ASL Marine Holdings Ltd
BUY: Previous call: BUY at $0.745 on 25 Aug 06
Previous close: S$1.01
Fair value: S$1.18
ASLM recorded HY net profit of S$16.8m (+36% yoy), and looks set to beat our FY estimate of S$28.1m. Group revenue rose to S$156.4m (+49%), boosted especially by ship repair (+78%) with the new graving dry dock in operation.
Shipbuilding shows earnings visibility and better GPM. Gross profit increased 57% yoy to S$6.1m, due to a combination of improved revenue (S$100.5m, +46%) and better GPM (6.1%, +0.5 ppts) resulting from the company’s ability to secure more shipbuilding projects with better pricing and margins. Outstanding orderbook of S$382m stretches into 2008, of which management guides S$254m will be recognized in FY08. We estimate shipbuilding GP to grow to ~$15m in the next two years (FY06: S$5.3m), underpinned by increased earnings visibility and observed GPM improvement.
Enhancements to new dry dock will improve its marketability and work efficiency. Revenue and GP was up 78% and 54% yoy to S$21.3m and S$5.8m respectively, largely contributed by the graving dry dock which enabled ASLM to undertake bigger repair and conversion jobs. GPM dipped from 31.5% in 1H06 to 27.3% as the company took on higher value, but slimmer margin conversion jobs. ASLM is constructing a 220m finger pier and adding two traveling luffing cranes to complement its enhanced ship repair capabilities. The increased berthing space will entice more customers to use the dock and improve efficiency by reducing turnaround time between jobs.
ASLM’s ship chartering unit is poised to benefit from buoyant charter rates. HY07 gross profit of S$12.4m was +79% better than HY06, underpinned by +42% revenue increase to S$34.5m. GPM increased to 36% from 29% due to better fleet capacity. ASLM expects the boom in local infrastructure construction to buoy charter rates, which have enjoyed healthy increases according to management. The company will be adding another 14 tugs and 8 barges in 2H06 (1H06: 10 tugs and 21 barges). We believe ASLM’s fleet renewal and management plans will position this unit to succeed on the back of a healthy charter rate uptrend.
Maintain Buy with FV S$1.18, based on 10x FY08 fully diluted EPS.
Source: Phillip Securities Research
ASL Marine
BUY
Current Price: S$1.01
Target Price: S$1.30
Ahead of expectations
ASL has posted a net profit of S$16.8m (+36% yoy) for 1HFY07, 60% of our
FY07 net profit forecast of S$28.0m. Results were ahead of market and our
expectations.
Turnover from shipbuilding operations increased 46% to $100.5m. Shipbuilding
gross profit (GP) margin increased from 5.6% in 1HFY06 to 6.1% in 1HFY07.
The increase was due to the progressive recognition of revenue from the
construction of more vessels, at a higher average contract value.
Turnover from shiprepair operations increased significantly by 77% to $21.3m.
Shiprepair operations recorded GP margin of 27.3% for 1HFY07. The lower
margin, compared to 1HFY06’s 31.5%, can be attributed to start-up cost of the
new 150,000dwt graving dry dock in Batam which commenced operation in Aug
07. Nevertheless, The performance in this segment was strong, primarily due
to more and bigger shiprepair and ship conversion jobs undertaken at the
graving dry dock.
Turnover from the shipchartering and rental operations increased 42% to
$34.5m in 1HFY07. GP margin for this segment increased from 28.5% in
1HFY06 to 35.9% in 1HFY07. The growth can be attributed to an increase in
fleet size from 115 vessels as of end-Dec 05 to 146 vessels as of end-Dec 06,
changes in turnover mix with higher proportion of time charters, as well as a
general increase in charter rates.
Following the completion of a 150,000dwt graving dry dock in Batam, ASL is
now one of the few shipyards in the region capable of repairing Capesize class
vessels. The operation of the graving dry dock has enhanced the company's
shiprepair capabilities. This has allowed ASL to provide ship owners a fuller
range of repair services, increasing its prospects of taking on more and bigger
shiprepair & conversion jobs. The Batam shipyard’s new 220m finger pier, when
completed in July 2007, will further enhance berthing capacity and allow ASL to
take on more shiprepair businesses. ASL’s shipyard in Guangdong, focusing
mainly on shipbuilding activities, is expected to commence operation in 1Q07.
As of end-Dec 06, the Group has an outstanding shipbuilding order book of
$382m (end-Dec 05: S$231m) of which 33% recognised by Jun 07.
We have raised our earnings forecasts for FY07, FY08 and FY09 by 19%, 11%
and 9%, respectively to S$33.4m, S$37.2m and S$41.5m. We have raised our
target price by 18% to S$1.30 (10.3x FY08 fully diluted EPS vs. the average PE
of 12.0x for Singapore’s small cap marine stocks). Maintain BUY.
Olam
HOLD
Current Price: S$2.09
Fair Price: S$1.96
Forming JVs in the oilseeds and cotton businesses in China
Olam and Chinatex have announced their intention to form two JVs as
follows :
a) Oilseeds JV – Olam plans to invest US$13.5m to acquire a 35% stake in
Chinatex Grains and OIL (CTGO), which is currently a wholly-owned
subsidiary of Chinatex. CTGO would set up a wholly-owned soybean
sourcing subsidiary in Brazil. Olam has the option to increase its stake to
45% within 2 years of setting up of the Brazilian subsidiary, at an estimated
US$7-8m.
b) Domestic cotton JV – Olam and Chinatex plan to set up a 50:50 domestic
cotton JV in China, which would be involved in sourcing, ginning, inland
logistics, distribution and risk management for the domestic cotton market.
