Dear all

Tiong Woon has been in my watch list for several months. Whenever I look at Tiong Woon, it reminds me of Civmec even though they are not exactly comparables. However, they do share numerous similarities such as chart breakout; positive analyst commentary; management’s positive outlook; strong operating track record; increasing dividends etc.

Civmec which I wrote on 10 Sep 23 (click HERE), has risen 28% from $0.805 on 8 Sep 2023 to close $1.03 on 18 Oct 2024. Since 8 Sep 2023, Civmec has given out a total of AUD0.09 / share. This works out to be a solid total potential return of 38%.

Will this happen to Tiong Woon in the next 12-13 months? I have the privilege of meeting Mr Michael Ang, CEO; Mr William Tan, CFO and Mr Aaron Sin, IR Specialist for a 1-1 meeting on 11 Apr 2024. Last week, I have managed to catch up William again for coffee. Let’s read on to understand more about Tiong Woon.

Description of Tiong Woon

Listed on SGX Mainboard since 1999, Tiong Woon is a one-stop integrated heavy lift specialist and service provider, supporting mainly the oil and gas, petrochemical, infrastructure and construction sectors, with a track record of more than 45 years.

The Group manages turnkey projects for engineering, procurement and construction contractors and project owners from planning and designing heavy lift and haulage requirements to the execution stage. The heavy equipment is transported, lifted and installed at customers’ facilities.

The Group also purchases and operates its own heavy lift and haulage equipment, tugboats and barges. This allows the Group to be flexible, nimble and efficient when providing integrated services to its customers.

Headquartered in Singapore, the Group has a strong regional presence with establishments in 13 countries. It is ranked 15th in IC100 2024 survey.

What is so interesting on Tiong Woon then?

a) Excellent 7-year track record

With reference to Table 1 below, it is apparent that Tiong Woon has a sterling seven-year track record of growing its GP, NPAT and DPS every year since FY18. This is notwithstanding the massive disruption to general business activities during Covid.

Table 1: Superb 7-year track record in growing profitability and dividends

Source: Company

b) Management maintains a positive outlook

Based on Table 2 below, Tiong Woon’s 2HFY24 revenue and net profit were much lower as compared to 1HFY24. Revenue recognition (and subsequently profit numbers) is dependent on whether the projects and revenue recognition are in time to be recognised before the financial period cut off time. 2HFY24 is weaker vis-à-vis 1HFY24 as some projects were pushed back to FY25F.

Notwithstanding this temporary push back of projects into FY25F, it is noteworthy that Tiong Woon’s management continues to strike an upbeat tone in its FY24 press release. In Tiong Woon’s 2024 annual report (click HERE), they cited numerous projects such as cross-island MRT and road enhancement, semiconductor plant expansion, Changi Terminal expansion etc in Singapore. Overseas projects include but not limited to Indian Oil Corporation Limited in Baroda and Panipat, Numaligarh Refinery Limited in Assam, and Jindal Steel and Power Limited in Angul, expansion of the GIGA gas field and high-profile developments such as NEOM and the Red Sea initiative etc. Suffice to say that industry prospects remain optimistic.

Notwithstanding this temporary push back of projects into FY25F, FY24 still showed a commendable 5.4% and 15.9% growth in top and bottom line. Moreover, FY24 DPS jumped 50% to S$0.015. At the closing price of $0.530 on 21 Oct, this works out to a 2.8% dividend yield.

Tiong Woon expects to hold its AGM on 30 Oct 24. It will also ex div of around $0.015 / share on 4 Nov.

Table 2: Tiong Woon’s 2HFY24 results were weaker than 1HFY24

Source: Company

c) Prudent management of balance sheet

Despite being in a capital-intensive industry, Tiong Woon has been consciously strengthening its balance sheet. Its net debt to equity has improved significantly from 47.3% in FY16 to 3.8% in FY24 (See Table 3 below). It is sitting on a record strong cash position of S$81.1m in FY24. According to management, maintaining a strong balance sheet is not only a prudent defensive move, but one of strategic importance, and a source of competitive moat, that helps Tiong Woon move fast and move ahead, to tap growth opportunities in their sectors.

Table 3: Tiong Woon net debt to equity ratio has been improving for the past 9 financial years!

Source: Company

d) Margins may continue to improve

Tiong Woon’s business model comprises mainly of fixed costs. According to management, staff costs and depreciation generally contributed about 30-40% and 20-30% of revenue respectively. In other words, Tiong Woon possess high operating leverage. Simplistically speaking, once Tiong Woon has enough revenue to cover its fixed costs, for every additional dollar of revenue, a significant portion of it goes to its bottom line.

If I base on the following broad assumptions:

• Tiong Woon’s business continues to grow at a steady pace, which is corroborated by its steady 7-year track record. In addition, those projects which were delayed in FY24 are likely to flow to FY25F, adding incremental revenue to Tiong Woon.

• Tiong Woon continues to optimise its fleet. Although its fleet count may not have increased substantially, suffice to say that they are enhancing their fleet to have “better” assets which may help them to garner higher margin contracts.

• Their utilisation rate has been capped below 50% for years. However, FY24 was the first year since FY19 where Tiong Woon’s utilisation rate has breached above 50% (to be exact, they reached 56% in FY24).

Consequently, barring unforeseen circumstances, I guess its margins are likely to improve in FY25F from GPM (41.2%) and NPM (12.7%) in FY24.

e) Significant capital expenditure in FY24 à A sign of management optimism?

