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My Personal Analysis of Tai Sin Electric Limited

This is one penny stock where I see frequent discussion and praises on how good this company is. I decided to do some research and personal analysis on this company to reduce the risk of stepping into a land mine if I decide to add this to my stock portfolio.

Tai Sin Electric Limited, a business with 35 years of history started as a cable manufacturing business in 1980. Tai Sin Electric was listed on the SESDAQ (“Stock Exchange of Singapore Dealing and Automated Quotation”) in 2005 and later transferred to SGX main board in 2005.

With a long business history, Tai Sin Electric Limited businesses were very diversified as it invested in Electrical Equipment, Switchboard, Lamps and Lighting and even Sanitory which deals with plumbing and sewage works. In 2007, Tai Sin Electric  Limited went through a restructure to classify their business into four clusters (Manufacturing, Distribution, Services, Strategic Investment).

Business

Currently, Tai Sin Electric Limited businesses are focused on the ASEAN markets such as Singapore, Malaysia, Indonesia, Vietnam, Myanmar and Cambodia. Tai Sin Electric used to have 75% stake in New Zealand, Vynco Industries  (NZ) Limited but they have sold off their stake in 2013. The reason for the sale was due to the geographically far location of New Zealand from Singapore and Tai Sin Electric wishes to focus more on ASEAN market instead.

Today, Tai Sin Electric Limited has expanded and diversified into four main business segments.

The four business segments are

  1. Cable & Wire (C&W)
  2. Electrical Material Distribution (EMD)
  3. Switchboard (SB)
  4. Test and Inspection (T&I)

Cable & Wire (C&W)

Design, development, manufacture and trading of cables and wires. These includes Power, Control, Instrumentation and Fire Resistant & Flame Retardant Cables for use in all areas of electrical and instrumentation installation for commercial, residential, industrial and infrastructure projects.

The Cable & Wiring segment is Tai Sin Electric biggest revenue contributor accounting 67.57% of total turnover. Growth in commercial & residential sector and infrastructure sector will benefit the cable and wire segment as there will be demand during these construction projects.

In the 2016 annual report, it was mentioned there is strong contribution from sales to Myanmar. I think there is strong demand for cables and wiring as Myanmar is a developing country. As the country redevelops its infrastructure and improve public housing, there will be strong demand for cables and wires.

Electrical Material Distribution (EMD)

Focuses on supplying products and services to a wide range of industries which includes industrial automation, maintenance, repair and operations (MRO). Products include industrial control system and components, sensing, measurement and monitoring system, power quality system, safety, cabling and electrical accessories, as well as lighting and energy monitoring solutions.

In FY2016, the Electrical Material Distribution segment posted a decline in revenue due to the economic downturn in the industrial sector.

Switchboard (SB)

Design and manufacture of high quality switch gears for use in large buildings and industrial installations. These include low voltage main and sub switchboards, distribution boards and control panels, among others.

The Switchboard segment’s business is primary focused on projects in Brunei.

Test and Inspection (T&I)

The Test and Inspection segment provides more than 250 accredited testing services for materials ranging from concrete to soil and asphalt premixes. Its services include independent testing, inspection and certification that meets local and international standards.

In FY2016, the Test and Inspection segment reported its highest profit before tax to date since Tai Sin’s acquisition of CASTLab four years ago. The earnings growth for the Singapore operations is much lower than that of its overseas entities. Revenue growth is driven by overseas business in Malaysia and Indonesia (Batam). Operations in Singapore has undergone a reorganization with improvement in process and cost efficiency so that it is better positioned to bid for future Singapore Government projects.

CAST Laboratories is the first in Singapore to provide automated concrete cube testing services.

Management

Mr Lim Boon Hock Bernard is the current Chief Executive Officer (“CEO”) of Tai Sin Electric Limited. He has served as CEO since 2013 and previously he served in the same company since 2003 as Chief Operating Office (“COO”). He joined Tai Sin Electric in 1997 as executive director.
Mr Tay Joo Soon is the current Chairman of Tai Sin Electric Limited. He took over the baton from Professor Lee Chang Leng, Brian in 2015. Professor Lee was the Chairman of Tai Sin Electric Limited from 2004 to 2014. During his tenure as the Chairman, Professor Lee took Tai Sin Electric Limited to greater heights, transforming to what it is today. He divested the loss making business in lamps and reorganized the business into its current four business segments.
It is quite amazing the current management team has near to 10 years or more of service in Tai Sin Electric Limited. I will think their experiences accumulated over the years will be valuable to the future of Tai Sin Electric Limited.

