Tuan Sing stock rose as much as 30% today to 30.5 cents after DBS initiated coverage of the long-overlooked stock.


Excerpts from DBS report

Analyst: Derek Tan

Under-appreciated asset play  
• Initiate coverage with BUY and SOTP-based TP of S$0.38

Tuan Sing 

Share price: 
23.5 c

Target: 
38 c

• Attractive valuation at 0.27x P/NAV or -2 SD of 5-year mean

• Australian hotel business set to recover with relaxation of COVID-19 measures

• Potential value unlocking of Gultech to transform counter into partial tech play


Deep value play. We initiate coverage on Tuan Sing with a BUY call and TP of S$0.38, implying upside of c.60%.

We see catalysts emerging for Tuan Sing in the medium term through the

(i) potential value unlocking activities of a divestment or receipt of dividend from Gul Technologies (Gultech) amongst other non-core businesses, and

(ii) rebound in performance of its core investment properties post COVID-19 outbreak.


The stock is currently trading at a 5-year low on a P/BV perspective (-2 standard deviation [SD]).

Value unlocking of high growth Gul Technologies could reap Tuan Sing S$0.23 per share. Gultech’s contribution to Tuan Sing has grown by a CAGR of 26% over the past five years.

PCB gultech

Strengths:
• Owner of prized assets in Singapore and Australia including 18 Robinson, Robinson Point and Grand Hyatt Melbourne

• Established connections and deep understanding of the Indonesian market

• Property business supplemented by high growth of Gultech’s PCB business


Weakness:
• High gearing a concern, but progress payments from Mont Botanik and Kandis Residence to help reduce debt

-- DBS report

Going forward, we think this may be a good time for Tuan Sing to reap dividends from Gultech.

We believe that an uptrend in the semiconductor cycle could lead to further rapid growth as China’s integrated circuit production soars.

In addition, a potential divestment to streamline its portfolio towards its core property business could bring in c.S$270m, in our estimates, or 23 Scts per share (based on a conservative valuation of 11.0x FY20F PE).

Property business to remain profitable in 2020. While COVID-19 has impacted Tuan Sing’s two hotels in Australia, we believe that a recovery is imminent due to the two properties’ large focus on the domestic market (estimated at c.75% of FY19 revenue) and the easing of Australian interstate movement restrictions.

On the property development end, c.S$165m of pre-sales from previous projects are set to be recognised over FY20-FY21 with a further boost expected from the Peak Residence project.

These should help offer earnings visibility and mitigate the downside stemming from COVID-19.

Valuation:
derek tanDBS analyst Derek TanSOTP-based TP of S$0.38. We assume a valuation of 11.0x FY20F PE for Gultech, a 65% discount to RNAV, and a further 10% conglomerate discount to obtain an SOTP-based TP of S$0.38.

Key Risks to Our View:
Resurfacing of COVID-19 could lead to further construction delays and factory disruptions, FX risk, and soft office market



Full report here. 


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