Elec & Eltek International: Yield issues may only be partially resolved
Labels:
Elec and Eltek
Broker House: Phillip Securities Research
Analyst: Kok Fook Meng
Price: US $2.08
Target : US $3.32
Recommendation: HOLD
Upside: 59.61%
Summary:
Analyst: Kok Fook Meng
Price: US $2.08
Target : US $3.32
Recommendation: HOLD
Upside: 59.61%
Summary:
We expect capacity utilization at Elec and Eltek ("ELEC") to have improved sequentially from 84% in 1Q07 to about 90% in 2Q07. Revenue in the June quarter should therefore record sequential growth from US$123.2m in 1Q07. However, sub-optimal production yield at ELEC’s Kaiping plant that was highlighted in our previous report may still be an issue in 2Q07.
2Q07 net profit may fall short of our forecast. We expect 2Q07 revenue to be in-line with our forecast of US$132.2m. Net profit in the second quarter may fall short of our estimate of US$10.4m, as gross margins may be lower than our 18% assumption due to yield issues mentioned above. In fact, gross margin could still be in the 15% to 15.5% range (15.2% in 1Q07), in which case 2Q07 net profit would only be approximately US$7.3m compared to US$6.6m in 1Q07. The current production hiccup at Kaiping is temporary. We expect full resolution by end 3Q07, which is later than what we had anticipated earlier. Therefore, full-year gross margins may be lower than our earlier estimate of 17.9% (probably closer to 16.5%), and net profit should also decline more than our earlier forecast of -25% YoY to US$43.3m. We expect ELEC to pay out 60% of its FY07 net earnings, or 14.5 USD cents per share, for a dividend yield of 7%. Actual payout should be slightly lower as we are likely to revise downwards FY07 EPS estimates after 2Q07 results have been released sometime in mid-August.
Undervalued but still a Hold. We continue to believe that ELEC is well positioned to compete in the PCB industry given its size, experience and access to its parent’s (KingBoard) network of resources. As mentioned previously, we also think FY07 net profit will not be reflective of ELEC’s earnings potential. Given its double-digit ROE and nature of business, ELEC should be worth between 1.5-2.0x NTA, i.e. US$2.78-3.70, per share. We will keep our current fair value per share of US$3.32 as it falls within this range. Although ELEC has an upside potential of 59.6%, and is currently trading at undemanding 7.3x TTM EPS, 8.6x FY07E EPS, and P/NTA of 1.1x, we will maintain our HOLD recommendation as we are still unable to find any strong share price catalyst in the next six-to-nine months. Longer-term investors who are attracted by its yield and undervaluation may add or initiate a new position, as we doubt the stock price will go down much further from current levels. We guess downside is probably at the US$1.90 level, or -8.7%, giving the stock an attractive risk/reward for the longer-term investor..
Friday, August 03, 2007 | 1 Comments
Delong Holdings: Resilient performance despite rough industry conditions
Labels:
Delong
Broker House: OCBC Investment Research
Analyst: Kelly Chia
Price: $3.60
Target : $4.56
Recommendation: BUY
Upside: 26.67%
Summary:
Resilient performance. Despite government regulatory cooling measures in the steel industry through sudden tax rebate cuts in May 07, hot-rolled steel coil (HRC) producer Delong Holdings (DLNG) gave a credible showing with 1H07 sales rising 37% YoY to S$646.2m. 1H07 net profit rose 26.1% YoY to S$77m despite incurring its first year of tax expense of 15%. On a quarterly basis, 2Q07's bottomline came in 8.1% YoY lower than 2Q06 due to rising raw material costs and slightly lower ASPs as the supply of steel increased locally.
Analyst: Kelly Chia
Price: $3.60
Target : $4.56
Recommendation: BUY
Upside: 26.67%
Summary:
Resilient performance. Despite government regulatory cooling measures in the steel industry through sudden tax rebate cuts in May 07, hot-rolled steel coil (HRC) producer Delong Holdings (DLNG) gave a credible showing with 1H07 sales rising 37% YoY to S$646.2m. 1H07 net profit rose 26.1% YoY to S$77m despite incurring its first year of tax expense of 15%. On a quarterly basis, 2Q07's bottomline came in 8.1% YoY lower than 2Q06 due to rising raw material costs and slightly lower ASPs as the supply of steel increased locally.
Outlook for Chinese steel industry. China's macro control policies have somewhat cooled the red hot construction and machine building industries, slowing the demand for steel consumption. Despite these measures,industry watchers anticipate a 4-5% YoY increase in steel consumption in China for FY07 and even stronger consumption in FY08.
Optimistic of prospects in 2H07. DLNG has reported that its diverse pool of customers from the booming Bohai Economic Circle continue to display strong demand for its HRC products despite the rise in supply. Management has indicated that its HRC ASPs have already stabilised in Jul 07 (just 1 month after government intervention) and is expected to maintain or even rise incrementally in 2H07 as it focuses on selling better grade HRCs. Rising raw material costs will also be mitigated when its Phase 3 technical enhancements are completed.
Waiting for the big acquisition. Management has updated that it is in deep discussion with 2 potential acquisition targets to incrementally achieve 10m ton/yr capacity by 2010. In our last report, we forecasted that DLNG will need to acquire about 2m tons/yr to achieve this target. We anticipate that DLNG will not acquire any plant with capacity larger than 3-4m tons/ yr in its maiden M&A to prevent overwhelming integration issues.
Strong outlook. As capacity reaches 3m tons/yr by year end with the plant at full utilisation and M&A to increase output, we are confident that FY07/08 will be strong years. DLNG's exposure to raw material price increases will also be mitigated when its 2 new furnaces to process pig and molten iron come online progressively by end FY07. We maintain our BUY rating and fair value of S$4.56
Friday, August 03, 2007 | 6 Comments
Courage Marine: Riding on Higher Freight Rates
Labels:
Courage Marine
Broker House: DMG & Partners
Analyst: Tan Khow Siong
Price: $0.37
Target : $0.48
Recommendation: BUY (Maintained)
Upside: 23.68%
Summary:
Analyst: Tan Khow Siong
Price: $0.37
Target : $0.48
Recommendation: BUY (Maintained)
Upside: 23.68%
Summary:
Net profit growth of 52% to US$20.1m in 1H07 was in line with our forecast of US$34m in FY07. Courage Marine benefited from higher freight rates. Outlook is positive as demand for raw materials and bulk commodities remain strong. Maintain BUY for 12-month price target of S$0.48.
Strong showing in 1H07. Courage Marine reported a 52% YoY rise in net profit to US$20.1m in 1H07, on the back of a 33% rise in revenue to US$34.9m. This strong performance occurred in a period when four of Courage Marine’s 10 vessels were out of deployment for 175 days due to special/intermediate surveys in 1H07.
High Freight Rates. Courage Marine benefited from high level of dry freight rate. The Baltic Dry Index (BDI) averaged 5700 in 2Q07, more than double 2Q06’s average of 2700. Freight rates were high because of China’s strong demand for minerals and commodities. This was complemented by high level of building activities throughout Asia and Middle East, leading to demand for transportation of building materials.
Outlook. BDI is currently above 6500. Management expects present buoyant market conditions to continue and BDI to remain strong. This is due to no significant new supply of vessels in the immediate future to meet the strong demand for freight transportation. Demand for the transportation of raw materials and commodities in Asia Pacific and Middle East remains strong.
Valuation. Management has committed and fulfilled a pledge to pay 50% of net profit as dividend. Forward dividend policy is not stated explicitly but we expect the 50% payout ratio to remain, particularly when management is accumulating a cash hoard and is reluctant to pay exorbitant pricing for second-hand vessels to augment existing fleet. An interim dividend of US 0.66 cents has been proposed. We expect a total dividend per share of US 1.6 cents for FY07. Maintain BUY for a target yield of 5.1% or 12-month price target of S$0.48.
