Brokers’ take: UOBKH initiates coverage on Tiong Woon with ‘buy’

UOB Kay Hian (UOBKH) has initiated coverage on crane specialist Tiong Woon Corporation : BQM 0% with a “buy” call and a target price of S$0.88, which implies a potential upside of 63 per cent from the stock’s Monday (Aug 22) closing price of S$0.54.  UOBKH’s valuation is based on a FY2022 price-to-book (P/B) multiple of 0.7, which is 1 standard deviation above the long-term historical mean.  Its analyst John Cheong believes that current valuations of the stock’s FY2023 price-to-earnings multiple of 4.4 and P/B of 0.4 are attractive, given the group’s “market-leading position and strong earnings-per-share (EPS) growth in an industry upcycle”.  “Compared with its peers, Tiong Woon offers higher growth and return-on-equity,” added Cheong.  The analyst expects Tiong Woon’s EPS to double in FY2022, followed by a 37 per cent year-on-year growth in FY2023 with a strong construction upturn and the resumption of more oil & gas capital expenditure driving growth for the group.  “The company’s strong earnings growth will be driven by the improved utilisation rates and higher rental rates of its cranes due to demand from contractors. This will lead to an increase in its gross margin, followed by better earnings,” he explained.  Cheong is also projecting Tiong Woon to report gross margin expansion of 42 per cent for FY2022 and FY2023 as well as 41 per cent for FY2024.  In his view, Tiong Woon’s “comprehensive ownership” of cranes puts the group in a good position to benefit from strong demand in the coming years, driven by accelerating construction of public housing and mega infrastructure projects in Singapore.  Construction of more petrochemical plants could further boost crane demand, he added.  As at 3:45 pm on Tuesday, shares of Tiong Woon were down S$0.01 or 1.8 per cent at S$0.54.