On 13 February 2023, Tai Sin Electric Limited (“TSE”) have announced their half year result ending 31 December 2022. Overall their results continue to be resilient, and their dividends continue to be well-sustained by the operations. They have announced a dividend of SGD0.0075 per share to be paid out in April 2023, in line with the previous financial year.
It is worth noting though that their operating cashflows continue to be negative with the rising copper prices and their continued build up of inventory. TSE had taken up more bank borrowings this half of the year to fund their operations. In the current high interest rate climate, this is something investors should take note off. If TSE is unable to secure new contracts to pass on the higher copper prices to their customers, having a high debt balance sheet may adversely affect their earnings in the future.
Management have continued to actively manage this risks, continuing to hedge against the copper prices and making the necessary provisions for onerous contracts. This will help to smoothen out the earnings over the next few years, and provide assurance to investors that there will not be major fluctuations to their financial position.
Website: Financial Statements And Related Announcement::Half Yearly Results
Photo source: https://www.taisin.com.sg/about-us/
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
| Metrics | Current | Previous |
|---|---|---|
| Revenue | +31.3% | +27.0% |
For the first half year of FY2023, it was noted the revenue increased by 31.3% to SGD229.6 million compared to SGD174.8 million for 2022Q2. The significant contribution came from their Cable & Wire (“C&W”) and Electrical Material Distribution (“EMD”) segments.
The C&W segment’s revenue increased by 45.78%, up SGD47.551 million from SGD103.8 million in 2022Q2 to SGD151.4 million in 2023Q2. The higher revenue was from Singapore, Malaysia and Vietnam’s C&W Segment, driven mainly by higher sales volume as both public and private sector construction activities continued to recover. In addition, 2023Q2 sales were also boosted by revenue contribution from a newly acquired Malaysian subsidiary.
The EMD Segment registered revenue of SGD60.8 million, which was a growth of SGD7.8 million, 14.68% higher than SGD53.0 million in 2022Q2, driven by stronger sales from the Building & Infrastructure Cluster and Chemical, Oil & Gas Cluster.
The increase in revenue is a Favorable aspect of a dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | +40.0% | +27.5% |
Gross profit increased by 14.0% to SGD35.2 million for 2023Q2 compared to SGD30.9 million in 2022Q2. The smaller than proportionate increase was due to cost of sales have increased more than the increase increase in revenue.
Despite the decrease in gross profit margin, their net profit margin increased by 39.4% amounting to SGD12.0 million for 2023Q2. This was due to the decrease of other operating expense, which in 2022Q2 there were higher fair value loss on derivative financial instruments and higher loss allowance for trade receivables. Lower loss allowance for trade receivables during the current period mainly due to improvement in collection from the C&W Segment’s customers.
Similarly, earnings per share increased by 40.0%.
This is Favorable in view of the rising costs in the macro environment. It shows that TSE is able to generate sustainable profit and pass on costs to the customers. The improved in collection of trade receivables is also a good indicator of the financial health of their customers.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | +17.3% | -128.2% |
Operating cash flows are still in an overall a net cash used in operating activities of SGD8.6 million for 2023Q2, though the net cash used have decreased by 17.3%.
Diving deeper into it, this was mainly due to cashflow adjustments relating to provision for onerous contracts. For 2023Q2, there was a decrease in cashflow adjustment of SGD2.9 million due to the reversal recorded compared to 2022Q2, cashflow adjustment increased by SGD4.8 million for a provision.
This was further weighed down by a decrease in trade payables, indicating an overall repayment of towards their suppliers.
The overall was offset by:
- The decrease in trade receivables indicating collection from their customers, where there is an inflow of SGD1.0 million in 2023Q2 compared to outflow of SGD9.9 million in 2022Q2.
- Lowered cash outflow from their increase in inventory balances. This is evidenced from the overall cash outflow for working capital relating to inventory of SGD11.4 million in 203Q2 as compared to SGD17.6 million in 2022Q2.
Management have highlighted that the increase in inventory balances were due to higher purchases towards period end. It may be a good sign to stock up on inventory at lower costs especially due to the continued rising inflation and supply chain disruptions, inventory may be more expensive in the future resulting in higher costs of sales.
In my opinion, this metric is Unfavorable. The cashflow from operations continues to be negative and that TSE have to obtain cash from financing activities. Investors will need to keep an eye out in case the company start experiencing cash flow issues in the near future.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.92 | 0.88 |
Net Asset Value (“NAV”) of the Group as at 31 December 2022 also increased to SGD0.444 per share (FY2022: SGD0.438). Based on the closing share price of SGD0.410 as at 17 February 2023, this translates to a Price-to-book (“P/B”) ratio of 0.92. This is Favorable as it translates to paying a discount for TSE business.
