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Investors’ Corner
Investors' Corner | 23 May 2008
Related stocks:

Cacola Furniture Int’l
Price – $0.37 Target – $0.56

Cacola Furniture Int’l (Cacola) recorded revenue growth of 37.8% YoY and net profit growth of 71.7% YoY in 1Q08. The Group attributed their growth to the surge in new home sales in PRC as well as growing consumer awareness of Cacola’s brand of lifestyle furniture, which is supported by the increase in their distribution network from 101 to 136 stores as of 1Q08. The Group’s overall gross profit margin increased by +0.62ppts, whereas their net profit margin increased by +4.69ppts. Despite higher raw material costs, the Group attributes the improvement in their gross profit margin to the strong demand for Cacola’s highervalue products. The Group has signed a lease agreement with Chongqing Lifan Industry (Group) Co. to open a mega store in Chongqing. Management has clarified that their mega store is unaffected by the earthquake and renovation works are in the process of being carried out. We decided to adopt a conservative stance on the Group’s financials as it has 7 stores in Chengdu. Reiterate BUY. – Phillip Securities (16 May)

SMB United
Price – $0.250 Target – $0.395

SMB United (SMB) recorded 1Q08 net earnings of $2.7m, compared to a loss of $1m for 1Q07. The first quarter is traditionally SMB’s slow season, so we did not expect it to contribute much to our full-year forecast of $17.9m. However, the revenue growth looks promising and is tracking ahead of our current forecasts. Wafer fab switchgear tends to be a higher-end product given the sensitivity of the customers’ operations, which is perhaps why SMB’s 1Q08 gross margin expanded by 6.4 percentage points to 26.7% compared to 1Q07. Generally, investors fear that a slowdown in the Singapore residential construction sector would affect SMB’s business. We think SMB will surprise those in any doubt by selling to the resilient industrial and commercial sectors, as well as exporting to the rest of Asia. At the current price of $0.25, SMB trades at a reasonable PER of 6.7x and an EV/EBITDA multiple of 4.1x on our FY08 forecasts. OUTPERFORM. – Daiwa Research (16 May)

Yongnam Hldgs
Price – $0.24 Target – $0.27

Yongnam Hldgs reported 1Q08 recurring net profit of $6m (+268% yoy). While revenues and EBIT at $47m/$7m respectively only represented 17%/18% of our full year 2008 estimates, its bottomline was boosted by nil taxation expense. The core revenue contributor in 1Q08 is the Structural Steel division given that the new Civil Engineering projects are at the initial stage. Orderbook backlog advanced to $277m from 2007 year end’s $162m. We believe that a slow takeoff in earnings is due to timing differences in project income recognition and we expect this to catch up in 2H08. Based on our estimates, 93% of billings in 2008 are from secured projects. As such, downside risks to earnings would stem from lower revenues due to project delays or lower margins on cost overruns. As margins are holding up, we are comfortable with our assumptions. However, we have tweaked our revenue estimates given potential project delays at the Marina Bay Sands according to channel checks as well as nil taxation expense as guided by management. Maintain NEUTRAL. – Goldman Sachs (16 May)

China Hongxing Sports
Price – $0.67 Target – $0.72

China Hongxing Sports’ (HX) latest 1Q08 results were in line with our expectations but there were signs of new corporate developments that warrant concerns ahead, leading to our 2008-10 earnings downgrade and higher risk premium to valuation. We note higher international sales in 1Q08 at 20%, up from 11.5% in FY07, 13% in FY06. While the implied growth rate in China remains healthy at 30% YoY, risks of uncertainty from new overseas markets are higher, especially at the current stage of brand development. Operations in China remain sound. HX is not alone in bearing the near-term pain from strategic expansionary moves towards the distribution network, which we also note in a more established brand. HX moves stood out in dollar terms but our industry checks showed that almost all the other Chinese brands are ploughing support to their distributors. It remains to be seen if these “supports” will change should the retail market in China turn. Downgrade to NEUTRAL. – Credit Suisse (19 May)

