Tai Sin Electric Limited (“TSE”) on 26 August 2022 have announced their full year result ending 30 June 2022 and has not only managed to continue delivering resilient results but have increased the final dividend for the financial year. We will dive into the results to determine if the increase in the dividend yield is stable and worth considering for the long term.
Edit on February 2025: Due to image formatting issues and change in writing style, I have removed images that were used in this article. This will allow for a more professional presentation of the website. As the information here pertains to periods that are many years ago, please refer to the latest post for this category for the most updated information.
Edit on March 2025: Formatting updates.
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 FY2022 full year audited results announcement on 26 August 2022, it was noted the revenue increased by 27% to SGD379million (FY2021: SGD298million). It is also above their 5 year average since since FY2017.
The significant contribution came from their Cable & Wire (“C&W”) and Electrical Material Distribution (“EMD”) segments.
The C&W segment’s revenue increased by 33.28%, up SGD58.04 million from SGD174.38 million to SGD232.42 million. The higher revenue was from Singapore, Malaysia and Vietnam’s C&W segment, driven mainly by increase in copper prices and higher sales volume. The increase was also because of construction activities picking up after relaxation of border restriction on the inflow of migrant workers and low base effects given the slow resumption of business activities after the Circuit Breaker Period (“CBP”) and Movement Control Order (“MCO”) in the first half of the financial year ended 31 December 2020.
The EMD Segment registered revenue of SGD110.03 million, which was a growth of SGD23.02 million, 26.45% higher than SGD87.01 million in FY2021. The growth was supported by expansion in the Electronic Cluster and Building & Infrastructure Cluster. The Electronic Cluster continues to record strong performance driven by sustained global demand for semiconductors and semiconductor equipment while the growth in the Building & Infrastructure Cluster is underpinned by the resumption of construction activities.
The increase in revenue is a Favorable aspect of a dividend stock. It shows they are able to capitalize on the recovery from Covid-19 to generate higher revenue and also pass the rising costs on to their customers.
Earnings per share
Gross profit increased by 93% to SGD80 million for FY2022 compared to SGD41 million in the previous financial year.
Despite the significant increase in gross profit margin, their net profit margin amounted to SGD22.2 million for the financial yea, which is only an increase by 27%.
Similarly, earnings per share will also only increase by 27%.
The reason for the drop is due to in the prior financial year, there were government grants provided to alleviate the impact of Covid-19 which is absent in 2022 as reflected in the significant decrease in other operating income. Nonetheless, it shows that TSE is able to now generate sustainable profit, and this is Favorable in view of the rising costs in the macro environment.
Operating Cash Flows
Operating cash flows have decreased to overall a net cash used in operating activities of SGD7.4 million in FY2022.
Diving deeper into it, this was mainly due to an increase in inventory balances which resulted in an overall change in working capital due to inventory of SGD29 million for FY2022. This is evidenced from the overall increase in inventory balances to SGD98 million as at 30 June 2022, compared to SGD69 million as at 30 June 2021.
Similarly, working capital due to trade receivables have also experienced a decrease by SGD24 million, as evidenced by the increase in trade receivables to SGD109 million as at 30 June 2022 compared to SGD87 million as at 30 June 2021.
Management have highlighted that the increase in inventory balances were due to higher purchases towards period end. In my opinion, it may be a good sign to stock up on inventory at lower costs especially due to the rising inflation and supply chain disruptions, inventory may be more expensive in the future resulting in higher costs of sales.
Trade receivables increase were due to higher sales during the period. This can be evidenced with the increase in sales. However, the 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. Especially as the world economy enters into recession, many companies may start facing cash flow issues.
In my opinion, this metric is Neutral. Investors will need to keep an eye out in cash the company start experiencing cash flow issues in the near future.
Price-to-book ratio
Net Asset Value (“NAV”) of the Group as at 30 June 2022 also increased to SGD0.438 per share (FY2021: SGD0.413). Based on the closing share price of SGD0.385 as at 26 August 2022, this translates to a Price-to-book (“P/B”) ratio of 0.88. This is Favorable as it translates to paying a discount for TSE business.
Debt-to-equity ratio
After adjusting for their provision for onerous obligations as at the end of each financial year, Debt-to-equity ratio for FY2022 have increased to 46% as at 30 June 2022 compared to the previous financial year of 37%. The increase in debt is due to higher bank borrowings by the C&W Segment and EMD Segment for purchase of inventories, and by the T&I Segment for working capital purpose. Furthermore trade payables increased by SGD10.15 million, substantially due to higher purchases by the C&W and EMD segments towards current period end.
Coupled with the continued build up of inventory and trade receivable balances as at 30 June 2022, this metric is Neutral as TSE can be seen to become more reliant on external sources to fund operations. However, with the profitable continuing operations, this can be lowered in the near future.
Sustainable dividend yield
With the increase in final dividend announced of SGD0.016, this brings the dividends for the calendar year 2022 to SGD 0.0235 which translates to a yield of 6.10% based on the closing share price of SGD0.385 as at 26 August 2022.
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.
Insider Purchases
There has been consistent purchases, with the latest on 12 May 2022, by his wife and daughter of 278,000 shares at SGD0.39 per share.
This purchases signifies management’s confidence in the company, and that they believed the current share price to be undervalued.
Key things to note
Russia invasion of Ukraine
Russia’s invasion of Ukraine in February 2022 have resulted in major supply chain disruptions, and the newest tensions between China and Taiwan is likely to make things worse.
Website: China’s Taiwan war games threaten more global supply chain disruption: Analysts
The Chinese military exercises around Taiwan are set to disrupt one of the world’s busiest shipping zones, which highlights the island’s critical position in already stretched global supply chains as it is used to supply vital semiconductors and electronic equipment produced in East Asian factory hubs to global markets. The routes are also a key artery for natural gas, and nearly half the world’s container ships passed through the narrow Taiwan Strait – which separates the island from the Chinese mainland – in the first seven months of this year, according to data compiled by Bloomberg.
These tensions creates barriers in the market, disrupting the movement of commodities, and this impacts our supply chains which comes with attendant near weekly price increases, fueling the fires of inflation. As a result, most businesses and millions of consumers worldwide are feeling economic pain.
Although these have no direct impact, TSE still rely on global markets especially for sourcing of materials. Furthermore, it is difficult to say if their customer’s business operations will also be affected, which in turn lower their purchases from TSE.
Rising costs
Not only from the Russia invasion, Covid-19 continues to ravage the supply chain. Especially as there are still restrictions in place on transportation around the world. The result is that there is a continued shortage around the world which is causing inflation to rise in 2022.
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.
Website: Singapore core inflation rises to 4.8% in July but official full-year forecasts unchanged
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 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 moving forward relating to their operations. Notably, a possible significant increase to their cost of sales.
