Singapore-listed TTJ Holdings (TTJ), a specialist firm in the design and erection of a range of structural steel works for use in the construction of buildings, factories, plants, infrastructures and operation of dormitories recently reported its latest nine-month results.
Revenue came in at $50.7 million, a 26-percent decline against $68.7 million last year. Net profit attributable to shareholders in 9M19 fell 65 percent to $2.6 million from $7.5 million a year ago. On a quarterly basis, 3Q19 revenue came in at $16.9 million, a 41 percent from last year’s $28.7 million. Net profit was dramatically lower at $0.9 million, representing a 74 percent decline from $3.43 million in 3Q18.
Chart 1: Revenue and Margins
Source: Company’s Financials
After peaking in FY16, it appears that both revenue and margins have been on a period of downtrend (see chart 1).
In the latest quarter 3Q19, management further noted that the quarterly decline in revenue was primarily attributable to the decline in revenue from the structural steel business.
The slowdown for TTJ was also in line with that of the local construction sector. According to the latest statistical Gross Domestic Product (GDP) figures, construction output fell to $4.5 billion in January 2019, compared to the peak of about $5.3 billion in July 2016.
Chart 2: Construction Spending ($ million)
Cash And Debt Position
Looking at the overall trends in cash balances and debt levels, one might note that TTJ’s cash level has fallen from the peak of $82.2 million in FY17 while debt level remains low. As of 9M19, TTJ’s total debt-to-equity ratio was only 2.7 percent.
Chart 3: Cash And Debt Position
Source: SGX StockFacts, Company’s Financials
How do TTJ’s valuations compare with others?
|TTJ Holdings||Yongnam Holdings|
|Price-To-Book Value (P/BV)||0.71||0.35|
|Dividend Yield (%)||2.5%||N/A|
|Dividend Yield (%) – 5-Year Average||6.6%||N/A|
|Enterprise Value (EV) (S$’millions)||45.3||212.0|
|Price-To-Cash Flow (P/CF)||11.5||N/A|
|Price-To-Earnings Ratio (P/E)||15.3||N/A|
|Net Debt/ (Cash) – S$’ million||(51.5)||170.330|
One of TTJ’s closest competitors in the structural steel works space is SGX-listed Yongnam Holdings (Yongnam). Relative to Yongnam, we can see that TTJ is trading at higher valuation multiples, due to the fact that the latter is profitable.
Moreover, while Yongnam continues to be net debt of $170.3 million, TTJ is net cash position at $51.5 million. As cash balances represent the lifeblood for corporations, it is important to have sufficient cash balances in so to ease the need to on banks in times of slowdown.
While TTJ’s pristine balance sheet appears to be in rather favourable position, investors need to be mindful about the various peaks and troughs of the economic cycles. Currently, weakness in construction activities would prove to be headwind for TTJ.
Meanwhile, although TTJ’s 12-month dividend yield indicates about 2.5 percent, it is still low when compared to the 5-7 percent yield investors would get from a REIT. In addition, REITs in general also offer more stability to investors due to their committed occupancies..