Friday, August 03, 2007 | 5 Comments
Jadason Enterprises: Interims weaker than expected
Labels:
Jadason
Broker House: Kim Eng Live Research
Analyst: Geraldine Eu
Price: $0.18
Target : $0.22
Recommendation: HOLD (Downgrade)
Upside: 22.22%
Summary:
Jadason’s latest set of interims is the weakest of the last four. Owing to a soft PCB industry, 1H07 profit fell 43% YoY to $5.5m (representing only 22% of our initial full year estimates) while revenue declined 12% YoY to $114.6m. 2Q failed to gain traction as utilisation rate averaged 50% in 2Q; as a result, we are slashing our FY07 and FY08 earnings estimates by 36% to $15.8m (implying a lower 19% bottomline vs. FY06) and 31% to $20.3m respectively.
Segment margins affected by product mix. While 1H07 Manufacturing and Support Services sales came in marginally weaker at $26.9m, operating margin fell to 13% from 31% in 1H06. The sharp decline in margin was due to changes in product mix which saw Jadason producing less of its higher margined handset PCB. Management estimates handset PCB to be c20% of its drilling product mix in 1H07 vs. 70% in 1H06. There is also no evidence of improvement in the drilling product mix, which is overly skewed towards lower margined computer, car, LCD TV PCBs. Equipment and supplies sales declined 14% to $87.6m due to lower equipment sales whilst its operating profit margin improved slightly to 5% due to lower SG&A expenses and lower provision for variable incentive bonus in 2Q07. Overall group operating margin fell to 7% vs. 10% in the previous corresponding period.
Capacity expansion may be a double edged sword. Management will continue its planned expansion of 45 mechanical drilling machines by August; up to this juncture, the company has installed 30 new mechanical drilling machines of the planned 45. However, mass lamination capacity will be reduced to one additional production line from the previously four production lines planned. The key risk for Jadason is demand turn-up. Should this not materialise, factory loads will fall further with the addition of new capacity.
Downgrade to Hold. We are downgrading Jadason to a Hold and see fair value at $0.22 based on 8x FY08 PE; on par with its two year valuation band. Currently Jadason trades at 6x FY08 PE.
Thursday, August 02, 2007 | 0 Comments
Multichem: Changing landscape
Labels:
Multichem
Broker House: CLSA
Analyst: Justin Yeoh
Price: $0.22
Target : $0.217
Recommendation: NA
Downside: 1.36%
Summary:
Printed-circuit board service provider Multi-Chem’s 1H07 sales grew a strong 45% YoY in revenue to S$63.7m, accounting for 55% of our original forecast. Distribution business continues to see strong growth, surpassing the Manufacturing division to account for 65% of 1H07 revenue. Given the lower margins in the distribution business as the company shifts, profitability has come in lower. Our revised forecast has resulted in a fair value of 21.7Scts, maintaining our 6x 08PE.
Better distribution, lower margins. Revenue came in S$5.3m in 2Q07, up 61.4% YoY. 1H07 revenue was up 45%, but gross profit was down 1% YoY. Operating profit was down 42%, largely due to higher operating costs in the Distribution segment, resulting in 1H margins of 9% VS 21% from a year ago. Overall increase in depreciation and salary were part of the reason for the increased in costs. Inventory and receivables are higher due to the change in balance of sales in the two business segments, resulting in lower cash on hand at S$7.9m, compared S$12.6m at the end of March. Effective tax rate is also higher in 1H07 at 31%, compared to 16.6%, lowering net margins to 5% instead of 15.2% in FY06 due to expansion of Distribution business in South East Asia. No interim dividend was declared.
More pressure ahead. Multi-Chem operates in the PCB drilling segment which has lower value than full scale PCB manufacturer, outlook remains though for the segment, especially for the Singapore manufacturing segment. We expect distribution to be the key business driver for Multi-Chem, even as raw material costs dampen the slower Manufacturing segment. The expansion of the distribution business also requires a larger sales force to promote products, while lower utilization of drilling machines will continue to depress manufacturing gross margins. We expect the 2nd half to do better based on seasonal trends.
Fair value of 21.7 Scts. Adjusting our forecast for the lower margins of the Distribution segment, our new 07 net profit comes in lower at S$8.7m. Maintaining our 6x 08PE suggests fair value of 21.7 Scts.
Analyst: Justin Yeoh
Price: $0.22
Target : $0.217
Recommendation: NA
Downside: 1.36%
Summary:
Printed-circuit board service provider Multi-Chem’s 1H07 sales grew a strong 45% YoY in revenue to S$63.7m, accounting for 55% of our original forecast. Distribution business continues to see strong growth, surpassing the Manufacturing division to account for 65% of 1H07 revenue. Given the lower margins in the distribution business as the company shifts, profitability has come in lower. Our revised forecast has resulted in a fair value of 21.7Scts, maintaining our 6x 08PE.
Better distribution, lower margins. Revenue came in S$5.3m in 2Q07, up 61.4% YoY. 1H07 revenue was up 45%, but gross profit was down 1% YoY. Operating profit was down 42%, largely due to higher operating costs in the Distribution segment, resulting in 1H margins of 9% VS 21% from a year ago. Overall increase in depreciation and salary were part of the reason for the increased in costs. Inventory and receivables are higher due to the change in balance of sales in the two business segments, resulting in lower cash on hand at S$7.9m, compared S$12.6m at the end of March. Effective tax rate is also higher in 1H07 at 31%, compared to 16.6%, lowering net margins to 5% instead of 15.2% in FY06 due to expansion of Distribution business in South East Asia. No interim dividend was declared.
More pressure ahead. Multi-Chem operates in the PCB drilling segment which has lower value than full scale PCB manufacturer, outlook remains though for the segment, especially for the Singapore manufacturing segment. We expect distribution to be the key business driver for Multi-Chem, even as raw material costs dampen the slower Manufacturing segment. The expansion of the distribution business also requires a larger sales force to promote products, while lower utilization of drilling machines will continue to depress manufacturing gross margins. We expect the 2nd half to do better based on seasonal trends.
Fair value of 21.7 Scts. Adjusting our forecast for the lower margins of the Distribution segment, our new 07 net profit comes in lower at S$8.7m. Maintaining our 6x 08PE suggests fair value of 21.7 Scts.
Wednesday, August 01, 2007 | 0 Comments
Jadason Enterprises: Margins declined because of product mix
Labels:
Jadason
Broker House: DMG & Partners
Analyst: Lynette Tan
Price: $0.21
Target : $0.30
Recommendation: BUY (Maintained)
Upside: 42.86%
Summary:
Analyst: Lynette Tan
Price: $0.21
Target : $0.30
Recommendation: BUY (Maintained)
Upside: 42.86%
Summary:
Jadason reported net profit of S$5.4m in 1H07, down 43% from S$9.7m in 1H06. This was due to a 56% YoY drop in 2Q07 operating profit from manufacturing services, which management attributed to changes in product mix and lower demand for handset PCBs.Nevertheless, management has proceeded with its expansion plans of adding mechanical PCB drilling machines as it expects the PCB industry to improve in 2H07. Given the high operating leverage of drilling operations, 2H07 may produce upside surprises. Maintain BUY with a reduced 12-month target price of 30c, down from 38c.
Weakness in 1Q07 continues into 2Q07. After a 54% YoY decline in 1Q07 net profit, Jadason follows with another 32% YoY decline in 2Q07. Net profit of S$5.5m in 1H07 is 43% lower than 1H06. Management attributed this poor set of results to lower equipment sales, and unfavorable product mix in its manufacturing service, which include mechanical drilling services, and mass laminate production. However, the second quarter saw a sharp fluctuation in Jadason’s utilization rates, with 100% utilisation in April and 60% in June. Management explained that a major handset PCB producer suddenly delay its orders in May. 30 new drilling machines were added in 2Q07, bringing the total number to 170 by end Jun 2007.Compounding this weak performance was an unexpected strengthening of US and Hong Kong dollar in 2Q07 against Sing dollar. This led to an unrealized forex loss of S$323k in 2Q07 against S$269k gain in 2Q06.
Outlook for 2H07 is better. Management expects the PCB industry to improve in 2H07. This prognosis is based on indicative orders from Jadason’s customers. We concur with such optimism in view of the impending launch of 3G phone services in China, latest by 4Q07. As handset need to be delivered to the distribution channels before the service launch, we expect orders for handset PCB to ramp up in 3Q07.