The two parties propose to enter into a preferential purchase arrangement,
whereby Olam could supply 30% of Chinatex’s annual cotton imports, on a
competitive basis.
CTGO is an established player in the oilseeds business in China, with two
principal activities : (1) import (into China) and distribution of oilseeds to Chinese
oil crushers; and (2) crushing imported beans in its factories. It imported close
to 3m tons of soybeans in 2006, giving a 11% market share. In 2006, CTGO is
estimated to have recorded revenues of US$1b and net profit of US$4m. This
proposed JV will bring together CTGO’s strong relations with China oil crushers
and Olam’s global sourcing expertise. Olam expects the 35% stake in CTGO
to add US$1.1-1.5m to Olam’s PAT for the first year.
Chinatex is the largest player in the China cotton industry, and handles
300,000 tons annually, with a 10% market share for imported cotton. In 2006,
Chinatex’s cotton business recorded revenues of US$500m & net profit of
US$13m. Olam expects an incremental US$2m PAT pa 2-3 years ahead.
We estimate these 2 JVs would add some US$3m to Olam’s FY09 net profit,
or 3% of our forecast. Olam remains a HOLD as its PE rating is significantly
higher than its peers such as Noble. Compared against Li & Fung, we believe
Olam should trade at a lower PE rating as it is much smaller ie Olam’s turnover
is only a third that of Li & Fung. Our Olam fair price target of S$1.96 is based
on 28x FY07 PE. Buy below S$1.76.
Source: UOB Kay Hian Research
COSCO Corporation
On course for $3.10
Buy
The stock’s strong uptrend has broken out of a 12-day consolidation on
last Friday (2nd Feb 07). Based on 100% projection of the previous
movement, we feel the stock could be resuming its uptrend towards near
term target of $3.10.
With FY06 financial results due on 12th Feb 2007, Cosco’s upside
momentum is likely to gain further traction. KE fundamental research
desk also believes that capacity expansion aside, the new facilities will
allow Cosco to further penetrate the market segment for high value
offshore marine engineering work. The DCF fair value target is $3.21
compares well with our technical objective of $3.10.
Recommend Buy.
ASL Marine
BUY: Price S$1.00 Target S$1.32
1H07 Results Review
Analyst: Sebastian HENG
Strong & Steady Does It
♦ 1H07 better than thought
1H07 earnings rose by 36% to S$16.8m on a 46% rise in revenue to S$100.5m. This
outpaced our full year estimate of S$31.1m, with growth in all segments. Shipbuilding
profit climbed 55%, Ship repair by 53% and Ship chartering by 79%. The better
shipbuilding earnings reflect both order delivery and gross margin improvement, while
its ship repair business benefited from ASL’s new 150,000 DWT dock. Chartering
improved significantly due to better charter rates (up 10-20% Y/Y), with the fleet
expanding to 146 vessels from 115.
♦ New dock raking in returns; upgraded EPS forecasts
ASL’s new 150k DWT dry dock is already reaping returns with a number of Aframax
repair jobs completed. ASL has succeeded in establishing a niche for itself in mid-size
vessel repairs on Batam, which will enable the group to cater to more sophisticated
conversion jobs. We expect the new dock to contribute sales of at least about S$2m
per month. It is also adding another 220m finger pier to enhance its berthing capacity
in order to take on more business. ASL’s 30ha land Batam yard is almost fully utilized,
and it has procured another 10ha of land nearby to build barges. To reflect the betterthan-
expected contributions from its new dock and enlarged fleet, we have upgraded
our FY07-08 EPS forecasts by 5-8% respectively.
♦ Record order book & moving up the value chain
Prospects continue to look strong, driven by more offshore repair jobs (rigs and FSO)
and newbuild orders for AHTS and Emergency Response Vessels (to be delivered in
FY08). Order book is close to $400m. Penetration of the offshore oil and gas segment
will move the group up the value chain and attract better newbuild margins. We
believe it is poised to attract orders with increasing margins, which could prove to be
a strong share price catalyst.
♦ Of good value; reiterate BUY
ASL continues to offer good value, trading at PE multiples of 9.0x and 7.6x for FY07
and FY08 respectively. We have hiked our target price to S$1.32 from S$1.25 on
account of our EPS upgrade, or pegged at 11.7x FY07 PE (blended PE multiple). We
believe the stock’s depressed multiples were due to the albatross that was ASL
Energy. As ASL works towards eliminating this performance drag, it would improve its
market ratings. Increasing market coverage and rising orders could further boost the
stock. Reiterate BUY.
GP Batteries
SELL: Price $1.42 Target $1.22
Where there is smoke…
♦ Weak 3Q results lower than expected
GP Batteries (GP) reported a weaker than expected 3Q07. 3Q net profit fell
8.3% y/y to $3.0m whilst revenue dropped 13.7% y/y to $201.6m. Stripping
out one-off items, which comprise mainly of commodity gains ($6.5m),
exchange rate gains ($4.9m) and closure of pilot production line (-$0.4m),
operating loss would have been $2.8m. A further $0.8m was recorded as
exceptional item relating to the combined loss of the fire incident and
negative goodwill at Ninbo GP Sanyo Energy (NGPSE). YTD revenue stands
at $614m and YTD net profit at $8m, effectively representing 72% and 78%
of our revised FY07 estimates.
♦ Outlook remains difficult
Management maintains that the general business outlook remains difficult as
raw material prices such as zinc and nickel have escalated and strengthening
of the Renminbi continues to plague the company. 17 of their 19
manufacturing plants are located in Greater China.
