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Investors’ Corner (CityDev, Golden Agri, Sound Global, Hong Leong Asia)
Investors' Corner | 18 November 2011
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By: Simeon Ang
Articles (125) Profile

City Developments
Price – $10.26
Target – $8.83

City Developments’ (CityDev) latest project, a mass market condominium development, The Palette was open for preview on 12 Nov. The project is CityDev’s largest project this year with a total of 892 units spread over a land size of 446,842 square foot. As of 13 Nov noon, the project has sold around 200 units, representing about 45% of launched units (22% of total). Despite the deteriorating macroeconomic environment as well as the heavy downpours, the take-up rate puts The Palette on par with other mass-market projects such as FCL’s 8 Courtyards and Sim Lian’s A Treasure Trove. The average pricing of $870 psf is around 5% above our forecast but broadly on par with NV Residences, reflecting the pricing plateau faced by developers. We forecast CityDev to achieve gross margins of about >40%. Valuations are rich at a narrow 13% discount to our revalued NAV. Maintain SELL.
– Deutsche Bank (13 Nov)

Golden Agri-Resources
Price – $0.66
Target – $0.84

Golden Agri-Resources (Golden Agri) reported 9M11 earnings of US$480 million, excluding one-time gains of US$30.2 million and US$9.6 million in forex and equity interests. This made up 70% of our prior FY11 forecast & 75% of Bloomberg consensus. Fresh Fruit Bunch production for 3Q11 was relatively flat, increasing 3% quarter-on-quarter. Falling CPO (Crude Palm Oil) prices and seasonally higher labour costs hurt Golden Agri’s top and bottom lines. Gold Agri has raised its 2011 production guidance, forecasting a 15% gain over 2010 figures. The positive impacts of the new Indonesian export tax to refining margins is expected to spur Golden Agri’s 4Q earnings amid stronger CPO production figures. Factoring lower margins for China downstream operations, we trim our FY11 estimate EPS by 3.6% to $0.05. Hence, we lower the target price from $0.85, but continue to maintain a BUY rating.
– Goldman Sachs (13 Nov)

Sound Global
Price – $0.54
Target – $0.60

Sound Global reported that it had doubled its earnings in 3Q11 (Rmb131 million) over 3Q10 (Rmb60 million). A one-off listing expense had distorted 3Q10 earnings, without which, recurring earnings for 9M11 would have increased by 27%. While Sound Global’s performance is largely in line with consensus estimates, it was 10% higher than ours as Sound Global recorded better-than-expected revenue and improved gross margins. We see potential upsides should Sound Global decide to buy back its convertible bonds. In view of Sound Global’s net cash position with Rmb1.8 billion of cash, the company has enough to purchase its convertible bonds amounting to Rmb860 million. The bonds, if fully converted, would result in about 20% dilution. This would put pressure on its share price. Given the higher than expected earnings, we are raising Sound Global’s forecast FY11 earnings by 10%. NEUTRAL on Sound Global’s stock.
– J P Morgan (12 Nov)

Hong Leong Asia
Price – $1.86
Target – $2.30

Hong Leong Asia’s operations in China continued to mar its 3Q11 performance as it reported 13% lower revenue as compared to 3Q10. Diesel engine sales at Yuchai were weaker than expected, compounded further by a less than favourable product mix (more industrial type units were sold, lowering margins). Xinfei, continued to lose market share as it suffered from competitive pricing and rising cost pressures. Given China’s tighter credit policies, we foresee Hong Leong’s China operations to continue to face downward pressure. However, increasing infrastructure demand in Singapore and Malaysia as well as higher material prices could help its building materials unit even though it has been plagued by project delays. Assuming Xinfei continues on its downward trend, we cut our forecasts for Hong Leong Asia’s PE to 8.3x. We continue to maintain our NEUTRAL call. –
Credit Suisse (11 Nov)

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.

City Developments  9.820 -0.05 -0.51%   
Business: Co is an international property & hotel conglomerate. [FY18 Turnover] Property development (48.4%), hotel operations (39.8%), rental properties (8.5%), others (3.3%).

Insight: May-19, 1Q19 decreased 29.5% to $746.2m compared t... Read More
Golden Agri-Resources  0.265 -0.010 -3.64%   
Business: Co is engaged in cultivating & harvesting oil palm trees, processing fresh fruit bunches (FFB) into crude palm oil (CPO) & palm kernel (PK), & refining CPO into industrial & consumer pdts.

Insight: May-19, 1Q19 revenue fell 11% due to softer crude ... Read More
Hong Leong Asia  0.570 -0.005 -0.87%   
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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