Orders flow should improve. Orders for PCB typically pick up in 3Q to be in time for year end consumption binge. We expect the pick up to be stronger in 3Q 2007 because the PCB industry has been in the doldrums since Dec 2006. Channel stockpiles are not excessive. However, there are lingering uncertainty as Windows Vista has not taken off strongly, and sales of new games consoles were not as strong as earlier expected.
Valuation and recommendation. We have reduced our 2007 net profit forecast from S$22.4m to S$17m (EPS: 2.4c) and 2008 from S$36.5m to S$30m. (EPS: 4.3c) Maintain BUY with a reduced 12-month price target of S$0.30, down from S$0.38, on an unchanged target of 7x FY08 earnings.
Wednesday, August 01, 2007 | 0 Comments
Aztech Systems: Better outlook for 2H07
Labels:
Aztech
Broker House: NRA Capital
Analyst: Foo Sze Ming
Price: $0.67
Price: $0.67
Target : $0.80
Recommendation: BUY
Upside: 19.40%
Summary:
Revenue grew 12.9% yoy attributable to the strong demand for ADSL2+ products and HomePlug but contribution from the Contract Manufacturing (CM) segment was flat for the quarter. For the period, net profit rose 2.6% yoy to S$5.2m. Operating cashflow remained strong in 2Q07. Despite the production hiccup due to purchase issues of major components which led to the surge in inventory, operating cashflow grew 51.8% from S$2.3m (2Q06) to S$3.5m (2Q07) due to better cashflow management of receivables and payables.Aztech’s order book remains strong. Year-to-date orders rose from S$138.0m in 1Q07 to S$202.0m currently, of which S$117.6m had been fulfilled in 1H07.
Growth in OEM/ODM segment in 2H07 will be driven by the continuing demand for ADSL2+ and HomePlug. The ADSL2+ contract with a large USA Telco will continue into 2H07 and drive ADSL modem shipment to a record high in FY07. Demand for HomePlug remains strong. Aztech also started shipment of the first 70,000 HomePlugs to a satellite service provider in USA and is also supplying HomePlugs for an IPTV service provider in Singapore.
Aztech is well-positioned to move along with the technological advances in the broadband industry with its capability and commitment in R&D. With Aztech’s network of Telcos and equipment providers in Europe in the area of ADSL, it could tap on this strength to grow its new VDSL products. In addition, Aztech is also looking into the development of new products such as higher speed 1Gbps FTTH modem.
We are now raising our FY07 revenue and net profit forecasts to S$311.9m (previously S$285.5m) and S$25.0m (S$24.1m) based on our expectation of continuing strong demand for ADSL and HomePlug into 2H07, delivery of the delayed orders of S$13.0m and the picking up of the CM segment. Our RCFderived fair value has been raised to S$0.80 (previously S$0.54). On top of a projected FY07 dividend yield of 2.8%, projected total return of Aztech will be 22.2%. Maintain BUY.
Tuesday, July 31, 2007 | 0 Comments
ADVANCE SCT: New businesses boost earnings
Labels:
Advance SCT
Broker House: DMG & Partners
Analyst: Lynette Tan
Price: $1.08
Target : $1.60 (12 Mth)
Analyst: Lynette Tan
Price: $1.08
Target : $1.60 (12 Mth)
Recommendation: BUY
Upside: 48.15%
Summary:
Advance SCT recorded net profit of S$7.0m in 1H07, up from S$1.9m in the earlier corresponding period. This was largely boosted by contributions from its new businesses. The 1st furnace of its smelter plant started operations towards end 1H07 and its 2nd furnace is expected to commence production in August 2007. This would further boost FY07 earnings. The construction of its copper refinery is on track and completion is expected in end 2007. Partial contribution from the refinery can be expected from FY08. Maintain BUY with a 12-month target price of S$1.60.
1H07 net profit surges 279%. The results were in line with our expectations. Strong customer demand and contributions from new businesses (recycling business and smelter plant) drove revenue growth of 152% YoY to S$204.8m. For the corresponding period in 2006, only 1 month of its recycling operations was consolidated. The 1st furnace of its copper smelter plant started trial operations in March 2007 (commercial production in May 2007), and contributed S$2.0m to 1H07 profit after tax. With this initial contribution from the smelter, 1H07 net profit jumped 279% YoY to S$7.0m.
Smelter to be fully operational by 4Q07. With its 1st furnace in full production, Advance SCT targets to commence trial production of its 2nd furnace in August 2007. Both furnaces are expected to be in full production by 4Q07, bringing Advance SCT’s smelting capacity to 60,000 MT per year. This is expected to contribute significantly to its 2H07 earnings, and boost the Group’s FY07 earnings.
Refinery plant on track. Construction of its copper refinery plant is progressing on track. Completion is expected in end 2007 and management intends to progressively commence production from early 2008. The refinery can be expected to go into full production by 2009.
Valuation and recommendation. Although net gearing for 1H07 is high as the Group borrowings to fund the working capital needed for the initial stages of its smelter operations. This is expected to fall as its smelter moves into full production. Maiden full year contribution from the smelter plant and initial contribution from the refinery plant are expected to boost FY08 earnings significantly. We estimate earnings of S$21.1m for FY07 (EPS: 8.5 cents) and S$33.6m for FY08 (EPS: 12.4 cents). Maintain BUY for a 12-month price target of S$1.60 or 13x FY08 earnings.
Upside: 48.15%
Summary:
Advance SCT recorded net profit of S$7.0m in 1H07, up from S$1.9m in the earlier corresponding period. This was largely boosted by contributions from its new businesses. The 1st furnace of its smelter plant started operations towards end 1H07 and its 2nd furnace is expected to commence production in August 2007. This would further boost FY07 earnings. The construction of its copper refinery is on track and completion is expected in end 2007. Partial contribution from the refinery can be expected from FY08. Maintain BUY with a 12-month target price of S$1.60.
1H07 net profit surges 279%. The results were in line with our expectations. Strong customer demand and contributions from new businesses (recycling business and smelter plant) drove revenue growth of 152% YoY to S$204.8m. For the corresponding period in 2006, only 1 month of its recycling operations was consolidated. The 1st furnace of its copper smelter plant started trial operations in March 2007 (commercial production in May 2007), and contributed S$2.0m to 1H07 profit after tax. With this initial contribution from the smelter, 1H07 net profit jumped 279% YoY to S$7.0m.
Smelter to be fully operational by 4Q07. With its 1st furnace in full production, Advance SCT targets to commence trial production of its 2nd furnace in August 2007. Both furnaces are expected to be in full production by 4Q07, bringing Advance SCT’s smelting capacity to 60,000 MT per year. This is expected to contribute significantly to its 2H07 earnings, and boost the Group’s FY07 earnings.
Refinery plant on track. Construction of its copper refinery plant is progressing on track. Completion is expected in end 2007 and management intends to progressively commence production from early 2008. The refinery can be expected to go into full production by 2009.
Valuation and recommendation. Although net gearing for 1H07 is high as the Group borrowings to fund the working capital needed for the initial stages of its smelter operations. This is expected to fall as its smelter moves into full production. Maiden full year contribution from the smelter plant and initial contribution from the refinery plant are expected to boost FY08 earnings significantly. We estimate earnings of S$21.1m for FY07 (EPS: 8.5 cents) and S$33.6m for FY08 (EPS: 12.4 cents). Maintain BUY for a 12-month price target of S$1.60 or 13x FY08 earnings.
Tuesday, July 31, 2007 | 0 Comments
Lottvision: China Lottery Market
Labels:
Lottvision
Broker House: Phillip Securities Research
Analyst: Dennis Lee
Price: $0.585
Target : $0.76
Recommendation: BUY
Upside: 29.91%
Summary:
Analyst: Dennis Lee
Price: $0.585
Target : $0.76
Recommendation: BUY
Upside: 29.91%
Summary:
Acquisition of Wu Sheng Technology Co., Ltd. On 4 July 07, LottVision entered into a non-binding sheet with Firich Enterprises Co., Ltd for the acquisition of Wu Sheng Technology Co., Ltd. The consideration will be between S$66.3 million and S$93.9 million. This amount would be funded by the issue of shares at S$0.609 per new share. There was also a guarantee of the audited net profit after tax of Wu Sheng for the financial period 1 July 2007 to 30 June 2008 of not less than HK$30 million (approximately S$5.8 million). In the event that the net profit is less than the guaranteed amount, Firich shall pay a cash amount to Lottvision of the difference between net profit after tax and the guaranteed amount.
