Tai Sin Electric Cables
April 30 close: 51 cents
CIMB RESEARCH, April 27

A LEADING electric cable producer in Singapore: Tai Sin was incorporated in 1980, with its main business the manufacture of electric wires and cables used purely to transmit low-voltage electricity. It is the second largest producer (30 per cent local market share) of electric cables in Singapore.

Demand growth likely to be well ahead of supply potential: We believe demand for electric cables in Singapore alone should continue to outstrip local supply. Contractors can import cables but usually at a higher shipping component cost with a longer delivery time line. Thus local producers will usually be the first stop of choice. We estimate that local producers supplied a total of $340 million worth of cables in FY06. We anticipate $15 billion worth of construction contracts to be awarded in FY07-08, leading to cabling and wiring contracts worth $750 million to $1.2 billion.

Maintaining spare capacity to take advantage of lucrative contracts: Tai Sin currently runs its Singapore factory at only 85 per cent utilisation (600mt/mth), and its Malaysia plant at a mere 65 per cent (290mt/mth). This is a deliberate strategy by management. Given the impending surge in demand (with the IR being a wild card as there is no legacy model in Singapore to estimate how much wiring will be needed), this spare capacity is needed to take advantage of urgent incremental demand.

Target price set at 96 cents based on 13.5x CY08 P/E: This places Tai Sin at a conservative discount to its one-year average historical P/E (31x) and in line with the earning multiples of Draka Holdings, listed parent of its Singapore peer, Singapore Cables. Tai Sin should blossom as the demand for electric cables in Singapore continue to outpace local production. We initiate with 'Outperform'.
OUTPERFORM