Tiong Seng Holdings

[TUBInvesting]

Although Tiong Seng has a very high order book, it does not seem to be growing. And it has not been able to translate that into high(er) earnings for itself, or for its shareholders.

1) Average FCF of -$3.6m/year, over 11 years. Over the long-term, it has been losing money. Whether FCF will continue to be positive in the coming years remain to be seen.

FCF
FY16: $138.8m
FY15: $16.6m
FY14: -$10m
FY13: $5.6m
FY12: -$28.3m
FY11: -$130.4m
FY10: -$6.7m
FY09: $64.2m
(IPO) FY08: -$33.9m
FY07: -$22.7m
FY06: -$37.6m

2) Average dividends of $4.7m/year over 8 years. Or $37.9m in total. At least there's something for shareholders. That's not too bad.

Dividends
FY16: $2.2m
FY15: $1.8m
FY14: $5.5m
FY13: $7.6m
FY12: $7.2m
FY11: $7.6m
FY10: $6m
FY09: $0

3) But if the company isn't generating free cash, from where does it pay out dividends? Tiong Seng also raised net proceeds of $48m during its IPO. This more than covers the total dividends of $37.9m paid out since.

4) Until recently, total debt has been increasing since IPO. Based on its latest quarterly, total debt is still about $125m.

Total debt
FY16: $176.3m
FY15: $298.8m
FY14: $297.6m
FY13: $252.0m
FY12: $238.0m
FY11: $200.5m
FY10: $57.0m
FY09: $41.4m

It is likely that debt was used to finance their projects, which in totality have not been FCF positive. If anyone has benefited from Tiong Seng, I will say it is their bankers, subcontractors, and directors.

How much will you pay to buy for Tiong Seng?

I think you stated very valid concerns for Tiong Seng. However, my belief is that the lack of FCF was due to the development of their technology. In addition the turnaround to positive FCF "COULD BE" the advantages of their technology. 

Anyway other than dividend, the company has been doing share buy backs. In this case, this is another benefit for shareholders as well.

As for the "Tiong Seng Story", I think they will need to have more years of FCF to convince more investors to be on board.

[karlmarx]

Indeed there was. The share buybacks began in 2015, and became increasingly aggressive.

Amount spent on share buybacks
FY14: $0
FY15: $0.24m
FY16: $1.06m
HY17: $0.58m

From the latest announcement, a total of 10.4m shares were bought back. Representing just under 1% of the total issued shares.

[karlmarx]

Unsatisfied with the incongruence of my findings with the points raised by TUBInvesting, I decided to take another look into Tiong Seng.

1) I'm not familiar with the construction industry, but having done a little research, Tiong Seng's touted construction technology does not appear to be as ground-breaking as its ARs present them to be. At best, they are the current standards being promoted by the government; which Tiong Seng (and other contractors) has already been using since years ago. Advanced (modular) form work and prefabricated bathroom units has been in use since 2005. Pre-casting / prefabrication has been in use since 1995 but only in 2012 was a plant constructed solely for this purpose; $36m spent for a plant in Singapore and $15m for another joint-venture plant in JB. While precast/prefab lowers manpower costs, it incurs transportation costs. Maybe someone more informed about the construction industry can provide some insights here.

2) Yet as a contractor, Tiong Seng has actually done okay. Removing the changes to development properties from its operating cash flow, TS's FCF will be $151m over 11 years, or $13.7m per year.

FCF without accounting for changes to development properties: negative for only 2 out of 11 years.
FY16: $47.6
FY15: $9.4m
FY14: $54.7m
FY13: $6.2m
FY12: $11.1m
FY11: -$47.2m
FY10: $59.5m
FY09: $24.9m
(IPO) FY08: -$3.5m
FY07: -$6.7m
FY06: -$5m

3) The biggest risk for Tiong Seng seems to be in its development properties in 2nd and 3rd tier Chinese cities, where it was last reported to hold $320m (lower of cost or NRV). It has sucked in $366m of OCF over the past 11 years.