New fair value of S$0.76. We use a 5-yr DCF valuation method to drive a fair value of S$0.76 per share on LottVision and we upgrade to a Buy recommendation after the acquisition of Wu Sheng Technology Co., Ltd. Our 5-yr forecast of revenue is based on two potential earnings streams: (1) sales of POS terminals to authorised betting outlets (trading revenue), (2) a percent of lottery sales for each POS terminal (outsourcing revenue).
Attractive valuation, but stock remains speculative. Based on our fair value of S$0.76, the stock offers upside for investors. However, there is a substantial amount of risk as the company reports a loss for FY07 and our valuations are based on expected net profit after tax from FY08 onwards. We will monitor the financial results for FY 08 and provide an update for investors.
Risk factors in our estimates. The risk factors in our estimates are (1) loss of key management and execution risks may delay the Group’s operations, (2) deregulation of the sports lottery market has opened up the competitive landscape to foreign companies, which may reduce the Group’s market share, (3) changes in China’s regulation may affect the Group’s operations and earnings.
Tuesday, July 31, 2007 | 0 Comments
Singapore Exchange Ltd: Record FY07 performance
Labels:
SGX
Broker House: OCBC
Analyst: Carmen Lee
Price: $10.10
Target : $8.80
Recommendation: HOLD
Downside: -12.88%
Summary:
Analyst: Carmen Lee
Price: $10.10
Target : $8.80
Recommendation: HOLD
Downside: -12.88%
Summary:
Record FY07 earnings. Singapore Exchange (SGX) posted record FY07 earnings of S$421.8m, more than doubling that of FY06. Excluding the one-time gains from the disposal of the SGX Centre and the write-back of the impairment allowance on the same building, net profit would have been S$311.3m, still a record high, and fairly in line with market estimates. Improvements came from all fronts. Revenue rose 41% to S$576.2m in FY07. Securities topped with revenue of S$326m, up 56%, or 57% of total revenue, buoyed by the surge in securities trading volumes and values since the start of 2007. Derivatives revenue grew 22% to S$117m. Other positives included more new and bigger listings (46 new IPOs, 70% foreign), Exchange Traded Funds (ETF) and Global Depository Receipts (GDR).
Raised base annual dividend to 12 cents. Management has raised the annual base dividend from 8 cents to 12 cents with effect from FY08. The final dividend for FY07 is a total of 30 cents (2 cents for 4Q + a variable dividend of 28 cents). This means a total payout of 36 cents in FY07 (FY06: 16.2 cents), once again exceeding its base dividend.
Positive newsflow. In the last few months, SGX has seen several positive developments, with two key deals being a 5% stake in the Bombay Stock Exchange (BSE) as well as the Tokyo Stock Exchange's 4.99% stake in SGX. In addition, it has signed several partnerships including two MOUs with the Hanoi Securities Trading Center and Ho Chih Minh City Securities Trading Center. All these have been captured in its share price in the last 1-2 months, which has moved to a recent high of S$10.90, up 91% for the year, making it the best-performing exchange stock in this region. Trading momentum looks good so far this quarter, with average daily volume of 4.5b units in Jul - another all-time high.
Based on the still strong market activities, we have raised FY08 earnings estimates from S$238.7m to S$286.8m, largely on account of optimistic estimates for both securities and derivatives in FY08. As valuations for its peers have also moved up, we are upping our valuation parameter from 25x to 30x (peer range: 25-37) FY08/09 blended earnings. Based on this, we are raising the fair value estimate for the stock from S$6.20 to S$8.80. We maintain our HOLD rating on SGX as its net yield remains good at around 3%.
Monday, July 30, 2007 | 0 Comments
Qian Hu Corporation: Stellar growth
Labels:
Qian Hu
Broker House: CLSA
Analyst: Zhuo Zhengjie
Price: $0.62
Target : $0.57 - $0.68
Recommendation: NA
Upside: -8.16% to 9.68%
Summary:
Qian Hu announced very strong results for 1H07, net profit was up a strong 57% on the back of steady revenue growth and improved margins. While expenses continued to rise, revenues grew at a faster rate, contributing to a higher operating margin. We have increased our FY07 forecasts, and upgraded FY08 earnings, which we think were pretty conservative. A fair value range of 11-13x FY08 PE (i.e. S$0.57-0.68) would be appropriate, given it operates in a niche segment, and is a small profitable outfit.
Strong 1H07 results. 1Q07 showed positive signs of improvement, and 2Q07 continued the upward trend. While topline growth was 22% YoY, cost management in selling and general expenses improved operating margins as operating profit was up 40% YoY. Taking into account a concessionary tax rate of 10% and minority interests, net profit actually rose 88.4% YoY for 1H07.
Revenue trends. Dragon fish sales continue to be the main driver, as the company saw strong export of the ornamental fish to new markets like China, Middle East, Russia and Australia. Accessories segment continues to grow as more effort was channelled to target overseas markets which were previously untapped. The Guangzhou factory managed to secure more orders.
Going forward. The company has plans to increase its customer base and geographical footprint by exporting to more countries via its distribution hubs in Singapore, Malaysia, Thailand and China. Besides that, it intends to increase the number of retail chain stores, particularly in China. Meanwhile, it will focus on increasing distribution points in China for its Dragon Fish and other accessories to more than 100.
Valuations. In light of a sound performance, we think an earnings upgrade is warranted. With a robust economy, we expect discretionary spending to increase, and Qian Hu, with its ornamental fish, is clearly poised to capitalise on this trend. Moreover, the signs are all positive as demand has clearly increased, and the company has benefited from cost management, and well as a concessionary tax rate. We think a fair value range for Qian Hu is 11-13x FY08 earnings, which puts it in the range of S$0.57 – S$0.68.
Analyst: Zhuo Zhengjie
Price: $0.62
Target : $0.57 - $0.68
Recommendation: NA
Upside: -8.16% to 9.68%
Summary:
Qian Hu announced very strong results for 1H07, net profit was up a strong 57% on the back of steady revenue growth and improved margins. While expenses continued to rise, revenues grew at a faster rate, contributing to a higher operating margin. We have increased our FY07 forecasts, and upgraded FY08 earnings, which we think were pretty conservative. A fair value range of 11-13x FY08 PE (i.e. S$0.57-0.68) would be appropriate, given it operates in a niche segment, and is a small profitable outfit.
Strong 1H07 results. 1Q07 showed positive signs of improvement, and 2Q07 continued the upward trend. While topline growth was 22% YoY, cost management in selling and general expenses improved operating margins as operating profit was up 40% YoY. Taking into account a concessionary tax rate of 10% and minority interests, net profit actually rose 88.4% YoY for 1H07.
Revenue trends. Dragon fish sales continue to be the main driver, as the company saw strong export of the ornamental fish to new markets like China, Middle East, Russia and Australia. Accessories segment continues to grow as more effort was channelled to target overseas markets which were previously untapped. The Guangzhou factory managed to secure more orders.
Going forward. The company has plans to increase its customer base and geographical footprint by exporting to more countries via its distribution hubs in Singapore, Malaysia, Thailand and China. Besides that, it intends to increase the number of retail chain stores, particularly in China. Meanwhile, it will focus on increasing distribution points in China for its Dragon Fish and other accessories to more than 100.
Valuations. In light of a sound performance, we think an earnings upgrade is warranted. With a robust economy, we expect discretionary spending to increase, and Qian Hu, with its ornamental fish, is clearly poised to capitalise on this trend. Moreover, the signs are all positive as demand has clearly increased, and the company has benefited from cost management, and well as a concessionary tax rate. We think a fair value range for Qian Hu is 11-13x FY08 earnings, which puts it in the range of S$0.57 – S$0.68.
