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Investors’ Corner
Investors' Corner | 25 March 2011
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By: Ong Qiuying
Articles (131) Profile

ECS Hldgs
Price – $0.83
Target – $1.18

ECS is an attractive proxy to rising IT spending in Asia and provides exposure to the rapidly expanding Chinese information and communications technology (ICT) market. In addition, ECS is expanding its brand portfolio and distribution network. It has recently clinched regional distribution rights to Dell, Lenovo, Samsung and Apple’s iPhone and iPad in China, which expects to achieve a 15% market share for Apple products. It is also looking to expand existing network of 23,000 resellers in the region by 10-15% annually. With its growing presence in Asia, its profitability is improved through margin expansion schemes with more regional distribution rights that allow greater discounts on bulk purchases and special performance rebates. Further, the plans of a secondary listing in Taiwan and using the proceeds to fund its growth in the region could be a catalyst. Initiate BUY. – UOB KayHian (21 Mar)

Hong Leong Asia
Price – $2.55
Target – $3.45
Hong Leong Asia’s (HLA) subsidiary, Yuchai’s demand growth is expected to moderate into FY11 despite positive growth in FY10 due to a more favourable mix. The macro overlay for the autos market and outlook for Yuchai will be driven by investment growth and shaped by the Chinese government’s policies. Separately, risk of product obsolescence from Xinfei is low and demand for premium models in higher tier cities would support higher selling prices. HLA’s building materials unit can leverage from higher cement prices, up 13% year-to-date with the construction demand to stay firm in Singapore at $22-28b and RM125b in Malaysia. HLA has received a formal offer for its equity stake in the Karimun Island quarry, and could reap a gain, which was not factored into forecasts. HLA trades at 9x P/E, versus other China white goods peers’ 15x, and diesel engine manufacturing peer Yuchai’s 10x. Maintain OUTPERFORM. – Credit Suisse (21 Mar)

Macquarie Int’l Infrastructure Fund
Price – $0.575
Target – $0.645
Macquarie Int’l Infrastructure Fund (MIIF) acquired 20% interest in Cable TV SA (CTV), the holding company of Taiwan Broadband Communications (TBC), from Asia Cable Sarl’s (ACS) for US$136m ($174.4m). MIIF’s effective interest in TBC will rise to 47.5% after a planned security issue of CTV amounting $145.6m, which will refinance and de-leverage TBC’s senior debt of NT$23.7b ($1.02b). This will enhance cash available for distribution to shareholders over the next three years. Subject to the completion of these initiatives, management provided dividend guidance $0.0275/share for 1H11 suggesting an annual dividend profile of $0.055, which yields 9.6% and is 83% higher than in FY10. It will be fully supported by a long-term view on recurring operating income from Changshu Xinghua Port, Hua Nan Expressway and enlarged interest in TBC. Maintain BUY. – NRA Capital (21 Mar)

Singapore Technologies Engineering
Price – $3.12
Target – $4.00
ST Engineering’s arm, ST Marine has received a notice of termination of the shipbuilding contract for a Roll-on/Roll-off Passenger ferry (Ropax) contracted Jul-07 for $179m from Louis Dreyfus Armateurs (LDA). This was due to a delay in delivery of Ropax and that there might be a deficiency in the deadweight capacity. If valid, ST Marine is required to refund milestone payments amounting to $129m plus interest. LDA may also pursue damage claims, which are capped at 10% of the contract price. The negative impact may be significant as accumulated milestone plus damage claims can amount to $150m, equivalent to 24% of 2011F pretax profits. It may also influence future contracts due to delays damage reputation. Despite so, we note that the contract termination value is worth only 1.3% of orderbook. Although its future contracts may be affected, but earnings impact will be limited as bulk of its contracts are with Singapore’s Ministry of Defense. Maintain BUY. – RBS (21 Mar)

Qiuying oversees the construction and real estate investment trusts sectors at Shares Investment.

Please click here for more information about this author.

Hong Leong Asia  0.575 +0.005 +0.88%   
Business: Diversified industrial conglomerate in China, S'pore & M'sia. [FY18 Turnover] Diesel engines (87.2%), building materials (11.3%), industrial packaging (0.9%), air-con system (0.4%), corporate & others (0.2%).

Insight: May-19, 1Q19 revenue slid 5.6% due to lower revenu... Read More

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