According to management, for the past five years, their capital expenditure (capex) hovered around S$30-40m, which was around their depreciation level. However, in FY24, Tiong Woon spent a whopping S$63m in capex. It is likely that they may spend an above average capex in FY25F (i.e. higher than the usual S$30-40m) as management wants to tap growth opportunities in the sector.

For the eagle eye reader, perhaps this is a sign that management is pretty optimistic about its industry.

f) ICI100 – Tiong Woon climbs 4 spots to rank #15!

Tiong Woon has been rising steadily in ICI100. Based on Crane & Transport Briefing (click HERE), Tiong Woon is now ranked #15, just behind Tat Hong (See Table 4 below). It is also satisfying to see that we have two Singapore companies among the giants in this sector.

Table 4: ICI100 – Tat Hong and Tiong Woon rank #14 and #15 respectively

Source: Crane & Transport Briefing

g) Under-researched…yet –> UOBKH forecasts a total potential return of approx. 68%!

Based on Bloomberg, UOB Kayhian (UOBKH) is the only broker with an active coverage. UOBKH has shaved their FY25/26F revenue by around 11%. FY25/26F net profit estimates were reduced by 5% and 7% respectively. They cited the possibility that project delays may persist. Nevertheless, UOBKH maintained their buy call on Tiong Woon with a slightly reduced target price to $0.870 (from $0.900). If they are right, coupled with their estimated dividend per share (DPS: 0.0185 / share), total potential return works out to be around 68%!

h) Chart breakout above $0.510 with volume expansion is positive

Based on Tiong Woon’s chart below (See Chart 1), it looks positive on several fronts.

• It managed to breach $0.510 with above average volume. Recent volumes have been encouraging.

• There is some selling pressure on 18 Oct but seems to be absorbed by other buyers. Selling may be due in part to some contra players who bought around 11 & 14 Oct and they may have to exit, or roll their positions.

• Moving averages are trending nicely higher with 50D SMA forming a golden cross with 100D EMA.

• Other indicators such as OBV, MACD, RSI are generally showing strength.

• ADX is broadly rising and closed at 40.6 amid positively placed DIs.

Based on the above, the path of least resistance seems to be up. A sustained breach below $0.50 with volume expansion negates the bullish chart outlook.

Near term supports: $0.510 – 0.515 / 0.495 – 0.500 / 0.480 / 0.470

Near term resistances: $0.545 – 0.550 / 0.560 / 0.580 / 0.600

Chart 1: Chart has breached a key resistance of $0.510 with volume

Source: InvestingNote 18 Oct 23

i) Valuations seem attractive

Based on Bloomberg, Tiong Woon trades at approximately 6.3x FY25F P/E and 0.38x FY25F P/BV. Average 5-year P/E and P/BV are 14.6x and 0.4x respectively. Tiong Woon’s FY25F dividend yield is estimated to be around 3.6%. Based on Shareinvestor, Tiong Woon’s NAV / share stands at S$1.33.

Risks

As usual, there are risks involved. Due to time constraints, I am only pointing out some of the possible risks.

a) Business risks

Key business risks such as cost escalations on projects; project delays; inability to secure labour especially crane operators; inability to win contracts due to weaker macro environment, slowdown in the industries which Tiong Woon operates in, forex volatility and geo-political concerns are some of the risks which Tiong Woon has to contend with.

Nevertheless, it is noteworthy that Tiong Woon has been in the business for more than 45 years. It has an enviable track record of growing its net margin, return on equity and dividend per share since 2019 which is a testament of management’s capability.

b) Lack of analyst coverage

As a heavy lift specialist and service provider, it is not in the sexiest industries to excite the investment community. As there is a lack of analyst coverage, there may be insufficient information to make a well-rounded investment decision on Tiong Woon.

Conversely, this also leaves room for price discovery. If there is an initiation from the analyst community, Tiong Woon may see a significant up-move in share price especially when it is likely under-owned and under researched by the investment community.

c) Illiquidity

Notwithstanding the general pick up in volume, Tiong Woon is still generally thinly traded. As of 18 Oct, average 30-day volume traded is only 205K shares per day. As it is thinly traded, chart interpretation may not be fully accurate. Furthermore, it may be difficult to enter or exit in meaningful quantities.

d) A possible value trap?

Based on Bloomberg, average 10-year P/E and P/BV are 15.3x and 0.3x respectively. Average 5-year P/E and P/BV are 14.6x and 0.4x respectively. Thus, if we base solely on P/BV, Tiong Woon seems to be trading persistently at low valuations. Given that management is steadily ramping up their Investor Relation efforts to reach the investment community, coupled with steady results, I guess it may be a matter of time before Mr Market recognises this.

Conclusion

It is noteworthy that there are risks involved such as the aforementioned risks (e.g., illiquidity risk, various business risks; insufficient information etc.). Nevertheless, Tiong Woon’s 7-year track record in growing profitability and dividends, coupled with an estimated 3.6% FY25F dividend yield; bright business prospects, and a potentially bullish chart, it may arguably be worth a closer look.

For a more complete picture, it is advisable to refer to Tiong Woon’s analyst reports (Click HERE); SGX website (Click HERE) and Tiong Woon’s corporate website (Click HERE).

Readers have to assess their own % invested, risk profile, investment horizon and make your own informed decisions. Everybody is different hence you need to understand and assess yourself. The above is for general information only. For specific advice catering to your specific situation, do consult your financial advisor or banker for more information

Readers who wish to be notified of my write-ups and / or informative emails, you can consider signing up at https://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, I can be reached at ernestlim15@gmail.com.

P.S: I am vested in Tiong Woon.

Disclaimer

Please refer to the disclaimer HERE