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Investors’ Corner
Investors' Corner | 24 September 2010
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By: Cassandra Sim
Articles (14) Profile

Indofood Agri Resources
Price – $2.27
Target – $2.81

For exposure to CPO price movement, we recommend Indofood Agri Resources (Indofood Agri) because of its strategy of diversifying vertically along the palm oil supply chain. The company’s supply chain stretches from the cultivation of oil palm, to refining, fractionation and distribution to customers through retailers and agents. A large proportion of Indofood Agri’s mature landbank is in the four-to-six-year age band and trees of this age typically have the highest acceleration in yield improvement. We are bullish on the CPO price, and expect it to remain above the historical average because of structural supply problems. Malaysia is running out of land for oil palm expansion and intensifying actions by non-government organisations against plantation companies in Indonesia is likely to lead to a slower rate of expansion and therefore supply growth in future. We base our price target on a sum-of-the-parts valuation assuming a CPO price of US$830/tonne and a discount rate of 8%. Maintain BUY. – UBS Investment (17 Sep)

Tat Hong Hldgs
Price – $0.98
Target – $1.10

Tat Hong Holdings (Tat Hong) announced a takeover offer to its 70%-owned Australia-listed subsidiary Tutt Bryant Group (TBG), and has since increased its shareholding in TBG to more than 97%. With the impending completion of the acquisition, we are raising our FY11 and FY12 earnings estimates by 7% to account for increased earnings contribution from TBG. A revival of previously deferred projects has buoyed Tat Hong’s recovery and the group posted a 23.9% y-o-y growth in 1Q11 revenue to $148.8m coupled with a 23.3% y-o-y improvement in net profit to $10.1m. We expect earnings recovery to gather momentum in 2H11, fuelled by strengthened demand in Australia coupled with the group’s expansion into China’s tower crane market. Our revised projections imply a 30.1% growth in FY11 revenue and a 49.8% jump in net profit. Following revisions to our earnings forecast, our fair value estimate has been raised to $1.10, still based on 10x blended FY11/12 PER. Dividend yield is attractive at 4.1%. Maintain BUY. – OCBC Investment (17 Sep)

Yangzijiang Shipbuilding (Hldgs)
Price – $1.74
Target – $1.90

Yangzijiang (YZJ)’s TDR listing has not only raised its profile in Taiwan and China, some of the key Taiwanese shipping lines have also started to become aware of the group and YZJ is currently in talks with a Taiwanese shipyard for potential outsource work in ship blocks for 8,000 TEU. Any success in this area may allow the group to scale up on their capabilities and add a new line of vessels to their portfolio. YZJ will construct a new Rmb500m dock to cater for 8,000 TEU containerships and this facility should be ready for operations by end. On the overall shipbuilding industry, YZJ is still seeing strength in the containership market and appears hopeful for more orders. With regards to the recent contracts, the group expects gross margins of about 15% but highlights the risks from Rmb volatility where they see a potential 2% decline in margins for every 5% appreciation of the Rmb. BUY. – Deutsche Bank (17 Sep)

Otto Marine
Price – $0.36
Target – $0.52

Positive business transformation is encouraging, as Otto Marine (Otto) builds new, durable revenue streams that have higher margins – support vessel chartering and specialty services. While there is cancellation risk for the second Mosvold vessel, we believe there is only minimal earnings risk, and that negotiations for new-build vessels and any new orders announced would be a significant catalyst. The first vessel ordered by Mosvold, which was cancelled in May due to delivery delays, is now part of Otto’s chartering fleet, which effectively began in 2008. It has secured in excess of $400m in forward bookings and enjoys an average margin of 50% or better. Profits from the ship-chartering business have also shown to be growing almost four-fold between 2009 to 2011E, and contributing half of total earnings by next year. Our revised fair value of $0.52 is based on 11x 2011E PER as we see rising potential for positive announcements. We trim our 2010E and 2011E EPS by 5% and 3.5% respectively, due to slightly lower margin assumptions for shipbuilding. Maintain OUTPERFORM. – Standard Chartered (20 Sep)

Indofood Agri Resources  -- -- --   
Business: Diversified agri-business mfg & retailing cooking oil, with oil palm, rubber & sugar plantation in Indonesia. [FY18 Turnover] Edible oil & fats (75.4%), plantations (24.6%).

Insight: Apr-19, 1Q19 revenue rose 5.3% due to higher sales... Read More
Yangzijiang Shipbuilding (Hldgs)  0.945 -0.025 -2.58%   
Business: Co is one of the largest non-state owned shipbuilders in China. [FY18 Turnover] Shipbuilding (58.1%), trading (32.8%), investments (6.7%), others (2.4%).

Insight: Apr-19, 1Q19 revenue jumped 26.8% to Rmb6.3b due t... Read More

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