Tai Sin Electric Cables (S$0.495) - Electrifying
• A leading electric cable producer in Singapore. Tai Sin was incorporated in 1980,
with main business the manufacture of electric wires and cables used purely to
transmit low voltage electricity. It is the second largest producer (30% local market
share) of electric cables in Singapore (total six domestic players).
• Demand growth likely to be well ahead of supply potential. We believe demand
for electric cables in Singapore alone should continue to outstrip local supply.
Contractors can import cables but usually at a higher shipping component cost with
a longer delivery timeline. Thus local producers will usually be the first stop of
choice. We estimate that local producers supplied a total of S$340m worth of cables
in FY06. We anticipate S$15bn worth of construction contracts to be awarded in
FY07-08, leading to cabling and wiring contracts worth S$750m-1.2bn.
• Maintaining spare capacity to take advantage of lucrative contracts. Tai Sin
currently runs its Singapore factory at only 85% utilisation (600mt/mth). Its factory in
Malaysia is also running at a mere 65% (290mt/mth). This is a deliberate strategy by
management. Given the impending surge in demand (with the IR being a wildcard as
there is no legacy model in Singapore to estimate how much wiring will be needed),
this spare capacity is needed to take advantage of urgent incremental demand.
• Target price set at S$0.96 based on 13.5x CY08 P/E. This places Tai Sin at a
conservative discount to its 1-year average historical P/E (31x) and in-line with the
earning multiples of Draka Holdings, listed parent of its Singapore peer, Singapore
Cables. Tai Sin should blossom as the demand for electric cables in Singapore
continue to outpace local production. We initiate with Outperform.
Pan Hong Property (S$0.565) – 1QFY07 results - More to come
• Overtaking expectations, boosted by revaluation gain. 1Q07 net profit jumped
576% yoy to Rmb68.8m. This represented 45% of our full-year estimate, mainly due to
a Rmb77.8m revaluation gain on its newly-acquired project in Beihai.
• Lacking new projects in 1Q07. As expected, topline contracted 90% yoy to Rmb4.1m
as no new projects were launched in 1Q07. A total of 1,075 sq m of the remaining units
at Huzhou Liyang and Huzhou Zhili Phase 1 were sold in 1Q07 (vs. 8,524 sq m. in
1Q06). Despite the lower sales, gross margins improved by 7.8% pts to 48.5%, helped
by higher selling prices for commercial units.
• More new projects to come; reception to Nanchang project was good. Three
projects, including Nanchang Honggu Kaixuan, Huacui Tingyuan and Hangzhou
Liyang, are under development in phases. These projects have an aggregate 556k sq
m GFA. According to management, the first lot of 195 residential units at Nanchang
Honggu was recently launched at an ASP of Rmb4,390/sq m, which was higher than
our estimate of Rmb4,200. More importantly, over 80% of the units were pre-sold on
the first day.
• Upgraded earnings and RNAV. We have upgraded our FY07-08 earnings by 25.9%
and 1.9% respectively to reflect the Rmb77.8m revaluation gain in FY07 and 5% higher
ASPs for the Nanchang and Beihai projects. However, this was partly offset by our
revised development schedule. Based on the current pace of construction, the
completion of Hangzhou Liyang Phase 1 is likely to be deferred to FY08. We now
assume that Pan Hong will book 85k sq m GFA in FY07 (vs. our previous estimate of
103k sq m). Based on our revised ASPs, we have lifted our RNAV estimate by 2.5% to
S$0.71.
• Keeping OUTPERFORM with higher target price of S$0.64. While Pan Hong’s
share price has risen 48.6% since early April, current valuations at a 20% discount to
RNAV remain undemanding. Our target price has been raised from S$0.62 to S$0.64,
still based on a 10% discount to RNAV. Presales and the completion of more projects
are expected to provide further catalysts. Reiterate OUTPERFORM.
Mapletree Logistics Trust: On target for S$1bn acquisition per year
Growth again due to acquisitions. Mapletree Logistics Trust (MLT)
reported a good set of 1Q07 results. Revenue was up over 116% YoY and
7% QoQ to S$28.8m, and distributable income improved 84.2% YoY and
23% QoQ to S$15.3m. Distributable income per unit (DPU) was less robust,
improving by 33% YoY and 2% QoQ to 1.48 cents. This is still slightly
better than OIR's forecast of 1.40 cents. The bulk of the growth came from
the acquisition of 25 properties (worth S$785m) over the last 12 months
and 8 properties over the last quarter. MLT currently has a portfolio of 49
properties worth about S$1.5bn. MLT may acquire a further 13 properties
worth about S$470m in 2H07 and this should bring its total asset size to
about S$2.0bn. MLT is well positioned to continue its growth strategy and
we see an annual acquisition of S$1.0bn per year as not improbable.
Next markets in South Korea and Vietnam. Presently MLT's country/
territory exposure is in Singapore, Malaysia, China, and Hong Kong. MLT
recently announced a mega acquisition of 5 assets worth S$350m in Japan,
a project worth S$17.8m in Xian, and 2 projects worth S$13m in Malaysia.
We expect it to enter more new markets in 2H07; namely South Korea,
Vietnam and India. All these acquisitions are likely to boost its DPU. We
have thus revised up our FY07 and FY08 DPUs from 5.6 cents and 5.9
cents to 6.2 cents and 6.5 cents, respectively.
Successfully raised S$349m. The key event over the last quarter was the
successful raising of fresh equity. A gross proceed of S$359m was raised
with the issue of 296.822m new units at a weighted cost of S$1.176 per
unit. The proceeds of the new equity have been used to finance the
acquisition of 15 recently bought properties and to refinance other older
acquisitions. With the new equity, MLT's gearing has fallen back to about
40% range. More importantly, it means that MLT can raise a war chest of
S$800m if it maximizes its gearing to 60%.
Maintain BUY with higher fair value. MLT has done well since our last
report; appreciating from S$1.19 to our fair value of S$1.33. However, at the
current pace of acquisition, our target asset size of S$3.0bn is likely to be
breached by 2008. We have thus revised up our target size to S$4.0bn.
This, together with lesser dilution from the issue of fewer new units, has a
positive impact on our fair value estimate. We have thus revised up our fair
value from S$1.34 to S$1.50 and maintain our BUY recommendation.
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The option is ShareJunction, a FREE Singapore investment portal, and it can be found at www.sharejunction.com. Keep investment costs down and never pay for what is comparable and can be obtained free.
Do share if even better alternatives are found. Thanks!
StarHub is Top Singapore Telco Pick
StarHub Ltd (S$2.89) - The star in this hub
• We initiate coverage with Outperform and DCF-based target price of S$3.45
(WACC 6.9%, terminal growth 1%). StarHub is our top Singapore telco pick, offering
a potential 33% total return. Key reasons why we like StarHub are:
• Best positioned for opportunities from immigration boom. StarHub is poised to
benefit from an expected influx of 60,000 foreign workers p.a. over the next five
years.
• Broadband and cable TV to spearhead growth. Low penetration rates, rising
personal income and household formation from immigration provide a fertile
environment for robust double-digit growth in broadband and cable TV services.
StarHub enjoys a monopoly in cable TV and a duopoly in broadband services.
• Attractive yield prospects from dividend growth and capital management.
StarHub offers a visible yield of 13% in FY07, with a S$444m capital reduction
exercise contributing 8% returns. StarHub offers total prospective yields of 9% for
FY08-09 on the back of strong free cash flow.
Keppel Land (S$8.50) - 1QFY07 - Kicker from maiden bookings
• 1Q07 above expectations. 1Q07 EPS of 8.7cts (+71% yoy) represents 26% of our
full-year forecast of 34cts and 28% of consensus’s 31cts, thanks to higher-thanexpected
associate contributions. We expect profit recognition of 30%-owned
Reflections@Keppel Bay (99-year, 1,160 units) in the coming quarters to boost
KepLand’s full-year earnings.
• Sales of Reflections@Keppel Bay within expectations. The prime waterfront project
was launched early this month at S$1,900 psf on average vs. our assumption of
S$2,000. While KepLand appears to lag in land-banking in Singapore, its land bank in
the Keppel Bay and Marina Bay areas (3.7m-3.8m sf) should keep it busy over the next
few years. We also anticipate positive news flow from the launch of MBFC 2
residences in the next 12-18 months.
• More office space slated for MBFC 2. We previously assumed a 50:50 breakdown
between office and residential space in MBFC 2 (GFA 194,000 sq m), but we now
believe the ratio is likely to be 75:25. While monthly rents of S$7-8 psf that Standard
Chartered has secured for a 12-year lease for 24 floors in MBFC 1 are below
expectations, we believe our average rental assumption of S$12 psf per month for both
phases of MBFC is achievable.
• FY07-09 EPS forecasts raised by 22-24%, to account for: 1) higher prime office
rental assumptions (10% to 20% in FY08; 10% to 15% in FY09); 2) higher selling price
assumptions (+25%) for Naga Court (999-year, 70 units) and The Crest@Cairnhill
(freehold, 15 units); 3) accretion from a recently-announced waterfront residential
project in Vietnam (60%-owned, 500 units, scheduled for launch next year); and 4)
higher associate contributions.
• RNAV estimate lifted accordingly by 6%. In line with our valuation of large property
developers, we are rolling forward our target basis for KepLand to CY08. Our new
target of S$9.90 (previously S$7.10) is set at a 20% premium to our end-CY08 RNAV
estimate of S$8.27, where it was previously pegged at parity to our end-CY07 RNAV
estimate of S$7.10. We have ascribed the premium to account for potential upside in
office rentals and residential prices. Upgrade from Underperform to Outperform.
United Test & Assembly Centre (S$0.915) - 1QFY07 Results - Keeping the faith
• Below expectation. UTAC’s 1QFY07 earnings of US$18m were 10% below our
expectation due to associate losses. UTAC’s performance was in-line at the operating
level, with revenue and EBITDA margins meeting our expectations. The 2.4% qoq
revenue contraction was within management guidance.
• Notable weakness in DRAM and analog. DRAM and analog were particularly
weak, with revenue declining qoq by 2% and 7% respectively. DRAM was affected by
ASP pressure, as well as reduced testing times. Analog slowdown was due to weaker
customer orders, including Texas Instruments, one of its largest analog customers.
MSLP sales did relatively better, with revenue flat qoq.
• Margin pressure from lower tester utilisation. Utilisation for wire-bonders and
testers fell to 75% (4QFY06: 80%) and low-60% (4QFY06: 65%) respectively during
1QFY07.
• Strengthening MSLP outlook balanced by DRAM uncertainty. Management
guided for -3% to 3% qoq growth for 2Q07. MSLP inventory levels are lean and pickup
in order momentum was noted from the second week of April. Customers are also
indicating concerns with capacity availability. However, MSLP’s rising strength is
likely to be offset by weak DRAM outlook in 2QFY07. UTAC should remain affected
by low DRAM prices through reduced test times and some ASP pressure.
• 2H07 bet still on. UTAC is still poised to ride on 2H07 strength, especially in the
MSLP segment where lean inventory meets seasonal demand. In addition, UTL’s
third plant remains on track for production runs from July 07. Six of UTAC MSLP
customers have completed or is in the process of qualifying UTL for QFN packaging
services.
• Maintain Outperform with unchanged target price of S$1.10. Our target price is
based on 1.5x CY07 P/BV. UTAC offers an attractive risk-reward exposure to
seasonal 2H07 strength for the semiconductor sector. It is trading at a 1.2x CY07
P/BV, close to trough level of 1.0x P/BV and offers high operating leverage to 2H07
demand pick up through its test business. Buy on weakness.
SP Chemicals (S$1.29) - 1QFY07 Results – Solid and cheap
• Above expectations. 1Q07 net profit came in 8-10% above market and expectations,
surging 74.2% yoy. This was the second highest quarterly profit on record, following
the record quarter in 4Q06. The impressive results were underpinned by: 1) higher
sales volume from a doubling of production capacity in May 06; 2) a 5.9%-pt
improvement in EBITDA margins due to strong caustic soda prices (+25% yoy); and 3)
utility cost savings from the cogen plant since May 06.
• VCM on track for commercial production in 4Q07. The VCM plant has commenced
trial production in late Apr 07. We believe the trial could take up to six months to
complete, given that VCM is a new product. Commercial production can only start in
late 4Q07, as opposed to our original expectation of early 4Q07.