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | 59.5% | 46.1% |
I have adjusted for their provision for onerous obligations as at the end of each financial year as it is a management estimate and not directly related to financing the company. For 31 December 2022, the provision amounted to SGD9.6 million. The adjusted liabilities and equities will be SGD128.3 million and SGD215.7 million respectively.
| Financial | SGD’000 | Adjusted SGD’000 |
|---|---|---|
| Total Liabilities | 137,956 | 128,336 |
| Total Equity | 206,103 | 215,723 |
Debt-to-equity ratio for 31 December 2022 have increased to 59.5% compared to the previous financial year of 46.1%. The increase in debt is due to primarily because of higher bank borrowings by the C&W Segment for purchase of copper.
This metric is Unfavorable as TSE can be seen to become more reliant on external sources to fund operations. TSE will need to lower this with the profitable continuing operations in the future.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest coverage | 14.4x | 27.1x |
The interest coverage stands at 14.4 times as at 31 December 2022, using profit before tax of SGD14.9 million and finance costs of SGD1.1 million. This is due to the Group has taken up significant bank borrowings to fund their operations, up to SGD66.8 million as at 31 December 2022 compared to SGD31.3 million as at 30 June 2022.
While the increase in borrowings have resulted in an unfavorable debt-to-equity, TSE currently generates profits to ensure sufficient interest coverage and is higher than my required coverage of 5.0 times.
The metric is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 1.83% | SGD 0.008 |
| 2022 | 5.73% | SGD 0.024 |
| 2021 | 5.49% | SGD 0.023 |
| 2020 | 3.66% | SGD 0.015 |
| 2019 | 5.49% | SGD 0.023 |
| 2018 | 5.49% | SGD 0.023 |
The dividend declared of SGD0.0075 for April 2023 payout is in line with the previous calendar year. Their earnings per share of SGD0.0259 for the first half of FY2023 is currently more than sufficient to cover the total payout noted in the calendar year 2022.
Thus with the expectation that payout remains the same at SGD0.0235 for 2023, with a closing share price of SGD0.410 as at 17 February 2023 this translates to a yield of 5.73%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. TSE’s dividend yield is within my benchmark.
Website: Reasonable Dividend Yield 2023Q1
With the exception of 2020 due to Covid-19, TSE have been distributing relatively constant dividends throughout the years. 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.
Key things to note
Rising costs
Singapore being a country heavily reliant on the imports from overseas, is also affected by the inflation seen in other countries. 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, with December 2022 core inflation rising by 5.1%.
Website: Singapore’s December core inflation rises 5.1%
This is a concern for TSE as despite the increase in revenue, their gross profit margin increased at a slower rate, resulting in higher deliveries of lossmaking projects which were secured when the copper price was low. For the short-term, this indicates that TSE is unable to pass on the increased costs to their customers, and also had to use borrowings to currently fund their operations.
It also means that the current contracts are now secured at higher copper prices. In the longer-term, when copper prices start to decrease years down the roads, the gross profit margin will increase by a significant amount. TSE will need to continue actively managing their risks through hedging to ensure they are able to capitalize on this future opportunity. Investors though will need to be comfortable with the hedging actions by management.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | +31.3% | Favorable |
| Earnings per share | +40.0% | Favorable |
| Operating Cash Flows | +17.3% | Unfavorable |
| Price to Book Ratio | 0.92 | Favorable |
| Debt-to-equity ratio | 59.5% | Unfavorable |
| Interest coverage | 14.4x | Favorable |
| Overall | | Neutral |
In conclusion, TSE is a company with strong results along with sustainable dividend payouts. TSE has proven itself to be a reliable defensive stock in today’s volatile market and the stock is a good option for those considering to add for its long term sustainable dividend payout.
However, as inflation and supply chain disruptions is expected to continue for extended periods of time, investors do need to keep an eye out for any possible new information relating to their operations. There continues to be an increase in their overall cost of operations which they will need new contracts to pass on to their customers.
Until then, investors should keep an eye out for their debt levels, as a pro-longed inflationary environment may force TSE to take up unfavorable amounts of debt in the current high interest rate environment and reduce their bottom line.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: Tai Sin Electric Limited (SGX: 500): 2022 Full Year Result
