Tai Sin

[cyclone]

Disposal of 12.5% of the Issued and Paid-Up Share Capital of Kingsland Data Center Pte. Ltd. by Nylect International Pte. Ltd.

Tai Sin Electric Limited announced that Nylect International Pte. Ltd.("NIPL") had on 7 May 2018 entered into a conditional share purchase agreement to sell its entire 12.5% equity stake comprising of 3,750,000 ordinary shares in Kingsland Development Pte. Ltd. ("Kingsland"), to Perpetual (Asia) Limited, in its capacity as trustee of Keppel DC REIT.

NIPL is 30% owned by Lim Kim Hai Electric Co (S) Pte Ltd, a wholly owned subsidiary of Tai Sin.

The Tai Sin Group’s share of the estimated profit after tax of NIPL resulting from the Disposal is about $3 million.

The Disposal if completed in the second quarter of 2018 as anticipated, would to an extent mitigate the weaker performance of the Tai Sin Group for the current financial year ending 30 June 2018 (as compared to the previous financial year).

[hailstorm87]

I find the Accounts receivables and inventory levels of Tai Sin to be quite worrying given their latest disclosure. If and when the day of reckoning comes, Tai Sin may see massive shocks to their P&L stemming from sudden and massive write downs on their accounts receivable and inventory. I believe the AR and Inventory levels were issues cited in the Auditors report (see page 69-70 of Tai Sin's Annual report 2018).

At the same time, the Company has also seen a slow but steady decline in the operating cash flows. The Q1 2018 results were most worrying with a combination of declining profits (in the P&L statement) and the negative cash flow from operations (in the CF statement).

I take the view that Tai Sin is becoming a value trap with the NCAV per share to be an inaccurate representation of value of the company. Until the cash flow issues facing the company are resolved, I don't see a meaningful number to arise from a FCF valuation. The (much touted) 6% dividend yield of the company is also misleading as the Company is likely to not have the necessary cash flow to support the payment of such dividends.

As a long term investor, I had held out hope that the Company would address their AR and Inventory levels; but the numbers do not point in such a direction. Given this, I had divested my position in Tai Sin and would advocate potential / current investors should proceed with caution.

*no longer vested*

[sykn]

Hi, thanks for sharing this information with fellow VBs.

I have gone back to check their annual reports of the last 8 FYs, and it seems that the inventory and ARs (definitely high as together, it's more than that year's working capital) have always been like that:

Inv AR Together
FY11: 65.9 + 64.9 = 130.8M
FY12: 63.6 + 85.1 = 148.7M
FY13: 66.1 + 94.7 = 160.8M
FY14: 65.3 + 90.8 = 156.1M
FY15: 58.0 + 81.8 = 139.7M
FY16: 61.3 + 101.5 = 162.8M
FY17: 63.6 + 80.8 = 144.4M
FY18: 70.3 + 96.8 = 167.1M

I don't detect a sudden ramp up for their inventories and ARs; could it be that in this line of business, they have to accept high inventory levels and ARs from their customers? What concerns me is that its operational earnings have decline quite a bit in the last 2 FYs.

Appreciate your views, thanks. (Vested and still holding)

[ianphoon]

Of concern to me is that the most recent quarter earnings is only 0.31c
I don’t recall such weak earnings in more than a decade
This is less than half of last quarter
Going forward, if this continues, I cannot be confident that it can continue to pay $0.0075
Dividends will likely have to be cut if this weak performance continues
And most investors bank on this counter to give them steady dividends
Going forward, how confident is this going to happen?
Is it market is truly that bad?
Or can the 3rd generation leader do better?

[AQ.]

structurally things have changed in the local construction sector

1. Demand has changed after the boom yrs of MBS earlier in the decade and property boom subsequently. The property cooling measures pricked and demand has shifted to mostly public infrastructure projects. These are few but big so all the players are competing fiercely @ expense of margins - u either choose to win @ cut throat margins or u sit out @ no revenues with fixed costs bleeding.

2. Supply has also changed with foreign (esp Chinese) capital flooding in. The entire chain has been disrupted. It is not just big monied Chinese developers - the entire chain of Chinese constructors, raw material suppliers have also arrived. So it's not just TaiSin (C&W), but also PanU(RMC), TTJ (Civil eng) and all the construction companies. 

Personally, I find 2. to be more scary than 1 - once the Chinese $ floods in, things gets bad quickly.

As for the AR, Inventory, Margins for TaiSin, these are all just symptoms of the above causes i.e. competing for fewer but bigger projects with cut-throat competition. I doubt current dynamics improve anytime soon.

I do think management should provide higher provisions vs ARs than current levels but i suppose they can argue that with most revenues coming from public projects, credit is acceptable.

[ianphoon]

structurally things have changed in the local construction sector

1. Demand has changed after the boom yrs of MBS earlier in the decade and property boom subsequently. The property cooling measures pricked and demand has shifted to mostly public infrastructure projects. These are few but big so all the players are competing fiercely @ expense of margins - u either choose to win @ cut throat margins or u sit out @ no revenues with fixed costs bleeding.

2. Supply has also changed with foreign (esp Chinese) capital flooding in. The entire chain has been disrupted. It is not just big monied Chinese developers - the entire chain of Chinese constructors, raw material suppliers have also arrived. So it's not just TaiSin (C&W), but also PanU(RMC), TTJ (Civil eng) and all the construction companies. 

