SGX Stock Targets :: Your One Stop Analyst Reports Blog

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.