♦ New projects in preliminary stage
We do not expect new projects such as One Laptop per Child program to
make a substantial contribution in the next quarter. Management did
comment in December that the program is still in its trial stage. Mass
production may begin in the third quarter of this year and the annual output
estimated at 40m new NiMH batteries. GP’s joint venture with Vectrix
Corporation will continue to produce NiMH battery packs for Vectrix’s electricpowered
motorcycles. The shift to EV batteries will only start in FY08.
♦ Maintain Sell
We are maintaining our Sell recommendation and target price at $1.22,
based on a 14x FY08 PE. As a result of soaring raw material prices and
absence of triggers in the near term, we are cutting our FY08 NPAT by 32%
to $8.7m respectively. We are also introducing our FY09 figures in this report.
Historically GP has been trading at 12X PE and 0.6x PB. Currently, it is
trading at 18x FY08 PE and 0.5x FY08 PB.
Source: Kim Eng Securities Research
What’s on the table
United Test & Assembly Centre (S$0.825) - Clarity Emerges
Clarity on growth is returning at UTAC and we believe that this is a key stock catalyst for
2007. Full-year earnings contribution from UTL and growth prospects for UTL's QFN
packaging business is a new growth engine for UTAC in FY07. Demand is also poised to
recover for mixed-signal customers with growing evidence that inventory correction is
almost done. Positive industry outlook for chip sales in 2007 and expectations for inventory
correction to bottom-out by 1Q07 sets the stage for a robust 2H07 seasonal demand.
Maintain outperform and target price of S$1.10, based on 1.5x CY07 P/BV (UTAC's midcycle
valuation).
Quick Takes
• Surface Mount Technology (S$0.35) – 3QFY07 results - Another disappointing quarter, as expected
• City Developments (S$14.50) - Enhancing presence in Thomson area
• Olam International (S$2.09) - Expanding its Chinese presence
• SingTel – 3QFY07 results
News of the Day
• Ascott’s FY06 net profit soars more than 3.6x to record high of S$151.3m
• ASL Marine 1HFY07 net profit up 36% on strong revenue growth
• Bright World delivers strong FY06 performance
• 1H07 revenue for Hsu Fu Chi increased by 14.9% to RMB1,226m
• LMA raises stake in Australian distributor from 30% to 80%
Trading Ideas
• Swissco International and China Enersave
Quick Takes
Surface Mount Technology (S$0.35) – 3QFY07 results - Another disappointing
quarter, as expected
• Below expectations. 3QFY07 net profit of HK$10.2m (-73% yoy) came in 67%
below our expectations as a result of lower-than-expected sales and gross
margins and a higher-than-expected opex ratio. 9MFY07 net profit represents 53%
of our full-year forecast.
• Sales slipped 6% yoy to HK$632m in 3QFY07, vs. our estimate of HK$723m as
the business was affected by: 1) delays in some projects as a result of customers’
engineering design changes and component shortages; and 2) weaker-thanexpected
demand from the telecom and computer peripherals sectors.
• EBITDA margins slipped 3.3% pts yoy to 7.7%, which was 2.4% pts below our
assumption. The disappointing margins were the result of lower-than-expected
revenue, greater contributions from lower-margin full-turnkey projects from the
industrial segment, and a higher-than-expected opex ratio (as operating expenses
continued to climb despite lower sales). Pretax and net profit plunged 72% and
73% respectively, as a result of the lower sales and margins and higher finance
costs. This marks the fourth consecutive quarter of yoy earnings decline (4QFY06:
-16%; 1QFY07: -25%; 2QFY07: -39%).
• Net gearing continued to climb from 0.47x in end-September to 0.55x. This
was due to negative free cash flow arising from heavy capex and a deterioration in
working-capital management. Cash cycle days inched up by another six days qoq
as a result of shorter payable days.
• Revenue should recover but bottom line may not. We believe sales should
recover in the coming quarter as production for some of the delayed programmes
has commenced in early 2007. However, the company has yet to address our
concerns of rising opex and sliding margins, which have resulted in four quarters
of yoy earnings decline. Although SMT has taken steps to improve its efficiency
and productivity, we have yet to see the benefits for its bottom line.
• Likely to cut forecasts but retain our Neutral rating. We are likely to cut our
earnings estimates after the analysts’ briefing today, to reflect the worse-thanexpected
3Q results. Nevertheless, we are likely to retain our Neutral rating in view
of its low P/BV of 0.6x and yield of more than 7%.
City Developments (S$14.50) - Enhancing presence in Thomson area
S$65m purchase of The Albany
Expands land bank in Thomson area. CDL has successfully bid for The Albany, a
freehold residential site in prime District 11, for S$65m. This site is likely to be
amalgamated with three adjoining properties that CDL bought in March last year as well as
a plot of state land next to it, which CDL will likely acquire as well. Including development
charges, these sites cost an estimated S$242m in total and are expected to yield a total
GFA of 657,636 sf. Unit land cost thus works out to S$368 psf ppr. CDL can redevelop
these amalgamated sites into a 36-storey freehold condominium of 535 units of about
1,200 sf each.
Gain of 11cts to RNAV. Average non-landed property prices in District 11 appreciated
16% yoy last month, according to caveats lodged, buoyed by sustained demand for
properties in prime residential districts. We estimate the breakeven for this project at
S$669 psf. Assuming an average selling price of S$1,000 psf, the launch of the first phase
early next year, the start of construction in 2H08 and a discount rate of 8%, we estimate
the NPV of the after-tax profit from this project at S$111m, translating into an accretion of
11cts to CDL’s RNAV.
