Amtek Engineering Multiple headwinds

Posted on November 15, 2011 by admin
  • 1Q12 fell short of our below-consensus estimates
  • Margin hit by forex and more tooling sales at costs
  • Outlook plagued by forex, macro uncertainty and HDD supply chain
    disruption; FY12F/13F cut by 20%
  • New TP of S$0.51 represents 13% potential downside, Downgrade to
    Fully Valued

1Q12 net profit of US$9m (-27.8% y-o-y) fell short of our US$11.3m forecast. Key variance was weaker than expected gross margin, down 1.3ppts to 16.7%, because of higher tooling works, which were strategically sold at costs to drive future component sales. Strong USD against operational currency (SGD, RMB) also resulted in forex losses vs gains last year. We had expected Sep quarter to be seasonally strongest but 1Q12 earnings only met 20% of original FY12F. Revenue improved 9% y-o-y to US$182m, thanks to growth in all segments except Mass Storage (-1%). For the quarter, Amtek generated US$3.8m of FCF and lowered net gearing to 0.12x from 0.14x last
quarter.

2Q12 is uncertain and negative.
Firstly, Mass Storage (15% of sales) will be dragged by disruption in the HDD supply chain as a result of the floods in Thailand even though Amtek’s plants and customers are not directly affected. Over at Casings & Enclosures, (25% of sales) new products were deferred due to macro uncertainty. Automotive (14% of sales) is equally fluid because growth in China (60% of auto sales) could continue to slow on cooling measures and Europe (40% of auto sales) could be affected by the European debt crisis.

Downgrade to Fully Valued on potential downside to new TP of S$0.51.
Although our original earnings were 13% below consensus, we have cut FY11/12F by another 20% as we impute lower gross margin and weak demand outlook. Consequently, our TP is reduced to S$0.51, still based on –1SD valuation peg at 5.5x FY12 PE. In view of the potential downside, we downgrade to Fully Valued from Hold previously.

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Midas Holdings Worst should be over

Posted on November 15, 2011 by admin
  • 3Q11 profit declined 60% y-o-y to RMB27m, despite 5% revenue
    growth to RMB259m
  • Factoring in lower order wins and higher finance costs, we cut
    FY11/12F earnings by 34%/33%
  • Expected pick-up in train orders from MoR in 1H12 could kick-start
    orders, with Midas’ valuations at rock bottom levels
  • BUY with lowered TP of S$0.48 (1x P/B).

3Q earnings impacted by railway industry slowdown, as contract wins dried up. This was due to
(i) gross profit growth was flattish at RMB87m on tepid revenue growth;
(ii) operating expenses were higher due to capacity expansion;
(iii) contribution from associate NPRT was negative on lesser
trains being delivered; and
(iv) finance costs were substantially higher as Midas took on more short-term borrowings to finance higher receivables and inventories.

Forecasts slashed…
Factoring in lower order wins up to 2Q12 and higher finance costs, we cut our FY11 and FY12 net profit forecasts by 34% and 33% to S$40m and S$48m respectively.

… but order flows expected to resume in 2012.
We believe recent developments such as the 50% tax reduction on MoR bonds and the backing of RMB20bn worth of MoR bonds by the State Council as government debt points to the likelihood of high-speed projects resuming soon, with likely equipment order flows from 1H12 onwards. This would be positive for upstream suppliers like Midas.

Stock is bombed out; BUY with S$0.48 TP. The stock is trading at <0.8x FY11 P/B and with industry prospects improving, we believe the worst is over for Midas. Our revised TP of S$0.48 is based on 1x P/B.

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STX OSV Another well executed quarter;

Posted on November 15, 2011 by admin
  • 3Q11 above on sustained solid execution, underpinning firm
    margins; FY11F raised 11% on strong numbers
  • Trim FY11F order wins to NOK9.5bn on cloudy macro outlook which
    leads us to trim FY13F earnings by 5%
  • Maintain BUY, TP S$1.54

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Another solid quarter posted.
STX OSV posted 3Q11 headline PATMI of NOK374m (+144% y-o-y). Excluding exceptional, core PATMI is estimated at NOK405m (+123% y-o-y, +43% q-o-q) – above expectations. For 9M11, core PATMI of NOK992m (+123% y-o-y) forms 88% of our FY11F. Sustained stable operations, solid project execution, improved productivity and on-time deliveries continue to buoy performance, with 3Q11 EBIT margins of 16.6% (-0.5ppt y-o-y, +1.3ppt q-o-q).

