Tiong Woon Corporation

Price target:

Beating expectations

UOB Kay Hian analysts John Cheong and Heidi Mo have kept their “buy” call on Tiong Woon Corporation with a higher target price of 90 cents from 85 cents previously.

In a report dated Feb 16, which came after Tiong Woon’s results for the 1HFY2024 ended Dec 31, 2023, the company reported a 49% y-o-y growth in earnings of $10.8 million, beating Cheong and Mo’s expectations and forming 57% of their full-year estimates.

The analysts expect Tiong Woon’s earnings and earnings per share in FY2024 to grow by 32% y-o-y supported by the higher level of construction activity in Singapore. The Building and Construction Authority (BCA) in January projected Singapore’s demand for construction to reach $31 billion to $38 billion from 2028 to 2028.

“As a prominent integrated heavy lift specialist and service provider, Tiong Woon is in a favourable position to benefit from Singapore’s Covid-19-related construction demand. The strong demand by contractors will drive up utilisation rates and rental rates of cranes, leading to both top-line and bottom-line growth for Tiong Woon,” they write.

“As of FY2023, the average utilisation rate of the company’s cranes was only 48%. We anticipate growth in Tiong Woon’s utilisation and rental rates in FY2024, which will be the key earnings growth driver,” they add. The company has over 500 cranes, some of which can have a capacity of up to 1,600 tonnes.

Tiong Woon is also tipped to benefit from the rising capital expenditures in the oil and gas industry. This is evidenced by the company’s new contract awarded by Sinohydro Corporation for providing crane services for the construction of the Integrated Waste Management Facility project in Tuas. The project will commence in the 2HFY2024 and is expected to contribute to Tiong Woon’s revenue for FY2024 and FY2025.

“Additionally, the construction sector will have strong demand for cranes in the coming years driven by accelerating construction of public housing and new mega infrastructure projects including the Cross Island Line, Changi Airport T5, Tuas Mega Port and the North-South Corridor,” the analysts write.

Another plus, they say, is Tiong Woon’s strategic alliance with Thai-based Mammoet Asia Holding B.V. (Mammoet). Mammoet has the world’s largest fleet of heavy lifting equipment including over 1,000 cranes in Thailand.

“This will enable Tiong Woon to increase its customer outreach in the region and expand its service offerings to both existing and new customers in Thailand. The company has also successfully acquired multiple assets from Mammoet, such as transportation and heavy lifting equipment, to boost its revenue from Thailand. Management expects the alliance and asset acquisition to capture growth in Thailand, from which revenue contributions made up 3.7% of 1HFY2024 revenue,” say Cheong and Mo.

In addition to their earnings upgrade, the analysts have also raised their revenue estimates for FY2024 to FY2026 by 4% as they expect more projects to drive crane utilisation rates during the year. The company’s gross profit margin (GPM) estimates are kept at 40% to 41%, bringing their overall earnings estimates across FY2024 to FY2026 higher by 9% to 10%.

The analysts’ new target price is pegged to an unchanged 0.7 times FY2024 P/B above Tiong Woon’s historical 15-year average P/B to capture the strong earnings growth potential in the industry upcycle. —