Valuation and recommendation
Maintain Neutral; target price raised to S$14.90 from S$12, still based on a 20%
premium to RNAV, as we roll over our valuation from CY07 to CY08. Our new RNAV of
S$12.41 assumes: 1) higher rental for investment properties; 2) a higher marked-to-market
value for its 53%-held hospitality arm, Millennium and Copthorne (MLC LN, GBP6.60, NR);
and 3) higher selling prices for CDL’s land bank in prime residential districts. Our FY07-08
EPS forecasts have been raised by 2-12%. We believe, however, that much of the positive
news has been captured in the share price. Maintain Neutral.
Olam International (S$2.09) - Expanding its Chinese presence
Enters into two JVs in China
Olam has entered into two JVs with Chinatex Corporation (see Figure 1). Chinatex is a
large and successful state owned enterprise in China. It has a presence in diverse
industries such as cotton, grain, oil, wool, chemical fibre, textile and apparel in China. It is
the largest player in the cotton market with an estimated market share of 10% (annual
volume of 300k tonnes). Chinatex is also a leading supplier of soybean and other oilseeds
in China. The group was established in 1951 and employed a total of 10,415 employees in
2006.
Comments
The salient positive points to these JVs are: 1) Olam is able to quickly enter a new
market – soybean. 2) Olam is able to quickly feed into China as a destination market
meaningfully for cotton and soybean. This expands the returns on its sourcing capability as
many origins are increasingly feeding into China. 3) High potential for further growth by
leveraging on the foothold gained through Chinatex is extremely high.
Entering a new product – soybeans. The oilseed JV gives Olam an immediate foothold
into China, which accounts for 43% of global soybean imports in 2005-06. Brazil is a key
supplier to China. Olam with a strong presence in Brazil, due to its coffee business among
others, will be able to leverage on its existing sourcing network in Brazil.
Benefiting from deregulation and China’s increasing demand for agricultural
commodities. Part of Olam’s success story is due to deregulation in sourcing and
destination markets for agricultural commodities. The same is true for China. As SOEs are
increasingly having to fight with international players, especially with China’s entry into the
WTO, Olam is decisively setting up a strategic foothold in China. With China’s strong
macroeconomic outlook and its own domestic economy shifting away from agriculture, it is
increasingly importing such commodities.
The potential for further growth is high. In addition to soybeans, there are plenty of
other oilseeds that Olam could get into. Furthermore, China’s huge textile business holds
plenty of potential for Olam to expand into other textile raw material or increase its value adding capability.
Valuation and recommendation
Raising DCF target price to S$2.35 from S$2.28. This comes on the back of several
factors. We have imputed a higher WACC at 8.8% (previously 8.3%) due to a higher
country market premium. Our 5-year growth horizon is maintained. Concurrently, our EPS
estimates for Olam are raised by 1%, 8% and 11% over FY07-09. This comes on the back
of the new JV contributions, as well as a brighter outlook on volume growth. We are
confident of Olam gaining market share within the non-perishable agricultural commodities
industry. Its ability to grow organically is proven and the two new JVs underscore the
group’s ability to grow through acquisitions. While execution is a key risk for the JVs, Olam
has significant board representation in the oilseed JV and will have operational oversight of
the domestic cotton JV. Choosing Chinatex as a partner (thorough due diligence on its
suitability carried out from 2005) also allays this concern. Maintain Outperform.
SingTel – 3QFY07 results
SingTel delivered strong earnings growth. Net profit after tax increased 13 per cent to
S$994 million. The increase in profit was driven primarily by the overseas associates which
contributed S$368 million in post-tax profit, representing 43 per cent of the Group’s
underlying net profit, up from 41 per cent a year ago. The Group’s operating revenue was
stable at S$3.38 billion. Revenue from the Group’s Australian operations in Australian
Dollar terms grew 3.1 per cent but was stable in Singapore Dollar terms due to the weaker
Australian currency. SingTel’s operating revenue was up 4.3 per cent to S$1.06 billion
driven by strong growth in the telco business. Operational EBITDA fell 5.5 per cent to
S$1.06 billion as operating expenses rose 3.0 per cent on the back of more aggressive
customer acquisition and retention initiatives by the Singapore mobile business. However,
the Group’s EBITDA was stable at S$1.65 billion as increased contribution from the
associates offset the decline. (SingTel)
(notes to follow)
Sector / Economic news
The two companies charged with creating Singapore's first integrated resorts have been
quietly taking on the first of the thousands of people they will need.
• Las Vegas Sands (LVS) may have had a head-start with hiring for its project at Marina
Bay, but Genting International (GIL) has already made several appointments for its
planned resort at Sentosa.
• GIL CFO Tan Hee Teck says that so far, appointments have been “predominantly on
the project (construction) side”. He did not want to give precise numbers but did say
that “hirings would be done progressively”, and that some placements in the “finance”
departments have already been made.
• A construction industry player said that LSV had been holding pre-selection meetings
with various local construction firms, while foreign construction firms were also being
approached. He expected the Marina Bay Sands project to be divided into smaller
parcels and believes no main contractor has been appointed yet. (SBT)
Moevenpick Holding AG, which manages hotels in Europe, Asia and the Middle East, plans
to develop a new resort with Maxz Universal Development Group on Sentosa Island in
Singapore. The resort, based around a 1940s-era, colonial-style building, will have 186
rooms when completed and is scheduled to open end 2008. (Bloomberg)
Govt to spend $60m on water research centres. The Singapore government has set
aside $60m out of the $330m earmarked for the development of the environment and water
industries over the next five years to fund world-class water research centres, Minister of
State of Trade and Industry S Iswaran said yesterday. The first beneficiary is the
Singapore-Delft Water Alliance. (BT)
Corporate news
The Ascott Group’s net profit soared to a record high of S$151.3m in FY06. This is more
than 3.6 times the FY05 net profit of S$41.9m. Ascott’s net profit for 4Q06 is S$11.5m,
more than 1.7 times the 4Q05 net profit of S$6.6m. The record profit was due to Ascott’s
strategy in actively managing its portfolio of properties and monetising assets to realise
their capital values. Gross profit of S$36.0m for 4Q06 is an increase of 14% over 4Q05.