Monday, July 30, 2007 | 0 Comments
Cityneon Holdings: Record interim earnings
Labels:
Cityneon
Broker House: CLSA
Analyst: Justin Yeoh
Price: $0.62
Target : $0.65
Recommendation: NA
Upside: 4.84%
Summary:
Analyst: Justin Yeoh
Price: $0.62
Target : $0.65
Recommendation: NA
Upside: 4.84%
Summary:
Exhibition services provider Cityneon reported firm numbers for 1H07 driven by its participation in world-class events such as the Formula 1 Grand Prix races in Bahrain and Malaysia, and 3GSM World Congress in Barcelona. Revenue was up 15% YoY to S$20.8m, with gross margins staying firm at 43.7% compared to FY06’s 43.1%. Net profit grew a stronger 23%, partly attributed by lower effective tax rate. No interim dividend was announced.
Stellar 1H07. Strong sales in China, Malaysia and the Middle East have boosted revenue growth of 15% YoY to S$20.8m, accounting for 42% of our FY07 estimates. Cityneon maintained gross margins firmly at 43.7%. Marketing and distribution costs grew slightly higher at 35.4% YoY due to increased marketing activities. Net profit grew 16% YoY to S$1.8m, but was down 40.6% HoH because of seasonality. 1H revenue and net profit have historically amounted to approximately 44% and 30% of full year results, with 1H07 largely in line at 42% and 33% respectively of our original full year estimates. No interim dividend was announced.
Strong 2H07 orders. Given that Cityneon’s order books are currently at S$32.2m, it is well on track to exceed our full year revenue estimates of S$49.4m. With 1H07’s effective tax rate at 8.7% VS 16.3% in 1H06 and 12.6% for FY06, the company could surprise on the upside. However, due to the seasonal nature of its business, we will maintain our conservative forecasts for now. Growth will depend on the penetrating into new events, the scale of the service and the amount of specialization that Cityneon can provide, such as customized branded booth, compared to core business of equipment rental and booth building. Outlook remains strong, but HoH growth is lower compared to FY06’s exceptional performance. The company maintains a strong net cash position of S$5.9m.
Slight upgrade. We have upgraded Cityneon’s revenue and earnings slightly by increasing our growth estimates for overseas earnings, which grew 38.5% YoY to 47.4% of 1H07’s total revenue, but there may be upside surprise given the strong order book. Maintaining out 8x 08PE for similar sized companies, our fair value arrives at 65Scts.
Sunday, July 29, 2007 | 0 Comments
Aztech Systems: Another good quarter
Labels:
Aztech
Broker House: DMG & Partners
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
Thursday, July 26, 2007 | 0 Comments
Aztech Systems: Look forward to a strong second half
Labels:
Aztech
Broker House: DBS Group Research
Analyst: Sachin Mittal
Price: $0.705
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 33.33%
Summary:
Analyst: Sachin Mittal
Price: $0.705
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 33.33%
Summary:
Comment on Results: Aztech reported 2Q07 profit of S$5.2m, up 3% y-o-y and 37% q-o-q.
The results were in line with our estimate of S$5.4m in a seasonally slow second quarter. We want to highlight two major points.
- Excluding one-off gain of S$1m in 2Q07 from disposal of Aztech building and factory equipment, operating profits grew at 13% y-o-y, inline with the revenue growth of 13% y-o-y.
- Projects worth S$13m for a major customer slipped into 3Q07 due to a delay in component sourcing, otherwise 2Q07 numbers would have been even better. Subsequently, we
hope to see a strong 3Q07 with contribution from these projects.
The cash flow from operations improved to $4.4m from S$2.9m last year due to improvement in working capital management. Management revealed that current order book stands healthy at S$85m (providing three-month visibility) slightly better than S$83m in 1Q07. The company declared an interim dividend of 0.75 cents compared to 0.50 cents last year.
Outlook: We keep our estimates unchanged with net earnings of S$26.8m for FY07. As seen historically, 3Q07 should be much better than 2Q07 while 4Q07 should be the strongest quarter. We believe that 65-70% of the full year earnings could come from the second half with the following drivers in place.
- Launch of PC-less Skype phoneb in Aug 07 and 3.5G adapters towards the end of FY07.
- Orders from a new European customer for high-end video conferencing phone using VoIP.
- Shipment of ADSL2+ modems to one of the largest Telco in the US.
- Shipment of Homeplug adapters to a satellite service provider in the US.
Recommendation: We maintain BUY with 12-month target price of S$0.94 pegged at 10.8x FY08 earnings, a 10% discount to the peer average of 12x FY08 earnings. Expected launch of new products in 3Q07 should be the catalyst for the stock price.
Thursday, July 26, 2007 | 0 Comments
Jackspeed Corporation: Aviation segment taking off
Labels:
Jackspeed
Broker House: OCBC Investment Research
Analyst: Selena Leong
Price: $0.275
Target : $0.33
Recommendation: BUY
Upside: 20%
Summary:
Analyst: Selena Leong
Price: $0.275
Target : $0.33
Recommendation: BUY
Upside: 20%
Summary:
Aviation - sustainable high margins. We visited Jackspeed's (JS) plant facility in Singapore recently and what stood out was the growth potential of its aviation business. JS repairs and refurbishes the aircraft's interiors such as its carpets and seats. Revenue from this sector grew 143.6% in FY07, contributing to approximately 10% of revenue. As indicated by management, gross profit margins averaged 40% at the minimum, with net profit margins hovering around 20 - 25%.
Buoyant outlook for aerospace industry. Moreover, Singapore is gearing up to be the region's hub for aerospace activities (like aircraft MRO); as evidenced by JTC and EDB jointly developing a S$60m, 140ha plot of land adjacent to the Seletar airport as an aerospace park expected to be completed in 2018. The Singapore aerospace industry has been experiencing a compounded annual growth rate of 12% over the last 15 years, accounting for approximately 25% of Asia's aerospace/ MRO activity. This is one of the fastest rowing industries, registering an output of S$6.3b in 2006, up from S$5.2b in 2005. In addition, fuelled by increasing demand for air travel, with the introduction of budget airlines and growth in air traffic from the strong economic growth of China and India, Boeing projects a doubling of aircrafts in Asia by 2015, indicating a potentially larger base for JS' repair services.
Slow down in auto segment offset by aviation growth. Sluggish auto sales have negatively impacted auto production in Malaysia and the cessation of a Ford contract in Thailand has contributed to a slowdown in demand for JS' leather seats. This caused a decrease in revenue of approximately S$6.5m in FY07 versus FY06. In addition, rising raw material costs have started to squeeze profit margins. Leather hide prices have risen around 10-15% since the beginning of this year. However, we believe that the growth in revenue and net margin from the aviation segment will more than mitigate the current slow down in demand for leather seats.
Maintain BUY, up fair value estimate to S$0.33. We expect JS to maintain its profitability in FY08. Our estimated fair value for JS has also been revised upwards from S$0.25 to S$0.33, with a forward PER of 13x. With JS' closing share price of S$0.275, this represents a potential upside of 20%. We are therefore maintaining our BUY rating for the stock.
Thursday, July 26, 2007 | 3 Comments
Man Wah Holdings: Battling increasing leather costs
Labels:
Man Wah
Broker House: OCBC
Analyst: Lee Wen Ching
Price: $0.505
Target : $0.58
Recommendation: BUY
Upside: 14.85%
Summary:
Price: $0.505
Target : $0.58
Recommendation: BUY
Upside: 14.85%
Summary:
Strong revenue, weak bottom-line. We recently met Man Wah Holdings Ltd's (MWH) management to get an update of its future plans. In May, MWH posted an impressive 58% YoY increase in 2H07 revenue to HK$476.5m, supported by a 102% increase in revenue contribution from the North American market. However, higher cost of leather eroded its profits, resulting in a lackluster 1.3% YoY growth in 2H07 net profit to HK$42.2m.
Increasing cost of leather. The bulk of the cost increase was attributed to leather, a key raw material, which constitutes 55% of MWH's cost of goods. Global leather prices, which rose 25% YoY in FY07, are not expected to ease in the near future, given the strong demand for leather from the shoe and automobile industries in China. To tackle this, MWH has increased its inventory of leather. As a longer-term measure, MWH has sought to raise the average selling price of its products by shifting its production towards higher-end micro-fabric sofas. The gradual step-up in selling price will serve to stabilize MWH's margins in FY08 and beyond. MWH's net profit margin fell from 15.6% in FY06 to 10.6% in FY07. We expect net profit margin to hold at around 9.0% in FY08.
