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Would Property Cooling Measures In Singapore Affect Tuan Sing Holdings Limited Badly?

property

Tuan Sing Holdings Limited (SGX: T24) might be mainly known as a property developer and owner in Singapore. But, it actually has its fingers in many pies through its subsidiaries SP Corporation Limited (SGX: S13) and Hypak Sdn. Bhd.

The former is a commodities trader and tyre distributor while the latter is mainly involved with the manufacturing and marketing of polypropylene packaging bags in Malaysia.

In addition, Tuan Sing also has associates like Grand Hotel Group, Gul Technologies, and Pan-West Pte Ltd. These associates deal with hotel investments, printed circuit board manufacturing, and golf-products retailing, respectively.

But with all that said, Tuan Sing’s main bread and butter is still its property-related businesses, which contributed almost 70% of the company’s total profit for 2013. With Singapore’s property cooling measures being enacted for a while now, how might it affect Tuan Sing? The company just released its latest second quarter earnings yesterday, so let’s find out.

To put it simply, the company’s revenue from both its property and industrial services segments were hit in the first half of 2014. Total revenue declined by 22% year-on-year to only S$142.9 million. Its gross profit similarly suffered with a drop of 22% as well to S$24.3 million. Even its associates delivered lower income for the group – Tuan Sing’s share of results from associates before fair value adjustments fell 8.9% to S$9.06 million from a year ago.

All the above led to Tuan Sing’s net profit falling 8% year-on-year to S$19.3 million.

Interestingly, a significant portion of Tuan Sing’s revenue for the first half of the year  from its property division had been from the progressive recognition of sales of properties that had already been sold. This is what the company said:

“Current period revenue and profit were derived mainly from the progressive revenue recognition based on percentage of construction completion on units sold at Seletar Park Residence and Sennett Residence, as well as the initial recognition on new bookings at Cluny Park Residence.”

It’s worrying to not see more revenue coming from new bookings from new launches as that may be a sign of waning demand for the company’s properties and a further drop in revenue going forward.

If the slowdown in Singapore’s residential property market continues, it might be dangerous for Tuan Sing due to its high net gearing ratio (net debt divided by total equity) of 83% as of 30 June 2014. The company might need to find ways to improve its balance sheet if the demand in the property market does not pick up.

Interestingly, Tuan Sing’s management is confident about the company’s prospects. They commented:

“Barring unforeseen circumstances, [Tuan Sing] is optimistic of achieving better operational performance before fair value adjustments for the year 2014, as compared to 2013.”

Exactly how the company is going to achieve that remains to be seen.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above.