Tuan Sing Holdings’ (TSH) share price has underperformed the Straits Times Index in the past six months and may continue to reel from the impact of the new Additional Buyer’s Stamp Duty (ABSD) imposed on private residential property purchase. The uncertain office rental market has also weakened the possibility of redeveloping its old office buildings, once viewed as a positive catalyst. We cut our target price from $0.48 to $0.245. Downgrade to Hold.
Property sales may slow down. TSH has two residential projects at Cluny Park and Seletar that are due to be launched in the new year. Property development is estimated to account for 53-73% of its pre-tax profit for FY11F-12F. Faced with the ABSD, which will crimp demand from foreigners and permanent residents/ Singaporeans who are not first-time home buyers, TSH may have to dangle incentives to lure buyers – a move that could lead to pressure on margins.
Office redevelopment to take a backseat. Prime office rents look set to retreat this year amid the lingering Eurozone debt crisis and substantial new office supply. In 4Q11, occupancy rate fell 7.6ppt YoY to 89.1%. The negative outlook for Singapore office rents could once again delay the redevelopment of TSH’s office properties.
Coal trading business faces risks. TSH owns an 80.2% stake in SP Corporation, a tyre/auto product and commodities trading company. While coal trading volume is expected to have improved in 4Q11, the supply-side issues may still pose a risk to group earnings in FY12F. In addition, the challenging operating conditions could hamper potential acquisitions of coal mining assets in Indonesia.
Trading at steep discount but… The stock is trading at a steep 47% discount to its book value. However, the gloomy outlook for the broader market prompts us to downgrade our rating from Buy to Hold. Our SOTP-based target price is cut to $0.245 as we remove the incremental value from redevelopment and ascribe a higher discount of 50% to its book value in line with sector average.
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