Financial

Market Capitalization

As of 14th February 2017, the market capitalization is estimated at S$189.4 million. Thus, Tai Sin Electric Limited is classified as a small cap stock. The total number of shares stood at 435,516,000.

Revenue

In current gloomy economic conditions, it was amazing Tai Sin Electric was still able to achieve record high revenue growth. This was a 10.67% increase from previous year.

Below shows the revenue contribution from Tai Sin Electric’s business from various countries. Singapore and Malaysia are the biggest revenue contributors.

Country Revenue $’000
Singapore 243,390
Malaysia 33,698
Vietnam 22,391
Brunei 7,149
Indonesia 7,924
Others 6,357

Cash Flow

Cash flow from operations have been growing steadily since 2012, however in FY2016, net cash from operating activities plunged to 8.4 million. Having looked at the figures further, its shows that the reason for the plunge was due to the negative trade receivables.

After some research, it is less worrying for negative trade receivables but as investors, we should still be cautious and monitor.

A negative adjustment related to accounts receivable means you sold more on credit than you collected from customers who owed you money. It means your profit or loss for the month includes sales that you have not actually collected the cash for yet.

Dividends

Tai Sin Electric Limited does not have a fixed dividend policy. Over the past 5 years, I can see that they have been pretty consistent in paying out dividends.

2012 2013 2014 2015 2016
Total dividend (cents) 1.6 2.25 2.25 2.25 2.25
Earnings per share (cents) 4.28 4.86 4.96 3.92 5.32
Dividend payout ratio (%) 37.4% 46.3% 45.4% 57.4% 42.4%

Current Valuation

Based on FY16 annualized distribution of 2.25 cents and current price of $0.44, the dividend yield is 5.11%.

At the current price of S$0.44, it is trading 16% above the Net Asset Value of S$0.3686.

Strength and Catalyst

1. Entry into Myanmar

We all understand Myanmar is a developing country. As the country redevelops its public housing and infrastructure, there will be strong demand for cables and wires. The cable and wire segment which is Tai Sin Electric’s largest revenue contributor will continue to do well if Tai Sin Electric can penetrate Myanmar market successfully.

2. Benefit from Singapore government’s continuing  development of the public health care facilities and other  infrastructure projects such as the MRT extensions

As the Singapore government continues to invest in its infrastructure and health care facilities, this benefits the construction sector and indirectly benefits Tai Sin Electric as well. From the past year results, I can see that Tai Sin Electric businesses are very dependent on the construction sector.

3. High-speed rail agreement between  Kuala Lumpur and Singapore

Similarly to government spending on infrastructure projects, the construction of the high speed rail between Kuala Lumpur and Singapore will benefit Tai Sin Electric’s cable and wire segment.

The bids for the tender will be reviewed by end of 2018. The high speed rail is to be completed by 2026.

Investment Risk

1. Outbreak of War

Historically, global economic uncertainties such as SARS and IRAQ war has negative impact on construction industry which impacts Tai Sin Electric cable and wiring business in 2003. The current tension between North Korea and United States will have a negative impact on Tai Sin Electric Lmited.

2. Raw material prices such as Copper

A spike in copper prices can impact Tai Sin Electric’s cable and wiring business. However, the risk is minimal as Tai Sin Electric has shown its experience and capabilities to hedge and reduce the impact of copper prices to its wiring and cabling business.

Summary

Tai Sin Electric revenue and profits are very dependable on the construction sector which is cylindrical. However, the company has proven to be resilient in bad time in the economy.

At the current price of S$0.44, it is trading 16% above the Net Asset Value of S$0.3686.

The dividend yield is acceptable at 5.11% but not fantastic.

Investors can nibble at Tai Sin Electric given its resiliency and prudent company at the current price of S$0.44. If the stock price drops, it can be an opportunity to buy given its track record of paying out at least 40% to 50% of its earnings as dividends. Operating cash flow can by lumpy but we all know that is the nature of CAPEX intensive companies such as Tai Sin Electric.

There is little possibility of exponential growth of Tai Sin Electric in these two years given the current headwinds in the global economy. The majority of earnings come from Singapore and Malaysia which provides some form of revenue stability given these two countries stability.

In the event Tai Sin Electric’s investment in emerging markets such as Myanmar and Indonesia takes off, this will be a bonus for investors.

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