• Higher yoy profits likely in 2Q07, given the lower base in 2Q06. Earnings growth
could be driven by: 1) a full-quarter impact of the doubling of capacity; 2) utility cost
savings from the cogen plant; 3) higher ASPs; and 4) a weakening in raw material
prices on the back of the recent retreat in oil prices.
• Raised FY07 and FY09 EPS forecasts by 12-15%, lowered FY08 forecast by 7%.
Our upgrade for FY07 and FY09 is driven by higher ASP and EBITDA margin
assumptions for caustic soda. However, we have also lowered our ASP estimates for
chlorine and aniline, and utilisation rates for the VCM plant, which should affect FY08
more. As such, our FY08 EPS estimate has been trimmed by 7%.
• Solid track record; target price lifted to S$1.75 from S$1.40. SP Chemicals has
delivered two record quarters since the doubling of its capacity. We continue to be
impressed by its good earnings delivery, clear roadmap and cost control, and believe
its valuations of 6.7x CY07 P/E and 4.5x CY08 P/E are unwarranted, against peers’
average 19x CY07 P/E. With the upgrade in our forecasts, our target price has been
lifted from S$1.40 to S$1.75, still pegged at 9x CY07 P/E. Reiterate Outperform.
CapitaCommercial Trust (S$2.72) – 1QFY07 results - Decent start to the year
• 1Q07 within expectations. 1Q07 DPU of 2.1cts represents 22% of our full-year
forecast of 9.5cts and 24% of consensus’s 8.9cts. We have assumed that CCT’s
portfolio will grow by 15% this year, in line with the trust’s target to reach S$6bn by
end-2009 from the current S$3.8bn. Assuming a constant portfolio size, 1Q07 gross
rental revenue would have met 24% of our full-year forecast.
• Gross rental revenue surged 95%, largely because of the consolidation of the 60%
stake in Raffles City that CCT acquired in Sep 06. Excluding Raffles City, gross rental
revenue would still have climbed 13% yoy. This was chiefly on account of strong rental
growth at Six Battery Road, higher occupancy at Bugis Village, and contributions from
Golden Shoe Car Park and Market Street Car Park, following the completion of asset
enhancement work there. Overall portfolio occupancy remained technically full at 99%.
• Strong office rental reversions to continue. Asking rents at Six Battery Road
reached S$16 psf per month in April, a 23% jump from the start of this year. About
10% of the leases in the prime office building are up for renewal this year. Similarly at
Raffles City, the asking rent is up 15% from the beginning of this year to S$11.50 psf
per month and 29% of the leases are due for renewal this year.
• Asset enhancement at Raffles City kicks off. About 41,000 sf of retail NLA (+12%)
will be added during the first phase. Construction is scheduled to start this quarter and
end by year-end. It was announced previously that the entire asset enhancement
package would include the addition of 150,000 sf in NLA and a direct link to the new
Esplanade MRT station nearby, which should be ready by 2009/2010. We expect CCT
to announce the remaining phases of Raffles City’s asset enhancement in the next 12-
18 months.
• Maintain Outperform. Our DPU forecasts remain intact and there is no change to our
DDM target price of S$3.00 (cost of equity 5%, implied CY07 yield of 3.2%). Potential
catalysts in the next 12-18 months include the announcements of the remaining
phases of Raffles City’s asset enhancement, CCT’s move into China and possibly the
trust’s maiden development project. Based on CCT’s latest asset size of S$3.8bn, CCT
can undertake up to S$380m worth of projects.
• We initiate coverage with Outperform and DCF-based target price of S$3.45
(WACC 6.9%, terminal growth 1%). StarHub is our top Singapore telco pick, offering
a potential 33% total return. Key reasons why we like StarHub are:
• Best positioned for opportunities from immigration boom. StarHub is poised to
benefit from an expected influx of 60,000 foreign workers p.a. over the next five
years.
• Broadband and cable TV to spearhead growth. Low penetration rates, rising
personal income and household formation from immigration provide a fertile
environment for robust double-digit growth in broadband and cable TV services.
StarHub enjoys a monopoly in cable TV and a duopoly in broadband services.
• Attractive yield prospects from dividend growth and capital management.
StarHub offers a visible yield of 13% in FY07, with a S$444m capital reduction
exercise contributing 8% returns. StarHub offers total prospective yields of 9% for
FY08-09 on the back of strong free cash flow.
Keppel Land (S$8.50) - 1QFY07 - Kicker from maiden bookings
• 1Q07 above expectations. 1Q07 EPS of 8.7cts (+71% yoy) represents 26% of our
full-year forecast of 34cts and 28% of consensus’s 31cts, thanks to higher-thanexpected
associate contributions. We expect profit recognition of 30%-owned
Reflections@Keppel Bay (99-year, 1,160 units) in the coming quarters to boost
KepLand’s full-year earnings.
• Sales of Reflections@Keppel Bay within expectations. The prime waterfront project
was launched early this month at S$1,900 psf on average vs. our assumption of
S$2,000. While KepLand appears to lag in land-banking in Singapore, its land bank in
the Keppel Bay and Marina Bay areas (3.7m-3.8m sf) should keep it busy over the next
few years. We also anticipate positive news flow from the launch of MBFC 2
residences in the next 12-18 months.
• More office space slated for MBFC 2. We previously assumed a 50:50 breakdown
between office and residential space in MBFC 2 (GFA 194,000 sq m), but we now
believe the ratio is likely to be 75:25. While monthly rents of S$7-8 psf that Standard
Chartered has secured for a 12-year lease for 24 floors in MBFC 1 are below
expectations, we believe our average rental assumption of S$12 psf per month for both
phases of MBFC is achievable.
• FY07-09 EPS forecasts raised by 22-24%, to account for: 1) higher prime office
rental assumptions (10% to 20% in FY08; 10% to 15% in FY09); 2) higher selling price
assumptions (+25%) for Naga Court (999-year, 70 units) and The Crest@Cairnhill
(freehold, 15 units); 3) accretion from a recently-announced waterfront residential
project in Vietnam (60%-owned, 500 units, scheduled for launch next year); and 4)
higher associate contributions.
• RNAV estimate lifted accordingly by 6%. In line with our valuation of large property
developers, we are rolling forward our target basis for KepLand to CY08. Our new
target of S$9.90 (previously S$7.10) is set at a 20% premium to our end-CY08 RNAV
estimate of S$8.27, where it was previously pegged at parity to our end-CY07 RNAV
estimate of S$7.10. We have ascribed the premium to account for potential upside in
office rentals and residential prices. Upgrade from Underperform to Outperform.
United Test & Assembly Centre (S$0.915) - 1QFY07 Results - Keeping the faith
• Below expectation. UTAC’s 1QFY07 earnings of US$18m were 10% below our
expectation due to associate losses. UTAC’s performance was in-line at the operating
level, with revenue and EBITDA margins meeting our expectations. The 2.4% qoq
revenue contraction was within management guidance.
• Notable weakness in DRAM and analog. DRAM and analog were particularly
weak, with revenue declining qoq by 2% and 7% respectively. DRAM was affected by
ASP pressure, as well as reduced testing times. Analog slowdown was due to weaker
customer orders, including Texas Instruments, one of its largest analog customers.
MSLP sales did relatively better, with revenue flat qoq.
• Margin pressure from lower tester utilisation. Utilisation for wire-bonders and
testers fell to 75% (4QFY06: 80%) and low-60% (4QFY06: 65%) respectively during
1QFY07.
• Strengthening MSLP outlook balanced by DRAM uncertainty. Management
guided for -3% to 3% qoq growth for 2Q07. MSLP inventory levels are lean and pickup
in order momentum was noted from the second week of April. Customers are also
indicating concerns with capacity availability. However, MSLP’s rising strength is
likely to be offset by weak DRAM outlook in 2QFY07. UTAC should remain affected
by low DRAM prices through reduced test times and some ASP pressure.
• 2H07 bet still on. UTAC is still poised to ride on 2H07 strength, especially in the
MSLP segment where lean inventory meets seasonal demand. In addition, UTL’s
third plant remains on track for production runs from July 07. Six of UTAC MSLP
customers have completed or is in the process of qualifying UTL for QFN packaging
services.
• Maintain Outperform with unchanged target price of S$1.10. Our target price is
based on 1.5x CY07 P/BV. UTAC offers an attractive risk-reward exposure to
seasonal 2H07 strength for the semiconductor sector. It is trading at a 1.2x CY07
P/BV, close to trough level of 1.0x P/BV and offers high operating leverage to 2H07
demand pick up through its test business. Buy on weakness.
SP Chemicals (S$1.29) - 1QFY07 Results – Solid and cheap
• Above expectations. 1Q07 net profit came in 8-10% above market and expectations,
surging 74.2% yoy. This was the second highest quarterly profit on record, following
the record quarter in 4Q06. The impressive results were underpinned by: 1) higher
sales volume from a doubling of production capacity in May 06; 2) a 5.9%-pt
improvement in EBITDA margins due to strong caustic soda prices (+25% yoy); and 3)
utility cost savings from the cogen plant since May 06.
• VCM on track for commercial production in 4Q07. The VCM plant has commenced
trial production in late Apr 07. We believe the trial could take up to six months to
complete, given that VCM is a new product. Commercial production can only start in
late 4Q07, as opposed to our original expectation of early 4Q07.
• Higher yoy profits likely in 2Q07, given the lower base in 2Q06. Earnings growth
could be driven by: 1) a full-quarter impact of the doubling of capacity; 2) utility cost
savings from the cogen plant; 3) higher ASPs; and 4) a weakening in raw material
prices on the back of the recent retreat in oil prices.
• Raised FY07 and FY09 EPS forecasts by 12-15%, lowered FY08 forecast by 7%.
Our upgrade for FY07 and FY09 is driven by higher ASP and EBITDA margin
assumptions for caustic soda. However, we have also lowered our ASP estimates for
chlorine and aniline, and utilisation rates for the VCM plant, which should affect FY08
more. As such, our FY08 EPS estimate has been trimmed by 7%.
• Solid track record; target price lifted to S$1.75 from S$1.40. SP Chemicals has
delivered two record quarters since the doubling of its capacity. We continue to be
impressed by its good earnings delivery, clear roadmap and cost control, and believe
its valuations of 6.7x CY07 P/E and 4.5x CY08 P/E are unwarranted, against peers’
average 19x CY07 P/E. With the upgrade in our forecasts, our target price has been
lifted from S$1.40 to S$1.75, still pegged at 9x CY07 P/E. Reiterate Outperform.
CapitaCommercial Trust (S$2.72) – 1QFY07 results - Decent start to the year
• 1Q07 within expectations. 1Q07 DPU of 2.1cts represents 22% of our full-year
forecast of 9.5cts and 24% of consensus’s 8.9cts. We have assumed that CCT’s
portfolio will grow by 15% this year, in line with the trust’s target to reach S$6bn by
end-2009 from the current S$3.8bn. Assuming a constant portfolio size, 1Q07 gross
rental revenue would have met 24% of our full-year forecast.
• Gross rental revenue surged 95%, largely because of the consolidation of the 60%
stake in Raffles City that CCT acquired in Sep 06. Excluding Raffles City, gross rental
revenue would still have climbed 13% yoy. This was chiefly on account of strong rental
growth at Six Battery Road, higher occupancy at Bugis Village, and contributions from
Golden Shoe Car Park and Market Street Car Park, following the completion of asset
enhancement work there. Overall portfolio occupancy remained technically full at 99%.
• Strong office rental reversions to continue. Asking rents at Six Battery Road
reached S$16 psf per month in April, a 23% jump from the start of this year. About
10% of the leases in the prime office building are up for renewal this year. Similarly at
Raffles City, the asking rent is up 15% from the beginning of this year to S$11.50 psf
per month and 29% of the leases are due for renewal this year.
• Asset enhancement at Raffles City kicks off. About 41,000 sf of retail NLA (+12%)
will be added during the first phase. Construction is scheduled to start this quarter and
end by year-end. It was announced previously that the entire asset enhancement
package would include the addition of 150,000 sf in NLA and a direct link to the new
Esplanade MRT station nearby, which should be ready by 2009/2010. We expect CCT
to announce the remaining phases of Raffles City’s asset enhancement in the next 12-
18 months.