FY11F order wins assumptions trimmed.
Despite a robust set of results, order wins continue to disappoint, with FY11 YTD order wins of NOK5.6bn. This is due to ongoing macro uncertainties and tightening liquidity, clouding the visibility of the timing of orders, and increasing the risk of order deferments. As such, we trim our FY11 order wins assumption to NOK9.5bn (prev NOK10.5bn), and would be met once the Transpetro orders and 2 Island Offshore PSV orders are made effective. No change to FY12/13F assumptions of NOK10.0/12.5bn.

FY11F raised 11%; FY13F cut 5%.
We raise FY11F by a further 11% to NOK1.3bn due to a robust 3Q11; FY12 EBIT margin is raised slightly to 11.7% (from 11.3%) as the group continues to execute superbly, offsetting the cut to our FY11 order wins assumption. This, however, reduces FY13F by 5%.

Maintain BUY, TP S$1.54.
Our TP of S$1.54 is maintained, still pegged to 9x recurring FY12 PE. Notwithstanding near term uncertainty, we believe the drivers supporting a recovery remain intact, with healthy enquiry levels and a growing pipeline of potential orders. Maintain BUY on STX OSV for its market dominance in complex and highly customized OSVs, undemanding valuations, solid execution and track record.
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China Minzhong Value supported by fundamentals

Posted on November 15, 2011 by admin
  • 1Q12 results slightly ahead of expectations
  • Positive outlook on higher volumes and gross margins
  • MINZ remains fundamentally resilient
  • Reiterate Buy, TP raised to S$1.34

Slightly ahead of expectations.
Revenue rose 37% yoy to S$361m, which was 13% above expectations due to higher volumes and selling prices. Earnings grew 78% to S$93m on better gross margins and FX gains. Gross margins improved 7.7ppts to 41% on improved product mix, maturing yield and higher operating efficiency.

Positive in the coming quarters.
Outlook remains positive in the next few quarters due to:
(1) better harvesting and processing volumes from newly acquired farmland in the previous quarter and increased processing
activities;
(2) higher and sustainable gross margins from sale of high value products.

Fundamentally resilient.
China Minzhong has been and will continue to be resilient to price volume decline. While China’s vegetable price declined by 6.8% yoy in October, China Minzhong has raised ASPs. As an upstream producer of staple food in fresh and processed vegetables, sales volume should also be relatively resilient to demand slowdown.

Reiterate Buy, TP raised to S$1.34.
We raised FY12F/FY13F earnings by 4%/12% on higher sales volumes and better gross margin assumptions despite higher operating costs. Current valuation at 3.8x FY12F PE is attractive with 38% upside to its revised target price of S$1.34 pegged to 5.5x PE. Reiterate Buy.

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Perennial China Retail Trust

Posted on November 14, 2011 by admin
  • Maiden set of results, amending earn out support
  • Properties yet to stabilize, mall leasing activities on track
  • Maintain Buy with TP $0.83

Maiden set of results.
Perennial China Retail Trust reported its maiden set of results for 9 June-30 Sept 2011. It achieved distributable income of S$1.1m, which was below its prospectus forecast of cS$5m. Coupled with S$5.2m earn out support, total distribution income was $6.3m. Operating profits were below forecast due to a delay in opening of the Shenyang Shopping Mall from the longer than expected timing to obtain fire safety permit and lower portfolio occupancy of 73.2% as the furniture mall was affected by slowdown in residential purchase and planned AEI works. In view of the delay, the Trustee-Manager has waived its fees of over S$1.03m for the period. In addition, the earn-out deed support is amended and restated such that the S$46.5m (RMB245m) of earn out will apply to the period of 1 July 2011–30 Jun 2013 rather than specific quarterly amounts. This ensures a stable dividend payment.

