Tiong Seng Holdings

[TUBInvesting]

Unsatisfied with the incongruence of my findings with the points raised by TUBInvesting, I decided to take another look into Tiong Seng.

1) I'm not familiar with the construction industry, but having done a little research, Tiong Seng's touted construction technology does not appear to be as ground-breaking as its ARs present them to be. At best, they are the current standards being promoted by the government; which Tiong Seng (and other contractors) has already been using since years ago. Advanced (modular) form work and prefabricated bathroom units has been in use since 2005. Pre-casting / prefabrication has been in use since 1995 but only in 2012 was a plant constructed solely for this purpose; $36m spent for a plant in Singapore and $15m for another joint-venture plant in JB. While precast/prefab lowers manpower costs, it incurs transportation costs. Maybe someone more informed about the construction industry can provide some insights here.

2) Yet as a contractor, Tiong Seng has actually done okay. Removing the changes to development properties from its operating cash flow, TS's FCF will be $151m over 11 years, or $13.7m per year.

FCF without accounting for changes to development properties: negative for only 2 out of 11 years.
FY16: $47.6
FY15: $9.4m
FY14: $54.7m
FY13: $6.2m
FY12: $11.1m
FY11: -$47.2m
FY10: $59.5m
FY09: $24.9m
(IPO) FY08: -$3.5m
FY07: -$6.7m
FY06: -$5m

3) The biggest risk for Tiong Seng seems to be in its development properties in 2nd and 3rd tier Chinese cities, where it was last reported to hold $320m (lower of cost or NRV). It has sucked in $366m of OCF over the past 11 years.

Operating cash flow from development properties:

FY16: $91.2m
FY15: $7.2m
FY14: -$64.7m
FY13: -$0.6m
FY12: -$39.4m
FY11: -$83.2m
FY10: -$66.2m
FY09: $39.3m
(IPO) FY08: -$19.2m
FY07: -$16.0m
FY06: -$32.6m

4) It therefore appears that the construction business -- together with the massive loans -- has been financing the development properties in China. TS could be hamstrung if it is unable to sell these properties, or destabilised if the property market dives. More recently, TS acquired 2 sites in district 10 (Singapore) at a cost of 60% of $80.5m. While it presents itself as a high-tech construction outfit, it is apparent that its ambition is to be a developer.

Just to add, if you read more of the reports, Tiong Seng sold more units than they reported. I believe the FCF from the china properties will increase over the next 2 years. Furthermore, these projects are in cities where it is getting more and more popular. I believe the units will eventually be sold out.

Currently Tiong seng went to a JV with Ocean Sky International on 2 plots of land in Singapore. I think the future "money" will be used to fund these 2 projects which will be massive.

As for construction, my value add is that this will be their core business to continue to generate margins to support their on-going operations and future developments.

The main thing about Tiong Seng is that it seems more like a growth company than one that is value. The risk is still in its massive liabilities and how it will continue to be managed.

<Vested, will consider to sell off all if the share price continues upwards)