Operating cash flow from development properties:

FY16: $91.2m
FY15: $7.2m
FY14: -$64.7m
FY13: -$0.6m
FY12: -$39.4m
FY11: -$83.2m
FY10: -$66.2m
FY09: $39.3m
(IPO) FY08: -$19.2m
FY07: -$16.0m
FY06: -$32.6m

4) It therefore appears that the construction business -- together with the massive loans -- has been financing the development properties in China. TS could be hamstrung if it is unable to sell these properties, or destabilised if the property market dives. More recently, TS acquired 2 sites in district 10 (Singapore) at a cost of 60% of $80.5m. While it presents itself as a high-tech construction outfit, it is apparent that its ambition is to be a developer.

[TUBInvesting]

Unsatisfied with the incongruence of my findings with the points raised by TUBInvesting, I decided to take another look into Tiong Seng.

1) I'm not familiar with the construction industry, but having done a little research, Tiong Seng's touted construction technology does not appear to be as ground-breaking as its ARs present them to be. At best, they are the current standards being promoted by the government; which Tiong Seng (and other contractors) has already been using since years ago. Advanced (modular) form work and prefabricated bathroom units has been in use since 2005. Pre-casting / prefabrication has been in use since 1995 but only in 2012 was a plant constructed solely for this purpose; $36m spent for a plant in Singapore and $15m for another joint-venture plant in JB. While precast/prefab lowers manpower costs, it incurs transportation costs. Maybe someone more informed about the construction industry can provide some insights here.

2) Yet as a contractor, Tiong Seng has actually done okay. Removing the changes to development properties from its operating cash flow, TS's FCF will be $151m over 11 years, or $13.7m per year.

FCF without accounting for changes to development properties: negative for only 2 out of 11 years.
FY16: $47.6
FY15: $9.4m
FY14: $54.7m
FY13: $6.2m
FY12: $11.1m
FY11: -$47.2m
FY10: $59.5m
FY09: $24.9m
(IPO) FY08: -$3.5m
FY07: -$6.7m
FY06: -$5m

3) The biggest risk for Tiong Seng seems to be in its development properties in 2nd and 3rd tier Chinese cities, where it was last reported to hold $320m (lower of cost or NRV). It has sucked in $366m of OCF over the past 11 years.

Operating cash flow from development properties:

FY16: $91.2m
FY15: $7.2m
FY14: -$64.7m
FY13: -$0.6m
FY12: -$39.4m
FY11: -$83.2m
FY10: -$66.2m
FY09: $39.3m
(IPO) FY08: -$19.2m
FY07: -$16.0m
FY06: -$32.6m

4) It therefore appears that the construction business -- together with the massive loans -- has been financing the development properties in China. TS could be hamstrung if it is unable to sell these properties, or destabilised if the property market dives. More recently, TS acquired 2 sites in district 10 (Singapore) at a cost of 60% of $80.5m. While it presents itself as a high-tech construction outfit, it is apparent that its ambition is to be a developer.

Just to add, if you read more of the reports, Tiong Seng sold more units than they reported. I believe the FCF from the china properties will increase over the next 2 years. Furthermore, these projects are in cities where it is getting more and more popular. I believe the units will eventually be sold out.

Currently Tiong seng went to a JV with Ocean Sky International on 2 plots of land in Singapore. I think the future "money" will be used to fund these 2 projects which will be massive.

As for construction, my value add is that this will be their core business to continue to generate margins to support their on-going operations and future developments.

The main thing about Tiong Seng is that it seems more like a growth company than one that is value. The risk is still in its massive liabilities and how it will continue to be managed.

<Vested, will consider to sell off all if the share price continues upwards)

[dydx]

FY17 AR makes interesting reading..
http://infopub.sgx.com/FileOpen/Tiong%20...eID=496568
More info from company website..
http://www.tiongseng.com.sg/

Tiong Seng's persistent buying back its own shares has helped support the counter, and raise NAV as well as the intrinsic value of the remaining shares. After the last purchase on 9Apr18, Tiong Seng has so far bought back a total of 14,600,400 shares, or 3.27% of the company's outstanding issued shares..
http://infopub.sgx.com/Apps?A=COW_CorpAn...495c9e82d4

Based on the last done share price of $0.395, the pending $0.015/share final dividend (vs. FY2016: $0.008/share) gives a yield of 3.8%.

