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Investors’ Corner (Epicentre, Rotary, SGX, Starhill Gbl, VizBranz)
Investors' Corner | 09 September 2011
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By: Simeon Ang
Articles (125) Profile

Epicentre Hldgs
Price – $0.475
Target – $0.60
2H11 results came in below expectations with revenue falling 12% below our estimates to $70.5 million, attributable largely to 24% half-on-half fall in sales volumes. Earnings had been bogged down by start-off costs for new outlets (two new outlets in Singapore and its first in Shanghai) and feasibility studies in China as well as lower than expected sales from the iPad2 due to its late launch as well as constrained stocks. iPad sales make up 18-19% of the group’s total sales with Epicentre capturing ~30% of the market share in Singapore.

It has plans to further establish two stores in Singapore, two in Malaysia and five in China for FY12. A final $0.04 dividend has been declared, coupled with the $0.01 in 1H11, constitute an attractive dividend yield of 10.5%. We thus maintain BUY. However, due to the uncertainty in the global economy as well as lower average selling prices of new products, we cut our FY12 revenue and PATMI by 21% and 49% respectively. – DMG & Partners (5 Sep)

Rotary Engrg
Price – $0.67
Target – $0.66
Rotary’s key markets lie in the Middle East (64% of FY10’s revenue) and Singapore (28%). The demand for EPC works in the Middle East looks set to continue to form the bulk of Rotary’s clientele as countries such as Saudi Arabia and UAE look to develop their own refining and processing facilities.

In contrast, Singapore has seen a lull in such demand. In addition, keener competition has led to lower margins. Rotary’s order book has seen a downward trend since FY10.

Currently (as of 1H11), Rotary’s order book stands at $737 million. We believe the current order book mitigates only part of the downside risks of demand falling off. Centre to our concerns lie in Rotary’s ability to constantly win new contracts in this volatile economic climate. This would in turn directly affect Rotary’s revenue growth in the next few years. Given the higher downside risks, we are cutting our FY12 earnings estimates by 20%. Maintain HOLD. – OCBC (5 Sep)

Singapore Exchange
Price – $6.87
Target – $7.90
Stock market volatility is good for the SGX. In the turbulent month of August, securities daily average trading volume (SADV) reached $2 billion, a post ‘08 crisis high.

While this may be an isolated event, we expect that volatility will continue to be present owing to the current economic climate in addition to the introduction of high-frequency traders (REACH engine). The exchange has also looked to mitigate the impact of the volatility of stock trading on the bourse’s performance through diversification as seen through the introduction of derivative trading whose revenue has held steady for 5 quarters even though stock trading fluctuated. SGX currently has a growing cash hoard and we predict that it would be able to pay out 100% earnings for the foreseeable future. This will provide downward support for the stock. We are of the opinion that the current price of the stock represents an attractive entry price for investors willing to take a long-term view on this progressive bourse. In view of the above, we upgrade to BUY. – Kim Eng (5 Sep)

Starhill Global REIT
Price – $0.63
Target – $0.68
Starhill offers much stability in an increasingly volatile economic climate through its master and long leases as well as its strong balance sheet. Starhill currently is the cheapest S-REITS under our coverage, listed at 0.7x P/B and 7% dividend yields.
Though its exposure to discretionary spending in high-end retail malls are highly volatile, its master and long leases, anchoring about 44% of our FY12 revenue projection, are expected to mitigate such volatility. We expect Starhill to be successful in rental negotiations for its Toshin lease (Ngee Ann City and Wisma Atria), and have factored in a 10% increase in rental. Singapore’s growing importance as a tourist destination as well as being ranked seventh as a destination for luxury retail brands, affirm our belief that retail prospects are generally bright despite the economic uncertainty. With debt headroom of $450 million to a gearing target of 40%, we foresee a dividend yield accretion of 1-12% for debt-funded acquisitions. Hence, we maintain Starhill at OUTPERFORM. – CIMB (5 Sep)

Viz Branz
Price – $0.26
Target – $0.27
Viz Branz reported a 15.1% decrease in earnings for FY11, from $14.4 million to $12.2 million, mainly attributable to the higher raw material costs.

FY11 revenue improved by 8.5% to $165.7 million. However, a 15.2% leap in costs of sales, outweighing a 5% increase in selling prices, bogged down gross profit margins by 4 percentage points to 31.7%. Assuming a continued uptrend in raw material costs, Viz Branz is planning to further increase prices by another 5% to help alleviate these rising costs. However, drastic price increases would affect the company’s market share and, hence, prices increases in FY12 may trail cost increases. We, thus, revise our growth forecasts downwards and maintain HOLD.

We forecast that revenue growth for FY12 would hit 2% (3.5% previously). The drop in growth estimates is to account for anticipated softer demand as well as the imposition of a more conservative gross profit margin of 32% (38.5% previously), which is in line with FY11. We foresee China continuing to be a key contributor to Viz Branz’s revenue streams as it upped its FY11 takings by 10.5% year-on-year. – OCBC (5 Sep)

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

Epicentre Hldgs  -- -- --   
Business: Co engages in the retail of Apple brand products, and third party and proprietary brand complementary products. [FY18 Turnover] Apple brand (73%), services (19.7%), third-party brand (7.3%).

Insight: Feb-19, 1H19 revenue plunged 68.4% mainly due to t... Read More
Singapore Exchange  8.530 -0.01 -0.12%   
Business: [FY18 Turnover] Equities & fixed income (48.2%), derivatives (40.2%), mkt data & connectivity (11.6%).

Insight: Jan-19, 1H19 operating revenue increased 5.7% to $... Read More
Starhill Global REIT  0.755 -0.005 -0.66%   
Business: Invests primarily in real estate used for retail and office purposes. [FY18 Turnover] Wisma Atria (31.5%), Ngee Ann City (30.6%), Australia ppties (22.2%), M'sia ppties (13.4%), China/Japan ppties (2.3%).

Insight: Jan-19, 1H19 gross revenue fell 2.3% to $103.1m la... Read More

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