpts from analysts' reports

UOB Kay Hian: Tiong Woon is an "undervalued service provider to the O&G industry"

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Tiong Woon successfully completed the Roll-On-Roll-Off (RORO), haulage and lifting work for one of Asia’s tallest and largest xylene splitter columns at Jurong Aromatics Corporation’s complex in Jurong Island.
Photo: CompanyAnalyst: Loke Chunying

• An integrated one-stop service provider. Tiong Woon is the 15th largest crane owner in the world.

Providing a comprehensive set of project management services, from the planning and design of an integrated lifting and haulage service to the installation of dangerous Oil and Gas (O&G) structures (eg oil rigs), Tiong Woon plays an integral role in supporting its customers in the O&G industry.

• Serving a defensive niche. Deriving 70-80% of its revenue from the O&G industry, Tiong Woon’s earnings are relatively more resilient as these service contracts are longer term in nature and can be recurring.

Safety issues pertaining to the O&G industry also create high barriers to entry to the industry.

• Possible stock re-rating on the cards. Affected by poor market sentiments as some of the industry peers’ earnings disappoint, Tiong Woon’s share price has remained depressed since last year despite a strong earnings rebound in FY13.

However, we note the recent price strengthening in its locally listed peers of between 16.7%-40.7%, suggesting a possible re-rating could be on the cards, as Tiong Woon plays catch up to its peers.

We initiate coverage on Tiong Woon with a BUY recommendation and a target price of S$0.455 pegged to its industry peers’ P/B average of 0.83x.

Serving primarily the Oil & Gas (O&G) industry, Tiong Woon is an integral crane operator for oil majors in an industry that has high barriers to entry due to safety concerns.

At 0.64x P/B, Tiong Woon is trading at a 23% discount to its local peers average P/B of 0.83x, offering value investors a huge margin of safety.

The ability to consistently record strong gains from disposal of equipment suggests a possible understatement in fair value of assets, making valuation even more compelling.

Recent story: YONGMAO, SIN HENG, TAT HONG: Which crane player to bet on?

OSK-DMG starts coverage of Gallant with 57-c target

Analyst: Edison Chen

We initiate on Gallant Venture “Gallant” with SGD0.57 TP, derived through SOP RNAV, which represents a 58% upside and recommend BUY. Gallant is the largest land owner in Bintan Island (of Indonesia) with landbank a quarter the size of Singapore.

After a long development gestation period, catalysts for unlocking its value are: i) new renowned resorts open in Lagoi Bay, ii) new airport to accelerate its projects, and iii) synergistic businesses ride on the success.

Inflection point on the horizon, landbank value may be unlocked. It has been a long wait as financial crises slowed Bintan’s development timeline but currently, our checks show that Lagoi Beach Village is complete and ready to open in 2H14. An ultimate resort tourism environment, Bintan Resort 3.0 seems ready.

The inflection point is now on the horizon as new renowned resorts open. Momentum may snowball, to finally unlock the value of its 14,000ha landbank.

Establishment of an airport could accelerate Bintan’s development. The new Bintan airport could fast-track Bintan’s development through two major avenues: i) tourist numbers will jump to 1m by 2016 through the introduction of direct flights for regional visitors, greatly benefiting Gallant’s Bintan Resort; ii) the airport will also mean the introduction of the aerospace MRO industry tenant, revitalizing Gallant’s Industrial Park.

Synergistic business rides the wave, providing recurring income. Gallant’s business arms on Bintan are highly synergistic, riding on this wave together.

As activities on Bintan grow, industrial park rental and captive utilities customers on Bintan and Batam will grow as well, providing stable recurring income. Hence, the new airport and Bintan Resort 3.0 will actually help all of its Bintan businesses.

RNAV of SGD0.71/share. With a 10.1% WACC, our conservative valuation of its 14,000ha Bintan Resort land bank yields SGD1,457m with industrial land development opportunities fully discounted.

Its Shanghai venture is valued at SGD893m while its utilities and industrial park rental show SGD771m and SGD465m value respectively. Adding Indomobil target valuation of SGD1,383m, we get RNAV of SGD0.71/share.

Risks. These include: i) volatile currency rates, ii) execution risks, iii) unexpected crises, and iv) an underperforming automotive subsidiary.

Recent story: GALLANT VENTURE: Huge land bank in Bintan may be re-rating factor

Initiating coverage: TIONG WOON -- Target 45 c; GALLANT -- 57 c

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