SINGAPORE (May 28): Phillip Securities is initiating coverage of SHS Holdings with a “buy” given a surge in demand for modular housing in New Zealand as well as an upcoming recurring revenue from a solar project in Bangladesh.

SHS currently derives revenue from corrosion prevention, structural steel and facade engineering. However, Phillip says future growth will mainly come from its two new business segments of solar energy and modular construction.

According to a Friday report, lead analyst Paul Chew says there is a huge shortage of housing in New Zealand. Yearly demand for new houses is around 18,000 while supply is struggling at 10,000. Since 2009, there has been a cumulative shortfall of nearly 44,700 units.

“We believe this gives TLC Modular an opportunity to penetrate the market by exporting its PPVC products to New Zealand,” says Chew given speed and cost advantage makes it a compelling product.

Subsidiary TLC recently announced two projects worth $28 million in New Zealand. Another ongoing project is the Cosa hotel, estimated to be completed in 2H18.

In addition, SHS has secured a solar farm project under its subsidiary Sinenergy with the Bangladesh government, to provide 20 years of electricity. The 50MW project was designed, constructed, financed, owned and operated by Sinenergy.

“We expect the project to generate a net profit of around $4 million from FY19,” says Chew.

Meanwhile, the recent protracted downturn in the marine, oil and gas sector has affected the overall profitability of the group’s structural steel and corrosion prevention businesses.

But with crude oil prices starting to recover and the increase in construction activities, these segments are poised for a slow turnaround, says Chew.

Phillip has a target price of 29 cents based on 10 times FY19 earnings.

“We are pegging SHS to other construction companies with prefabricated and structural steel business in Singapore,” says Chew, “We gave a 10% discount on SHS to its peers as we take a more conservative approach in SHS’s valuation.”

As at 10.58am, shares in SHS are trading flat at 24 cents.

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