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Investors’ Corner
Investors' Corner | 18 July 2008
Related stocks:
S41
B69
A04
F83
By:

Li Heng Chemical Fibre Technologies
Price – $0.60 Target – $1.40

Li Heng’s projected 14.6% share of PRC’s nylon fibre market makes it a market leader, which would offer the company a competitive advantage to outgrow the industry. Ongoing construction of its new expansion plant will boost production by another 54% and is on target to be completed in 3Q09. Li Heng’s current share price is undervalued due to concerns of lower global demand for textiles amidst rising prices. We believe PRC’s competitive advantage to produce cheap textiles remains intact. Our price target is based on our DCF valuation (13.3% WACC, 1% terminal growth rate). We have forecast an EPS CAGR of 23.7% from FY07-10E and the average PE of 5.4x during the same period implies a PEG of 0.2, and our target multiple implies a 0.4 PEG. Its peers have traded at a historical average PE of 9.9x and PE band between 3.9x and 18.6x. Our price target of $1.40 implies 8.7x FY08E PE, a discount to regional chemical fibre producers, which trade at 12.5x FY08E. Reiterate with a BUY. – Deutsche Bank (13 Jul)

COSCO Corp (S)
Price – $3.15 Target – $4.39

According to Rigzone, Cosco Nantong Shipyard has been listed to build the 2 new rigs for Sevan, with an option announced in Jun-08 to build 6 more drilling units at an estimated US$1.4b-2.1b. Although order flow has been slow with only US$700m contracts YTD, we believe the momentum could accelerate from 3Q08 with more offshore and conversion projects. Current order book is about US$7b with order-win assumptions of US$3b-3.5b for 2008. While steel plate prices have surged 35% YTD, our sensitivity analysis shows that even if steel prices spike by another 25% till end-08, it could still see a margin of about 10%, comparable to its S’pore peers. We have used a PBT margin assumption of 10% for 2009 deliveries and 9% for 2010/11 deliveries. Keeping our earnings forecast and order-win assumptions for 2008 and ascribing a 10% discount to our P/E valuation of 18x for shipbuilding in our sum-of-the-parts valuation, our TP still offers upside potential of 39%. Maintain OUTPERFORM. – CIMB-GK (14 Jul)

CapitaCommercial Trust
Price – $1.88 Target – $2.79

CapitaCommercial Trust (CCT) completed its $1.17b acquisition of One George St (OGS), funded by $370m CBs at 3.95% YTM (2% coupon rate), $150m MTN at 3.05% and a $650m term loan at 2.86% (for first 6 mths), which implies an estimated blended funding cost of 3.15% in yr 1 to 4.31% in yr 5, assuming term loan is refinanced at 4.8%. OGS will see 51% of its leases expire at an average rent of $6.22/sqft/mth in 2008-09E, while asking rents are at $22.50/sqft/mth. The acquisition is marginally yield accretive (2008-09E DPU +0.1-1.6%) at injection, given the 4.25% yield protection (min. NPI of $49.5m p.a.). We estimate a maximum potential dilution of 9.6% to our TP from full conversion in the first year. Post-completion, CCT’s gearing is lifted to 37.6%. With the inclusion of OGS, we have raised our 2008-09E DPU to 10.9 cents and 13.3 cents and added 1 cent to our TP. Maintain OUTPERFORM. – Credit Suisse (14 Jul)

ComfortDelGro Corp
Price – $1.47 Target – $1.44

ComfortDelGro’s (Comfort) ability to generate a consistent 15% ROE is under threat due to all-time high diesel fuel prices and a slowdown in UK revenues. Comfort has provided below-market price diesel to its drivers for several years, but the sharp rise in world prices has produced losses of $3.7m in 4Q07 and $6.3m in 1Q08. Recent reduction in these subsidies have not kept pace with world prices, suggesting that Comfort’s loss burdens may have widened. We use P/E as our primary valuation measure, to reflect our view that price will be driven by the near-term earnings prospects of the group. Our price target is based on a DDM-implied 2008E P/E of 15.9x with EPS of $0.091, a payout ratio of 85%; COE of 9.9% and growth of 4.5%; and equates to 2x P/B vs a projected core ROAE of 12.5%. This is below its historical ROAE and is expected to remain below trend into 2009E. The company’s high dividend payout and approx 5% yield will afford some price support. SELL. – Citigroup (14 Jul)