Expansion of capacity. Margin squeeze aside, the demand for MWH's sofas remains strong. In FY07, MWH completed phase 1 of its expansion plans, which ramped up its production capacity by 49% to 153,000 sets of sofas per annum. Running at full capacity now, MWH is in the midst of its phase 2 expansion, targeted to be completed by August 2007, which will increase capacity by another 98% to 303,000 sets of sofas per annum. Given that the phase 2 expansion is expected to be fully operational in 2H08, we project an annual output of 191,000 sets of sofas in FY08. This brings our projected revenue to HK$1.2b for FY08, a 44.5% YoY increase from FY07, and our projected net profit to HK$111.1m, a 22.5% YoY increase.
Maintain BUY. As we expect MWH to continue to face challenges such as increasing costs of leather and labour and a strengthening yuan against the USD, we have taken these factors into consideration in our earnings projections and valuation. We have lowered our fair value estimate from S$0.615 previously to S$0.58 based on 8x blended FY08/09 PER. At current price of S$0.505, we are maintaining our BUY rating.
Wednesday, July 25, 2007 | 0 Comments
Fu Yu Corporation: 2Q07 should still be a loss
Labels:
Fu Yu
Broker House: Phillip Securities Research
Analyst: Kok Fook Meng
Price: $0.355
Target : $0.46
Recommendation: SELL
Upside: 29.58%
Summary:
2Q07 revenue may beat our forecast. We have forecasted 2Q07 revenue of S$95.5m and operating loss of S$2.6m for Fu Yu Corporation (FUYU). However, based on checks with other suppliers to a key common customer for printers, the delayed program that we had highlighted in our earlier report has maintained strong unit shipment for the months of April and May, following an unseasonably strong 1Q07. Therefore, we believe FUYU’s 2Q07 revenue may instead grow QoQ in the single digit percentage range compared to 1Q07’s sales of S$104.4m. FUYU could therefore record a small operating profit for 2Q07, but only if there are no further significant provisions at its China operations.
Recent share price appreciation perhaps ahead of fundamentals. FUYU has appreciated 20.3% since our last report, and was as high as S$0.375 on 29th June 2007. We are not as optimistic about FUYU compared to the market, as indicated by the recent price appreciation. We believe FUYU’s China operations is still in recovery mode and will probably have better results only in FY08. We are also uncertain if further provisions will be required for China.
Retained fair value and recommendation. We have left our revenue estimate alone as we feel that the potential marginal difference between actual 2Q07 results and our forecast will not be material. FUYU will report 2Q07 results within the first two weeks of August 07. We have retained our fair value peg for FUYU to 1x FY07E NTA, i.e. S$0.46 per share. We repeated our view in the last report that we believe FUYU’s stock price has bottomed but advised investors to avoid the stock for the time being as we were unable to identify a catalyst. Also while operations are certainly improving, we still see more work ahead for FUYU before sustainable growth can re-establish. Contrary to our view, FUYU’s share price seems to have found a life of its own in the past two months. In spite of that, we are still unable to identify any fundamental catalyst that could sustain the stock’s momentum. In fact, we believe risk is on the downside at this price level. Therefore, although FUYU is still 22.8% below our fair value, we feel that there are better investment alternatives with more attractive risk/reward. We advise investors to sell into the current strength of its share price.
Analyst: Kok Fook Meng
Price: $0.355
Target : $0.46
Recommendation: SELL
Upside: 29.58%
Summary:
2Q07 revenue may beat our forecast. We have forecasted 2Q07 revenue of S$95.5m and operating loss of S$2.6m for Fu Yu Corporation (FUYU). However, based on checks with other suppliers to a key common customer for printers, the delayed program that we had highlighted in our earlier report has maintained strong unit shipment for the months of April and May, following an unseasonably strong 1Q07. Therefore, we believe FUYU’s 2Q07 revenue may instead grow QoQ in the single digit percentage range compared to 1Q07’s sales of S$104.4m. FUYU could therefore record a small operating profit for 2Q07, but only if there are no further significant provisions at its China operations.
Recent share price appreciation perhaps ahead of fundamentals. FUYU has appreciated 20.3% since our last report, and was as high as S$0.375 on 29th June 2007. We are not as optimistic about FUYU compared to the market, as indicated by the recent price appreciation. We believe FUYU’s China operations is still in recovery mode and will probably have better results only in FY08. We are also uncertain if further provisions will be required for China.
Retained fair value and recommendation. We have left our revenue estimate alone as we feel that the potential marginal difference between actual 2Q07 results and our forecast will not be material. FUYU will report 2Q07 results within the first two weeks of August 07. We have retained our fair value peg for FUYU to 1x FY07E NTA, i.e. S$0.46 per share. We repeated our view in the last report that we believe FUYU’s stock price has bottomed but advised investors to avoid the stock for the time being as we were unable to identify a catalyst. Also while operations are certainly improving, we still see more work ahead for FUYU before sustainable growth can re-establish. Contrary to our view, FUYU’s share price seems to have found a life of its own in the past two months. In spite of that, we are still unable to identify any fundamental catalyst that could sustain the stock’s momentum. In fact, we believe risk is on the downside at this price level. Therefore, although FUYU is still 22.8% below our fair value, we feel that there are better investment alternatives with more attractive risk/reward. We advise investors to sell into the current strength of its share price.
Wednesday, July 25, 2007 | 3 Comments
CWT Limited: Unlocking value
Labels:
CWT
Broker House: SIAS
Analyst: Koh Chin Lek
Price: $1.01
Target : $1.19
Recommendation: BUY
Upside: 17.82%
Summary:
Analyst: Koh Chin Lek
Price: $1.01
Target : $1.19
Recommendation: BUY
Upside: 17.82%
Summary:
Company updates/Events
Sale & Leaseback deal: C & P Asia Warehousing Pte. Ltd., a wholly-owned subsidiary of CWT, has proposed a sale & leaseback deal on the sale of its logistics property at 1, Tuas Avenue 3 to Cambridge Industrial Trust (CIT). This 30year leasehold property commencing from 1 October 1979, with lease extended for another 23 years from Jurong Town Corporation (JTC), has a land area of approximately 30,682 sq m and a gross floor area of approximately 28,480 sq m.
The sale price of S$32.5m includes S$26.5m for the existing property, and S$6m for works to add an estimated gross floor area of 5,255.96 sq m (A&AWorks).
CWT will leaseback the property for a period of eight years at an initial annual rental of S$2.1m and another S$0.48m per year for the additional area upon completion of A&A works. The rental is subject to an escalation of 7% each onthe fourth and seventh year of the lease term.
The proposed S&L will enable the CWT to realise its investments while continuing to use the property for its existing operations. The cash generated will beutilised to fund for business expansion locally and in the region, as well as for working capital.
Based on the aggregate net book value of the property of S$13.755m as at endFY06, the company will realise a gain of approximately S$9m from the sale, after accounting for relevant costs.
Outlook
More gain from S&L: As mentioned in our last report dated 20 July 2007, only two, and now coming to three, of its warehouses are under the S&Larrangement. There are possibilities for more S&L arrangement which may furtherboost earnings and able to provide capital for further expansion.
New development in China and Ukraine: CWT is expanding its warehouse facilities in China by developing an integrated logistics hub in Tianjin to be completed by end 2008. This new hub will comprise of a 110,000 sq m ramp up warehouse and a 40,000 sq m container depot. Another 86,000 sq ft new warehouse in Shanghai should be developed by end 2007.
Risk
Higher operating cost: Although S&L helps to free up cash and capital for business expansion, CWT loses the flexibility over the ownership of the properties. CWT will also likely pay a higher rental rate to the buyer (i.e. CIT) than to JTC and thus increase the operating cost. However, CWT is able to mitigate this through higher lease rate and better returns from new projects.
Valuation/Recommendation
Revised forecast: We are raising our earning forecast for FY07 by 28% to S$32.3m as a result of the S&L. Sales and operating profit forecasts remain. We increase the EPS for FY07 from 4.4cts to 5.6cts and FY08 remains at 5.2cts.
Recommendations: We have a price target of S$1.19 for CWT, based on a 20% discount to its average historical PE of 28x. Our new target price represents a 17% upside from the current share price of S$1.01. Upgrade to BUY.