• Maintain Outperform. Our DPU forecasts remain intact and there is no change to our
DDM target price of S$3.00 (cost of equity 5%, implied CY07 yield of 3.2%). Potential
catalysts in the next 12-18 months include the announcements of the remaining
phases of Raffles City’s asset enhancement, CCT’s move into China and possibly the
trust’s maiden development project. Based on CCT’s latest asset size of S$3.8bn, CCT
can undertake up to S$380m worth of projects.
The Preferred Office Landlord
What’s on the table
Singapore Land (S$10.50) - 1QFY07 - Still the preferred office landlord
SingLand’s 1Q07 EPS of 6.8cts represents 24% of our full-year forecast and 20% of
consensus’s despite lower-than-expected revenue. We anticipate strong rental reversions
in the coming quarters to enable SingLand to meet our FY07 revenue and EBIT targets.
We estimate the recent acquisition of Pan Pacific Hotel can add about 10cts (1%) to
SingLand’s RNAV. We have also raised our cap value assumptions for prime office
properties by 25%. Our target price and end-CY08 RNAV estimates have been raised
to S$12.80 from S$11.26. News flow from the tight office market, the proposed F1 street
race and potential involvement in new development projects are expected to provide
catalysts. Maintain Outperform.
Luzhou Bio-Chem (S$0.685) - 1Q07 result - Corn detonation flattens earnings
• 1Q07 results below expectations. 1Q07 net profit of Rmb25.8m (+3.8% yoy) is below
consensus and our expectations due to sharper than expected rise in corn prices
(about 75% of COGS). As a result, 1Q07 EPS represents 14% of our previous full-year
forecasts, partly also due to diluted share base from recent placement exercise.
• 1Q07 revenue grew 32% yoy to Rmb392m, attributable to: 1) corn sweetener sales
(74% of revenue), which increased to Rmb290m (+74% yoy) with added capacity; and
2) strong demand from customers in the F&B industry, which expanded to Rmb284m
(+42% yoy).
• EBITDA margins slipped 1.2% pts qoq and 0.9% pts yoy to 10.3% in 1Q07. A 27%
yoy increase in average corn prices (Rmb1,330/tonne in 1Q07) was the culprit for this
poor set of results. Consequently, gross profit margin for 1Q07 slipped to 16% (from
20.5% in 1Q06).
• Balance sheet strained but holding. Raw material stock-up before anticipated price
peak in 2Q07 and higher material needs for expanded capacity has resulted in higher
inventory build up to Rmb261m as end-Mar 07. This stretched annualised cash cycle
days to 45 days in 1Q07 (from 22 days in FY06).
• Earnings strength to come from in 2H07. Luzhou is on course to meet our FY07
earnings yoy growth estimate of 31%, given (1) increased orders from F&B customers
in the traditionally stronger second half of the year; (2) favourable tax incentives and
rebates. However, we continue to expect margin expansion as Luzhou’s revenue
improves with better sales mix towards higher value sweeteners. Move by the PRC
government to imposed strict control on any ethanol project using grain as the raw
material is widely expected to cap corn prices of corn from soaring further.
• Maintain Outperform and target price lowered to S$1.00. We slashed our FY07-08
estimates by 4% and 3% respectively, as we lower GP margin assumption for FY07 to
20.2% (from 22%) due to peaking of corn prices. We introduced FY09 forecast.
Consequently, our target price is reduced to S$1.00 (from S$1.05), still based on a
blend of P/E (10x CY08) and DCF (12% WACC, 2% terminal growth) valuations. We
like Luzhou for its sugar substitution potential, sustainable volume growth. At 5.8x
CY08 P/E, valuation is cheap, we reiterate OUTPERFORM
Singapore Land (S$10.50) - 1QFY07 - Still the preferred office landlord
SingLand’s 1Q07 EPS of 6.8cts represents 24% of our full-year forecast and 20% of
consensus’s despite lower-than-expected revenue. We anticipate strong rental reversions
in the coming quarters to enable SingLand to meet our FY07 revenue and EBIT targets.
We estimate the recent acquisition of Pan Pacific Hotel can add about 10cts (1%) to
SingLand’s RNAV. We have also raised our cap value assumptions for prime office
properties by 25%. Our target price and end-CY08 RNAV estimates have been raised
to S$12.80 from S$11.26. News flow from the tight office market, the proposed F1 street
race and potential involvement in new development projects are expected to provide
catalysts. Maintain Outperform.
Luzhou Bio-Chem (S$0.685) - 1Q07 result - Corn detonation flattens earnings
• 1Q07 results below expectations. 1Q07 net profit of Rmb25.8m (+3.8% yoy) is below
consensus and our expectations due to sharper than expected rise in corn prices
(about 75% of COGS). As a result, 1Q07 EPS represents 14% of our previous full-year
forecasts, partly also due to diluted share base from recent placement exercise.
• 1Q07 revenue grew 32% yoy to Rmb392m, attributable to: 1) corn sweetener sales
(74% of revenue), which increased to Rmb290m (+74% yoy) with added capacity; and
2) strong demand from customers in the F&B industry, which expanded to Rmb284m
(+42% yoy).
• EBITDA margins slipped 1.2% pts qoq and 0.9% pts yoy to 10.3% in 1Q07. A 27%
yoy increase in average corn prices (Rmb1,330/tonne in 1Q07) was the culprit for this
poor set of results. Consequently, gross profit margin for 1Q07 slipped to 16% (from
20.5% in 1Q06).
• Balance sheet strained but holding. Raw material stock-up before anticipated price
peak in 2Q07 and higher material needs for expanded capacity has resulted in higher
inventory build up to Rmb261m as end-Mar 07. This stretched annualised cash cycle
days to 45 days in 1Q07 (from 22 days in FY06).
• Earnings strength to come from in 2H07. Luzhou is on course to meet our FY07
earnings yoy growth estimate of 31%, given (1) increased orders from F&B customers
in the traditionally stronger second half of the year; (2) favourable tax incentives and
rebates. However, we continue to expect margin expansion as Luzhou’s revenue
improves with better sales mix towards higher value sweeteners. Move by the PRC
government to imposed strict control on any ethanol project using grain as the raw
material is widely expected to cap corn prices of corn from soaring further.
• Maintain Outperform and target price lowered to S$1.00. We slashed our FY07-08
estimates by 4% and 3% respectively, as we lower GP margin assumption for FY07 to
20.2% (from 22%) due to peaking of corn prices. We introduced FY09 forecast.
Consequently, our target price is reduced to S$1.00 (from S$1.05), still based on a
blend of P/E (10x CY08) and DCF (12% WACC, 2% terminal growth) valuations. We
like Luzhou for its sugar substitution potential, sustainable volume growth. At 5.8x
CY08 P/E, valuation is cheap, we reiterate OUTPERFORM
Armstrong Potential for 54% Upside
What’s on the table
Armstrong (S$0.24) - Initiate coverage with Outperform (Target: S$0.37)
- In strong hands
We initiate coverage of Armstrong, a provider of precision engineering solutions to diverse
industries, with an Outperform rating and target price of S$0.37, offering 54% upside
potential. We expect Armstrong’s net profit to grow by 26% CAGR between FY06 and
FY09, underpinned by its automotive and rubber components businesses. Armstrong’s
efforts to expand to the automotive sector are paying dividends, as more automotive
component requirements are sourced from Asia, especially China and Thailand. It is also
focusing on the rubber business, which it successfully returned to profitability in 2006. Our
target conservatively pegs Armstrong at the lower end of target P/Es (11x CY08) we use
for automotive component suppliers listed in Singapore and Hong Kong, to factor in its
smaller size. We see potential catalysts from a strong set of half-yearly results
(announcement in Aug 07) and possible synergistic acquisitions.
Armstrong (S$0.24) - Initiate coverage with Outperform (Target: S$0.37)
- In strong hands
We initiate coverage of Armstrong, a provider of precision engineering solutions to diverse
industries, with an Outperform rating and target price of S$0.37, offering 54% upside
potential. We expect Armstrong’s net profit to grow by 26% CAGR between FY06 and
FY09, underpinned by its automotive and rubber components businesses. Armstrong’s
efforts to expand to the automotive sector are paying dividends, as more automotive
component requirements are sourced from Asia, especially China and Thailand. It is also
focusing on the rubber business, which it successfully returned to profitability in 2006. Our
target conservatively pegs Armstrong at the lower end of target P/Es (11x CY08) we use
for automotive component suppliers listed in Singapore and Hong Kong, to factor in its
smaller size. We see potential catalysts from a strong set of half-yearly results
(announcement in Aug 07) and possible synergistic acquisitions.
AREIT Overseas Expansion?
Ascendas REIT (S$2.42) - 4QFY07 - Overseas expansion by year-end?
Areit’s full-year DPU of 12.8cts is in line with our estimate but 1.5% below consensus
estimate. Areit is set to benefit from strengthening demand for suburban office space, as
leases for most of its Business and Science Parks and Hi-Tech Industrial properties are
short-term, implying the potential for robust rental reversions. Areit will also decide on its
regional expansion plans by year-end. Our DDM-based target price has been lifted to
S$2.90 from S$2.82, following our upgrade of FY08-09 DPU forecasts by 2-3%. Aboveaverage
projected yields of 6% for the next three years make Areit a good defensive
stock. Maintain Outperform.
Areit’s full-year DPU of 12.8cts is in line with our estimate but 1.5% below consensus
estimate. Areit is set to benefit from strengthening demand for suburban office space, as
leases for most of its Business and Science Parks and Hi-Tech Industrial properties are
short-term, implying the potential for robust rental reversions. Areit will also decide on its
regional expansion plans by year-end. Our DDM-based target price has been lifted to
S$2.90 from S$2.82, following our upgrade of FY08-09 DPU forecasts by 2-3%. Aboveaverage
projected yields of 6% for the next three years make Areit a good defensive
stock. Maintain Outperform.
Ride the Dragon
Rotary Engineering - Rolling On
S$36.4m contract wins on Jurong Island
Rotary Engineering has clinched two contracts totalling S$36.4m from JGC and Power Seraya on Jurong Island
• S$30m from JGC Singapore, for 10 storage tanks, civil and electrical works for the
alkylated phenol plant of US-based SI Group. Construction work for the project has
started and is expected to be completed in Aug-09.
• S$6.4m from Power Seraya, for the Berth 3 Conversion Project and associated
facilities at the Pulau Seraya Power Station. The project will be completed by end-07.
Comments
Contracts fuelled by chemical investments on Jurong Island. Investment plans by
MNCs usually take two to three years to materialise and benefit Rotary. SI Group’s plan to
build alkylated phenol plants on Jurong Island was announced in 2005. Therefore we
believe Rotary’s order book build-up will be sustained in the next two years with more
projects given that chemical industry capex in Singapore reaching an all-time-growth in
2006 with more than S$2.6bn being committed. This included the US$3bn cracker and
MEG plant by Shell (US$3bn) and a US$130m biodiesel plant by Australian Natural Fuel.
Order book bumped up to S$670m. Rotary has announced S$76.4m of orders YTD
bringing the order book to S$670m. We have assumed S$400m new orders for FY07 and
we believe it is achievable on the back of the heightened investment activities on Jurong
Island as well as potential for new contracts from Middle East and Indonesia.
Valuation and recommendation
Maintain Outperform and target price of S$1.19. Our target price is set at 15x CY08
EPS, comparable to valuations for regional peers. Contract wins and successful execution
will continue to be key catalysts for Rotary. Maintain Outperform.
Asiapharm Group (S$0.755, OUTPERFORM, APHM SP)
Addressing concerns over weak market. Clients are still concerned about the
anaemic pharmaceutical sector in the PRC. Asiapharm responded by pointing to an
uptick in macro outlook for Chinese pharmaceuticals, which are beginning to find their
footing after the big shake-up. Stock has also been over-penalised and the market has
yet to fully reward the group’s efforts to move ahead.
Enlarged products profile to boost earnings. The group’s recent M&A initiatives look
set to drive future earnings growth with: (1) a new and complete range of high-tech
oncology treatment drugs; (2) stronger distribution channels and an enlarged OTC
presence; and (3) further cost savings in R&D from research platform-sharing.
