The stock price of Singapore-listed 800 Super Holdings Ltd has gone up more than 5 times in the past 5 years. Recently, the company announced that its wholly-owned subsidiary, 800 Super Waste Management Pte Ltd, has been awarded a public waste collection licence by the National Environmental Agency (“NEA”) for the provision of refuse collection services in Pasir Ris – Bedok Sector in Singapore. The contract has an aggregate value of approximately S$193.5 million, which will take effect from 1 July 2018 to 31 October 2025. So, is it still a good time now to invest in the company? Let’s take a look at the fundamental of the business. Here are 7 things you need to know about the company.
1. Stock Information
Ticker Symbol: SGX:5TG
Market Cap: S$205.62 M
Industry: Waste Management
2. The Business
The company is an environmental services provider for both the public and private sectors in Singapore. It operates in 3 segments, namely:
Waste Management Services
Waste management services include residential, commercial and industrial waste collection as well as recycling services. It is one of the four licensed public waste collectors appointed by the National Environment Agency (‘NEA”). The other three are Colex Holdings Limited (SGX:567), Sembcorp Industries Limited (SGX:U96) and lastly, Veolia ES Singapore Pte Ltd which is not listed. 800 Super is currently working on a contract for a period of 7 years and 9 months, commenced on 1 January 2014 in Ang Mo Kio – Toa Payoh sector, to provide waste collection services for the residential and trade premises. The new contract awarded to 800 Super in Pasir Ris – Bedok Sector will start to commence on 1 July 2018.
The company also provide recycling services to complement their waste collection service. The recyclable materials are collected and separated before selling to local and overseas customers, providing another source of income for the group.
Source: National Environment Agency.
Cleaning and Conservancy Services
Cleaning and conservancy services segment comprise integrated public cleaning (IPC) services and contract cleaning services. The company was awarded two contracts to provide integrated public cleaning (IPC) services for the North-west and South-west region of Singapore for six years and seven years respectively. The 2 projects were awarded and commenced in 2014. IPC services cover cleaning services for roads, pedestrian thoroughfares, car parks, parks, drains, beaches, shorelines and waterways.
Besides, the company also provide cleaning services to residential, commercial, industrial and institutional customers.
The company provides horticultural services include grass-cutting, planning and maintenance of landscape to schools, commercial customers, government departments and statutory bodies.
3. Key Opportunities
Defensive Business Nature
800 Super Holdings Ltd is a defensive company, as it sales and earnings would remain relatively stable during both economic upturns and downturns. As people will still be producing solid waste regardless of economic environment, and the company will never run out of business. On top of that, the amount of waste will only increase as the population of Singapore increases. According to National Environment Agency (“NEA”), the amount of waste sent for disposal rose from 1,260 tonnes per day in 1970 to 8,559 tonnes per day in 2016.
The company has a certain economic moat. For a company to operate waste management business in Singapore, it needs to meet a certain pre-qualification set by NEA and has to bid for contracts through open tenders. Only successful bidder is awarded a license to provide waste and recyclables collection services for the respective sectors. A contract period would normally last around 7 to 8 years. With the long timeframe of each contract, new entrants are not able to compete or participate in the tendering process until the license expires.
High Return on Equity
800 Super Holdings Ltd has a highest ROE among its peers. From the company’s past performance, it recorded its lowest ROE of 17.72% in 2013, which is considered high when compared to most company listed on SGX. The average ROE for past five years is around 25%. The company’s high ROE shows that it has a certain economic moat that could continually generate high levels of profit to shareholders.
Return on Equity of Colex Holdings Limited (SGX:567)
Return On Equity of Sembcorp Industries Limited (SGX:U96)
When we compared its return on equity with some of its competitor, we can see that 800 Supper is able to generate much higher return compared to its peers. Having said that, a comparison with Sembcorp Industries might not be as appropriate given its many other business segments.
4. Key Risks
High Debt to Equity Ratio
As at 30 September 2017, the company has a total debt of S$52 million and total equity of S$86 million. The debt to equity ratio is around 60% which is quite high. The main reason for the company to incurred high debt is to finance its expansion of the Waste-to-Energy (WT) plant. The construction work is currently in progress and is targeted to complete in the second quarter of 2018. In my opinion, it would not be a huge concern as the company could consistently churn out positive cash flow from operations in the past. It could easily pay off its debt after the expansion has completed.
High Directors’ Remuneration
One way to assess a management team is through the company’s compensation packages. A company with high compensation is not favourable by investors. We are able to identify whether the management acts in the best interest of shareholders by comparing net profits to compensation. The total compensation for the company’s directors is a bit on the high side. In 2017, total compensation for directors is S$ 4.38 million, while the net profit is only S$ 17 million. Directors’ compensation is around 25% of the company’s net profit, which is quite high.
Limited Expansion to Overseas Market
It is hard for the company to expand its waste collection services in the international market as each country would only appoint local companies for public waste collection. The only way to increase its market share in waste collection segment is to compete with local public waste collection companies. However, this never stops the company from expanding business overseas. In fact, the company has started to expand its plastic recycling business in Batam, Indonesia.
800 Super Holdings currently trades at P/E of 12 and 2.5 times its book value. It has a dividend yield of 3.5%. It seems fairly valued with its future growth prospect and its high ROE.
6. Investors Relation
SP Corporate Advisory
Mr. Foo Shiang Ping
Tel: (65) 6254 0198
Mob: (65) 9489 4028
7. Top Shareholders (15 September 2017)
- Yong Seong Investment Pte Ltd – 66.97%
- DBS Nominees Pte Ltd – 3.76%
- Lee Hock Seong – 2.8%