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Tai Sin Electric Ltd - CIMB Research 2016-12-07: The local cable guy with consistent yield

Tai Sin Electric Ltd - CIMB Research 2016-12-07: The local cable guy with consistent yield TAI SIN ELECTRIC LIMITED 500.SI

Tai Sin Electric Ltd - The local cable guy with consistent yield

  • An electric solutions specialist with leading market positions in its respective trades.
  • Cash-generative businesses, slight net cash position, consistent dividends.
  • Geared to Singapore’s infrastructure spending; preparing for regional expansion.
  • 6.8x trailing P/E; its FY6/16 dividend yield of 6.3% is the highest among peers.



Trusted brand with entrenched market position 

  • Tai Sin commands 20-30% of the Singapore cable manufacturing industry. It was a primary supplier to landmark projects – Marina Bay Sands and Gardens by the Bay. Cable and wire manufacturing accounted for 75% of its FY16 EBIT. 
  • Tai Sin also has over 40 years of operating history in the electric material distribution. Its testing and inspection business (CAST Lab) is the second biggest in Singapore. 
  • In Brunei, Tai Sin’s commands top market share in switchboard manufacturing, according to management.


CAST Lab’s acquisition yielded 30%+ return 

  • The acquisition of the distressed CAST Lab in 2012 was positive for Tai Sin, as its streamlining efforts have turnaround CAST Lab (contributed pretax profits in four of the past five years). Its FY16 pretax profit of S$3.6m translates into a 33% return over acquisition cost of S$10.9m. 
  • CAST Lab’s knowledge-based and asset-light nature has diversified the group’s manufacturing and distribution businesses.


‘Tri-Axis Strategy’ to boost efficiency and synergy 

  • Tai Sin’s ‘Tri-Axis Strategy’, i.e. using its three cable manufacturing plants in Singapore, Malaysia and Vietnam to support cross-border sales, has allowed the group to optimise resource utilisation and to benefit from economies of scale, in management’s opinion.
  • The three plants have an estimated collective production capacity of 2,000-2,600 metric tonnes/month, with current average utilisation rate at 50-60%.


Core businesses are cash-generative 

  • It had strong operating cash flow of c.S$19m p.a. in FY12-16. Investing cash flow amounted to c.S$2m-3m p.a. in FY12-14 and rose to S$8m-10m in FY15-16 due to acquisitions and capacity expansion. 
  • As its expansion programme has largely been completed, management projects maintenance capex of below S$4m p.a. going forward.


Strong balance sheet and consistent dividends historically 

  • The strong cash generation has strengthened Tai Sin’s balance sheet over the past five years and Tai Sin reached a net cash position of S$3.2m as at end-1Q17. Tai Sin historically paid out 40-60% of its net profit (no formal dividend policy).


Preparing for regional expansion 

  • The group will focus on the Singapore market for consistent flow of civil engineering projects, such as the construction of new MRT lines, infrastructure works for Changi Airport Terminal 5, Singapore-Malaysia high speed rail, etc. 
  • Simultaneously, the group is also nurturing and grooming the group’s next generation of mid-tier managers to prepare for its regional expansion initiatives in 2-3 years’ time.


Valuation 

  • Tai Sin currently trades at 6.8x FY16 P/E, in line with the historical average. Its 0.99x trailing P/BV is at 0.7 s.d. above its historical average P/BV of 0.89x. Tai Sin has the highest trailing dividend yield of 6.3% vs. Asian peers’ average of 1.4%. 
  • Management views stiffer competition as a possible risk.


NOT RATED
Target Price: N/A



Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-12-07
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998






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