Singapore Value Investing: 3 Key Points About Tai Sin Electric

Tai Sin Electric Limited is an investment holding company which engages in manufacturing electrical cables & wires and switchboards; distribution of industrial electrical materials and provision of testing & inspection services. We highlight 3 key points about Tai Sin Electric for potential dividend investors.

Consistent profitability with prudent debt management

Tai Sin’s has demonstrated highly consistent profitability in the last 3 years. ROA has increased from 9.5% in FY12 to 10.7% in FY14. While ROE decreased marginally from 15.9% to 15.4% for the corresponding period, the decrease is merely a mechanical implication of lower financial leverage, and not a reflection of lower profitability. Management has been consistently paring down borrowings – debt to equity has declined from 0.32x in FY12 to 0.17x in FY14. Overall, we believe this to be indicative of a highly stable business, helmed by prudent management.

Singapore Value Investing: 3 Key Points About Tai Sin Electric

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Stable earnings record bolstered by local construction outlook

Earnings consistency is always important for a dividend play and Tai Sin will have little issue in ticking that box. Between FY12 and FY14, revenue and profit has grown at a CAGR of 5.0% and 7.7% respectively. The Building and Construction Authority (BCA) has forecasted average construction demand to be sustained between $26 billion and $37 billion from 2016 to 2019, in view of the mega public sector infrastructure projects lined up to meet the long-term needs of Singapore’s population and economy. To put things into perspective, 2014’s demand of SGD37.7bn was the highest ever recorded. This is good news for the company, but we caution against any crystal ball-gazing based on the statistics.

(SGD bn) 2011 2012 2013 2014 2015E 2016-17E 2018-19E
Construction demand 32 28.1 35.8 37.7 29-36 27-36 26-37

Strong cash generation underpins high dividend yield

Based on its current price of SGD0.35, investors are rewarded with a dividend yield of 6.4% which we believe to be sustainable, given that it corresponds to a payout ratio of 0.7x. Our payout ratio differs from the conventional and is calculated by dividing dividends paid with free cash flow. We believe this conservative approach to be more appropriate given that both are cash-based in nature. In addition, with regards to the sustainability of dividends, capital expenditure has exceeded the level of depreciation in the last 3 years. This portends that management has not been overly-aggressive in paying out dividends, at the expense of under investing in operating assets which we deem to be especially important, due to the nature of Tai Sin’s business.

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I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.