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Sin Heng Enjoys Fruitful Year; Postures For A New Breakthrough
Corporate Digest | 30 August 2013
By: Choo Hao Xiang
Articles (151) Profile

As the saying goes, you must have your next idea waiting in the wings to stay ahead. Coming up with something good would indeed need tons of work; nonetheless, a necessary preparation in today’s intensely competitive environment. That is how Sin Heng Heavy Machinery Limited intends to keep itself ahead of the curve. Be it getting its hands on the latest technology or being a first mover in an emerging nation, the home-grown crane operator is readying itself for its next big break.

When a business opportunity comes knocking, one would certainly not let it slip by. Still, the materialisation of such an opportunity would need a corporation to be prepared – financially and operationally – to ensure a favourable outcome.

For the last couple of years, Sin Heng has been suiting up – building a solid base that provides a springboard for overseas ventures. That message was clear as Don Tan Cheng Soon, chief executive officer of Sin Heng, shared with Shares Investment recently in an interview. Apart from additions to its equipment rental fleet, Don said, “Our financial position is healthy and that will enable us to continue expanding our business in the region. By leveraging on the network of Toyota Tsusho Corporation, our second largest shareholder, we are in a good position to broaden our market presence.”

Staying Young
Armed with an operating history of over 40 years, the lifting service provider is driven by two core complementing units: rental and trading of new and used cranes as well as aerial lifts. The company provides comprehensive lifting solutions to a wide range of industries, spanning from infrastructure, construction, oil and gas to offshore and marine.

Sin Heng, one of the largest buyers of Kobelco cranes in the world, had recently celebrated its 300th unit milestone. Besides Kobelco, Sin Heng is also the authorised distributor of another global leading hydraulic crane manufacturer, Kato, in Brunei, Indonesia and Malaysia. In addition, Sin Heng is granted the distributorship to deal in mini crawler cranes, known as Mighty Cranes, and its related parts in Brunei, Indonesia, Malaysia, Myanmar and Singapore.

Having a comprehensive and young fleet is crucial in Sin Heng’s line of business. Besides regulatory requirements and cost savings in terms of repair and maintenance, the company takes a strong view on providing operational efficiency, reliability as well as professional and excellent services.

Understanding The Market
In a bid to strengthen its market share in each geographical region, Sin Heng has always been orchestrating each strategic move carefully. However, managing these moves is not easy. Being in a capital-intensive industry, Sin Heng has to choose its spots. “We are always studying market requirements based on potential works to be announced in a six- to nine-month horizon,” Don elaborated. Being familiar with the upcoming projects would enhance the company’s position to supply cranes with certain specifications when demand hits the market.

Overseas Ventures
Since going public in February 2010, Sin Heng has commemorated each financial year with a purposeful milestone. For fiscal years 2010 and 2011, the company secured distributorships from Kobelco and Kato. The next two fiscal years saw a major endorsement by Toyota Tsusho Corporation, which invested in a 27 percent stake in Sin Heng, as well as the establishment of an arm in Myanmar and Indonesia.

Another important piece of the puzzle was worked out earlier in the year. In June, the company made a cash call which involved a rights issue that raised net proceeds of approximately $17.9 million. The funds flowing from the exercise would be mostly channeled towards the company’s expansion in Singapore and also, beyond the shores of Singapore.

Each of these steps fit into the company’s plans to venture into developing countries, more specifically Myanmar. Don sees significant opportunities in the country bestowed with natural resources. Opening its economy for the first time in decades, Myanmar is expecting to see major transformations; bulk of it should come in the form of infrastructural development, which is where construction equipment is much needed.

Besides Myanmar, Sin Heng has also expanded into Indonesia. It recently incorporated a wholly-owned subsidiary to engage in the wholesale of equipment and after sales service. Apart from these new overseas markets, Sin Heng is also optimistic on the growth potential in Malaysia and Vietnam. It now has separate offices in Hanoi and Ho Chi Minh City to serve the rapidly urbanising country. As for the moderately-developed Malaysia, the government’s 10th Malaysia Construction Plan will continue to provide business opportunities with more toll highways, power generation plants and other infrastructure development in the pipeline.

Banner Year
“Having gone through three crises, we have set up the goal of having a steady growth,” Don explained when queried about an ideal revenue mix for Sin Heng. The company is evidently seeking to inject more stability into its performance by growing and diversifying into new and existing markets.

For the financial year ended 30 June 2013, the firm raked in $13.7 million in earnings, a 45.1 percent jump over $9.4 million a year ago. The company’s top line rose 44.3 percent to $186.5 million from last year’s $129.2 million. Of the $30.2 million in gross profit, $19.1 million or 63.2 percent was contributed by its rental business and $11.1 million or 36.8 percent was contributed by its trading business.

Underpinning its robust performance were broad-based growth across its business segments, driven by Sin Heng’s expanded fleet and strong demand for cranes and aerial lifts in the domestic and regional markets. Geographically, Singapore continued to be the group’s main revenue contributor.

With Singapore planning to add 1.59 million more people to its population size to bring it to 6.9 million in the next 17 years, one can be sure that the pipeline of construction projects is quite healthy. More notably, big infrastructure projects such as the planned Thomson MRT line and North-South Expressway, and the recently announced Changi Airport Terminal 4 will provide Sin Heng with much to look forward to. In addition, the redevelopment of Paya Lebar Air Base and the surrounding area will sustain the local construction demand into the next decade.

Valuation
Based on its closing price of $0.20 on 28 August 2013, Sin Heng is trading at a 9 percent discount to its book value per share. The price tag also translates to a price-earnings ratio of 6.7 times based on its FY13 earnings.

One other item that might catch investors’ attention is its dividend yield. Based on FY13 dividends, its dividend yield stood at 4 percent.

With all the groundwork laid down by Sin Heng, it does seem like the company is opening a new chapter. Notwithstanding the uncertainty surrounding in the region, all its preparation work would certainly put Sin Heng in good stead to push ahead.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

Please click here for more information about this author.


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