TA Corporation Update (Oct 2018) | Tayrona Financial Research
Solid Business Backed by Real Assets
▪ Balance sheet hold significant hidden upside.
We highlight TA Corporation Ltd as an undervalued counter with the potential of returning S$123.53m of development profit and fair value gains (S$44.7m from Singapore and S$78.8m from Cambodia) from its equity of S$182.76m as at 30 June 2018. Conversely, the group trades at a market capitalisation of S$124m (32% discount from book value). Factoring in the full value of its property portfolio, we derived a fair value of S$222.24m (S$0.350 per share on a fully diluted basis). Hence, TA Corp presents significant upside from its current share price of S$0.240.
▪ Fair value losses from Tuas South Dormitory have stopped.
We are mindful that the group has been loss making for several years, mainly due to fair value losses from its Tuas South Dormitory. However, these losses have stopped in 2018. Higher crude oil prices have led to a recovery in the local offshore and marine sector, which is supportive of demand for workers’ dormitories. With improving asset performance, there is the possibility of the group reversing these fair value losses in the future.
▪ Cambodia project worth US$267m to drive 2019 turnaround.
Another reason for the lacklustre financial performance in recent years is that the group has been developing its 70,600 sq. m. integrated development in the CBD of Phnom Penh, Cambodia, without the benefit of progressive revenue recognition. Property prices in Phnom Penh have appreciated sharply on the back of Chinese demand in recent years. Therefore, we expect the group to return to profitability in 2019 after the completion of this project.
▪ Distribution business has spin-off potential.
The group has been expanding its presence in IndoChina via the distribution of equipment and lubricants in the 2010s. Currently, this business is profitable and generates about S$25m of revenue per year. Most recently, the group was awarded the license to produce its own ‘Repsol’ products in Thailand. This business can potentially be listed to unlock value in the future.
▪ Strong construction capabilities.
Finally, we found that the group is probably one of the few builders capable of fully taking on large scale residential projects in Singapore, following new rules that encourage the use of new technologies such as prefabricated components. On balance, we rate the group Overweight with a high-average return and low-average risk classification. Downside is limited by the group’s conservative share price and its strong dividend track record, while upside can be enhanced if the group provides higher visibility over plans to e.g. redevelop some of its properties or spin-off its distribution business.
▪ Key risks include the group’s gearing and macroeconomic risks.
ZUU Disclaimer: This research report was kindly contributed by Tayrona Financial and first published on 02 October 18. The views expressed in the report are the author’s own.