Leasing operations on track.
In terms of operations, Shenyang shopping mall is currently 70% committed at rents of RMB3.82/day, in line with estimates, and appears on track to meet its target of RMB4.28/day for FY12. At the furniture mall, part of level 7 and basement 1 has been set aside to reposition and remix under Phase 2 leasing, expected to commence operations by 2Q12. The AEI works also include seamless integrating the shopping mall via a pedestrian linkway and increasing more F&B tenants to raise shopper traffic flow. Shenyang office is expected to open only in 4Q12 but this will be partially offset by the Foshan Yicui project, anticipated to complete ahead of schedule in 1Q13 while the Chengdu Qingyang development is starting on site works. Recent agreement to purchase the Chengdu Longemont project will be debt funded and is likely to be earnings and NAV accretive when completed in 2014.

Maintain Buy.
At current share price, investors are essentially valuing the Shenyang portfolio at below replacement cost. Our TP of $0.83 is based on the present value of the initial portfolio when fully operational by FY14 and does not include accretion from the recent Chengdu Longemont acquisition. As the group continues to ramp up its portfolio to income generating assets, we believe share price gap to RNAV should narrow.

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Sound Global Limited Keeping up a strong flow

Posted on November 14, 2011 by admin
  • 3Q11 slightly ahead of our optimistic forecast, 9M11 met 76% of
    FY11F
  • Growth is underpinned by RMB2.4bn orderbook which covers 0.8x
    FY12F sales
  • Reiterate Buy with 66% potential upside to our higher TP of S$0.90

3Q11 net profit more than doubled to RMB131.5m mainly due to the absence of dual listing expenses (~RMB52m) and better gross margin of 34.7%, up from 28.6% in 3Q10 and 30% in 2Q11. Despite higher interest expense (RMB26.8m:+33% y-o-y, 6% q-o-q) for more BOT projects, 3Q11 PATMI beat our optimistic forecast of RMB115m. Revenue grew 10% y-o-y, mainly driven by EPC (+41%) and O&M (+63%) as equipment (-86%) fell short of our forecast. SGL exited 3Q11 with RMB1.8bn cash but net cash eased to RMB410.5m as BOT investment continues to rise.

Growth backed by large orderbook and strong contract flows.
We estimate Sound Global Limited orderbook is maintained at about RMB2.4-2.5bn as at end-3Q11. Key projects within this order backlog include the contract in Bangladesh and large amount of rural sewage development projects in China. Sound Global Limited’s new wins YTD have already met our FY11F assumption of RMB1.7bn. We believe SGL can keep up with this level of new wins momentum as the firm seeks out opportunities in
1) upgrade and improve old municipal and industrial sewage
plants to meet higher discharge standards under the 12th Five Year Plan;
2) BOT/O&M services demand arising from urbanization;
3) rapid growth of rural development areas; and
4) overseas expansion in the Middle East and Southeast Asia region.

Reiterate Buy, TP raised to S$0.90, as we roll over our valuation base to FY12F from blended FY11/12F previously and the marginal increase in earnings estimates for FY11/12F. Our TP remains pegged to historical mean of 14.5x PER on fully diluted EPS (potential CB conversion). Reiterate Buy with 66% upside to our TP. More impressive is Sound Global Limited’s track record – the stock has fallen 36% from the peak, but it has not missed a beat on earnings or contracts win this year or in the last five years.

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Banyan Tree Holdings

Posted on November 14, 2011 by admin
  • Loss making quarter but surprise uptick in property sales
  • Outlook muted with weak forward bookings for Thailand; FY11/12F
    earnings slashed 18%/55%
  • Maintain HOLD, TP reduced to S$0.93

Loss making 3Q11 from weak hotel performance.
3Q11 topline of S$66.2m (-3% y-o-y) was marginally lower due to a decline in hotel investment revenue arising from the divestment of Dusit Thani and Laguna Beach Resort, while Angsana Phuket (formerly Sheraton Grande) remained closed for renovations.