Beauty China (S$1.12, OUTPERFORM, BCH SP)
Potential driver from new manufacturing revenue stream. BCH’s newly acquired
GMP-compliant manufacturing plant is expected to be completed by 2H07. Potential
OEM orders from foreign cosmetics brands would not only provide a new stream of
revenue, but also allow BCH to tap into the increasing demand for international brands
in first-tier PRC cities.
Local brands losing favour as affluence rise. The competitiveness of BCH’s “Colour
Zone” brand was brought into question upon growing evidence of rising affluence and a
craving for international brands such as “Maybelline”. BCH highlighted its mass-market
appeal and intention to expand more aggressively into the less-penetrated second and
third-tier cities, instead of competing head-to-head in the congested first-tier cities.
Celestial NutriFoods (S$1.51, OUTPERFORM, CENU SP)
Concerns over feasibility of bio-diesel project put to rest. Celestial has articulated
that such projects are expected to enhance the value of soybean oil, a by-product used
as feedstock in the production of bio-diesel. This project has the backing of the PRC
government and the group has an expert partner in Daiki (from Japan). The group is
targeting net margins of 15-20% from bio-diesel output. Upside surprise could come
from higher-than-expected utilisation rates.
Higher utilisation and new products are key drivers of growth. Celestial, with its
strong branding, is a beneficiary of China’s fast-growing soybean consumption. Sales
volume growth is to come from: (1) retail soybean products; (2) expanding industrial
protein product lines; and (3) improved efficiency from greater operations within the
Soybean Zone.
CG Tech (S$0.865, OUTPERFORM, CGT SP)
Cheap valuations draw attention. CG Tech piqued investor interest with its relatively
cheap valuations. It was only trading at 8x CY07 P/E and 6x CY08 P/E.
Satisfied with growth strategy, not entirely convinced on competitive position.
Clients were satisfied with CG Tech’s clear growth plans. The company narrated its
intention to focus on polyester short fibre (PSF) in 2007-08, before moving on to
functional yarns for garments and industrial PSF in 2009-10. Applications for industrial
PSF include diapers and car cushions. While the strategy was clear, CG Tech’s
competitive position was less convincing. Several questions centred on the company
seeks to differentiate itself from its competitors.
China Sky Chemical Fibre (S$1.63, OUTPERFORM, CSCF SP)
Convincing presenter, clear value proposition. Investors were generally
impressed by the depth of knowledge exhibited by the presenter. Mr. Sunny Hui,
CFO, narrated the quality advantage of its products and the benefits of the new
product, super-resilient nylon. China Sky also guided that nylon pricing is expected to
be stabilise this year and render the cost pressures of 2006 less of a risk.
Questions on merits of M&A. The only topic that spurred questions was potential
M&As. Investors asked if there was merit to undertaking M&As, since China Sky
could just as easily pursue a greenfield setup. Management explained that pursuing
M&As was a faster way to penetrate northern and western provinces. It was also one
of the better ways to get skilled labour, an important ingredient in the business.
Fibrechem Technologies (S$2.55, OUTPERFORM, FBCM SP)
Clear explanation on niche space in nylon and microfibre. Fibrechem took great
pains to explain its niche position in nylon and the excitement over its new microfibre
product. Fibrechem indicated a refinement of its microfibre product that led to one
sporting a new suede-like finish. This is the product likely to help them penetrate the
fashion goods market, as well as the leather upholstery market in Europe. Investors
were generally receptive.
Doubts on sustenance of skills advantage. The only doubt was on the issue of
sustainability. Investors questioned Fibrechem’s ability to keep skill-sets in-house in
order to sustain its current technology lead. Fibrechem explained that its advantage
stemmed from a blend of experience, processes and capital. It was also taking steps
to keep talent within the organisation as the company grows.
Sinomem Technology (S$1.02, OUTPERFORM, SINO SP)
Making more headway in water treatment and recycling business. Sinomem
stated its strategy of taking on more wastewater treatment and water recycling
projects, to be driven by: 1) more timely payments by the Chinese government on the
back of increased commitment to curb pollution problems; 2) projects’ IRR falling
within the company’s 10-15% criteria; and 3) water scarcity in Northern China
offering immense opportunities for water recycling business.
Lumpy earnings a continued concern, due to the project-based nature of
Sinomem’s core membrane engineering business. The company believes that
downstream expansion into new fermentation-based products (xanthan gum and
phytase) expected in 2H07, coupled with long-term recurring income from water
projects, could help smooth its earnings.
Sino Techfibre Ltd (S$1.36, OUTPERFORM, SINOT SP)
Sino Techfibre as a consumer proxy. Management peppered their presentation
with exhibits of products samples. The position of Sino Techfibre as a consumer
proxy was clear. In additional, investors also heard about the company’s position as
the prime supplier of materials to the Chinese military. Management hinted that a
change in the PLA’s uniform this year could boost military-associated revenues up,
from 8% of group revenue in FY06, to 15% by FY07.
Unease over military links, doubts on delivery of PMP. While the range of its
products impressed investors, there was also some unease over the links with the
military. Beyond that, questions were primarily focused on the delivery of PMP.
Clients generally agreed that the potential market for PMP is large but execution
concerns remain. Management voiced their confidence in the future plans for PMP.
Source: CIMB-GK
S$36.4m contract wins on Jurong Island
Rotary Engineering has clinched two contracts totalling S$36.4m from JGC and Power Seraya on Jurong Island
• S$30m from JGC Singapore, for 10 storage tanks, civil and electrical works for the
alkylated phenol plant of US-based SI Group. Construction work for the project has
started and is expected to be completed in Aug-09.
• S$6.4m from Power Seraya, for the Berth 3 Conversion Project and associated
facilities at the Pulau Seraya Power Station. The project will be completed by end-07.
Comments
Contracts fuelled by chemical investments on Jurong Island. Investment plans by
MNCs usually take two to three years to materialise and benefit Rotary. SI Group’s plan to
build alkylated phenol plants on Jurong Island was announced in 2005. Therefore we
believe Rotary’s order book build-up will be sustained in the next two years with more
projects given that chemical industry capex in Singapore reaching an all-time-growth in
2006 with more than S$2.6bn being committed. This included the US$3bn cracker and
MEG plant by Shell (US$3bn) and a US$130m biodiesel plant by Australian Natural Fuel.
Order book bumped up to S$670m. Rotary has announced S$76.4m of orders YTD
bringing the order book to S$670m. We have assumed S$400m new orders for FY07 and
we believe it is achievable on the back of the heightened investment activities on Jurong
Island as well as potential for new contracts from Middle East and Indonesia.
Valuation and recommendation
Maintain Outperform and target price of S$1.19. Our target price is set at 15x CY08
EPS, comparable to valuations for regional peers. Contract wins and successful execution
will continue to be key catalysts for Rotary. Maintain Outperform.
Asiapharm Group (S$0.755, OUTPERFORM, APHM SP)
Addressing concerns over weak market. Clients are still concerned about the
anaemic pharmaceutical sector in the PRC. Asiapharm responded by pointing to an
uptick in macro outlook for Chinese pharmaceuticals, which are beginning to find their
footing after the big shake-up. Stock has also been over-penalised and the market has
yet to fully reward the group’s efforts to move ahead.
Enlarged products profile to boost earnings. The group’s recent M&A initiatives look
set to drive future earnings growth with: (1) a new and complete range of high-tech
oncology treatment drugs; (2) stronger distribution channels and an enlarged OTC
presence; and (3) further cost savings in R&D from research platform-sharing.
Beauty China (S$1.12, OUTPERFORM, BCH SP)
Potential driver from new manufacturing revenue stream. BCH’s newly acquired
GMP-compliant manufacturing plant is expected to be completed by 2H07. Potential
OEM orders from foreign cosmetics brands would not only provide a new stream of
revenue, but also allow BCH to tap into the increasing demand for international brands
in first-tier PRC cities.
Local brands losing favour as affluence rise. The competitiveness of BCH’s “Colour
Zone” brand was brought into question upon growing evidence of rising affluence and a
craving for international brands such as “Maybelline”. BCH highlighted its mass-market
appeal and intention to expand more aggressively into the less-penetrated second and
third-tier cities, instead of competing head-to-head in the congested first-tier cities.
Celestial NutriFoods (S$1.51, OUTPERFORM, CENU SP)
Concerns over feasibility of bio-diesel project put to rest. Celestial has articulated
that such projects are expected to enhance the value of soybean oil, a by-product used
as feedstock in the production of bio-diesel. This project has the backing of the PRC
government and the group has an expert partner in Daiki (from Japan). The group is
targeting net margins of 15-20% from bio-diesel output. Upside surprise could come
from higher-than-expected utilisation rates.
Higher utilisation and new products are key drivers of growth. Celestial, with its
strong branding, is a beneficiary of China’s fast-growing soybean consumption. Sales
volume growth is to come from: (1) retail soybean products; (2) expanding industrial
protein product lines; and (3) improved efficiency from greater operations within the
Soybean Zone.
CG Tech (S$0.865, OUTPERFORM, CGT SP)
Cheap valuations draw attention. CG Tech piqued investor interest with its relatively
cheap valuations. It was only trading at 8x CY07 P/E and 6x CY08 P/E.
Satisfied with growth strategy, not entirely convinced on competitive position.
Clients were satisfied with CG Tech’s clear growth plans. The company narrated its
intention to focus on polyester short fibre (PSF) in 2007-08, before moving on to
functional yarns for garments and industrial PSF in 2009-10. Applications for industrial
PSF include diapers and car cushions. While the strategy was clear, CG Tech’s
competitive position was less convincing. Several questions centred on the company
seeks to differentiate itself from its competitors.
China Sky Chemical Fibre (S$1.63, OUTPERFORM, CSCF SP)
Convincing presenter, clear value proposition. Investors were generally
impressed by the depth of knowledge exhibited by the presenter. Mr. Sunny Hui,
CFO, narrated the quality advantage of its products and the benefits of the new
product, super-resilient nylon. China Sky also guided that nylon pricing is expected to
be stabilise this year and render the cost pressures of 2006 less of a risk.
Questions on merits of M&A. The only topic that spurred questions was potential
M&As. Investors asked if there was merit to undertaking M&As, since China Sky
could just as easily pursue a greenfield setup. Management explained that pursuing
M&As was a faster way to penetrate northern and western provinces. It was also one
of the better ways to get skilled labour, an important ingredient in the business.
Fibrechem Technologies (S$2.55, OUTPERFORM, FBCM SP)
Clear explanation on niche space in nylon and microfibre. Fibrechem took great
pains to explain its niche position in nylon and the excitement over its new microfibre
product. Fibrechem indicated a refinement of its microfibre product that led to one
sporting a new suede-like finish. This is the product likely to help them penetrate the
fashion goods market, as well as the leather upholstery market in Europe. Investors
were generally receptive.
Doubts on sustenance of skills advantage. The only doubt was on the issue of
sustainability. Investors questioned Fibrechem’s ability to keep skill-sets in-house in
order to sustain its current technology lead. Fibrechem explained that its advantage
stemmed from a blend of experience, processes and capital. It was also taking steps
to keep talent within the organisation as the company grows.
Sinomem Technology (S$1.02, OUTPERFORM, SINO SP)
Making more headway in water treatment and recycling business. Sinomem
stated its strategy of taking on more wastewater treatment and water recycling
projects, to be driven by: 1) more timely payments by the Chinese government on the
back of increased commitment to curb pollution problems; 2) projects’ IRR falling
within the company’s 10-15% criteria; and 3) water scarcity in Northern China
offering immense opportunities for water recycling business.
Lumpy earnings a continued concern, due to the project-based nature of
Sinomem’s core membrane engineering business. The company believes that
downstream expansion into new fermentation-based products (xanthan gum and
phytase) expected in 2H07, coupled with long-term recurring income from water
projects, could help smooth its earnings.
Sino Techfibre Ltd (S$1.36, OUTPERFORM, SINOT SP)
Sino Techfibre as a consumer proxy. Management peppered their presentation
with exhibits of products samples. The position of Sino Techfibre as a consumer
proxy was clear. In additional, investors also heard about the company’s position as
the prime supplier of materials to the Chinese military. Management hinted that a
change in the PLA’s uniform this year could boost military-associated revenues up,
from 8% of group revenue in FY06, to 15% by FY07.
