Over FY2025 to FY2028, Tng sees a potential compound annual growth rate (CAGR) of 88.7% for Sanli’s earnings per share (EPS), driven by order wins and profit margin normalisation.
As at July 15, Sanli’s order book stood at $333.9 million. The company is working on securing another $205 million worth of orders by the end of 2025.
In his Sept 3 report, Tng also notes Sanli’s development of new revenue streams, of which, magnesium hydroxide slurry production has the most potential. “[This is] as Sanli can sell this product to existing customers for their water management and has managed to secure a new customer which uses this in scrubbers for its ships to reduce harmful gas emissions,” says Tng.
The analyst also notes that Sanli could be a potential acquisition target for overseas conglomerates without a foothold in Singapore, given that it is an established player in the local market and has the certification to bid for contracts of unlimited value.
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“As Sanli aims for higher value contracts, our view is that management may be open to joint ventures with such players to ease the working capital burden,” Tng writes.
To this end, Tng has initiated a target price estimate of 51 cents, representing an upside of 85.5% to Sanli’s share price of 27.5 cents as at the Sept 3 close. According to Tng, the target price is based on Sanli’s FY2027 P/E of 15.9 times, or 2 standard deviations (s.d.) above the company’s four-year FY2022 - FY2025 average given its “robust earnings growth backed by margin normalisation and a growing order book”.
Over FY2026 to FY2028, the analyst has assumed that margins will normalise over the period, with any upside surprises from potential new and larger order wins.
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The way he sees it, higher-than-expected order wins, margin expansion as well as faster progress in Sanli’s magnesium hydroxide slurry production business are key re-rating catalysts. At the same time, unfavourable government policy, including higher ratio for local labour content or levies that may impact margins, more intense competition within the industry, a shortage of workers and poor project management and the execution of “depressing” margins could be downside risks.
As at 12.16pm, shares in Sanli are trading 2 cents higher or 7.27% up at 29.5 cents.