Wednesday, July 25, 2007 | 0 Comments
Singapore Computer Systems
Labels:
SCS
Broker House: SIAS
Analyst: Goh Si Xian
Price: $0.92
Target : $0.88
Recommendation: HOLD
Downside: -4.35%
Summary:
Analyst: Goh Si Xian
Price: $0.92
Target : $0.88
Recommendation: HOLD
Downside: -4.35%
Summary:
Incorporated in 1980, Singapore Computer Systems (SCS) is a leading information communications technology (ICT) serviceprovider in Asia. The Group operates in seven countries regionally, with the bulk of revenue coming from Indonesia and Singapore. Following two years of relatively huge losses in FY03 and FY05, SCS is taking steps to improve its business model and operational efficiency. A successful turnaround would allow the company to benefit from the steady and sustained growth expected of the local and regional ICT markets in the coming years.
With a new management at the helm, SCS is showing promise by returning to profitability and achieving its sixth consecutive quarter of profitability in 1Q07. Year on year, gross margins improved from 11.4% in 1Q06 to 15.3% in 1Q07. At the close of 1Q07, SCS’ order books stood at S$299.3m, 45% of which will be recognised in FY07. At S$0.92, SCS is currently trading at 19.3x FY06 earnings. This is roughly inline with its peers average PER of 19.9. Given its improved business performance in 1Q07 and the positive outlook for the rest of FY07, we are estimating SCS’ earnings to grow 13.2% for the year. This would translate into an FY07 EPS estimate of S$0.054. As we are expecting SCS to trade at a forward PER close to its industry average of 16.3x forward earnings, we derive a target price of S$0.88.
We are initiating coverage with a “hold” recommendation.
Tuesday, July 24, 2007 | 0 Comments
Aztech Systems: Multiple drivers pushing growth
Labels:
Aztech
Broker House: DBS Group Research
Analyst: Sachin Mittal
Price: $0.655
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 43.51%
Summary:
Story: We hosted Aztech for “Pulse of Asia” conference where management briefed investors about the company’s prospects.
Point: There were three key takeaways.
Analyst: Sachin Mittal
Price: $0.655
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 43.51%
Summary:
Story: We hosted Aztech for “Pulse of Asia” conference where management briefed investors about the company’s prospects.
Point: There were three key takeaways.
- Aztech is poised to benefit from IPTV growth in Europe, US and Asia
- It is about to enter another exciting growth area of 3.5G broadband
- Investors should expect broad-based growth across all business segments with high sustainable margins.
We expect 2Q07 numbers to be moderately positive due to the high base in 2Q06 while on a half yearly basis, we expect to see about 25% growth y-o-y.
Relevance: We are raising our FY08 earnings estimates by about 5%, after factoring in potential revenue from soon-to-be launched products - 3.5G adapters and VDSL modems. Rolling forward to FY08 earnings, we maintain BUY with 12-month target price of S$0.94 pegged at 10.8x FY08 earnings at 10% discount to the peer average of 12x FY08 earnings.
Monday, July 23, 2007 | 0 Comments
Noble Group: The Brazilian acquisition
Labels:
Noble Group
Broker House: Phillips
Analyst: Lim Tian Khoon
Price: $1.80
Target : $2.15
Recommendation: BUY
Upside: 19.44%
Summary:
Analyst: Lim Tian Khoon
Price: $1.80
Target : $2.15
Recommendation: BUY
Upside: 19.44%
Summary:
Acquiring a stake in the Brazilian iron ore mining group. Noble Group Limited (“Noble”) announced on 18 July 2007 that it has acquired a 30% stake in Brazilian iron ore mining company, Mhag Servicos E Mineracao S/A ("Mhag”) for a total consideration of US$60m. Mhag is growing to be a substantial producer of iron ore for export in Brazil and will utilise Noble as its iron ore marketing agent through its extensive global network. Mhag’s iron ore reserves are estimated at 3.8 billion tons in five areas in the states of Rio Grande do Norte and Paraiba.
Significant synergy. The acquisition will enhance Noble’s capacity to source for quality iron ore to satisfy demand from buoyant global steel industry. We believe that through the acquisition, Noble is able to have access to high quality iron ores to satisfy the growing demand, particularly from the steel industry in China. Mhag on the other hand will be able to tap on Noble’s expertise in iron ore, logistics and freight, together with a deep knowledge of emerging markets. Incidentally, Noble has direct contacts with 120 steel enterprises in China. Mhag is already producing and shipping high quality iron ore through the port of Suape in the state of Pernambuco. It has plans to increase, immediately, production of iron ore to 3.6 million tons per year, with output to reach 10 million tons per year by 2009. By 2009 (after expanding production capacity), it is expected that Mhag will be amongst the most competitive producers because of favourable strategic location (Mhag’s mine is near to a port), high quality ore, low cost internal transport and availability of all other necessary resources.
Demand for raw materials like iron ore, steel, and coal to remain strong, driven by strong growth in infrastructural spending as seen in many developing countries. Steel production in Japan, South Korea, China, and the EU combined has increased by 42.4% since 2003. In China alone, steel production has increased by 92.2% from 219.3 million tons in 2003, to 421.5 million tons in 2006 (see Exhibits 1 & 2). The substantial increase in steel production also leads to an increase in demand for iron ores and (coking) coal. With a stake in Mhag, we expect Noble to benefit from being able to provide quality iron ores to the buoyant steel industry, especially in China.
Although the Chinese government has recently imposed export tariffs on a variety of steel products, we retain our optimistic long term view on the demand for steel. Our view is supported by strong demand for steel, not only in the construction sector of emerging Asian countries, but also in their automotive, oil & gas, and marine sectors. Local demand in China also remains strong, with infrastructural spending maintaining at a high level.
Fair value revised up to S$2.15. BUY recommendation maintained. We do not see the steel industry, especially in China, slowing down in the near term. As such, we remain positive on the overall demand level for iron ores. We believe that the Brazilian acquisition will reinforce Noble’s position as a major supplier of quality iron ores to China. According to trade statistics, Brazil exported 22.5 million tons of iron ore in May this year with China being their largest customer. China’s iron ore imports from Brazil for the January to May 2007 period were 40.3 million tons, up 40.5% y-o-y (source: Clarkson).
We increase our estimation for tonnage growth for Noble’s MMO segment (which includes iron ore as part of the product portfolio) to an average of 8.9% for the FY07 to FY09 period. Although we are positive that the acquisition will result in the increase in tonnage volume of Mhag’s iron ore export shipment to be handled by Noble, we remain conservative in our projections. Accordingly, we revise upward our average earnings growth rate to 16.4% CAGR over the FY07 to FY12 (inclusive) period.
Our fair value of S$2.15 is derived at using the three-stage DDM model. Key assumptions are highlighted in the table below (see Exhibit 3). Our fair value translates to FY08 P/E of 22.3x and a FY08 P/B of 2.9x. We maintain our BUY
Friday, July 20, 2007 | 0 Comments
CWT Limited: Global Player Sets Its Sights Further
Labels:
CWT
Broker House: SIAS Research
Analyst: Koh Chin Lek
Price: $1.02
Target : $1.06
Recommendation: Hold
Upside: 3.92%
Summary:
Analyst: Koh Chin Lek
Price: $1.02
Target : $1.06
Recommendation: Hold
Upside: 3.92%
Summary:
Company updates/Events
Exceptional Quarterly Performance: CWT Limited, a leading logistics player,reported earnings growth of 173.0% to S$8.1m in 1Q07 from S$2.9m in 1Q06.The increase was on the back of a 40.3% surge in turnover from S$83.1m toS$116.7m. Net profit nearly tripled to S$7.5m from S$2.7m.
Logistics Business Boost Earnings: The profit surge was contributed largelyby its Logistics business where NVOCC (i.e. Non-vessel operating commoncarriers) services remain as the top contributor. Net profit to shareholdersfrom Logistics business grew by more than 3-fold to S$4.4m in 1Q07. The commodity logistics division recorded net earnings of S$2.87m. Profit from the Engineering Services increased by more than 30% as more jobs were closed forbilling in 1Q07.
