On August 23, 2010, I wrote in my Blog about TSH...."a golf course recommendation". The share has risen sharply over the last week on good volume.
I received a number of telephone calls last week on the stock from investors - asking me whether they could buy. A number of them shared with me "market talk" that they were told that the company was going to be taken private at $0.24.
I don't have any information about the privatisation - but I think this is unlikely at $0.24 as the current NAV is about S$0.20. The rise is probably due to its winning of a new contract from Taiwan Defence Ministry worth US$8.7mn to be completed in 2011 and which management has indicated will have a positive impact on 2010 earnings.
Let me do some simple annual report analysis on this contract.....assuming the same margin as Singapore - this contract should bring in net profit of S$1.2mn to S$1.5mn. It could be higher as the Singapore homeland security business also includes fireworks activities in Singapore. On this assumption, the contract should increase the homeland security profit by about 15-20%. The more important business is its ODM business because a large portion of 2009 earnings came from non-core activities. If ODM can deliver another S$4mn, the share will look interesting.
Assuming that they can deliver S$8mn net profit is 2010, the same as 2009 but from operations - the current prospective PER will be about 6 times which is reasonable subject to earnings being sustainable, the share price should hold.
As to the privatisation story at S$0.24, I think its possible but unlikely. The 2009 annual report shows that the two controlling shareholders have about 35% and my guess up to 40-45% if we include friendly parties. It will be quite a tough exercise to take it private. So it could be risky to come in above the $0.20 for a S$0.24 takeout that may or may not happen.
The good news is that S$0.20 is supportable by fundamentals if my forecasts for 2010 is ontrack at about S$8mn net.......so if you have acquired the shares below S$0.20 and if current valuations hold.....you can probably wait and see whether the privatisation rumour is true.
Recent story: TSH wins US$8.72 m contract from Taiwan defence ministry
