While listed in the Hong Kong Exchange (Stock Code:1343), Wei Yuan is a Singapore business who operates in the cable installations for power grid and telecommunication companies in Singapore. They also have a minor business segment in road surfacing. Their geographical business is in Singapore and are in the civil engineering industry.
The company is a mid tier in the civil engineering segment of Singapore holding a 5.7% market share based on its IPO prospectus.
Observations on Profits
Looking through the company's FY20 profits, it can be seen how Singapore's covid measures have affected its profitability and operations.
During the first half of 2020, Singapore issued a stop work order in a bid to stem the covid spread among foreign workers, as a result, Wei Yuan registered a loss of $4.5million on the back of $23 million revenue. However, as Singapore re-opened in the second half of 2020, they registered a profit of $1.2million on the back of $34 million in revenue.
What do I expect for 2021
First off we have to explain what happened in Singapore for 2021. For the first 4 months, thing went as per normal. However in May 2021, Singapore severely restricted the travel movement of countries which we were relied on for foreign labor. Hence, I expect the company to report the same profit of $1.2 million for the first half
As Wei Yuan projects run roughly 2 years in duration, I expect the company to be hit by labor cost over run for the remaining of FY21 and FY 22. After this, the company should start turning profitable again.
Track Record of Company Tender
Based on its IPO prospectus, the company has been able to sustain a good profit from its contracts. This shows the tendering team has placed in adequate buffer in case of cost overrun. This is a good sign as there are some civil engineering companies in Singapore (think Yongnam) whose projects have always been loss making over the past years, likely due to poor projections by the tendering team. The companies with good tendering track record, I have encountered thus far is TTJ holdings and perhaps Wei Yuan (if they maintain their record)
Valuation
In my view, the company is likely to register a $1.2million profit for 1HFY2021. This is because it enjoyed 4 months of unrestricted access to labor as well as a good domestic situation of COVID handling. Furthermore, the construction industry grew during the 1Q of 2021. For the remaining half, it is likely to be loss making, but Wei Yuan should still be able to turn in a small profit due to its good track record in tendering. Hence for FY2021, I expect the company to fully turnaround in profits with a $1.0 million profit.
Post 2022, profits should return to pre-COVID levels of $5 - $8 million. The closest comparable to Wei Yuan is TTJ holdings (though they do different civil engineering types). TTJ is trading at 14-18 times P/E on forward earnings. Wei Yuan holdings is of a similar size company to TTJ and has a slightly higher revenue base; hence I have estimated Wei Yuan to be in the value of forward 16 times P/E.
Hence, Wei Yuan will then be priced as a $80-$110 million company on the HK Exchange (TTJ market cap is s$63 million). At current SGD/HKD exchange rate, the market cap of Wei Yuan should be HK$460-HK$632 million.
No comments:
Post a Comment