Personally, I find 2. to be more scary than 1 - once the Chinese $ floods in, things gets bad quickly.

As for the AR, Inventory, Margins for TaiSin, these are all just symptoms of the above causes i.e. competing for fewer but bigger projects with cut-throat competition. I doubt current dynamics improve anytime soon.

I do think management should provide higher provisions vs ARs than current levels but i suppose they can argue that with most revenues coming from public projects, credit is acceptable.

I thought that it’s long-standing business and experience will bring steady growth. Been vested in this company for nearly 10yrs now
Along the way reap the capital gains and dividends
But looking at the situation as it is now, i am quite doubtful as how it can turn things around. Competition will be here to remain. And taisin share of the pie will likely diminish. Cabling is not some high barrier business.
Vested now with odd lots due to past script. Sold it off to add dbs. Being near retirement, dividends are much needed to supplement monthly income. With the shrinking eps, I am doubtful how the dividends can be maintained. Of course I could be wrong, but to me, it’s better to be safe than sorry.

[hailstorm87]

@sykn : Thanks for the feedback. I am aware of their previous levels of AR and inventory. And like what you pointed out, those were the 'good days' where the operational cash flow and profits were good. What I had not checked was their debtor aging and inventory aging policy; but I would not be surprised if the AR aging schedule was more favourable many years ago as compared to now (e.g. A higher % of the debt has been outstanding for more than 90 days for 2018 as compared to 2010).

My worst fear is that: Tai Sin has accumulated a lot of old stock and cannot sell, so it had relaxed its payment terms and started offloading their inventory to customers who are not credit worthy, this helps them solve the inventory problem and increases revenue but the problem then resides in the AR levels. The AR problem is now coming to a head and they realise that the AR is now an issue and the inventory problem was never really solved.

So as a result, you see a massive decrease in Rev:AR and Rev:Inventory ratios. Revenue has been going down whilst AR and Inventory has been going up / remaining constant. I believe the conventional wisdom is that this ratio shouldn't deviate to greatly or that one can observe cyclical trends. In this case, the trend is just one that goes down. [There is a technical argument to be had on whether Revenue or Gross profit is the better indicator since Tai Sin's revenue is cyclical and dependent on copper price movements but I have ignored this for now]

Tai Sin's cash flow has been subject to my constant scrutiny and I had waited quarter on quarter with the hope of a sudden release in cash due to a payment of the AR; just to be disappointed. As a result, I am skeptical as to whether this will happen any time soon.

I am sure the management knows that investors are drawn to Tai Sin for its high dividend yield; and my guess is that to satisfy shareholders, they had disposed Kingsland to raise the capital needed. But this may be a short term panacea to what is a longer term problem which is: poor business environment and the AR and inventory issues.

I share the same sentiment as @ianphoon - the last 10 years or so were good but past performance is not an indicator of the future.

[ghchua]

Dear all,

Just sharing my views here on some of the points raised.

1. Increasing AR and inventory in recent years. Might be due to them securing more infrastructure projects in recent years and due to the longer term nature of these projects, we are seeing this.

2. Competition from China suppliers. Though that might affect pricing, they do not have the scale at present to complete with Tai Sin, especially for bigger projects. The competitive advantage of Tai Sin is they have the storage places in Singapore to deliver cables on time.

3. Writedowns of inventory and AR. There is no audit evidence at present to justify massive writedowns. Just because inventory and ARs had gone up doesn't mean that they have to automatically writedown. If customers are still paying, they cannot anyhow writedown those ARs, without any justification. Ultimately, if the auditor believes that these are bad debts, then they should be written down. Otherwise, we have to take the numbers as it is.

4. Profit margin. Mainly three main reasons for the drop. More infrastructure projects secured (which have lower margin), hedging issues due to fluctuating copper prices and competition from foreign players. Infrastructure projects have longer gestation period (mostly more than 2 years) and they have problems hedging longer term with spot. They have since used futures for longer term hedging.

[¯|_(ツ)_/¯]

FY2020 Result
Rev $276m (vs 335m)
GP  $ 44m (vs  50m)
NP  $ 10m (vs  11m)
Div 0.75cts (vs 1.5)

The Covid-19 global pandemic, which triggered a technical recession in Singapore and severely dampened global economic activity is likely to continue to impact the Group’s performance. The domestic construction industry was most affected by the pandemic and that translated to muted demand for the Group's products and services.

The Group expects the operating landscape to remain challenging amid rising business uncertainties from this pandemic.

Tai Sin’s focus on digitalisation since 2017 has helped alleviate the effects of the circuit breaker as most of its business arms continued to operate at lower capacity to comply with stringent safe distancing measures. 

The Group will also be leveraging on the prevailing conditions to accelerate digitalisation of its capabilities and expertise, which should better position it to tap on future opportunities.

Initiatives undertaken to date prioritise long-term sustainability and will be fine-tuned in response to the ongoing effects of the Covid-19 pandemic. Meanwhile, persistent challenges such as copper price volatility and political uncertainty in neighbouring and leading nations may continue to affect the Group’s performance and will be monitored and responded to accordingly. 
https://links.sgx.com/FileOpen/Annouceme...eID=629705

Stay home and stay safe, everyone

[¯|_(ツ)_/¯]

Tai Sin @ 37
FY2021 result with 1.5cents dividend


https://drive.google.com/open?id=1D8Qa83...8xbMETQpOz
Stay home and stay safe, everyone.