The increase was contributed mainly by improved profitability from the group’s operations
in Europe in 4Q06. For FY06, gross profit of S$118.2m decreased by 14% over FY05 due
mainly to the divestments to ART.
Outlook: Ascott will continue to benefit from the strong demand for good quality
accommodation in Asia and Europe. It will intensify its investment activities and quicken its
asset turnover through divestment. Ascott will also continue to expand its global footprint in
new and existing markets. In Asia, it is looking at acquiring, developing and incubating
properties to build up a strong pipeline for potential injection into ART. At the same time, it
is also charting new frontiers in Russia and emerging markets. Overall, Ascott’s portfolio
gains and operating performance in 2007 are expected to remain strong. (The Ascott
Group)
The Ascott Group has signed a MOU with Amtel Properties to jointly set up an initial fund
of US$100m to acquire and develop international-class serviced residences in strategic
business districts within Moscow and St Petersburg. Ascott will take 50% equity in the fund
and manage the serviced residences, while Amtel will take the remaining 50% equity,
identify potential sites and develop the serviced residences. Both parties will build on this
initial fund of US$100m to launch 1,000 serviced residence units in Russia by 2010.
In addition to the MOU, Ascott has been awarded a management contract by Amtel for a
150-unit serviced residence located in one of Moscow’s technology business parks along
Kulakova Street. The property to be named Somerset Strogino, Moscow is expected to be
completed in 2009. Ascott will manage the property for five years, with the option to extend
the contract for another five years. (Ascott Group)
ASL Marine Holdings recorded a 48.7% rise in revenue to $156.4m and a 36% increase
in net profit to $16.8m in 1HFY07. The increase in net profit was due to strong performance
in all three business segments. Revenue from shipbuilding operations increased 46.0% to
$100.5m in 1HFY07. Shipbuilding gross profit margin increased from 5.6% in 1HFY06 to
6.1% in 1HFY07. Revenue from shiprepair operations increased significantly by 77.5% to
$21.3m. The shipchartering and rental operations saw a 42.1% increase in revenue to
$34.5m.
Outlook: The outlook for the marine industry is expected to remain positive in view of the
buoyant offshore oil and gas exploration and production activities, booming infrastructure
development in the Middle-East, increasing numbers of domestic infrastructure
construction projects and new demand and renewal of ageing offshore support vessels by
offshore operators. Overall, ASL Marine is optimistic that the revenue and earnings for
FY07 will be higher than that of FY06. (ASL Marine)
Turnover for Bright World Precision rose 39.8% yoy to RMB 449.3m in FY06. This was
due mainly to the increase in the sales of high performance stamping machines that have
significantly higher selling prices than conventional stamping machines. Gross profit surged
44.6% to RMB 170.1m. With higher sales from the high performance stamping machines,
the gross profit margin continued to improve from 36.6% in FY05 to 37.8% in FY06.
Outlook: Bright World is confident that its turnover will continue to be driven by strong
growth in sales across the key manufacturing hubs of the PRC, namely Jiangsu, Zhejiang,
Shanghai, Guangdong and Fujian provinces. In addition, the northern and central
provinces of the PRC will continue to witness higher sales. In terms of product mix, the
Group expects to see further increases in the sales of higher performance stamping
machines. (Bright World)
Revenue for Hsu Fu Chi increased by about 14.9% to about RMB1,226m in 1H07, mainly
from increase of sales volume and adjustment of selling price. Gross profit increased by
about 15.0% yoy. Gross profit margin remained at 36.79% in 1H07 compared to 36.76% in
1H06. Net profit decreased by about 11.8% yoy to approximately RMB127m while net profit
margin decreased to about 10.4% in 1HY07 as compared to about 13.5% in 1H06.
Outlook: Hsu Fu Chi believes that the trend of higher urbanization rate in PRC will generate
demand for the group’s confectionery products. Sales of the group’s confectionery products
are expected to be strong in the PRC.
LMA International has acquired a further 50% in the equity of Australian distributor LMA
Pacific Medical, increasing its investment from 30% to 80% for a consideration of
US$9.7m. 60% of this consideration will be in cash and 40% in new LMA shares to be
issued at S$0.88 per share. LMA has an option to acquire the remaining 20% within five
years. LMA PacMed, a privately owned company based in Melbourne, Australia, is a
distributor of LMA’s products in Australia and New Zealand, and manages a sales network
that distributes LMA’s products in Korea and Taiwan. (LMA)
Delong Holdings has entered into an agreement to divest its 100% equity interest in
Delong Yuntong Steel for RMB 54m. Yuntong is engaged in the trading of steel products,
mineral ores as well as other related materials. In FY06, Yuntong achieved an unaudited
operating profit before tax of RMB645,000. The operating profit margin achieved by
Yuntong in the Trading activities of the Group was extremely low. Going forward, Delong
will focus its resources on expanding its core competency in the Manufacture and Sale
activities in order to derive better returns. (Delong)
SingTel announced that the aggregate number of mobile subscribers in the region,
including its associates, exceeded 112m as at 31 December 2006. Compared to the
previous quarter, this was an increase of 11.5m customers. It is the highest quarterly
growth in mobile numbers registered by the SingTel Group. It also marks the third
consecutive quarter that regional mobile subscribers have increased at a record pace.
