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TA Corporation: Driving Growth Through Diversification
Corporate Digest | 31 July 2015
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By: Tan Jia Hui
Articles (82) Profile

The dynamics of Singapore’s property market has changed a fair bit since the last time Shares Investment caught up with the management of TA Corporation (TA Corp) in 2012. Private home sales hit a six-year low in 2014 and are set to deteriorate further this year unless a sharp reversal occurs.

However, TA Corp’s chief executive officer, Neo Tiam Boon, remained optimistic about the group’s prospects and gave us insights to the latest plans and projects that are in line.

Diversification will be the main catalyst driving the company forward, a strategy that championed most parts of our discussions.

Expanding Business Segments; Creating Synergies
TA Corp’s roots began in construction before expanding into property development. Then in 2012, the firm added the distribution of high performance motor oils and lubricants into its business portfolio, through the acquisition of Sino Tac Resources, the sole distributor of British Petroleum’s (BP) high performance motor oils and lubricants in Singapore.

The group has since grown its distribution business, reaching into Thailand and Myanmar through strategic joint ventures. The company’s enlarged distribution portfolio – Myanmar: Shell Petroleum’s automotive, industrial and aviation lubricants, GS Oil products, Iveco trucks and Continental brand tyres, Thailand: Repsol brand lubricants – has moved beyond just oil and lubricant products.

While the distribution business only accounted for approximately 5 percent of FY14’s revenue, management is confident that the segment can grow into a key pillar of the group’s business, given its scalability.

Besides its foray into new businesses, TA Corp is also looking to invest in businesses that will complement its core construction business. One such initiative is the construction of a pre-cast concrete manufacturing plant in Johor, Malaysia.

Apart from satisfying its own needs and reducing costs for its own project, the firm also aims to leverage on the industry’s growing demand for precast components to sell its precast products.

Although the facility is expected to be operational in 2016, production may start earlier in 4Q15 and will only cater to its own demand in the initial phase. External parties have expressed interest in the purchase of precast components from the group, according to management, and such deals would be explored when the facility gets fully on board.

Recurring Income From New Dormitory
Given the project-based nature of construction and property developments, TA Corp has also moved to expand its dormitory business to build higher recurring income streams, through its 62 percent stake in a 9,200-bed workers’ dormitory in Tuas, which is named ‘Tuas South Dormitory’.

Tuas South Dormitory (Artist Impression), slated to open in 2016

The dormitory is slated for completion in 2016 and will house workers from any industry. Given an average price of $300 per bed, it may contribute more than $33 million to turnover per year (assuming full occupancy).

Though there are concerns of an oversupply of workers’ dormitories in Tuas – direct competition from two dormitories in the area (one of which is still under construction and expected to open in 2016 to 2017) – prospects are still rather favourable for the group.

Firstly, the Urban Redevelopment Authority (URA) has put a freeze on temporary dormitories in 12 industrial estates, Tuas inclusive.

Secondly, since May 2015, workers in the marine and process sectors are no longer allowed to be housed in public flats, as announced by the Ministry of Manpower.

Lastly, one of the directly competing dormitories (opened in 2H14), is a temporary dormitory with a 3+3 years’ lease (TA Corp’s dormitory has a 20 years’ lease).

The above factors combined should help support healthy demand at the group’s dormitory when it opens.

Tapping On Local Partners For Overseas Venture
Recognising the size constraints in Singapore’s market, TA Corp has expanded the footprints of its property development business overseas to China, Thailand, Cambodia and has plans for Myanmar.

Performance of the group’s foreign ventures has been commendable; the first seven phases (2,949 available units) of its 25.4 percent-owned township project – Singapore Gardens – in Dalian City is over 78 percent sold despite slowdowns in China’s property market.

Additionally, the group has also sold out its first two projects in Thailand with a third project currently under development with over 62 percent sold to date.

So, what is the secret to TA Corp’s success overseas?

Neo shared that his approach to overseas ventures is to team up with a local partner. In fact, all of the firm’s overseas developments to date are done through joint ventures.

Indeed, this is a practical move, as the local partner would have more knowledge of the relevant markets and would be in a better position to advice on the feasibility of a project. The company would then be able to save time and reduce the chances of costly mistakes.

Going forward, ventures abroad will play an increasingly important role in the growth of the group, against the background of a softening construction and property sector in Singapore. TA Corp has its focus set on the Cambodia and Myanmar markets for the next few years. As emerging economies, the two markets provide greater growth potential.

In particular, a smooth general election in Myanmar in November may set the tone for swifter progress in the nation’s economy and may draw more investments in the country, hence benefitting the company’s business as well.

Exciting Project In The Pipeline
During the interview, management was enthusiastic when sharing about the group’s latest development, a multi-storey mixed development comprising retail, commercial and residential components in Phnom Penh, Cambodia.

The Gateway (Artisit Impression), An upcoming iconic landmark mixed-development in Phnom Penh, Cambodia

The project is known as The Gateway – given its location along Russian Boulevard, a main thoroughfare between central Phnom Penh and the airport – and is situated in a prime area near the Prime Minister’s office, an upcoming Parkson’s mall, universities and banks amongst others.

TA Corp has zoned in on prospective buyers, and will launch the project first in Taiwan followed by Singapore. Taiwanese have been investing in Cambodia for many years with the presence of Taiwanese corporations in the country. As such, they are likely to have a better understanding of the economic climate in Cambodia and be keener to invest in its property market.

On the other hand, a Straits Times article in June noted that Singapore property investors are treading into the less familiar Cambodia property market, albeit still in relatively small numbers. Local investors could be looking overseas for better returns and hence are target investors of the firm.

Singapore Market Still Relevant
Although limelight is focused on the overseas market, it is not to say that TA Corp is leaving the Singapore market behind.

As at 31 March 2015, the company’s construction order book stood at $296.6 million, with delivery stretching over the next 24 months. Recognising a softening of the local construction market, the group will still actively take part in tenders, but noted that it will be selective in its projects, aiming for at least 20 percent gross margins for prospective projects.

Save for current developments still in progress, including The Skywoods and Ascent@456, plans are underway to develop a freehold plot at Shan Road that is in the group’s land bank. TA Corp does not rule out shifting its focus back to Singapore when market conditions recover, noting it is still an important market for the firm.

Going forward, TA Corp will also seize opportunities for inorganic growth through mergers and acquisitions but will be prudent in doing so. The group’s current gearing stands at 1.4 times (FY13: 0.8 times) – after seeing a rise in net borrowing to finance its dormitory project – while interest coverage ratio remains rather healthy at 6.7 times.

Meanwhile, the current projects on hand should keep TA Corp busy in the near term and while we wait to see how the diversification game pans out.

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

TA Corp  0.215 -0.025 -10.42%   
Business: Co is engaged in the construction industry as well as the devt & sale of residential & other types of ppties. [FY17 Turnover] Construction (67.8%), real estate invs (7.3%) real estate devt (13.1%) & distribution & others (11.8%).

Insight: May-18, 1Q18 revenue slumped 46.3% to $32.8m mainl... Read More


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