Unease over military links, doubts on delivery of PMP. While the range of its
products impressed investors, there was also some unease over the links with the
military. Beyond that, questions were primarily focused on the delivery of PMP.
Clients generally agreed that the potential market for PMP is large but execution
concerns remain. Management voiced their confidence in the future plans for PMP.
Source: CIMB-GK
Labels:
Asiapharm,
Beauty China,
Celestial,
CG Tech,
China Sky,
Fibrechem,
Rotary Engr,
Sinomem
SPH is Great Proxy to Economy
Singapore Press Holdings
BUY: Price: $4.60 Target: $5.50
2QFY07 results
Analyst: Stephanie Wong
Stable and Predictable - draft
Performance mirrored the healthy economy
Results were in line with expectations as net profit grew 28%yoy to $108m in 2QFY07. Revenue growth of 4.5%yoy was a direct result of higher revenue from newspaper and magazine division (+4%yoy) as well as a 9% increase in rental income. The surge in investment income of 62%yoy to $31.6m should not come as a surprise in view of the buoyant stock markets in the region. SPH has a massive investment portfolio of $880m as at Feb-07.
Advertising revenue rising steadily
Print advertising revenue rose by 4.6%yoy, underpinned by the strength of the Singapore economy. Display ads increased 4.2%yoy while classified ads edged up 3.2%yoy. Operating margins remained strong at around 35%, thanks to effective cost-controls and decline in newsprint prices.
Property development is not a distraction
We reckon the overwhelming response to Sky@eleven has boosted the management’s confidence in property development. Efforts to enhance the value of its remaining key asset – The Paragon retail-cum-office building are on-going. The crown jewel could one day be redeveloped into a residential/commercial project which may yield a higher plot ratio from the current 5.6x.
Interim DPS of 7cts
Although there were no ‘bonus’ for shareholders at the interim as the group declared an interim DPS of only 7cts, we are hopeful of bumper payout in 2H, particularly with the maiden recognition of development profits from Sky@11. The cash & cash equivalent of $1.1b ($0.69/sh) makes a strong case for SPH to mull over various capital management initiatives in the near term.
Still a great proxy to the economy at a steal!
We still see vast value in the stock as it trades at an implied core earnings of only 12.8x for FY08. Our 12-month price target remains at $5.50 on implied FY08 yield of 5.5%. Though boring, the stock is still alluring given its strong certainty of attractive dividend yields.
What’s on the table
Singapore Press Holdings (S$4.60) – 2QFY07 results - Bumped up by lower tax
and higher investment income
SPH’s net earnings of S$108m (+27.7% yoy) represent 54% of our full-year forecast.
Earnings appear to have been bumped up by a lower tax rate (due to adjustments for
overprovision) and higher investment income (+61.2% yoy). Core newspaper and
magazine revenue came in at S$218m (+4% yoy). More encouragingly, display revenue
was up 4.3% yoy to S$90.8m, lifting print advertising revenue to S$162m (+4.6% yoy),
in line with our assumption of 5% adex growth for FY07. With a still positive outlook, we
maintain our earnings estimates and sum-of-the-parts target price of S$5.22. Maintain
Outperform.
TPV Technology (HK$5.54/S$1.05) – 4QFY06 results - Still the clear leader
• Slightly ahead of expectations. 4Q06 net profit of US$39.2m (-9% yoy) was
slightly ahead of our estimate of US$37.1m but 20% below consensus forecast
(which possibly has not been updated since mid-2006). Upside surprises came
from a better-than-expected opex ratio and better other income, which more than
offset lower-than-expected gross margins and higher-than-expected taxation.
• Sales inched up 3% yoy to US$1.98bn in 4Q, as higher shipments of LCDrelated
products were offset by lower CRT monitor shipments and weighted ASPs.
During the quarter, TPV shipped 8.2m LCD monitors (+30% yoy), 0.8m LCD TVs
(+150% yoy) and 2.5m CRT monitors (-36% yoy), outpacing industry growth rates.
• EBITDA margin improved 140bp yoy in 4Q, as the 78bp yoy decline in gross
margins was offset by a lower opex ratio (down 70bp yoy due partly to forex gains
from Rmb strength). Coupled with higher other income, pretax profit jumped 19%
yoy. Net profit slipped 9% yoy due to a one-off US$5.7m charge for deferred tax.
• Net gearing jumped to 0.3x from 0.14x as at end-Sep 06. The jump was the
result of slightly longer cash cycle days (which inched up 2.5 days qoq due largely
to shorter payable days) and continuous capex to expand capacity. TPV declared a
final dividend of 1.68 US cts, down from 2.0 US cts a year ago.
• Market share intact despite concerns of rising competition. The results
demonstrate that TPV’s competitive strength remains intact. The company retained
its leadership in both the LCD and CRT monitor space despite investors’ concerns
over the potential threat from Innolux. TPV’s guidance of a weak 1H and recovery
in 2H is in line with our assumptions. We have assumed the resumption of profit
growth in 2H on the back of the introduction of cost-down products (savings of
US$2-3 per unit on average), other cost-control measures, and seasonal demand,
especially of LCD TV products.
• Forecasts cut, maintain Outperform. We have cut our FY07-08 profit forecasts
by 13-23% to assume lower sales growth and margins conservatively, in view of
the current uncertain outlook for the LCD industry. We have also introduced FY09
forecasts. In addition, we rolled over our valuation basis from CY07 to CY08, but
using a lower 12x fully-diluted P/E (instead of 13x) to factor in earnings risks.
Nevertheless, the stock remains an Outperform given the 34% upside to our
revised target price of HK$7.45/S$1.45. We see catalysts from an earnings
recovery in 2H07 and greater penetration of the LCD TV market.
Asiapharm Group (S$0.745) - Another accretive acquisition
Acquisition of WBL’s interest in WPU
Asiapharm has entered into a conditional share purchase agreement with Singapore-listed
WBL Corporation for the acquisition of WBL’s 43% interest in WBL Peking University
Biotech Co. Ltd (WPU). The total consideration is Rmb99.4m, representing an acquisition
P/E of 8.9x based on WPU’s net profit of Rmb26m in FY06.
Comments
This acquisition is consistent with our view that the group is looking out for more M&A
opportunities and could target drug makers with a strong presence in the OTC distribution
market. We view it positively.
Distribution channel enhanced with wider customer base. Asiapharm currently
controls a distribution network that reaches about 2,500 hospitals. WPU’s drugs are sold
within the PRC to about 3,500 hospitals, constituting 60% of its total sales. WPU has
about 350 sales personnel. With the additional distribution channels and hospital
customers, the group would be able to reach a wider customer base, even though there
may be some overlapping.
Enlarged drugs portfolio. WPU is principally engaged in the R&D, manufacturing and
sale of pharmaceutical products, natural medicine and modern Chinese medicine. Its core
product is Xuezhikang, a natural drug for regulating abnormal blood lipid levels, effectively
preventing and treating cardiocerebro-vascular diseases. The enlarged products are
expected to add to Asiapharm’s earnings.
Product bundling to improve sales traction of existing products. Asiapharm can also
bundle these new drugs to complement its existing product range, thereby enhancing its
sales in the PRC. We estimate that bundling and cross-selling can enhance its
pharmaceutical sales by 1.6% in FY07.
OTC market a growth catalyst. The over-the-counter (OTC) drugs market in China has
boomed in the last few years. We think this market represents a good avenue for
pharmaceutical companies to establish sales traction in the PRC in the long run. Around
40% of WPU’s sales are from the OTC market, which should add to Asiapharm’s existing
OTC market presence.
Fast tracking export sales. WPU’S drugs are very established in the market, and have
been exported to the US, Europe, Japan, Korea, Singapore, Malaysia, Norway, Hong
Kong and Taiwan. This adds wings to the group’s intention of developing its export market.
Currently, Asiapharm sells through local distributors in Vietnam and Pakistan. It also has
an exclusive agency with KKC Corporation seeking distributors of the CMNa in Korea, and
has import and distribution agreements for Maitongna and Nuosen in Pakistan. We expect
WPU’s export market to add to the group’s growing drugs portfolio for export.
Possibility of increased stake going forward. The remaining 57% stake in WPU is held
by Peking University Weiming Biotechnology Group (Beida) (30.45%) and Beijing Holding
Co. Ltd (BeiKung) (26.55%). We believe Asiapharm would try to enlarge its stake in WPU,
in order to fully tap into WPU’s future earnings.
Valuation and recommendation
Maintain Outperform and target price raised to S$0.98. We have raised our FY07-09
earnings estimates by 1.1-5% to factor in: 1) fresh contributions from new products and
enlarged sales channels; 2) further cost savings in R&D from research platform-sharing;
and 3) sales growth of existing products that can benefit from product bundling. Our target
price has been raised to S$0.98 from S$0.96, based on DCF (WACC of 13%, terminal
growth rate of 3%) valuation after our earnings upgrade. Maintain Outperform with
possible catalysts from any acquisition of the remaining stake in WPU.
Spotlight on Global Testing Corporation
At a glance
Last Price (S$) 0.24
YTD (%) +2.1
Issued shares (m) 1,050.00
Market cap (US$ m) 252.00
52-wk range (US$) 0.21 - 0.39
3M avg volume (m) 10.81
2008 P/E (x)* N/A
P/BV (x) 1.0
*Bloomberg Consensus
Potential to break higher
Description: Global Testing Corporation (GTC) offers testing services for the
semiconductor manufacturing industry. The company offers wafer sorting and final testing
services for logic and mixed signal semiconductors used in consumer electronics and
communications devices.
Immediate outlook: The stock is still trapped in its consolidation triangle. Both its
indicators are slowly turning positive. In the short term, we expect the stock to consolidate
a tad before trying to break out of its consolidation triangle. The stock is a Technical Buy
now at the S$0.22-0.24 level. Place a stop at S$0.21. The breakout target is S$0.30.
Medium term outlook (2-6 months): Medium term outlook for GTC is bullish as its
uptrend channel is still intact. With MACD just issued a buy signal since last Nov and it has
been edging higher slowly. We believe that long term investors should Buy now as the
stock is trading very near the bottom of its uptrend channel. Hence the downside risks are
small relative to its potential returns. This is an excellent opportunity to buy this stock.
Next target for the stock is the middle band resistance at S$0.30-0.31, followed by
S$0.375-0.39 next.
BUY: Price: $4.60 Target: $5.50
2QFY07 results
Analyst: Stephanie Wong
Stable and Predictable - draft
Performance mirrored the healthy economy
Results were in line with expectations as net profit grew 28%yoy to $108m in 2QFY07. Revenue growth of 4.5%yoy was a direct result of higher revenue from newspaper and magazine division (+4%yoy) as well as a 9% increase in rental income. The surge in investment income of 62%yoy to $31.6m should not come as a surprise in view of the buoyant stock markets in the region. SPH has a massive investment portfolio of $880m as at Feb-07.
Advertising revenue rising steadily
Print advertising revenue rose by 4.6%yoy, underpinned by the strength of the Singapore economy. Display ads increased 4.2%yoy while classified ads edged up 3.2%yoy. Operating margins remained strong at around 35%, thanks to effective cost-controls and decline in newsprint prices.
Property development is not a distraction
We reckon the overwhelming response to Sky@eleven has boosted the management’s confidence in property development. Efforts to enhance the value of its remaining key asset – The Paragon retail-cum-office building are on-going. The crown jewel could one day be redeveloped into a residential/commercial project which may yield a higher plot ratio from the current 5.6x.
Interim DPS of 7cts
Although there were no ‘bonus’ for shareholders at the interim as the group declared an interim DPS of only 7cts, we are hopeful of bumper payout in 2H, particularly with the maiden recognition of development profits from Sky@11. The cash & cash equivalent of $1.1b ($0.69/sh) makes a strong case for SPH to mull over various capital management initiatives in the near term.
Still a great proxy to the economy at a steal!
We still see vast value in the stock as it trades at an implied core earnings of only 12.8x for FY08. Our 12-month price target remains at $5.50 on implied FY08 yield of 5.5%. Though boring, the stock is still alluring given its strong certainty of attractive dividend yields.
What’s on the table
Singapore Press Holdings (S$4.60) – 2QFY07 results - Bumped up by lower tax
and higher investment income
SPH’s net earnings of S$108m (+27.7% yoy) represent 54% of our full-year forecast.
