By TEH HOOI LING

 

BETWEEN 2003 and 2007, crane company Tat Hong saw net profit soar from $8 million to $79 million. And during the same period, its market capitalisation rose from $90 million to $962 million.

 

Meanwhile, CSC Holdings, a specialist contractor in foundation and geotechnical engineering, has turned around from a loss of $5.3 million in 2003 to a net profit of $8.6 million for the year ended March 31, 2007. Recently, it said it had bagged a $240 million piling and diaphragm walls contract for the Marina Bay integrated resort. As at yesterday, CSC's market cap was about $390 million - up 34 times from $11.12 million at end-March 2003.

So both these companies, riding the construction boom in Singapore and the region, have done tremendously well. And their market value has been adjusted to reflect that. Tat Hong is trading around 20 times last year's earnings excluding one-time profit, while CSC is valued at 45 times historical earnings.

But one company - albeit a much smaller one - that is a cross between Tat Hong and CSC in terms of business is pretty much still below investors' radar screens. PSL Holdings is involved in foundation engineering services, which include micro-piles, bored piling, jet grouting and geotechnical works. The second part of its business is supplying marine and construction hardware and renting heavy equipment - for example, crawler cranes and hydraulic hoses.

For the year ended Dec 31, 2006, its net profit was a mere $2.25 million on turnover of $25 million. But that was a return to the black from a loss of $1.5 million in 2005.

Last year, all the profit was made by the trading and equipment rental division, while piling and engineering work was $791,000 in the red. Both divisions contributed almost equally to the top line.

For the current year, PSL is poised to see significant improvement in its bottom line. According to managing director Lee Cheng Peck, piling and engineering operations have $14 million of contracts in hand. These will be completed by September. And he is confident of bagging $10-15 million of new contracts in the next six months.

Meanwhile, with jobs chasing contractors, gross margin is now in the region of 25-35 per cent, up from 10-15 per cent last year. And prior to last year, PSL was working on a gross margin of 5 per cent 'just to keep our machinery and staff going', said Mr Lee. A veteran of more than 20 years in the industry, Mr Lee thinks the current cyclical upturn will last until 2011.

As for crane services, PSL has thirty 50 to 250-tonne cranes - all of them rented out. There is such a shortage of cranes in Singapore that PSL has sold five recently purchased cranes from Japan even before they are delivered here.

In view of the positive industry outlook, PSL is looking to raise funds to expand its business. It intends to trade two of its old piling machines for four new ones and to increase its number of cranes to 80. Each new piling machine costs about $1 million while the price of a cranes averages about $300,000.

'We have gone through the bad times and now that things have turned around, there's no reason why we can't perform,' said Mr Lee.

Indeed, assuming PSL can chalk up net earnings of about $4.5 million this year, it would be trading at just 7.2 times the year's expected earnings. Its historical PE is 14.3 times.

Granted, it is smaller than CSC and Tat Hong, and perhaps not as aggressive in its expansion as them. But the discount appears too big in such a strong cyclical upturn as the one we are witnessing, with $19 billion of contracts expected to be awarded this year, up from $14 billion in 2006. The integrated resorts, numerous en bloc redevelopments and projects on Jurong Island will ensure strong orders for the next 3-5 years.

Some smart investors have already noticed PSL - its share price has risen by a whopping 200 per cent in the past two months. Last week, Mr Lee and another substantial shareholder, Lee Tian Lye, placed out 10 million shares or a 6.18 per cent stake to institutional investors at 18 cents each. Since then, the share price has risen to 24 cents.

But based on the valuation measures above, even at this level there appears to be more upside potential.