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Broker's take: DBS says Tuan Sing is an under-appreciated asset play and a 'buy'

DBS Group Research, in a note on Tuesday, initiated coverage on Tuan Sing with a "buy" call and target price of 38 Singapore cents on potential value-unlocking activities from its Gul Technologies (GulTech) unit, and expected post-pandemic rebound in performance for its core investment properties.

Tuan Sing shares were trading at 26 Singapore cents as at 10.51am on Tuesday, up 2.5 cents or 10.6 per cent.

The target price represents a 60 per cent upside on the stock, analyst Derek Tan said. The stock is currently trading at a five-year low on a price to book value perspective.

Calling the stock an "under-appreciated asset play" and a "deep value play", Mr Tan said GulTech's value unlocking could take the form of a divestment or receipt of dividend.

As at Dec 31, 2019, Tuan Sing holds a 44.5 per cent stake in the printed circuit board manufacturer.

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Mr Tan noted that GulTech's contribution to Tuan Sing has grown by a compound annual growth rate of 26 per cent over the past five years.

"This may be a good time for Tuan Sing to reap dividends from GulTech. We believe that an uptrend in the semiconductor cycle could lead to further rapid growth as China’s integrated circuit production soars," he wrote.

A potential divestment of the "high-growth" unit to streamline Tuan Sing's portfolio towards its core property business could also bring in an estimated S$270 million, or 23 cents per share.

Meanwhile, Tuan Sing's property business is expected to remain profitable in 2020, with recovery "imminent" for the company's two Australian hotels as Covid-19 measures in the country, such as interstate movement restrictions, are relaxed.

These hotels have a large focus on the domestic market, with domestic demand accounting for an estimated 75 per cent of revenue in 2019.

In addition, about SS$165 million in presales from previous projects is set to be recognised over FY20-FY21, with a further boost expected from Tuan Sing's Peak Residence project. 

These should help offer earnings visibility and mitigate the downside stemming from Covid-19, Mr Tan said.

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