Tai Sin Electric Limited (“TSE”) has recently caught my attention as a stock that is not a financial institute nor Real Estate Investment Trust and yet able to provide stable dividend yield. They have recently announced their full year ending 30 June 2021 results, which shows promises that the dividend yield is more than stable and worth considering for the long term.
Background
TSE is a Singapore-based investment holding company. The Company is engaged a cable and wire manufacturer and dealer in such products. Listed on the Stock Exchange of Singapore Catalist (formerly known as SESDAQ) in 1998, the Group was subsequently transferred to the SGX Main Board in 2005. Its operating segments include Cable & Wire (C&W), Electrical Material Distribution (EMD), Switchboard (SB), Test & Inspection (T&I).
TSE’s Cable business builds its success on the aggressive development and marketing of a comprehensive range of high quality cables through a distribution network serving a diverse range of industries, while maintaining strong partnerships with reputed consultants and main contractors. Working together, they provide competitive electrical cabling and wiring solutions for both the private and public sectors in all categories of industrial, commercial, residential and offshore & marine projects.
To cater for the robust growth in the regional market, TSE operates three cable manufacturing plants. They are located in Singapore, Malaysia and Vietnam, all of which are fully equipped with the latest manufacturing facilities and technologies to meet increasing demands.
TSE is strongly committed to making continual advancements in technology and innovation, both of which are their greatest strengths. Their ISO 9001, ISO 14001 and OHSAS 18001 certifications and conformity to various world-class standards are solid testimonies in their efforts to achieve excellent quality in both their manufacturing process and products.
Financial highlights
Revenue
Based on the FY2021 full year audited results announcement on 26 August 2021, it was noted the revenue increased by 8% to SGD298million (FY2020: SGD276million). Nonetheless, it is worth noting that their revenue has only remained relatively constant at an average of around $305 million since FY2016.
While the relatively stagnant revenue growth is worth taking note of, it is not unexpected given that TSE have been giving out their profits as dividends over the past few years, resulting in a high dividend yield. Nonetheless, being able to maintain their revenue is a Favorable aspect of a dividend stock.
Earnings per share
Gross profit decreased by 7% to SGD41 million (FY2020: SGD44 million). The reason gross profit decreased is due to a provision for onerous contracts of SGD22 million was booked for FY2021, of which none was noted in the previous financial year. Based on the announcement, the provision for onerous contact was due to copper price.
Given the nature of their business segments, copper price is a natural raw material used and recognised as cost of sales. The recent disruptions in supply chain and lack of supply has resulted in copper prices increasing significantly in FY2021. Thus there are projects that were originally profitable, now deemed to be loss making and provision for onerous contracts are required to be made.
Below is a chart of the recent copper prices:
Profit however increased by 75% to SGD 18million (FY2020: SGD10 million). The reason is that while the increase in copper prices affected their cost of sales, they recognised an increased in other operating income of SGD20 million (FY2020″ SGD7 million), attributed mainly to higher fair value gain on derivative financial instruments of SGD10.802 million as the Group benefited from the increase in copper price towards year end. In addition, the Group recognised grant income of SGD7 million under government schemes to support businesses amid the COVID-19 pandemic. Excluding the government scheme, net profit would have remain unchanged.
With the increase in profit, the Basic and Diluted earnings per share for FY2021 have increased to SGD0.0375 per share (FY2020 SGD0.0214). If we were to exclude the one-off government scheme, earnings per share would not have changed significantly. This is Favorable in view of the rising costs in the macro environment.
Operating Cash Flows
Net cash generated from operating cash flows however have decreased to SGD26 million in FY2021 compared to SGD33 million in FY2020. This represents a decrease by 20% from the prior year.
Diving deeper into it, this was mainly due to an increase in trade receivables from third parties to SGD89 million as at 30 June 2021 from SGD59 million in 30 June 2020. The significant increase in trade receivables from third parties is something to keep an eye out for as may indicate in potential allowances for expected credit loss due to the receivables being uncollectible. This is however, Favorable in view of the rising costs in the macro environment, the company is still able to generate cashflow from operations.
Price-to-book ratio
Net Asset Value (“NAV”) of the Group also increased to SGD0.413 per share (FY2020: SGD0.392). Based on the closing share price of SGD0.390 as at 1 October 2021, this translates to a Price-to-book (“P/B”) ratio of 0.94. This is Favorable as it translates to paying a discount for TSE business.
Debt-to-equity ratio
Debt-to-equity ratio have increased to 53% as at 30 June 2021 compared to the previous financial year of 34%. It was worth nothing however this was due to the provision of onerous contract of SGD22 million. If excluding this amount, the debt-to-equity ratio will be 37%, which is not substantial change from the prior year. This will be Favorable as TSE will thus be less reliant on external sources to fund operations. With the profitable continuing operations, this can be further lowered in the near future.
Nonetheless, the provision for onerous obligations still represents possible future obligations, and we will need to keep an eye out for it.
Computation as below:
Sustainable dividend yield
With the exception of 2020 due to Covid-19, TSE have been distributing relatively constant dividends of around SGD0.023 since throughout the years.
Based on the closing share price of SGD0.390 as at 1 October 2021, this translates to a recurring dividend yield of 5.77%. In my opinion, this is sustainable in view of the earnings per share have been more than sufficient to cover the dividends paid out.
For a Company that is involved in the manufacturing business, this is a favorable dividend yield, comparable with Real Estate Investment Trusts (“REITs”) whose mandates are to distribute majority of their earnings as dividends.
Insider Purchases
On Sept 20, Tai Sin Electric Tai Sin Electric: 500 -1.28% executive director and CEO Bernard Lim Boon Hock acquired 350,000 shares of the company for a consideration of S$133,000.
At an average price of 38.0 cents per share, this took Mr Lim’s total interest in Tai Sin Electric from 16.99 per cent to 17.07 percent, and followed his acquisition of 504,600 shares at 38.4 cents per share between Sept 2 and 6 and 2,312,600 shares at 37.9 cents per share between Aug 27 and Sept 1.
This purchases signifies management’s confidence in the company, and that they believed the current share price to be undervalued.
Key things to note
Rising costs
In 2021, new Covid-19 variants have appeared and these are noted to be more contagious. TSE derives majority of its revenue from Singapore, where since the outbreak in 2020, various forms of pandemic-related restrictions have been imposed by the government in Singapore. Operations are expected to continue to be affected due to manpower shortages. Furthermore, Singapore being a country heavily reliant on the imports from overseas, with the major supply chain disruptions around the world and as seen from the provision for onerous contract, costs for the business are expected to rise as well.
Summary
In conclusion, TSE is a company with strong results along with sustainable dividend payouts. In view of the impact of Covid-19, TSE has proven itself to be a reliable defensive stock in today’s volatile market.
I believe the closing share price of SGD0.390 as at 1 October 2021 to be Under Valued, and the stock is a good option for those considering to add for its long term sustainable dividend payout. However, as Covid-19 is expected to continue for extended periods of time, investors do need to keep an eye out for any possible new moving forward relating to their operations. Notably, a possible significant increase to their cost of sales.