Compared to a year ago, the combined mobile subscriber base of SingTel, SingTel Optus
and the group’s five regional associates grew 44%. (SingTel)
Optus has asked the federal government for AUD200m (USD155.2m) to allow it to almost
double the size of its new 3G network and achieve 98% population coverage. Optus
recently announced plans to spend up to AUD800m to build a new 3G network, which it
said would reach 96% of the population. Optus said it would build between 2,000 and
2,500 BTS and deliver coverage to 650,000 sq km of the Australian landmass. If approved,
the capex would allow it to expand its coverage by a further 500,000 sq km using an
additional 750 base stations. The extension is expected to cost about AUD370m, with
AUD200m to be funded by the government's broadband connect programme.
(Telegeography)
Beng Kuang Marine has secured a S$3.5m contract from an established marine ship
building specialist. The contract, the largest to date ever secured by the supply and
distribution division, involves the supply of welding cables and other products required in
the ship repair, shipbuilding and rig building process. This contract is expected to have a
positive impact on the group’s FY07 earnings. (Beng Kuang Marine)
Linair Technologies has secured a management, supply and installation contract worth
RMB 179.75m (S$35.9m) from Changshu Everbright Material Technology for their new
galvanizing plant in China. Work for the contract is expected to be completed by June
2008. This contract is expected to contribute positively to FY07 financial results. (Linair)
Koon Holdings has signed an agreement with Valecha Engineering (VEL) of India to form
a merger of business interests. Under the agreement, Koon will acquire a stake in VEL and
its subsidiary Valecha Infrastructure (VIL) and the whole of VEL’s international assets
primarily comprising VEL’s Dubai engineering interests. In return Koon shall issue 124m
new shares and 20m warrants to VEL. Upon completion, Koon will own all VEL’s
international interest, about 48% of VIL and about 5% of VEL, whilst VEL will own about
60% of Koon’s enlarged share capital. (Koon Holdings)
C&O Pharmaceutical Technology has applied to the State Food and Drug Administration
(SFDA) of the PRC for approval to commence clinical trial for Low Molecular Ganoderma
Lucidum Polysaccharide (LMGLP) Capsules, an immuno-enhancer drug which simulates
blood circulation, enhance body immunity and subdue the toxicity and adverse side effects
of radiotherapy and chemotherapy. C&O intends to market LMGLP Capsules as a class of
immuno-enhancer. It is estimated that the immuno-enhancer market in China currently
exceeds RMB 25 billion, among which, there are presently 23 types of orally ingested
polysaccharide products in the market. (C&O Pharm)
Union Steel has signed a MOU with Changzhou Zenith Steel in China. Zenith is a major
iron and steel group in the Changjiang River Delta Region. It produces a wide range of
products, which include Wire Rods, Debars in Wire and billets. Under the MOU, Union
Steel will have rights to distribute Zenith’s products in Singapore, Indonesia, Malaysia and
Vietnam. It will also have the rights to appoint sub-distributors to distribute Zenith’s
products via its marketing channels. (Union Steel)
StarHub has chosen China's biggest telecom equipment supplier, Huawei Technologies,
to upgrade its 3G network. Huawei will provide and support future upgrades of StarHub's
network, including its upcoming full-HSDPA (high-speed downlink packet access) service.
(BT)
Trading Ideas
Spotlight on Swissco International
At a glance
Last Price (S$) 0.565
YTD (%) 0.0
Issued shares (m) 176.38
Market cap (US$ m) 99.65
52-wk range (US$) 0.28 - 0.665
3M avg volume (m) 3.74
2007 P/E (x)* 8.1
P/BV (x) 1.8
*CIMB-GK Estimates
Third time lucky!
Description: Swissco International (Swissco) through its subsidiaries provides marine
logistics services and ship repair and maintenance services. The company owns,
operates, and charters OPL Boats, offshore support vessels tugboats, and barges, as well
as operates ship repair and maintenance yards in Singapore.
Immediate outlook: The stock broke out of its 7½-month sideways trend in November last
year to reach a high of S$0.665. It has been easing slowly ever since. It is quite natural for
the stock to retrace to its breakout level. The gap between S$0.495 and S$0.52 also acts a
support for the stock. The current consolidation is a good opportunity to pick up the stock.
Technical Buy now at S$0.54-0.57 and place a stop at S$0.475. The short term upside
target is S$0.70.
Medium-term outlook (2-6 months): From the chart below, we see that the accumulation
period ended when it breached its long-term resistance last October. The stock is a MT
Technical Buy now even for LT investors. The breakout target points to S$0.84-0.86 next.
Spotlight on China Enersave
At a glance
Last Price (S$) 0.185
YTD (%) 0.0
Issued shares (m) 991.01
Market cap (S$ m) 183.34
52-wk range (S$) 0.12 - 0.24
3M avg volume (m) 9.06
2007 P/E (x)* N/A
P/BV (x) 1.3
*Bloomberg Consensus
Downside risk is minimal
Description: China Enersave designs, builds, operates and owns renewable energy plans
in Asia. The company provides environmentally friendly plants which include reduction of
waste volume, land fill requirement and emissions control, and pollution control.
Immediate outlook: The stock managed to stay above its 200-day SMA and this is a
bullish sign. It is also about to break out of its 1-year consolidation triangle. Technical
indicators are taking a turn for the better. Hence, we think the stock is a Technical Buy
now at S$0.175-0.19. Investors should place a stop loss just below the 200-day SMA at
S$0.14. The ST target for the stock is at S$0.235.