[cyclone]

Tiong Seng Clinches S$49.9 Million Contract with MOE to Build A New Primary School Compound at Punggol Way

Tiong Seng Holdings Limited announced that its wholly-own subsidiary, Tiong Seng Contractors (Pte) Ltd, has been awarded a contract of approximately S$49.9 million from Ministry of Education of Singapore for the proposed construction of a primary school on Lot 02945X MK 21 at Punggol Way (Punggol Site 26). The construction work is expected to commence in May 2018.

The Contract is not expected to have any material impact on the net tangible assets and earnings per share of the Group for the current financial year ending 31 December 2018.

Project increases the Group’s construction order book size to approximately S$540.9 million extending to 2020.

[cyclone]

Tiong Seng secures S$53.9 million contract to build another primary school at Punggol Central

Tiong Seng Holdings Limited announced that its wholly-own subsidiary, Tiong Seng Contractors (Pte) Ltd, has been awarded a contract of approximately S$53.9 million from Ministry of Education of Singapore for the proposed erection of new primary school along Punggol Central / Punggol Way. The construction work is expected to commence in May 2018.

The Contract is not expected to have any material impact on the net tangible assets and earnings per share of the Group for the current financial year ending 31 December 2018.

Project increases the Group’s construction order book size by S$53.9 million to approximately S$594.0 million extending to 2020

More details in :
1. http://infopub.sgx.com/FileOpen/Tiong%20...eID=505015
2. http://infopub.sgx.com/FileOpen/Tiong%20...%20for%20S$53.9M%20Contracts%20Awarded.ashx?App=Announcement&FileID=505014

[cyclone]

Tiong Seng secures S$47.68 million contract with MOH to build 10-storey polyclinic and long term care facility

Tiong Seng Holdings Limited announced that it has been awarded a new contract with the Ministry of Health ("MOH") in Singapore worth S$47.68 million to construct a 10-storey polyclinic and long term care facility building. Located along Balestier and Serangoon Road in Singapore, the construction of this new healthcare facility will commence in June 2018.

Project increases the Group’s construction order book size by S$47.68 million to approximately S$641.7 million extending to 2020.

[cyclone]

S$28.9 Million Contract Awarded for Erection of Condominium Housing Development, Temporary Showflat and Sales Gallery on Lots 00138C & 99899P TS 26 at Balmoral Road

Tiong Seng Holdings Limited announced that its wholly-own subsidiary, Tiong Seng Civil Engineering (Pte) Ltd, has been awarded a contract of approximately S$28.9 million from TSky Balmoral Pte Ltd, a joint venture company of the Group, for the proposed erection of condominium housing development, comprising of 1 block of 12-storey and 1 block of 3-storey residential buildings with basement carpark, swimming pool, sky terrace & communal facilities, temporary showflat and sales gallery on LOTS 00138C & 99899P TS 26 at Balmoral Road. The construction work is expected to commence in June 2018

[cyclone]

Financial Results for Half-Year Ended 30 June 2018 ("1H2018")

1. The Group recorded a 43.0% decrease in revenue to S$196.7 million for 1H2018
2. Supported by four new contract wins during 2Q2018, the Group maintains a healthy order book size of approximately S$620.9 million extending to 2020
3. Net profit of S$6.1 million for 1H2018
4. Underpinned by the Group’s efforts to pare down debt, balance sheet remains healthy with a gearing ratio of 0.29 as at 30 June 2018 (31 December 2017: 0.41)
5. The Group reported net cash used in operating activities amounting to S$49.7 million
6. As at 30 June 2018, cash & cash equivalents stood at S$39.154 million
7. As at 30 June 2018, net asset value per share was S$0.6075
8. Leveraging on a broad spectrum of construction capabilities, the Group continues to adopt a prudent approach in bidding for new contracts to build sustainable. long-term profitability

More details in :
1. http://infopub.sgx.com/FileOpen/Tiong%20...eID=521262
2. http://infopub.sgx.com/FileOpen/Tiong%20...eID=521263

Tiong Seng today closed at S$0.38 per share.