These more than offset an improvement in portfolio-wide RevPAR (S
$189/night, +4%y-o-y on a same store basis). Fee based income was also
lower due to the lack of royalty fees compared to that earned in 3Q10 from the sale of certain property units at Angsana Fuxian Lake. Property sales showed a surprising uptick with 7 units recognized in 3Q11 (3 units in 3Q10) but we do not expect this trend to continue. Group-wide operating expenses were 2% lower due to scaled down operations in Thailand and expected to remain stable.

Outlook muted; forward bookings for Thailand still weak.
As we head into the crucial high season in 4Q, we note that overall forward bookings (OTB) are 5% higher y-o-y. But Thailand, which accounts for a majority of hotel operation income, remains 5% lower due to :
(i) weaker demand from traditional key visitor source markets in Europe; and
(ii) cancellations amounting to 3,200 room nights (US$0.5m) in Bangkok.

In addition, given the economic uncertainties, we expect travel demand from Europe to remain tepid in the near future, and the group could miss our original expectations of a pick-up in hotel performance from 4Q11. As such, we have cut our FY11/12F earnings by 18%/55% on the back of lower RevPAR and property sales assumptions.

HOLD, TP lowered to S$0.93.
Our SOTP-based TP is lowered to S$0.93, on reduced earnings while keeping our 15x multiple on FY12 EBITDA for its hotel business. Catalysts will hinge on a turnaround in operational performance/ property sales.

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Goodpack peed bump ahead

Posted on November 14, 2011 by admin
  • 1QFY12 earnings of US$11.8m (+22% y-o-y) was in line with
    expectations and met 25% of our FY12F
  • Softening demand as customers report destocking and slower volumes
  • FY12-14F earnings fine-tuned by 1-8% on auto part contract win and
    depreciation adjustment
  • TP maintained at S$1.35 but cut rating to Fully Valued on 17%
    potential downside

Goodpack peed bump ahead

1QFY12 earnings of US$11.8m (+22% y-o-y) was in line with our expectations.
This represents 25% of our FY12F and 24% of consensus estimates. Compared to consensus, we expect slower growth from 1QCY12 – reflecting impact from the current weak consumer sentiment.

Market share gain in rubber led to an increase in IBC (Intermediate Bulk Container) fleet size of 2.6m from 2.5m at end of Jun11,driving the 25% y-o-y increase in 1QFY12 sales to US$43.6m. Net margin, however, compressed as expected to 27.1% from 27.7% in 1QFY11 due to higher leasing costs.

Autoparts contract win.
We understand that a global car manufacturer has awarded Goodpack a contract to supply IBCs for the transportation of its automotive parts. This has prompted us to lift FY13F-14F net IBC additions
by 20-30k. No change to FY12 numbers, as this contract starts with small volumes only later this month. FY12-14F earnings are thus adjusted by 1-8% (we also adjusted depreciation expense based on further details from FY11 annual report). No change to S$1.35 TP.

Destocking is underway, rating cut to Fully Valued.
Since Aug11 we have warned of a potential slowdown in rubber trade flows and destocking risks. Recent 3Q11 results from global tyre manufacturers and Lanxess (leading synthetic rubber producer and large customer of Goodpack) confirmed this is now happening. With Goodpack also seeing softening demand for its IBC’s and given the 17% potential downside to our S$1.35 TP, we downgrade the counter to Fully Valued from Hold.