Medium-term outlook (2-6 months): The stock is now forming a bullish saucer formation.
A bullish saucer formation tends to maintain the downside risk at a minimal compared to its
potential upside. Both the weekly MACD and RSI are turning positive which supports the
saucer formation. A buy on weakness is a good strategy right now. The stock has a LT
target of S$0.29-0.30.
Source: CIMB-GK Securities Research
Koda Ltd: Impressive growth ahead
Trade show in March to benefit from removal of supply constraint.
Koda will have one of the biggest furniture showcases in the upcoming
International Furniture Fair Singapore (IFFS) in early March. Unlike past
years, Koda will now be able to accept bigger customers' orders, in view of
the expected completion of its new manufacturing facility in Vietnam by
end June. Management expects the current backlog orders and new
customers to fill up at least half of the 30% increase in new production
capacity. We note that Koda's newly launched furniture designs were well
received at recent trade fairs, and this momentum is likely to continue at
the IFFS.
Expect strong earnings growth ahead. Koda has impressed with 79%
YoY net profit growth in 1H07 vs. 52% 3-year net profit CAGR in FY04-06.
Its net profit of US$3.8m in 1H07 was also higher than our above-marketconsensus
forecast of US$3.3m. We expect this above-trend-growth to
sustain into 2H07; backed by Koda's higher order book of US$16m over a
3-month period as of end 1H07 vs. US$19.0m over a 4-month period as of
end FY06.
Strong order book growth momentum. Management is in advance
discussion with a big US-based retailer on the allocation of dedicated
capacity within existing facilities in Vietnam. While initial orders are typically
small, Koda will be able to use the spare capacity to generate recurring
US$3.0m orders over a 3-month period. Including potential orders flow for
its new capacity in Vietnam, and assuming a successful allocation of
dedicated capacity to the US-based retailer, we project Koda’s order book
to rise 15% HoH to US$18.4m by end FY07, before rising a further 16%
HoH by end 1H08.
Raising our profit estimates. We are raising our already above-marketconsensus
net profit estimates by 15% to US$7.6m in FY07, and 31% to
US$10.7m in FY08. This is to factor in: 1) the strong order book growth
velocity, 2) its ability to absorb raw material price increase and sustain
profit margins, and 3) the greater visibility on initial take-up rate for new
production facility in Vietnam.
Koda stays as our top pick for furniture sector. We have raised our fair
value for Koda to S$1.18, vs. S$0.825 previously, in view of its improved
earnings momentum and visibility. We believe that Koda's proven business
execution in the midst of the sustained global outsourcing trend justifies a
re-rating of the stock to a still undemanding 9x blended FY07/08 PER, vs.
8x previously. This implies a price upside potential of 51%. Maintain BUY.
(Chong Wee Lee)
CG Technologies: Under-appreciated, overlooked
Constant innovation. CG Technologies’ (CGT) ability to constantly come
up with new innovative products has been the key reason for its ability to
increase its margins over the years. In 2007/08, CGT intends to introduce
compact combed yarn (CCY) to its range of products. Unlike combed yarn,
CCY is a higher quality yarn product and this yarn is in turn widely used as
raw material for the manufacture of fine garments. Due to the higher ASP of
CCY, CGT is expected to enjoy superior gross margins of well over 30% on
this new product.
Flexibility of production lines. Another competitive advantage that CGT
enjoys is the flexible production lines for both its yarn products and PET
chips. This ability to produce products interchangeably enables CGT to
switch productions with minimal down time as well as to focus production
facilities on products with higher margins. In that context, CGT intends to
switch the production lines from manufacturing “bright and semi dull PET
chips” (which gives 12% gross margin) to “dye absorbing PET chips” (margin
estimated at 27%) and “alkali soluble PET chips” (margin estimated at
36%) in FY07. These new products are estimated to have about 20% higher
ASP and in turn will boost gross profit by 24%.
50% growth guidance is likely to be exceeded. Management has earlier
guided a 50%YoY growth in net profit for FY06. Given that they have already
achieved a 45% net profit growth in the first 3 quarters of FY06, we see no
issue in achieving that guidance. In fact with the continued robust growth
in the business, we see a strong possibility that CGT will beat its own
forecast. Furthermore with falling oil prices, this strong profit growth is
likely to be on the back of stronger sequential gross margins. Finally, with
the expected switching of production lines to higher margins products in
FY07, we see the strong net profit growth trend likely to be maintained.
Undervalued, initiating with BUY. CGT is small in comparison to its
peers both in terms of market capitalization and production capacity. Our
FY06F PER of 6.1x is very undemanding when compared to its peers of
approximately 12x. Moreover, with the expected continued strong doubledigit
growth in FY07, we see a PER of 7.5x as not unreasonable. On this
PER multiple, we value CGT at S$0.89 for a potential upside of 51%. Hence,
we initiate coverage on CGT with a BUY recommendation. (Rachel Ng)
GP Batteries: Still work-in-process
Muted 3Q07 results as expected. GP Batteries (GPB) reported a muted
set of 3Q07 results as expected, with revenue down 13.7% YoY at S$201.6m
and net profit fell 8.3% to S$3.0m. Again, sales were affected by the price
increase of its Nickel Metal Hydride (NiMH) rechargeable batteries, as
revenue fell 10.5% QoQ. Although net profit rose 6.9% QoQ, we note it was
mainly due to a forex gain of S$4.9m, as well as a S$5.9m boost from the
revaluation of its hedging contracts, which helped to offset higher marketing
and distribution expenses. On a 9-month basis, revenue fell 10.7% YoY to
S$614.0m, or 68% of our FY07 forecast, while net profit fell 25.6% to S$8.0m,
or 70% of our estimate.