Price – $3.71 Target – $4.65

SingTel outlined their strategy of reducing their dependence on the carriage business. While SingTel views MNP as an opportunity, their top priority is to defend their post-paid subscriber base. SingTel was optimistic about their IPTV prospects and will focus on securing key content. 4Q08 consolidated revenues were $3.76b vs. UBSe $3.76b, EBITDA was $1.16b vs. $1.17b, and underlying net profit was $0.97b vs. $1b. Full year consolidated revenues was $14.8b, EBITDA was $4.5b, and underlying net profit was $3.7m. A final dividend of 6.9 cents per share was announced. Our new price target takes into account our recent revision of Telkomsel valuation and revised foreign exchange forecasts. We believe SingTel offers a good mix of stable cash flows and exposure to high growth markets through its overseas associates. Maintain BUY. – UBS Investment (19 May)

China Dairy Group
Price – $0.225 Target – $0.235

China Dairy Group (CDG) recently reported a dismal set of 1Q08 results with net profit slumping
88% YoY to $0.3m from $2.7m a year ago. This was despite revenue growing 25.6% to $64.4m. CDG’s weak showing was mainly due to persistent escalations in the cost of raw milk. However, management reflected that prices appear to have stabilised in 2Q08. CDG’s profit margins have been rolling downhill rapidly and any further increases in the cost of raw milk may send it into the red if it does not stem its operating expenses. To address this predicament, management has put in place a 3-pronged strategy to recover its margins: increasing the prices of its products, optimising the group’s product mix to skew towards premium products with higher margins, and effective cost controls. In light of CDG’s weak showing and murky outlook, we have lowered our gross margin assumptions to 22%. This brings our FY08 earnings estimate to $1.2m, representing an 88% YoY contraction in earnings. Maintain HOLD. – OCBC Investment (20 May)

Price – $1.69 Target – $2.14

We recently visited FerroChina’s production facilities in Changshu, PRC and all of its 4 production plants were buzzing with business activity. Numerous trailers transporting hot-rolled coils (HRC) were queuing up outside the plants whilst finished products, namely coldrolled coils (CRC) and galvanized-steel coils (GI) were busily being loaded onto trailers and transported away. Various components of the new lines had long already been delivered and work had already reached around a 60%-70% completion level. In total by the end of 3Q08, there is going to be an extra 1.8m tonnes of capacity being integrated to its current production might, bringing its total tonnage capacity to hit 3.6m tonnes. The Phase 3 expansion of its Everbright plant will be able to do collective aluminium and zinc coating for their CRC. In addition, management is exploring the possibility of using the electroplating process of galvanising to reinforce their current technology of hot-dipping, which will inadvertently yield higher ASPs. BUY. – DMG & Partners (20 May)

Wheelock Ppties (S)
Price – $2.17 Target – $2.85

Wheelock, with many of its projects already 100% sold, we expect the booking of over $1.6b of presales revenue in FY08-10. We believe that if physical prices dip further, Wheelock could return to land-banking at much more reasonable prices. Wheelock Place and the retail portion of Scotts Square form the crux of its investment properties in Orchard Road. We expect the ongoing rejuvenation of Orchard Road to support healthy commercial rents in the area. The properties could potentially enjoy valuation uplifts if higher plot ratios are granted in the upcoming 2008 Master Plan. We also do not rule out collaboration with Hotel Properties in the redevelopment of their Orchard Road assets. Current share price represents a 24% discount to our RNAV estimate and implies a 60% plunge in physical prices. With much of its inventory already monetised, we see no reason for the stock to trade at a discount to its RNAV. In fact, its strong balance sheet coupled with a track record of timing the market may mean further growth through imminent land-banking. Initiate with OUTPERFORM. – CIMB-GK (20 May)

China Hongxing Sports  -- -- --   
Business: Co is a cash company.

Insight: Aug-18, 1H18, Co became a cash company following t... Read More
Singtel  3.180 -- --   
Business: Asia's leading communications group. [FY19 Turnover] Mobile Comm (31.1%), Data & Internet (19.2%), Infocomm Technology (17.5%), Sale of Eqmt (16.5%), Digital Biz (7.2%), Fixed Voice (5.2%), Pay-TV (2.1%), Leasing (0.8%), others (0.4%).

Insight: May-19, FY19 operating revenue remained flat at $1... Read More
Cacola Furniture Int'l  -- -- --   
Business: Manufacturer & distributor of home & office furniture. [FY15 Turnover] Panel furniture (64.6%), sofa (30.6%), mattress (4.8%).

Insight: Jul-17, Following the notification of delisting, C... Read More

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