TA Corporation Ltd 1H2024 Report – Rebounding Profits Amid Reduced Revenue, Risks Remain

TA Corporation Ltd 1H2024 Financial Report Analysis

Business Overview

Core Business Operations:
TA Corporation Ltd operates in four key segments:

1. Construction: Includes general building and construction contracting, engineering services, and the sale of construction materials.
2. Real Estate Investment: Primarily consists of property rentals.
3. Real Estate Development: Focuses on residential and commercial property development and project management services.
4. Distribution: Engages in the sale and distribution of petroleum-based lubricants and commercial vehicles.

Geographic Footprint:
The company primarily operates in Singapore, with additional operations in Myanmar, Cambodia, and other Southeast Asian countries.

Industry Position, Competitors, and Market Share

Industry Position:
TA Corporation operates in highly competitive industries, particularly in the construction sector, which continues to face challenges from high material costs and competitive pricing pressures.

Competitors:
TA Corporation faces competition from local and regional construction companies, real estate developers, and distributors of petroleum-based products. Key competitors include other large real estate developers and construction firms operating in Singapore and Southeast Asia.

Market Share:
The company does not provide explicit market share data in the report. However, it continues to maintain a significant presence in the real estate and construction markets of Singapore, with projects also in Cambodia and Thailand.

Revenue Streams, Customer Base, and Supply Chain

• Revenue Streams:

  • Construction: $17.7 million (38% of total revenue)
  • Real Estate Investment: $23.2 million (50% of total revenue)
  • Distribution: $4.8 million (10% of total revenue)
  • Real Estate Development: $0.9 million (2% of total revenue)

• Customer Base:

  • The construction segment mainly serves government projects and commercial clients.
  • The real estate segment targets residential and commercial property buyers.
  • Distribution activities cater to industrial and commercial buyers of petroleum products.

• Supply Chain:

  • In the construction and real estate segments, the company relies on material suppliers and contractors.
  • For the distribution segment, TA Corporation sources petroleum-based products from international suppliers.

Financial Statement Analysis

1. Income Statement (6 months ended June 30, 2024)

• Revenue: $46.5 million, a 50.9% decrease compared to $94.7 million in 1H2023.
• Gross Profit: Significant improvement to $30.6 million, a rise of 366% from $6.6 million in 1H2023 due to better margins and project completion.
• Profit Before Tax: $10.9 million, a reversal from a loss of $12.3 million in 1H2023.
• Net Profit: $7.2 million, up from a loss of $14.5 million in 1H2023, indicating a significant recovery.

2. Balance Sheet (as of June 30, 2024)

• Total Assets: $641.1 million, slightly down from $650.7 million at the end of 2023.
• Cash and Bank Balances: Increased to $43.2 million from $36.8 million, indicating improved liquidity.
• Borrowings: Reduced by 13% to $128.2 million, indicating effective debt management.
• Net Asset Value (NAV): Improved to 13 cents per share (up from 12.1 cents in December 2023).

3. Cash Flow Statement (6 months ended June 30, 2024)

• Net Cash from Operating Activities: $26.1 million, showing strong operational cash generation.
• Net Cash Used in Financing Activities: $20.6 million, mainly due to debt repayments.
• Cash Reserves: Ending cash balance of $22.9 million, reflecting improved cash flow management.

Key Findings & Investment Implications

Strengths:

1. Profit Recovery: The company returned to profitability with $7.2 million in net profit, a sharp contrast from last year’s loss.
2. Debt Reduction: Borrowings reduced significantly, indicating prudent debt management and improving financial health.
3. Increased Gross Margins: Gross profit rose substantially due to cost controls and project completions, reflecting stronger profitability despite revenue decline.

Risks:

1. Revenue Decline: A substantial drop in revenue (down 50.9%) from reduced construction contracts could indicate future volatility, especially with an uncertain pipeline.
2. Investment Property Revaluation Loss: The company recorded an $8.8 million fair value loss on its investment properties, which could point to deteriorating asset values in certain markets.
3. Industry Challenges: The construction segment continues to face tough competition and high costs, which may limit profit growth.

Dividend and Other Investor-Actionable Items

• Dividend: No dividend was declared for 1H2024, aligning with the company’s intent to conserve cash.
• Restructuring Efforts: The company is focused on cost-cutting measures and restructuring to improve its balance sheet and liquidity position.

Special Activities to Improve Profitability

• Cost Cutting & Restructuring: The company is implementing cost control measures and prioritizing debt repayment to stabilize its finances.
• Focus on Cash Preservation: To support ongoing operations and restructuring, the company is not declaring dividends and is conserving cash for working capital.

Investment Recommendation

For Current Investors:
Hold. Despite revenue challenges, the company has shown a solid profit recovery, reduced debt, and increased liquidity. The absence of a dividend may concern income-focused investors, but the company’s efforts to strengthen its financial position suggest potential for medium-term growth.

For New Investors:
Wait. While the profit recovery is notable, significant risks remain, particularly with declining revenues and potential asset devaluations. Waiting for clearer signs of revenue stabilization or growth before investing is prudent.

Disclaimer

This report is for informational purposes only. It is not financial advice. Investors should consider their risk tolerance and financial goals before making any investment decisions.