Another muted 4Q07 outlook. Going forward, GPB notes that the general
business outlook remains difficult as raw material prices have again rocketed,
although it does expect some of the price increase to be negated by gains
in its hedging contracts. In addition, it expects the demand for its NiMH
rechargeable batteries to still be adversely affected by the industry-wide
price increase. As such, we do not think that GPB can meet our 4Q07
revenue forecast of S$289.0m, but our earnings forecast of S$3.4m still
appears to be achievable. For FY07, we will be paring back our revenue
forecast by 6.3% to S$846.4m but will be keeping our net profit forecast at
S$11.4m.
FY08 could be a turnaround year. FY08 could be a turnaround year for
GPB, given the numerous initiatives that it has launched to revamp itself.
We note that GPB has started shipment of NiMH rechargeable batteries for
the One Laptop per Child (OLPC) program, where it is expected to gain
momentum in 2H of 2007. Other initiatives include the supply of rechargeable
batteries to Vectrix, a manufacturer of the electric scooter, as well as working
on a project to develop Li-on battery packs for power tools.
Downgrade to Sell, S$1.20 fair value. The outlook for FY08 may be
cautiously more upbeat, but we think that execution is still the key risk. At
this stage, GPB is still very much a “work in process” item, and we will be
paring our FY08 numbers by 6.3%-16.6%. Despite our higher fair value of
S$1.20 (vs. S$1.17) as we push out to a blended FY07/08F NTA of 0.4x, it
is 17.5% below the current stock price. As such, we downgrade our call
from Hold to SELL. (Carey Wong)
Singapore Telecom: Broadly in line 3Q, but margins under pressure
Singapore Telecom (SingTel) reported its 3Q07 results this morning with
revenue coming in at S$3.4bn, a slight 0.4% YoY and 1.5% QoQ
improvement. At the net profit level, the improvement was much stronger at
+12.6% YoY and 3.8% QoQ to reach S$994m. The results are in broadly
in line with market estimates. The key reason for the stronger bottom-line
improvement was attributed to gains from the disposal of Crosby House as
well as better operating performance from its associates, specifically Bharti
Airtel. Excluding the one-off gain, SingTel’s underlying profit was at S$850m
or 9.6% YoY better but sequentially it fell by about 5.5%.
In terms of segmental performance, Singapore did poorly with top line
marginal sequential improvement being wiped-out by increased operating
costs leading to margin erosion of 6% to 42.7%. The higher costs were
attributed to a massive sequential increase in mobile acquisition costs,
which rose 44% QoQ to S$310 per subscriber. Over in Australia, Optus’
operations were stable with EBITDA margins flat sequential. As for the
associates, even though there was a 17.1% improvement in annual
contribution, on a sequential basis, contributions fell by about 4.4%. The
poorer performance was due to YoY and QoQ decline in contribution from
Globe and AIS. Even Telkomsel performance was lacklustre, up 8.6% YoY
but down 4.2% QoQ. The star remains Bharti which continues to grow
robustly over the last quarter and the previous year.
Finally in terms of recommendation, SingTel has done very well since our
sector report dated 28th Nov 2006, appreciating 28% and exceeding our
fair value of S$3.32. Even though we remain positive on SingTel and see it
best positioned in the more competitive market environment, at present
trading range, we see limited upside potential. Subject to any new
information provided at the analyst briefing later this morning, we are likely
to downgrade our recommendation on SingTel from BUY to HOLD
rating.(Winston Liew)
Bright World: Shining outlook for 2007
Bright World Precision Machinery (BWPM) reported a rather disappointing
set of 4Q06 results; although revenue of RMB127.1m (+34.4% YoY) was
2.1% ahead of our forecast, it was down 1.8% QoQ. It was also short of the
RMB140m sales guidance given earlier, but we understand this is due to
an order push-out, which has already been delivered and will be booked in
1Q07. Meanwhile, net profit fell 4.8% (also down 11.3% QoQ) to RMB35.6m,
or nearly 14.0% below our forecast. We see that this is mainly due to a
sharp increase in expenses, both operating (+35.5% YoY) and
administrative (+247.9% YoY). For FY06, revenue grew 39.8% to
RMB449.3m (vs. our RMB446.7m forecast), while net profit rose 20.3% to
RMB115.8m, which fell 4.7% short of our forecast and was 10.9% below
the company’s RMB130m guidance. BWPM also declared a final dividend
of RMB0.087 per share, or 30% of its earnings. While we are keeping our
BUY rating, we are likely to adjust our S$0.63 fair value and our FY07
estimates, pending more updates from management. (Carey Wong)
Hsu Fu Chi International Ltd: Downgrade based on valuation
Hsu Fu Chi International Ltd (HFCI) reported its maiden set of results for
1HFY07. Revenue for 1H increased 15% YoY to RMB1.22b, while net profit
decreased 12% YoY to RMB127m. All three product categories contributed
to the growth in revenue due to increase in sales volume and adjustment of
selling prices. The decline in net profit was mainly due to the one time tax
refund of RMB27m awarded in 1HFY06 which boosted other income in
FY06. Since our initiation of coverage on Hsu Fu Chi on 24 January 2007,
share price has increased 16.7% in 3 weeks. We are maintaining our fair
value estimate of S$1.37, but as the stock is currently trading close to our
fair value after the recent sharp share price appreciation, we are downgrading
our recommendation to a HOLD purely on this basis. (Rachel Ng)
Source: OCBC Investment Research
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