Earnings appear to have been bumped up by a lower tax rate (due to adjustments for
overprovision) and higher investment income (+61.2% yoy). Core newspaper and
magazine revenue came in at S$218m (+4% yoy). More encouragingly, display revenue
was up 4.3% yoy to S$90.8m, lifting print advertising revenue to S$162m (+4.6% yoy),
in line with our assumption of 5% adex growth for FY07. With a still positive outlook, we
maintain our earnings estimates and sum-of-the-parts target price of S$5.22. Maintain
Outperform.
TPV Technology (HK$5.54/S$1.05) – 4QFY06 results - Still the clear leader
• Slightly ahead of expectations. 4Q06 net profit of US$39.2m (-9% yoy) was
slightly ahead of our estimate of US$37.1m but 20% below consensus forecast
(which possibly has not been updated since mid-2006). Upside surprises came
from a better-than-expected opex ratio and better other income, which more than
offset lower-than-expected gross margins and higher-than-expected taxation.
• Sales inched up 3% yoy to US$1.98bn in 4Q, as higher shipments of LCDrelated
products were offset by lower CRT monitor shipments and weighted ASPs.
During the quarter, TPV shipped 8.2m LCD monitors (+30% yoy), 0.8m LCD TVs
(+150% yoy) and 2.5m CRT monitors (-36% yoy), outpacing industry growth rates.
• EBITDA margin improved 140bp yoy in 4Q, as the 78bp yoy decline in gross
margins was offset by a lower opex ratio (down 70bp yoy due partly to forex gains
from Rmb strength). Coupled with higher other income, pretax profit jumped 19%
yoy. Net profit slipped 9% yoy due to a one-off US$5.7m charge for deferred tax.
• Net gearing jumped to 0.3x from 0.14x as at end-Sep 06. The jump was the
result of slightly longer cash cycle days (which inched up 2.5 days qoq due largely
to shorter payable days) and continuous capex to expand capacity. TPV declared a
final dividend of 1.68 US cts, down from 2.0 US cts a year ago.
• Market share intact despite concerns of rising competition. The results
demonstrate that TPV’s competitive strength remains intact. The company retained
its leadership in both the LCD and CRT monitor space despite investors’ concerns
over the potential threat from Innolux. TPV’s guidance of a weak 1H and recovery
in 2H is in line with our assumptions. We have assumed the resumption of profit
growth in 2H on the back of the introduction of cost-down products (savings of
US$2-3 per unit on average), other cost-control measures, and seasonal demand,
especially of LCD TV products.
• Forecasts cut, maintain Outperform. We have cut our FY07-08 profit forecasts
by 13-23% to assume lower sales growth and margins conservatively, in view of
the current uncertain outlook for the LCD industry. We have also introduced FY09
forecasts. In addition, we rolled over our valuation basis from CY07 to CY08, but
using a lower 12x fully-diluted P/E (instead of 13x) to factor in earnings risks.
Nevertheless, the stock remains an Outperform given the 34% upside to our
revised target price of HK$7.45/S$1.45. We see catalysts from an earnings
recovery in 2H07 and greater penetration of the LCD TV market.
Asiapharm Group (S$0.745) - Another accretive acquisition
Acquisition of WBL’s interest in WPU
Asiapharm has entered into a conditional share purchase agreement with Singapore-listed
WBL Corporation for the acquisition of WBL’s 43% interest in WBL Peking University
Biotech Co. Ltd (WPU). The total consideration is Rmb99.4m, representing an acquisition
P/E of 8.9x based on WPU’s net profit of Rmb26m in FY06.
Comments
This acquisition is consistent with our view that the group is looking out for more M&A
opportunities and could target drug makers with a strong presence in the OTC distribution
market. We view it positively.
Distribution channel enhanced with wider customer base. Asiapharm currently
controls a distribution network that reaches about 2,500 hospitals. WPU’s drugs are sold
within the PRC to about 3,500 hospitals, constituting 60% of its total sales. WPU has
about 350 sales personnel. With the additional distribution channels and hospital
customers, the group would be able to reach a wider customer base, even though there
may be some overlapping.
Enlarged drugs portfolio. WPU is principally engaged in the R&D, manufacturing and
sale of pharmaceutical products, natural medicine and modern Chinese medicine. Its core
product is Xuezhikang, a natural drug for regulating abnormal blood lipid levels, effectively
preventing and treating cardiocerebro-vascular diseases. The enlarged products are
expected to add to Asiapharm’s earnings.
Product bundling to improve sales traction of existing products. Asiapharm can also
bundle these new drugs to complement its existing product range, thereby enhancing its
sales in the PRC. We estimate that bundling and cross-selling can enhance its
pharmaceutical sales by 1.6% in FY07.
OTC market a growth catalyst. The over-the-counter (OTC) drugs market in China has
boomed in the last few years. We think this market represents a good avenue for
pharmaceutical companies to establish sales traction in the PRC in the long run. Around
40% of WPU’s sales are from the OTC market, which should add to Asiapharm’s existing
OTC market presence.
Fast tracking export sales. WPU’S drugs are very established in the market, and have
been exported to the US, Europe, Japan, Korea, Singapore, Malaysia, Norway, Hong
Kong and Taiwan. This adds wings to the group’s intention of developing its export market.
Currently, Asiapharm sells through local distributors in Vietnam and Pakistan. It also has
an exclusive agency with KKC Corporation seeking distributors of the CMNa in Korea, and
has import and distribution agreements for Maitongna and Nuosen in Pakistan. We expect
WPU’s export market to add to the group’s growing drugs portfolio for export.
Possibility of increased stake going forward. The remaining 57% stake in WPU is held
by Peking University Weiming Biotechnology Group (Beida) (30.45%) and Beijing Holding
Co. Ltd (BeiKung) (26.55%). We believe Asiapharm would try to enlarge its stake in WPU,
in order to fully tap into WPU’s future earnings.
Valuation and recommendation
Maintain Outperform and target price raised to S$0.98. We have raised our FY07-09
earnings estimates by 1.1-5% to factor in: 1) fresh contributions from new products and
enlarged sales channels; 2) further cost savings in R&D from research platform-sharing;
and 3) sales growth of existing products that can benefit from product bundling. Our target
price has been raised to S$0.98 from S$0.96, based on DCF (WACC of 13%, terminal
growth rate of 3%) valuation after our earnings upgrade. Maintain Outperform with
possible catalysts from any acquisition of the remaining stake in WPU.
Spotlight on Global Testing Corporation
At a glance
Last Price (S$) 0.24
YTD (%) +2.1
Issued shares (m) 1,050.00
Market cap (US$ m) 252.00
52-wk range (US$) 0.21 - 0.39
3M avg volume (m) 10.81
2008 P/E (x)* N/A
P/BV (x) 1.0
*Bloomberg Consensus
Potential to break higher
Description: Global Testing Corporation (GTC) offers testing services for the
semiconductor manufacturing industry. The company offers wafer sorting and final testing
services for logic and mixed signal semiconductors used in consumer electronics and
communications devices.
Immediate outlook: The stock is still trapped in its consolidation triangle. Both its
indicators are slowly turning positive. In the short term, we expect the stock to consolidate
a tad before trying to break out of its consolidation triangle. The stock is a Technical Buy
now at the S$0.22-0.24 level. Place a stop at S$0.21. The breakout target is S$0.30.
Medium term outlook (2-6 months): Medium term outlook for GTC is bullish as its
uptrend channel is still intact. With MACD just issued a buy signal since last Nov and it has
been edging higher slowly. We believe that long term investors should Buy now as the
stock is trading very near the bottom of its uptrend channel. Hence the downside risks are
small relative to its potential returns. This is an excellent opportunity to buy this stock.
Next target for the stock is the middle band resistance at S$0.30-0.31, followed by
S$0.375-0.39 next.
Pleasant Surprises From Thomson Medical
What’s on the table
Thomson Medical Centre (S$0.61) - Many pleasant surprises
TMC’s strong 1H07 net profits of S$4.4m (+35% yoy) were in line with our forecast
though above Street estimates. A generous dividend payout of 99% was a pleasant
surprise. TMC will be recognising consultancy fees from its Vietnam project in mid-
2007. Since part of the fee earned is pegged to construction costs, higher fees could
accrue to TMC, as construction costs have risen by 15% yoy. Enhanced facilities within
its Singapore hospital should also be earnings-accretive, following the completion of
space rationalisation and renovation work for two wards. Our FY07-09 estimates have
been raised by 3.2-8%, reflecting stronger contributions from the hospital segment. Our
target price has been lifted to S$0.73 from S$0.58, upon rolling forward our 17.5x P/E
target to CY08 and after our earnings upgrade. Reiterate Outperform.
Singapore Telecommunications (S$3.42) - Upside from Down Under
Surging Aussie dollar
The A$ has surged to a 16-year high against the US$ and 16-month high against the S$
(Figure 1). This is on the back of economists’ expectations that the Reserve Bank of
Australia will be raising interest rates from the current 6.25%, thanks to a robust,
commodity-driven economy.
Valuation and recommendation
Maintain OUTPERFORM with target price of S$3.59, despite the recent strength in its
share price. On a total return basis (price appreciation and dividends), SingTel offers a 5%
upside over our target for the STI.
Key catalysts for a re-rating could include: 1) a further strengthening of the A$; and 2) a
generous dividend payout by SingTel in its upcoming FY07 results announcement on 10
May. We expect SingTel to declare a DPS of 17cts for FY07. Since 8 Mar 07, SingTel’s
share price has rallied 6%. We also prefer SingTel to Telekom Malaysia for exposure to
regional telcos. SingTel is still among the most attractively-valued integrated telco in the
region (Figure 3) despite its recent run-up.
Miyoshi (S$0.335) - 1HFY07 Results – Margin expansion for HDD business
• Above expectations. 1H07 net profit of S$6.8m (+81% yoy) represents 66% of our
previous full-year forecast and slightly more than 66% of full-year consensus. The key
variances were lower-than-expected COGS and operating expenses, which more than
offset higher-than-expected income tax as Miyoshi no longer enjoys tax exemption for
its Philippine and Thai operations.
• Turnover grew 26% yoy in 1H07, lifted by stronger than-expected HDD top-cover
sales (+66% yoy) as Miyoshi benefited from Hitachi and Fujitsu’s robust shipment
growth. The performance of its consumer electronics (CE) and automotive businesses,
however, was below expectation with sales falling by 12% yoy each. The CE business
was hit on two fronts: 1) by a weak US$, which shaved growth by 7-8% pts when
translated into S$; and 2) disruptions for one major HP printer project, during the
production transition from Flextronics in Shanghai to Cal-Comp in Thailand.
• EBITDA margins increased by 3.9% pts yoy to 12.8% in 1H07, as a result of a
better sales mix and factory utilisation. Together with higher other income (due partly to
high scrap sales), pretax and net profits surged 133% and 81% yoy respectively, well
ahead of the revenue growth.
• Strong balance sheet. Miyoshi generated S$2.1m of positive free cash flow in 1H07
as a result of the higher profit and controlled capex. Net cash increased by S$1.4m hoh
to S$8.7m.
• Positive momentum to continue. We expect growth in 2H07 to be supported by 1)
continuous volume growth for HDD top covers as major Japanese customers are still
projecting healthy shipment growth; and 2) a recovery in the CE business as the
disrupted major programme had re-started at end-February. Beyond 2H07, we
understand that Miyoshi may penetrate HGST’s 2.5” programmes, which are currently
supported by NHK. Though HGST has been losing market share, it is still the largest
player in the 2.5” segment.
• Forecasts raised, maintain Outperform. We have raised our FY07-09 EPS forecasts
by 24-32% to factor in higher margin assumptions. Accordingly, our target price has
been lifted from S$0.38 to S$0.45, still pegging Miyoshi at 8x CY08 P/E. Maintain
Outperform as Miyoshi remains one of the cheaper SGX-listed HDD metal component
suppliers.
HG Metal Manufacturing (S$0.45) - Foothold in Iskandar Development Region
Stronger-than-expected pick-up in construction sector
Earnings powered by two strong engines. Preliminary 1Q07 GDP growth figures show
the construction sector expanding by 7% yoy, compared to our expectation of 5.4%, the
fastest yoy pace since 1Q01. We believe the stronger-than-expected recovery in the
construction sector could lift HG Metal’s FY07 earnings. The construction sector
contributed 43% of HG Metal’s turnover in 2006, followed by 54% from shipbuilding,
offshore and marine industrial.