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Genting Singapore Managing expectations

Posted on November 12, 2011 by admin
  • Results in line, as 4Q11 should catch up with stronger tourist
    arrivals and ramp-up in Western Zone
  • Lost market leadership to MBS, raised provisions for receivables
  • Cut FY12-13F earnings by 13-17%; Maintain Buy, TP cut to RM2.05
    (from S$2.40)

Genting Singapore
Results in line.
3Q11 adjusted EBITDA came in at S$375m (+8% q-o-q, +7% y-o-y), with 9M11 results constituting 72% of our and consensus estimates. Ex-exceptional and on normalized VIP win rate (3.2% vs 2Q11: 2.7%; theoretical average 2.85%), EBITDA growth was c. 7% q-o-q. After contracting for the past two quarters, VIP rolling chip held up in 3Q11 despite MBS’ strong volume growth of 37%. However, RWS is no longer the market leader as its overall market share has fallen to 48% (44% of rolling chip, 48% of mass). VIP constituted 53% of gross gaming revenue (2Q11: 50%), while EBITDA margin was stable at 48% (2Q11: 49%). Non-gaming revenue was flat (comprising 16% of topline), with lower average daily visitors to Universal Studios (9,400 vs 2Q11’s 10,300 due to absence of long school
holidays).

More cautious stance.
Although management has yet to see any signs of deterioration (turnover days: 82 vs 86), receivables provisioning has been raised to 7.9% (2Q11: 2.8%) amid cautious outlook on VIP growth with
monetary tightening in China. Nevertheless, 4Q11 should benefit from: a) Increased number of slots & electronic table games (2470 from 1860),
b) Seasonally stronger visitor arrivals; and
c) Ramp-up in Western Zone (Maritime Museum has opened on 15 Oct; Transformer ride launching on 3 Dec while 200-room Equarius Hotel will be opened before Christmas and 20 beach villas soon thereafter – offering bigger rooms to attract higher-end VIPs from untapped markets eg Middle East, North Asia), but could be partially offset by higher pre operating expenses. GENS is increasingly optimistic that junkets may be approved within the next few months.

Cut FY12-13F earnings by 13-17% to factor in slower VIP growth and higher depreciation with Western Zone completing by mid-2012. Accordingly, our SOP-based TP has been cut to S$2.05 (from S$2.40), valuing RWS at 12x 2012F EV/EBITDA (pegged to Macau gaming sector average). GENS is actively looking for new opportunities in Asia where management expects Japan to legalise gaming within a year and is exploring Korea. However, dividend payout may
only come by end-2013 (if not 2014) due to existing debt covenants.An Introduction to Option Trading Success with James Bittman

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Noble Group A victim of volatility

Posted on November 11, 2011 by admin
  • 3Q11 loss of US$17.5m brought 9M11 earnings to US$325.6m – well
    below forecast on annualized basis
  • 25-49% yoy segment volume growths failed to offset margin erosion
    due to price volatility
  • FY11-13F cut by 20-33% on challenging operating conditions
  • Downgraded to Hold from Buy, revised TP of S$1.45 from S$1.70

Noble Group
First loss in 14 years.
Noble reported net loss of US$17.5m in 3Q1 amid extreme commodity and FX volatilities which resulted in mark to market losses in Sugar (devaluation of Brazilian Real) and write down of its portfolio of carbon credits (price falls post European debt issues). These were on top of defaults by farmers and later on credit exposures on consumers eroded cotton margins. Macro volatility during 3Q11 also resulted in delayed purchases of iron ore and aluminum, hitting MMO (Metals, Minerals and Ores) margins.

Record revenue.
Despite disappointing 3Q11 results, strong yoy volume
growth of between 25-49% across all divisions highlighted the underlying demand for Noble’s suite of commodities. Combined with lift in ASP, group revenues rose 40% yoy (+6% qoq) to record US$20.9bn.

FY11-13F earnings cut by 20-33% as we reduce Noble’s FY11-13F group margins from 2.1-2.3% to 2.0-2.1% given tough operating conditions. We expect some earnings recovery in 4Q11 (profit of US$161m); as some of the negative factors in 3Q11 will be reversed. For example, the Brazilian Real has since rebounded; while recovery in commodity prices in 4Q11 should normalize buyer behavior.

Rating is lowered to Hold from Buy as we revise down our TP to S$1.45 from S$1.70 on lowered earnings. Despite strong operating model and ample access to liquidity (cash and RMI of US$5b and credit lines US$16.8b) we are neutral on the counter on valuation grounds. There could be some potential upside from proposed listing of Noble’s agricultural business.Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant

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