20181119-辉立证券-A_setback_in_Solar_plant_7页_581kb

SHS Holdings Ltd 3Q18 Results Summary

Core Content

SHS Holdings Ltd, a Singapore-based construction company, reported improved revenue in 3Q18, driven by contributions from all business segments, particularly the Construction & Power (CP) and Solar Energy segments. However, the company faced challenges due to a significant delay in the Bangladesh solar farm project, which had initially been expected to be completed in early FY19 but is now estimated to finish by the end of FY19.

Key Financial Highlights

• Revenue: Increased by 43.5% YoY to $14.214 million.
• Admin Expense: Rose by 16.1% YoY to $2.55 million.
• Other Operating Expenses: Surged by 58.5% YoY to $2.049 million, primarily due to depreciation from the redevelopment of the Hetat office building.
• Finance Costs: Increased by 496.6% YoY to $173 thousand, attributed to higher bank borrowings for the redevelopment.
• Loss After Tax: Rose by 12.4% YoY to $2.84 million.

Earnings and EBITDA

• Net Profit (Reported): Improved to $14.362 million in FY19e, down from $18.227 million in FY18e.
• EBITDA: Negative in FY18e at -$14.588 million but expected to improve significantly to $29.485 million in FY19e.
• EBIT: Negative in FY18e at -$4.116 million, but projected to be positive at $21.041 million in FY19e.

Valuation and Target Price

• Valuation Method: Based on a 10X P/E multiple of FY19e earnings.
• Target Price: Revised to SGD 0.24, down from a previous level.
• Current Price: SGD 0.215.
• Total Return: Expected to be 12.1%.
• Dividend Yield: Projected to be 3.1% for FY19e.

Segment Performance

• Engineering & Construction (E&C): Revenue increased by 7% YoY to $7 million.
• Modular Segment: Helped offset weakness in the structural steel business.
• Solar Energy: Revenue grew by 62.5% YoY to $2.5 million, supported by new contracts and previously delayed projects.
• Corrosion Prevention (CP): Revenue rose by 44% YoY to $2.5 million, due to increased orders in the marine & offshore sector driven by stronger oil prices.

Key Risks

• Project Delays: The Bangladesh solar farm is delayed by three quarters, impacting earnings.
• Operational Costs: Higher expenses are expected to persist during the ramp-up phase of the modular business.
• Margin Compression: Structural steel business continues to face margin compression and weak conditions.

Financial Ratios and Metrics

• ROE (Return on Equity): Projected to be 6.9% in FY19e.
• ROA (Return on Assets): Expected to improve to 5.1% in FY19e.
• P/E Ratio: 11.2X for FY19e.
• P/B Ratio: 0.8X.
• EV/EBITDA: 5.2X for FY19e.
• Net Debt / (Cash): Projected to be -$11,423 thousand in FY19e.

Shareholder and Market Data

• Outstanding Shares: 685 million.
• Market Cap: SGD 151 million.
• 52-Week High/Low: SGD 0.25 / SGD 0.20.
• 3M Average Daily Turnover: SGD 0.25 million.
• Major Shareholders:
  • Kiat Teng Choon: 28.5%
  • Ng Han Kok: 17.4%
  • Alexander Stone R: 5.0%

Investment Recommendation

• Downgraded to ACCUMULATE: From a previous BUY recommendation.
• Reason for Downgrade: Delay in the Bangladesh solar plant project led to a 36% downward revision of FY19e earnings.

Contact Information

• Hong Kong Representatives:

  • Vaughn LI: Editor, Tel: (852) 2277 6628, Email: foreignstock@phillip.com.hk
  • Benny WANG: Dealing Director, Tel: (852) 2277 6720, Email: bennywang@phillip.com.hk
  • ZHANG Jing: Research Analyst (Transportation and Automobiles), Tel: (86) 2151699400-103, Email: zhangjing@phillip.com.cn
  • Terry LI: Research Analyst (TMT, Education, and Finance), Tel: (852) 2277 6527, Email: terryli@phillip.com.hk
  • Eurus ZHOU: Research Analyst (Pharmaceutical and Consumer), Tel: (852) 2277 6515, Email: euruszhou@phillip.com.hk
  • Tracy KU: Research Analyst (Retail and Property), Tel: (852) 2277 6516, Email: tracyku@phillip.com.hk

• Sales Representatives:

  • Aric AU: Manager, Corporate & Institutional Sales, Tel: (852) 2277 6783, Email: corporatesales@phillip.com.hk
  • Yoshikazu SHIKITA: Manager, International Sales, Tel: (852) 2277 6624, Email: yshikita@phillip.com.hk

Disclaimer

This report is not intended to provide tailored investment advice and is for general circulation. It is based on information from the company and should not be construed as a solicitation to act as a securities broker or dealer in any jurisdiction. Investors should seek financial advice before making any investment decisions.