SINGAPORE (Oct 3): Tayrona Financial is rating TA Corporation “overweight” with a high-average return and low-average risk classification, along with a fair value estimation of 35 cents.
In a Tuesday report, analyst Liu Jinshu says, “We highlight TA Corporation as an undervalued counter with the potential of returning $123.53 million of development profit and fair value gains ($44.7 million from Singapore and $78.8 million from Cambodia) from its equity of $182.76 million as at June 30, 2018.”
On the other hand, the group trades at a market capitalisation of $124 million, representing a 32% discount from book value.
Factoring in the full value of its property portfolio, the analyst believes that his fair value estimate of 35 cents presents a significant upside from its current share price of 24 cents.
Nonetheless, the analyst notes that the group has been loss making for several years, mainly due to fair value losses from its Tuas South Dormitory. But these losses have stopped in 2018, on the back of higher crude oil prices, leading to a recovery in local offshore and marine sector, which supports the demand for workers’ dormitories.
“With improving asset performance, there is the possibility of the group reversing these fair value losses in the future,” says Liu.
Another reason for the group’s lacklustre financial performance in recent years is that it has been developing its 70,600 sqm integrated development in the central business district area of Phnom Penh, Cambodia, without the benefit of progressive revenue recognition.
In recent years, Chinese demand for property in Phnom Penh has caused prices to appreciate sharply.
“Therefore, we expect the group to return to profitability in 2019 after the completion of this project,” says Liu.
Meanwhile, the group has been expanding its presence in IndoChina via the distribution of equipment and lubricants in the 2010s. This business is currently profitable, generating about $25 million of revenue annually.
In Thailand, the group was recently awarded the license to produce its own ‘Repsol’ products. This business can potentially be listed to unlock value in the future.
“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,” says Liu.
As at 11.45am, shares in TA Corp are trading at 24 cents, or 29.73 times FY19 earnings with a dividend yield of 4.2%.
