Brokers' take: DBS sees good value in Tuan Sing, raises target price

DBS Group Research has maintained its "buy" call on real estate company Tuan Sing Holdings, raising its target price to S$0.54, from S$0.46 previously.

In its Wednesday report, DBS cited improved office fundamentals, the upcoming launch of projects in Opus Bay and the potential initial public offering (IPO) of Gultech (Jiangsu) Electronics (GJE) as reasons for seeing good value in the stock.

This comes after T24  announced on Sunday that its 44.5 per cent-owned associated company Gultech China has agreed to sell 13 per cent of the shares it holds in printed circuit board (PCB) supplier GJE, which is evaluating a possible listing in China.

The transaction price of 435 million yuan (S$89 million) implies a valuation of about 3.35 billion yuan for the PCB firm, Tuan Sing said in a filing released on Sunday.

Analysts noted that the stake sale marks "another step to unlock value", and that a potential GJE IPO could almost double Tuan Sing's market capitalisation in theory, and bring it up to an estimated S$830 million.

After divestment to private equity partners, Tuan Sing's effective interest in GJE will fall to an estimated 38.7 per cent, according to DBS. However, analysts noted that GJE's earnings growth may accelerate with help from its partners.

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Apart from the divestment, DBS analysts said that the Singapore private property market has held up well amid the pandemic, and a successful launch of Peak Residence, a freehold condominium under the real estate company, could catalyse share price.

According to the analysts, the current target price of S$0.54 is based on sum-of-the-parts valuation. The brokerage assumes a valuation of 11 times its FY21 price-to-earnings ratio for GJE, a 60 per cent discount to revalued net asset value of S$971.2 million, and a further 10 per cent conglomerate discount.

DBS's current target price represents a price-to-book value of 0.55 times compared to the current 0.41 times and peers' 0.51 times.

The analysts noted that key risks for the stock include the resurgence of Covid-19 infections which could lead to construction delays, factory and hotel disruptions, foreign exchange risk, a soft office market and a termination of Robinson Point sale.

Further, DBS raises Tuan Sing's FY21 earnings forecast by about 16 per cent to account for the gain in the sale of GJE, although the analysts noted that the gain in sale was slightly mitigated by deferred growth for the property segment due to construction slowdowns.

While the stock is now nearing one standard deviation above its three-year historical mean price to net asset value ratio, analysts find that the stock "offers compelling value" especially if GJE's IPO takes place.

Further, the management has also shown a knack for unlocking value through its divestments of Robinson Point and the stake in GJE, DBS analysts said.

As at 3.29pm, Tuan Sing's shares were trading 7.4 per cent or three Singapore cents higher at 43.5 cents.

READ MORE:

• Tuan Sing launches phase one of Opus Bay project in Batam

• Tuan Sing unit to sell 13% stake in printed circuit board maker for 435m yuan