Could benefit from substitute of sand structures with steel structures. The surge in
sand prices recently due to the ban on sand exports from Indonesia could benefit steel
suppliers such as HG Metal, as developers shift to alternative sources of building materials
such as structural steel to reduce their dependence on sand and concrete.
Foothold in Iskandar Development Region project
In February, HG Metal (together with its subsidiary) acquired five plots of freehold
industrial land (26.18 acres) in Nusajaya Industrial Park 1 for RM23.9m (S$10.5m), or
about RM21 psf. According to management, the land will be used for expanding its
warehouse capabilities and production. The manufacturing activities would include slitting
and shearing, steel fabrication and formwork, re-rolling bars and forging, powder coating,
galvanising and sand blasting.
The land is located in the South Johor Economic Region, also known as the Iskandar
Development Region (IDR). Malaysian Prime Minister Abdullah Ahmad Badawi recently
announced policy incentives to spur the development of IDR. These incentives apply to
qualifying companies in six targeted sectors, namely, creative industry, educational
services, financial advisory and consulting, healthcare, logistics and tourism. Qualifying
companies will be exempted from withholding tax on certain payments and corporate
income tax for activities within these zones and outside Malaysia for 10 years upon the
commencement of operations.
Exciting long-term outlook. As a pioneer, HG Metal’s invested cost for the land is below
existing market rates. The group should also benefit from the good location of this free
trade zone. According to management, the land is located between the second causeway
link with Singapore and the Johor port. HG Metal is also expected to tap into the Malaysian
government’s target to attract a total investment of RM50bn for IDR in the first five years,
and supply steel for the construction of IDR’s projects. The first batch of investment worth
around RM4 bn is being finalised.
Valuation and recommendation
Upgrade to Outperform from Trading Buy. Our FY07-09 fully-diluted EPS forecasts
(after adjusting for rights issue) have been increased by 4-30% due to higher revenue
assumptions for the construction business. Management indicates that the group’s
turnover is on target to reach more than S$500m in 2009. To factor in its better earnings
prospects, we have increased our target P/E from 8x to 9x on CY07 earnings. Accordingly,
our target price has been lifted from S$0.48 (ex-rights issue) to S$0.54. HG Metal’s
earnings visibility is improving due to the construction sector’s strong resurgence,
stabilising steel prices and a weaker US$ (HG Metal buys its raw materials in US$). We
upgrade the stock to Outperform from Trading Buy.
Singapore Press Holdings (SPH) on Thursday reported a 28 per cent rise in second-quarter profit, due to higher income from investments.
Net profit for the three months to the end of February was $108 million (US$71 million) compared to $84.6 million a year ago, the company said in a statement.
Excluding the investment income, net profit was almost unchanged at $84 million.
The company's shares closed down 0.4 per cent at $4.60 just before the release of the results. They have gained 7.5 per cent since the start of the year, underperforming a 13 per cent rise in the Straits Times Index. -- REUTERS
Thomson Medical Centre (S$0.61) - Many pleasant surprises
TMC’s strong 1H07 net profits of S$4.4m (+35% yoy) were in line with our forecast
though above Street estimates. A generous dividend payout of 99% was a pleasant
surprise. TMC will be recognising consultancy fees from its Vietnam project in mid-
2007. Since part of the fee earned is pegged to construction costs, higher fees could
accrue to TMC, as construction costs have risen by 15% yoy. Enhanced facilities within
its Singapore hospital should also be earnings-accretive, following the completion of
space rationalisation and renovation work for two wards. Our FY07-09 estimates have
been raised by 3.2-8%, reflecting stronger contributions from the hospital segment. Our
target price has been lifted to S$0.73 from S$0.58, upon rolling forward our 17.5x P/E
target to CY08 and after our earnings upgrade. Reiterate Outperform.
Singapore Telecommunications (S$3.42) - Upside from Down Under
Surging Aussie dollar
The A$ has surged to a 16-year high against the US$ and 16-month high against the S$
(Figure 1). This is on the back of economists’ expectations that the Reserve Bank of
Australia will be raising interest rates from the current 6.25%, thanks to a robust,
commodity-driven economy.
Valuation and recommendation
Maintain OUTPERFORM with target price of S$3.59, despite the recent strength in its
share price. On a total return basis (price appreciation and dividends), SingTel offers a 5%
upside over our target for the STI.
Key catalysts for a re-rating could include: 1) a further strengthening of the A$; and 2) a
generous dividend payout by SingTel in its upcoming FY07 results announcement on 10
May. We expect SingTel to declare a DPS of 17cts for FY07. Since 8 Mar 07, SingTel’s
share price has rallied 6%. We also prefer SingTel to Telekom Malaysia for exposure to
regional telcos. SingTel is still among the most attractively-valued integrated telco in the
region (Figure 3) despite its recent run-up.
Miyoshi (S$0.335) - 1HFY07 Results – Margin expansion for HDD business
• Above expectations. 1H07 net profit of S$6.8m (+81% yoy) represents 66% of our
previous full-year forecast and slightly more than 66% of full-year consensus. The key
variances were lower-than-expected COGS and operating expenses, which more than
offset higher-than-expected income tax as Miyoshi no longer enjoys tax exemption for
its Philippine and Thai operations.
• Turnover grew 26% yoy in 1H07, lifted by stronger than-expected HDD top-cover
sales (+66% yoy) as Miyoshi benefited from Hitachi and Fujitsu’s robust shipment
growth. The performance of its consumer electronics (CE) and automotive businesses,
however, was below expectation with sales falling by 12% yoy each. The CE business
was hit on two fronts: 1) by a weak US$, which shaved growth by 7-8% pts when
translated into S$; and 2) disruptions for one major HP printer project, during the
production transition from Flextronics in Shanghai to Cal-Comp in Thailand.
• EBITDA margins increased by 3.9% pts yoy to 12.8% in 1H07, as a result of a
better sales mix and factory utilisation. Together with higher other income (due partly to
high scrap sales), pretax and net profits surged 133% and 81% yoy respectively, well
ahead of the revenue growth.
• Strong balance sheet. Miyoshi generated S$2.1m of positive free cash flow in 1H07
as a result of the higher profit and controlled capex. Net cash increased by S$1.4m hoh
to S$8.7m.
• Positive momentum to continue. We expect growth in 2H07 to be supported by 1)
continuous volume growth for HDD top covers as major Japanese customers are still
projecting healthy shipment growth; and 2) a recovery in the CE business as the
disrupted major programme had re-started at end-February. Beyond 2H07, we
understand that Miyoshi may penetrate HGST’s 2.5” programmes, which are currently
supported by NHK. Though HGST has been losing market share, it is still the largest
player in the 2.5” segment.
• Forecasts raised, maintain Outperform. We have raised our FY07-09 EPS forecasts
by 24-32% to factor in higher margin assumptions. Accordingly, our target price has
been lifted from S$0.38 to S$0.45, still pegging Miyoshi at 8x CY08 P/E. Maintain
Outperform as Miyoshi remains one of the cheaper SGX-listed HDD metal component
suppliers.
HG Metal Manufacturing (S$0.45) - Foothold in Iskandar Development Region
Stronger-than-expected pick-up in construction sector
Earnings powered by two strong engines. Preliminary 1Q07 GDP growth figures show
the construction sector expanding by 7% yoy, compared to our expectation of 5.4%, the
fastest yoy pace since 1Q01. We believe the stronger-than-expected recovery in the
construction sector could lift HG Metal’s FY07 earnings. The construction sector
contributed 43% of HG Metal’s turnover in 2006, followed by 54% from shipbuilding,
offshore and marine industrial.
Could benefit from substitute of sand structures with steel structures. The surge in
sand prices recently due to the ban on sand exports from Indonesia could benefit steel
suppliers such as HG Metal, as developers shift to alternative sources of building materials
such as structural steel to reduce their dependence on sand and concrete.
Foothold in Iskandar Development Region project
In February, HG Metal (together with its subsidiary) acquired five plots of freehold
industrial land (26.18 acres) in Nusajaya Industrial Park 1 for RM23.9m (S$10.5m), or
about RM21 psf. According to management, the land will be used for expanding its
warehouse capabilities and production. The manufacturing activities would include slitting
and shearing, steel fabrication and formwork, re-rolling bars and forging, powder coating,
galvanising and sand blasting.
The land is located in the South Johor Economic Region, also known as the Iskandar
Development Region (IDR). Malaysian Prime Minister Abdullah Ahmad Badawi recently
announced policy incentives to spur the development of IDR. These incentives apply to
qualifying companies in six targeted sectors, namely, creative industry, educational
services, financial advisory and consulting, healthcare, logistics and tourism. Qualifying
companies will be exempted from withholding tax on certain payments and corporate
income tax for activities within these zones and outside Malaysia for 10 years upon the
commencement of operations.
Exciting long-term outlook. As a pioneer, HG Metal’s invested cost for the land is below
existing market rates. The group should also benefit from the good location of this free
trade zone. According to management, the land is located between the second causeway
link with Singapore and the Johor port. HG Metal is also expected to tap into the Malaysian
government’s target to attract a total investment of RM50bn for IDR in the first five years,
and supply steel for the construction of IDR’s projects. The first batch of investment worth
around RM4 bn is being finalised.
Valuation and recommendation
Upgrade to Outperform from Trading Buy. Our FY07-09 fully-diluted EPS forecasts
(after adjusting for rights issue) have been increased by 4-30% due to higher revenue
assumptions for the construction business. Management indicates that the group’s
turnover is on target to reach more than S$500m in 2009. To factor in its better earnings
prospects, we have increased our target P/E from 8x to 9x on CY07 earnings. Accordingly,
our target price has been lifted from S$0.48 (ex-rights issue) to S$0.54. HG Metal’s
earnings visibility is improving due to the construction sector’s strong resurgence,
stabilising steel prices and a weaker US$ (HG Metal buys its raw materials in US$). We
upgrade the stock to Outperform from Trading Buy.
Singapore Press Holdings (SPH) on Thursday reported a 28 per cent rise in second-quarter profit, due to higher income from investments.
Net profit for the three months to the end of February was $108 million (US$71 million) compared to $84.6 million a year ago, the company said in a statement.
Excluding the investment income, net profit was almost unchanged at $84 million.
The company's shares closed down 0.4 per cent at $4.60 just before the release of the results. They have gained 7.5 per cent since the start of the year, underperforming a 13 per cent rise in the Straits Times Index. -- REUTERS
Asiapharm Pursuit of Growth
What’s on the table
Asiapharm Group (S$0.69) - Relentless pursuit of growth
We believe Asiapharm’s stock has been over-penalised since its announcement of
disappointing 4Q06 results. Successful integration and fresh contributions from
oncological products are expected to provide strong future catalysts. Asiapharm could
also target drug makers with a strong presence in the OTC distribution market.
Successful clinical trials of the CMNa in Singapore could, in addition, provide a fast track
to Stage 2 of the US FDA clinical trial. We have raised our FY08 earnings estimate by
3% as we factor in: 1) further cost savings in R&D; and 2) sales growth of oncological
products. Maintain Outperform and target price of S$0.96, still based on DCF (WACC
of 13%) valuation
Asiapharm Group (S$0.69) - Relentless pursuit of growth
We believe Asiapharm’s stock has been over-penalised since its announcement of
disappointing 4Q06 results. Successful integration and fresh contributions from
oncological products are expected to provide strong future catalysts. Asiapharm could
also target drug makers with a strong presence in the OTC distribution market.
Successful clinical trials of the CMNa in Singapore could, in addition, provide a fast track
to Stage 2 of the US FDA clinical trial. We have raised our FY08 earnings estimate by
3% as we factor in: 1) further cost savings in R&D; and 2) sales growth of oncological
products. Maintain Outperform and target price of S$0.96, still based on DCF (WACC
of 13%) valuation
Modest Appreciation of S$ Likely
Hong Fok Corporation
BUY: Price $1.40 Target $2.38
Hidden Forces
Simplicity is bliss
Hong Fok has a simple yet enticing portfolio of prime land (GFA of 1.36m sq
ft) comprising of the International Building at Orchard Road and the
Concourse at Beach Road. International Building sits on prime freehold land
and has a built-up plot ratio of 3.6. The Concourse has a site area of 225,021
sq ft and yields a gross floor area of 1.14 m sq ft (or built-up plot ratio of
5.06).
