Excerpts from UOBKayHian report

Tiong Woon Corporation (SGX: BQM)

• Tiong Woon’s FY22 earnings of S$11.4m (+15% yoy) is achieved on the back of a 9% yoy growth in revenue and 2.6ppt increase in gross margin due to better demand for crane and higher crane rental rate.
• However, FY22 earnings fell short of our expectation due to higher-than-expected impairment loss for receivables.
• We believe Tiong Woon is a beneficiary of the construction industry upcycle in Singapore and expect FY23 EPS to grow by 54% yoy.

Maintain BUY with a 3% lower target price of S$0.85 (0.7x FY22 P/B).

15% earnings growth from better revenue and gross margin

Tiong Woon Corporation Holding (Tiong Woon) reported FY22 earnings of S$11.4m, which grew 15% yoy due to an increase in revenue of 9% yoy from better demand for cranes.

In addition, gross margin also improved 2.6ppt to 40.2% as a result of higher crane rental rate. Similar to FY21, close to 80% of Tiong Woon’s revenue is still generated from Singapore.

FY22 results fell short of our expectation due to higher-than-expected provisions

Despite the commendable growth, FY22 earnings fell short of our expectation due to higher than-expected impairment loss for receivables made amounting to S$2.2m (+43% yoy) in FY22 as a result of higher provision made for a few customers amid the uncertain credit environment.

In addition, revenue for 2HFY22 was around S$10m lower than expected, only growing 2% yoy and flat hoh, due to work stoppages by customers in the construction sites because of dengue infections, workplace accidents and heavy rain.

Also, Tiong Woon’s customers in the oil & gas industries, which typically offer higher margin, have yet to commence their construction activities.

Expect 54% yoy EPS growth in FY23 as more construction projects in Singapore drive demand for cranes

We expect Tiong Woon’s FY23 earnings to grow by 54% yoy, 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.

Tiong Woon is in a good position to benefit from the strong resumption of activities in Singapore’s construction sector, which will have strong demand for cranes in the coming years driven by accelerating construction of public housing and new mega infrastructure projects.

Tiong Woon valuation/Recommendation

Maintain BUY with a 3% lower target price of S$0.85, pegged to an unchanged 0.7x FY22 P/B, 1SD above Tiong Woon’s historical 15-year average P/B, to capture the strong earnings growth potential in the industry upcycle.

The share price catalyst will be better-than-expected earnings from higher crane rental rates and utilisation rate. Better-than-expected dividend and share buybacks. Potential takeover offer by other larger crane companies given the attractive P/B valuation.

You can find the full report here and the company website here