20180903-辉立证券-800_Super_Holdings_Ltd_10页_731kb

800 Super Holdings Ltd FY18 Results and Investment Outlook Summary

Core Content

800 Super Holdings Ltd, a Singapore-based industrial company, reported FY18 results that showed revenue within expectations, but faced a significant negative surprise with a 4Q18 loss, which dragged the PATMI down by 25% compared to the analyst's estimate. The loss was attributed to transitional costs during the ramp-up of new projects and was not indicative of the company's long-term performance. The company is expected to recover in the coming quarters with the commencement of new contracts.

Key Financial Highlights

• Revenue: FY18 revenue was S$151 million, a 3.7% decrease YoY from FY17's S$157 million.
• EBIT: FY18 EBIT was S$12.8 million, down 40.8% YoY from FY17's S$21.6 million.
• PATMI: FY18 PATMI was S$9.2 million, a 46.5% decrease YoY from FY17's S$17.1 million.
• EPS: FY18 EPS was 5.12 cents, compared to FY17's 9.58 cents.
• Dividend Yield: FY18 dividend yield was 3.0%, down from FY17's 1.5%.

Key Points

Positives

• New Sludge Treatment Facility: Already operational, expected to add S$8.6 million in annual revenue.
• Pasir Ris-Bedok PwC Contract: Commenced in July 2018, contributing to FY19e revenue and expected to increase the company's competitive position.
• Future Revenue Expectations: FY19e revenue is expected to rise by 19%, and PATMI by 55%, driven by the new contracts.
• Upgrade to BUY: The stock was upgraded from Accumulate to BUY, with a new target price of SGD 1.03 (previously SGD 1.30).

Negatives

• Manpower Costs: Increased by 20% in 4Q18, contributing significantly to the earnings miss.
• Balance Sheet Weakness: YoY lower cash and higher debt/equity ratio (from 64% to 105%), which was expected due to capital expenditures.
• Dividend and Payout Ratio: FY18 dividend was lower, and payout ratio decreased to 20% from 42% due to capital expenditures for new contracts.

Valuation and Outlook

• Valuation Method: DCF with WACC at 6.9% and terminal growth at 15%.
• Forward P/E Multiple: The target price implies a 13.0x forward P/E multiple for FY19e.
• Positive Outlook: The one-quarter loss in 4Q18 is considered an aberration. The company is expected to turn free cash flow positive in FY20e.
• Market Position: The commencement of the Pasir Ris-Bedok PwC contract positions 800 Super to compete more effectively with previous incumbents.

Financial Projections

Key Ratios and Metrics

• Debt-to-Equity: Increased from 64% to 105% YoY.
• Current Ratio: Decreased from 1.70x to 0.84x YoY.
• Cash/Total Assets: Dropped from 16% to 3% YoY.
• ROE: FY18 ROE was 11.1%, down from FY17's 22.7%.
• ROA: FY18 ROA was 5.0%, down from FY17's 11.4%.
• Net Debt or (Net Cash): Increased to S$83.5 million in FY18.
• Net Gearing: Increased to 1.00x in FY18.

Conclusion

The FY18 loss is a temporary setback due to the ramp-up of new projects. The company is expected to see improved performance in FY19e and FY20e with the contribution of new contracts. The upgrade to BUY is based on the expectation of future revenue growth and the potential for positive earnings surprises. The current price of SGD 0.64 is considered undervalued with a 63.3% total return potential.

Contact Information

• Research Analyst: Richard Leow, CFA, CFTe, FRM (richardleowwt@phillip.com.sg)
• Hong Kong Representatives:
  • Benny WANG (bennywang@phillip.com.hk)
  • ZHANG Jing (zhangjing@phillip.com.cn)
  • Terry LI (terryli@phillip.com.hk)
  • Eurus ZHOU (euruszhou@phillip.com.hk)
  • Tracy KU (tracyku@phillip.com.hk)

Disclaimer

This report is not intended to provide tailored investment advice and does not take into account the individual financial situation of any specific person. Investors should seek financial advice regarding the appropriateness of any investments or securities discussed. The report is for general circulation and should not be construed as a solicitation to act as a securities broker or dealer in any jurisdiction.