Hong Leong Asia
Price – $1.72 Target – $2.33

Hong Leong Asia’s (HLA) recent de-rating was due to the restructuring of its building materials unit into Tasek Corp, an illiquid M’sian-listed company. The S’pore building materials arm is now valued by the market price of Tasek and HLA’s shareholders relinquish 30% of a key growth driver in S’pore infrastructure to Tasek minorities. Our SOP valuation is cut from $5.50 to $2.92 per share and EPS lowered by 11% for FY08E; 18% for FY09E. HLA further deserves a 20% holding company discount, as its 2 listed entities (Tasek and Yuchai) represent its main parts of the industrial business. HLA’s forward P/E band trading range has de-rated to between 4-7x, which, at our new TP, is trading at the top range of 7x FY09E P/E. While we believe HLA’s share price reflects this new structure, the key question is if it is now a value trap. HLA’s dominant positioning in both the industrial and consumer sectors in S’pore and PRC respectively should, however, put earnings risk on the upside. OVERWEIGHT. – JPMorgan (14 Jul)

ASL Marine
Price – $1.16 Target – $2.01

ASL Marine’s (ASL) success in moving up the value chain to build other types of higher value added vessels would differentiate it from smaller yards in the region that focuses on the AHTS segment. Indeed, ASL’s last 15 newbuild orders from Apr-08 were for non-AHT/AHTS vessels. Earnings are backed by a $750m order book as of Mar-08 and the current level of infrastructure works in the region provides a good source of demand. A $300m debt facility and a strong balance sheet should enable the group to exploit any opportunities that may arise. Our net profit estimates for ASL takes into account estimated gains from divestment in ASL Energy and the sale of vessels. Our valuation provides upside potential of around 73%, based on 10x diluted recurring FY09 PE for its shipbuilding and shipchartering operations and 12x diluted recurring FY09 PE on its ship repair business. The counter is trading at undemanding valuations of 7.4x and 6.3x recurring FY08 and FY09 PE respectively. Maintain BUY. – DBS Vickers (15 Jul)

Broadway Industrial Group
Price – $0.84 Target – $1.60

Broadway Industrial Group’s (Broadway) HDD component sales (actuator arms) grew slightly ahead of sales at its two major HDD OEMs (Seagate and Hitachi) in 2Q08 and could resume double-digit growth in 3Q, based on current projections by customers. The group continues to gain traction with Hitachi and we estimate that it is now one of the top-2 actuator-arm suppliers to the latter. Non-HDD component business is still growing by more than 20% y-o-y, despite falling short of Broadway’s earlier forecasts, due to a global slowdown, estimated to be down 22% y-o-y in 2008 by Dataquest, in the semiconductor equipment industry. Margins could come under pressure in 2H08 from rising costs and Rmb strength in PRC as the bulk of its backend assembly business for HDD components is located in southern PRC. We have cut our FY08-10 EPS estimates by 10-14% to factor in lower gross margin assumptions. Our valuation, based on 8x 2009 earnings, is deemed undemanding against the takeover offer prices for MMI and Unisteel (priced at 10-15x forward earnings). Maintain OUTPERFORM. – CIMB-GK (15 Jul)

Soilbuild Group Hldgs
Price – $0.965 Target – $1.20

Soilbuild Group Hldgs (Soilbuild) has sold 96% of its 5 launched projects at $569m and we expect a remaining $459m to be recognized progressively till 2010. Soilbuild has 3 more projects in the pipeline falling in the mid to mass market range which is likely to face less pricing pressure, extending the visibility of its earnings till end-11. Rental revenue is on track to hit $9.6m in FY08, from $3.8m in FY07, from full year rental contribution from Eightrium and Senoko Food. By 2010, it should have 3.3m sq ft of business space, with Fusionopolis Phase 2B and Tanjong Kling near completion. Our valuation, based on a 30% discount to RNAV, is derived from our estimated surplus from investment properties currently in the pipeline. Execution risks for these projects are believed to be low and higher construction costs with conservative rental and occupancy rates are considered. Liquidity for its shares could improve with the growth of its operations. Initiate with BUY. – OCBC Investment (15 Jul)

Hong Leong Finance  2.630 -- --   
Business: Co provides financing and corporate advisory services.

Insight: Apr-19, 1Q19 total interest income/hiring charges ... Read More
Broadway Industrial Group  -- -- --   
Business: Manufacture of precision-machined components & engineered foam solutions providers.

Insight: Mar-19, FY18 revenue rose marginally by 0.6% to $3... Read More
ASL Marine  0.052 +0.007 +15.56%   
Business: Co is a vertically-integrated marine services group. [FY18 Turnover] Ship chartering (42.3%), ship repair & conversion (33.4%), shipbuilding (19.6%), engineering (4.7%).

Insight: Aug-18, FY18 revenue 18.1% as shipbuilding revenue... Read More
CapitaLand Commercial Trust  2.130 -- --   
Business: Co is a real estate investment trust in the office space.

Insight: Apr-19, 1Q19 gross revenue and NPI rose 3.5% and 3... Read More
COSCO Shipping Int'l (S)  0.290 -- --   
Business: Engaged in shipping and other logistics services. [FY18 Turnover] Logistics (69.7%), property management (11.9%), Shipping (9.5%), ship repair and marine related activities (8.9%).

Insight: Mar-19, FY18 revenue jumped 340% to $163.7m and gr... Read More


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