Excerpts from analyst's report

UOB KH analyst: Loke Chunying

armouring2.14Cable production at Tai Sin Electric's factory in Gul Crescent, Singapore. NextInsight file photo VALUATION 

• Maintain BUY but with a lower target price of S$0.45.

FINANCIAL RESULTS

• 1HFY15 net profit slightly below estimates. Tai Sin Electric’s (Tai Sin) 1HFY15 revenue dropped 4.8% yoy mainly due to the disposal of subsidiary Vynco Industries. As a result, 1HFY15 net profit dropped 9% yoy to S$10.6m, forming 46% of our full-year forecast.

In 2QFY15, despite the absence of profit contribution from Vynco Industries, Tai Sin’s profit was relatively flat, due to lower allowance for doubtful debts and lower admin expenses which can be attributable to the disposal of Vynco Industries. However, this was partially offset by the absence of the gain on the disposal of assets held for sale in the last corresponding period.

• Tai Sin generated a negative free cash flow of about S$3m in 1HFY15 as a result of the acquisition of the property at 17 Tuas Ave 8 and the increase of investment in a subsidiary. However, the company’s balance sheet remained healthy at a net debt/equity of 9%.

• In 1HFY15, Tai Sin declared an interim dividend of S$0.0075 (the same as 1HFY14), representing a 30% payout.


OUR VIEW
 

 A more cautious outlook. The slowdown in public housing construction will continue to affect the cables manufacturing segment. While large-scale infrastructure projects such as the new Changi Airport terminal and Singapore Power cable tunnel project is expected to offset part of the impact from the decline in housing demand, the delivery schedule of the cables for these projects will affect the timing of profit recognition for Tai Sin. 

The recent plunge in oil prices is also expected to affect the CAPEX budgets of some of Tai Sin’s customers’ for facilities upgrades and impact the company’s Test & Inspection and Electrical Material Distribution (EMD) segments. We estimate customers from the oil and gas sector will account for 15% of the company’s Test & Inspection and EMD profit. 

• Lower our profit forecast for FY15-16 by 12-13%. In view of the more cautious outlook, we lower our profit forecast for FY15 and FY16 by 12-13%. 

• Investment proxy for Singapore’s continued infrastructure development. As one of the major cable manufacturers in Singapore, we see Tai Sin as a proxy for Singapore’s continued infrastructure development plans. With over 50 years of operational history, Tai Sin has been involved in projects such as the Changi Airport T1, 2 & 3, Marina Barage and MRT lines. Despite the earnings downgrade, Tai Sin is currently still trading at an attractive FY15F PE of only 7.6x and an attractive dividend yield of 6.3%, which is supported by strong, free cash flow generation.  


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