Improved Margins: Gross margin gained 2.5%-points from 8.5% 1Q06 to11.0% in 1Q07, and EBITDA margin saw a similar increase of 1.6%-points to 8.3%.The margin was due to a strong revenue growth and a big jump in other operatingincome from S$0.1m to S$2.6m. With strong contributions from joint companies and associates, net margin was up from 3.4% to 6.9%, an increment of3.5%-points.
Strengthened Balance Sheet: Total assets increased by 22.9% to S$379.0mbetween 1Q-FY07 and 1Q-FY06, reflecting improvements in cash, and increase inproperty, plant and equipments’ value. Shareholders’ equity increased fromS$137.5m to S$146.0m, a rise of 6.2%.
Outlook
Optimistic outlook backed by government: In the 2006 SingaporeBudget, Prime Minister Lee announced that his Cabinet aimed to strengthenSingapore’s existing traditional sectors, with one of them, being logistics. Fourfinancing and tax incentive schemes were introduced to attract more internationalship-owning and ship-operating companies to set up operations inSingapore. Strategic location, efficient 24/7 operations, reliable physical and ITinfrastructure and excellent connectivity have made Singapore a compelling globallogistics hub. With total value added in the logisticssector standing at S$350m in 2006, up from S$285m in 2005, companies suchas CWT that are able to provide valueadded service would stand to gain fromthis backdrop.
Connecting to Ukraine and Russia: Ukraine currently enjoys most favourednationstatus with the European Union for export operations, and is not required tobind its own tariffs. This is an excellent attraction that could lead to theestablishment of more vertical Foreign Direct Investment in Ukraine. To relocateto developing countries such as Ukraine,logistics and supply activities are the topthree most important functions.
CWT has formed a 72-28 JV with Economic Development Group, areputable Ukrainian investment group, to develop logistics facilities and establish a comprehensive distribution network in major cities across Ukraine and Russia.The facilities will be strategically located in Kiev, the capital of Ukraine, andOdessa, the main seaport of Ukraine. Thus, the company is well-positioned toseize the growing demand for quality logistics facilities and services in Ukraine.
Additional warehouse space: CWT has existing warehouse space of more than4m sqft globally, and is expected to increase to more than 7m sqft by end2008. Currently, only two of their warehouses are under the sale and leaseback (S&L) arrangement with Cambridge Industrial Trust in July 2006. There are possibilitiesof more S&L arrangement which may further boost their earnings.
Risk
High dependence on NVOCC: NVOCC business segment softened in 1Q07consequent to festive seasons in China and generally keener competition forcertain trade lanes. Being the major contributor to revenue and earnings,should NVOCC not be able to fight off its competitors, the company’s top- andbottom-line would be adversely affected.
Severe economic downturn: An economic downturn would lead to declinein world trade and this in turn causes a decline in demand for warehouse space.The NVOCC business segment would be affected as well since it is a freightconsolidation operation. Margins may dip and growth would come to a standstill.
Valuation/Recommendation
Price performance: Since our last report in Feb 07, the price of CWT has increased about 47% from S$0.69 (adjusted for rights issues and shares placement) toS$1.02.
Revised forecast: We have upped our revenue forecast for FY07 by 8.4% fromS$415.8 to S$437.8m due to the higher turnover and earnings contribution shownin 1Q07, as well as the higher rental rate. We have also raised net profit forecast for FY07 from S$23.0m to S$25.2m, and FY08 earnings forecast to S$30.0m.However, we have lowered the EPS for FY07 from 6.6cts to 4.4cts and FY08 from7.8cts to 5.2cts due to the right issues and the placement of 55m new shares.
Recommendations: Based on the average historical PE of 28x, we valuedCWT using a 20% discount of 22x and the average EPS of FY07 and FY08, and arriveat a fair value of S$1.06. Our new target price represents a 3%upside from the current share price of S$1.03. We downgrade to a ‘HOLD’ recommendation.
Friday, July 20, 2007 | 50 Comments
Sing Investments & Finance: Singing the right tunes
Labels:
Sing Investments
Broker House: Kim Eng
Analyst: KELive Research Team
Price: $1.68
Target: $2.85
Recommendation: BUY
Upside: 69.64%
Summary:
Analyst: KELive Research Team
Price: $1.68
Target: $2.85
Recommendation: BUY
Upside: 69.64%
Summary:
Poised to benefit from construction and property upswing. SIF’s $1b loan portfolio comprises mainly of property development (~43%) and mortgage (~25%, largely private properties) loans. Other lending includes vehicle hire purchase (~20%), factoring and SME loans. Loan growth from 2003-06 was mainly property-driven, with a 3-year CAGR of 28%. Overall quality of loans is good, with an aggregate NPL ratio of <2%>
Improving margins on cheaper deposits. The duration (weighted average term to maturity) of SIF’s deposit base is 4 months shorter than its loanbook (8 vs 12 months). This time lag in the deposit to- loan duration means that SIF will be affected in a rising interest rate environment as its cost of funds adjusts quicker than its lending rates. Firmer interest rates have reduced SIF’s net interest margin from 2.3% to 1.7% in FY06. However, recent MAS data shows that the 3, 6 and 12-month deposit rates for finance companies have fallen by 48bp on average for the Jan-May 07 period, while housing rates remained sticky due to strong demand for property and construction loans. As such, we expect SIF’s net interest margins and bottomline to improve significantly in FY07/08.
Hidden value in SIF Building. SIF’s new flagship building at 96 Robinson Road is currently carried in its books at $39m. 39% of the building is currently occupied by the main office while the remaining 61% of net lettable area (total 58,938 sf) is tenanted. Based on average rental rate of $7.00psf, the effective book yield is 7.8%. Using a capitalisation rate of 5% and current rentals of S$7.50psf, we estimate SIF building to be worth $106m, which throws up a revaluation surplus of $67m or $0.68 per share.
Good property proxy. TP $2.85 offers 70% upside. In view of SIF’s heavy exposure to the booming construction and property sectors, we forecast net profits to surpass the $10m mark in FY07. In tandem, SIF Building’s valuation is likely to further appreciate as demand for office space continues to outstrip supply in the near term. Ascribing a conservative 1.1x 2007 P/B to its banking assets plus SIF Building’s revised market value gives a target price of $2.85 for the stock. In contrast, Hong Leong Finance is trading at a forward P/B of 1.3x, whereas the three banks (DBS, UOB and OCBC) have market valuations of ~1.8x forward P/B. At $1.68, investors would be buying the finance business at a small discount whilst getting SIF Building for free. BUY
Improving margins on cheaper deposits. The duration (weighted average term to maturity) of SIF’s deposit base is 4 months shorter than its loanbook (8 vs 12 months). This time lag in the deposit to- loan duration means that SIF will be affected in a rising interest rate environment as its cost of funds adjusts quicker than its lending rates. Firmer interest rates have reduced SIF’s net interest margin from 2.3% to 1.7% in FY06. However, recent MAS data shows that the 3, 6 and 12-month deposit rates for finance companies have fallen by 48bp on average for the Jan-May 07 period, while housing rates remained sticky due to strong demand for property and construction loans. As such, we expect SIF’s net interest margins and bottomline to improve significantly in FY07/08.
Hidden value in SIF Building. SIF’s new flagship building at 96 Robinson Road is currently carried in its books at $39m. 39% of the building is currently occupied by the main office while the remaining 61% of net lettable area (total 58,938 sf) is tenanted. Based on average rental rate of $7.00psf, the effective book yield is 7.8%. Using a capitalisation rate of 5% and current rentals of S$7.50psf, we estimate SIF building to be worth $106m, which throws up a revaluation surplus of $67m or $0.68 per share.
Good property proxy. TP $2.85 offers 70% upside. In view of SIF’s heavy exposure to the booming construction and property sectors, we forecast net profits to surpass the $10m mark in FY07. In tandem, SIF Building’s valuation is likely to further appreciate as demand for office space continues to outstrip supply in the near term. Ascribing a conservative 1.1x 2007 P/B to its banking assets plus SIF Building’s revised market value gives a target price of $2.85 for the stock. In contrast, Hong Leong Finance is trading at a forward P/B of 1.3x, whereas the three banks (DBS, UOB and OCBC) have market valuations of ~1.8x forward P/B. At $1.68, investors would be buying the finance business at a small discount whilst getting SIF Building for free. BUY
Thursday, July 19, 2007 | 0 Comments
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