Jumping on the Orchard bandwagon
We believe that Hong Fok can capitalise on the government’s efforts to
revitalise Orchard Road by redeveloping International Building. Under the
2003 Master Plan, the land can be built up to a plot ratio of 6.16 due to its
proximity to Orchard MRT station. This implies that the current development
is only using 58% of its development potential. Should International Building
be built up to a plot ratio of 6.16 (30% retail, 70% residential mix), the RNAV
could be increased to $2.38 from the existing $1.75.
Charting a better course for Concourse?
Like many other buildings along Beach Road, the Concourse looks dated and
in need of refurbishment. We think that the Beach Road area, due to its
proximity to Marina Centre and the Central Business District, could be
earmarked for major redevelopment plans as part of the URA’s 2008 Master
Plan review. Currently already yielding 1.14 m sq ft of GFA, we think that
Hong Fok can extract more value by redeveloping it into a brand new mixed
development. If the Concourse is to be rebuilt to a GPR of 8.0 and the
International Building up to 6.16, the RNAV could potentially reach $3.08.
The Time is Now!
Besides having the potential to unlock shareholder value by redeveloping its
properties, Hong Fok still has around $27.7m worth of Section 44 tax credits
left unused, implying a potential special dividend of around 25.6 cents per
share gross. We believe that redevelopment plans for International Building
should be imminent and built up to the current Master Plan GPR of 6.16. We
initiate coverage with a BUY recommendation and a target price of $2.38
based on the base case. If we let our imagination run wild, the RNAV could
potentially hit a high of $3.34 in the event that both sites are redeveloped up
to a plot ratio of 8.0!
MAS likely to maintain policy of modest appreciation for S$. The Monetary Authority of Singapore is again likely to maintain its current policy for a modest and gradual
appreciation of the trade-weighted Singapore dollar or S$NEER when it issues its semiannual
monetary policy statement tomorrow morning, say most currency strategists. Still
very decent 2007 growth prospects for the home economy, lurking inflation risks, and the
spill-over from a booming Chinese economy were the common factors cited for the
expectation that the central bank would keep in place a monetary policy stance which it has
adopted since April 2004. In terms of the pivotal US dollar-Singapore dollar relationship,
this should see the greenback slip towards S$1.50 or even below that by the end of 2007,
most expect.
BUY: Price $1.40 Target $2.38
Hidden Forces
Simplicity is bliss
Hong Fok has a simple yet enticing portfolio of prime land (GFA of 1.36m sq
ft) comprising of the International Building at Orchard Road and the
Concourse at Beach Road. International Building sits on prime freehold land
and has a built-up plot ratio of 3.6. The Concourse has a site area of 225,021
sq ft and yields a gross floor area of 1.14 m sq ft (or built-up plot ratio of
5.06).
Jumping on the Orchard bandwagon
We believe that Hong Fok can capitalise on the government’s efforts to
revitalise Orchard Road by redeveloping International Building. Under the
2003 Master Plan, the land can be built up to a plot ratio of 6.16 due to its
proximity to Orchard MRT station. This implies that the current development
is only using 58% of its development potential. Should International Building
be built up to a plot ratio of 6.16 (30% retail, 70% residential mix), the RNAV
could be increased to $2.38 from the existing $1.75.
Charting a better course for Concourse?
Like many other buildings along Beach Road, the Concourse looks dated and
in need of refurbishment. We think that the Beach Road area, due to its
proximity to Marina Centre and the Central Business District, could be
earmarked for major redevelopment plans as part of the URA’s 2008 Master
Plan review. Currently already yielding 1.14 m sq ft of GFA, we think that
Hong Fok can extract more value by redeveloping it into a brand new mixed
development. If the Concourse is to be rebuilt to a GPR of 8.0 and the
International Building up to 6.16, the RNAV could potentially reach $3.08.
The Time is Now!
Besides having the potential to unlock shareholder value by redeveloping its
properties, Hong Fok still has around $27.7m worth of Section 44 tax credits
left unused, implying a potential special dividend of around 25.6 cents per
share gross. We believe that redevelopment plans for International Building
should be imminent and built up to the current Master Plan GPR of 6.16. We
initiate coverage with a BUY recommendation and a target price of $2.38
based on the base case. If we let our imagination run wild, the RNAV could
potentially hit a high of $3.34 in the event that both sites are redeveloped up
to a plot ratio of 8.0!
MAS likely to maintain policy of modest appreciation for S$. The Monetary Authority of Singapore is again likely to maintain its current policy for a modest and gradual
appreciation of the trade-weighted Singapore dollar or S$NEER when it issues its semiannual
monetary policy statement tomorrow morning, say most currency strategists. Still
very decent 2007 growth prospects for the home economy, lurking inflation risks, and the
spill-over from a booming Chinese economy were the common factors cited for the
expectation that the central bank would keep in place a monetary policy stance which it has
adopted since April 2004. In terms of the pivotal US dollar-Singapore dollar relationship,
this should see the greenback slip towards S$1.50 or even below that by the end of 2007,
most expect.
Robust Growth For Miyoshi
Huan Hsin Holdings (S$0.58) - Notebook casings still the propeller
Our visit to Huan Hsin’s Shanghai factory last week confirmed that the main earnings
driver for 2007 will be notebook casings as more customers introduce IMD casings
(which offer better margins). We have kept our FY07 earnings forecast as we believe
earnings will be backend-loaded due to greater contributions from IMD notebook
casings. We have also left our FY08-09 estimates intact. Maintain Outperform with an
unchanged target price of S$0.83 (8x CY08 earnings). This is consistent with its
historical average P/E and is at a discount to valuations for Taiwanese ODM customers.
We see catalysts from an anticipated margin recovery in 2H07.
Miyoshi Precision (S$0.31) - Results preview: Expect good earnings growth
Robust growth anticipated
1H07 revenue expected to grow 24% yoy to S$81.6m, driven by both the HDD and
printer businesses. The HDD top-cover business should be underpinned by healthy
volume growth at its two major customers. HGST reported 22% yoy volume growth for the
December quarter, while Fujitsu reported 40% yoy growth. In the non-HDD business,
growth should be largely powered by HP printers, as HP had reported printer shipment
growth of 18% yoy during the November-January period (1Q07).
EBITDA margins to improve marginally yoy. We expect EBITDA margins to climb from
12.7% to 12.9% in 1H07 as greater economies of scale, higher ASPs for the HDD
business and cost savings (relocation of more production from Singapore to Thailand)
should overwhelm a spike in raw material prices. Pretax margins are expected to improve
by 180bp yoy to 7.8%, translating into a pretax profit of S$6.4m (+61% yoy). For net profit,
we are looking at S$5.5m, up 70% yoy and 18% hoh.
Potential upside to our full-year earnings forecast. We believe there could be upside
surprises in full-year earnings as our discussions with management suggest that
contributions from the HDD business may be stronger hoh in 2H07 (vs. our assumption of
a slight decline currently). Furthermore, Miyoshi also highlighted that it has switched to
cheaper materials for one of HGST’s older models this month, which should help to
cushion the impact of a spike in stainless steel prices. A key concern is possible margin
erosion in the consumer electronics business if EG steel prices continue to trend up.
Competition here is keener, making it more difficult to raise prices. However, mitigation
should come from its involvement in high-mix low-volume businesses, which typically have
better margins.
Valuation and recommendation
Still trading at discount to peers. Miyoshi is trading at only 6.9x CY08 P/E and 1.5x
P/BV, which makes the stock cheap relative to its peers, which are trading at 8.8x CY08
P/E and 2.4x P/BV on average. Our target price of S$0.35 is based on 8x CY08 P/E, on
par with the industry average in view of its healthy earnings outlook and comparable
ROEs. Maintain Outperform.
Our visit to Huan Hsin’s Shanghai factory last week confirmed that the main earnings
driver for 2007 will be notebook casings as more customers introduce IMD casings
(which offer better margins). We have kept our FY07 earnings forecast as we believe
earnings will be backend-loaded due to greater contributions from IMD notebook
casings. We have also left our FY08-09 estimates intact. Maintain Outperform with an
unchanged target price of S$0.83 (8x CY08 earnings). This is consistent with its
historical average P/E and is at a discount to valuations for Taiwanese ODM customers.
We see catalysts from an anticipated margin recovery in 2H07.
Miyoshi Precision (S$0.31) - Results preview: Expect good earnings growth
Robust growth anticipated
1H07 revenue expected to grow 24% yoy to S$81.6m, driven by both the HDD and
printer businesses. The HDD top-cover business should be underpinned by healthy
volume growth at its two major customers. HGST reported 22% yoy volume growth for the
December quarter, while Fujitsu reported 40% yoy growth. In the non-HDD business,
growth should be largely powered by HP printers, as HP had reported printer shipment
growth of 18% yoy during the November-January period (1Q07).
EBITDA margins to improve marginally yoy. We expect EBITDA margins to climb from
12.7% to 12.9% in 1H07 as greater economies of scale, higher ASPs for the HDD
business and cost savings (relocation of more production from Singapore to Thailand)
should overwhelm a spike in raw material prices. Pretax margins are expected to improve
by 180bp yoy to 7.8%, translating into a pretax profit of S$6.4m (+61% yoy). For net profit,
we are looking at S$5.5m, up 70% yoy and 18% hoh.
Potential upside to our full-year earnings forecast. We believe there could be upside
surprises in full-year earnings as our discussions with management suggest that
contributions from the HDD business may be stronger hoh in 2H07 (vs. our assumption of
a slight decline currently). Furthermore, Miyoshi also highlighted that it has switched to
cheaper materials for one of HGST’s older models this month, which should help to
cushion the impact of a spike in stainless steel prices. A key concern is possible margin
erosion in the consumer electronics business if EG steel prices continue to trend up.
Competition here is keener, making it more difficult to raise prices. However, mitigation
should come from its involvement in high-mix low-volume businesses, which typically have
better margins.
Valuation and recommendation
Still trading at discount to peers. Miyoshi is trading at only 6.9x CY08 P/E and 1.5x
P/BV, which makes the stock cheap relative to its peers, which are trading at 8.8x CY08
P/E and 2.4x P/BV on average. Our target price of S$0.35 is based on 8x CY08 P/E, on
par with the industry average in view of its healthy earnings outlook and comparable
ROEs. Maintain Outperform.
China Fishery Proposes Share Sub-Division
Bukit Sembawang Estates (S$10.80) – Initiating coverage - Crouching tiger, hidden dragon
• Substantial value for unlocking from large land bank. Bukit Sembawang is a
property developer with a vast land bank of 4.4m sf in GFA. The land bank was
acquired a long time ago or during the early part of this property up-cycle. We
believe significant value is waiting for unlocking from this cheap land bank. Bukit
Sembawang is probably among the top three largest developers in terms of land
bank. With land bank enhancement increasingly challenging on account of rising
land prices and development charges, and with Bukit Sembawang still trading at a
discount to its RNAV, we suggest that it could become a potential takeover target of
land-hungry developers.
• Broad-based recovery to continue. While the prime luxury segment should
continue to do well, there is evidence of gains filtering down to the mid- and mass
market. With a good mix of developments in the pipeline, we believe Bukit
Sembawang will be a major beneficiary of the buoyant residential market. We believe
plot ratios in the suburbs could also be increased to cater to the increasing number
of professionals from developing countries. This should provide further upside to
Bukit Sembawang's vast legacy land bank in the northern suburbs, zoned currently
for landed housing.
• Initiate with Outperform; target price S$14.00. With over 90% of its earnings
derived from property development and with every 10% rise in residential property
prices potentially translating into a 12% gain in RNAV, Bukit Sembawang offers the
purest exposure to the Singapore residential property sector. Our target price of
S$14.00 is pegged at parity to our end-CY07 RNAV estimate, implying attractive
upside of 30%. In comparison, most of its peers are trading at 10-30% premiums to
their RNAV.
China Fishery Group is proposing a sub-division of every existing share in the capital
into two (2) shares. (China Fishery)