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Investors’ Corner (CoscoCorp, FJBen, OSIM, VizBranz, Kep Corp, SembMar, XinRen, CapitaMall)
Investors' Corner | 11 May 2012
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By: Simeon Ang
Articles (125) Profile

Cosco Corporation
Price – $1.00
Target – $0.92

Cosco Corporation recorded dismal 1Q12 net profit which came in 19% below our forecast and 20% below market concensus. Cosco blamed its poor performance on higher than expected interest and expenses. Cosco incurred $13m in provisions for 3 to 4 offshore projects as it pointed to new designs being the culprit. Management’s guidance provided for 10-15% margins for its offshore segment. However, we opine that margins of 10% would be more realistic as we factor in potential costs overruns. In addition, we anticipate more aggressive bidding for offshore projects as Cosco seeks to clinch US$2b worth of contracts to fill its yards’ capacity. Aside from the offshore segment, Cosco also seems to be assailed on the ship conversion and repair segment which had historically fetched higher margins. We expect margins for that segment to decline to below 15% in FY12 as the number of jobs dwindle. Coupled with a barely profitable shipbuilding segment, we see no reason to buy the stock. Maintain UNDERPERFORM.
– CIMB-GK (9 May)

FJ Benjamin
Price – $0.34
Target – $0.425

FJ Benjamin (FJB) reported fair growth in its 3Q12 results that were largely in line with our estimates despite a slowdown in consumer spending. We attribute this to the strong appeal of FJB’s brands and sustainability of tourist retail spending in Southeast Asia. Revenue grew 7.5% to $95.8m while net profit stood at $3.5m, an increase of 8.4% over 3Q11. We note that the healthy topline growth was spurred by selected markets in Southeast Asia, namely the fashion segment in Malaysia and the timepiece segment in Hong Kong. In an attempt to lower distribution costs, FJB had in Mar-12, opened a new logistics centre in China to consolidate the processes of sampling and distribution. Although net gearing has risen from 6% to 46% due to higher borrowing for store expansion, we point to a consistent dividend payout of $0.02 since 2008 which translates to around 5.6% dividend yield. Given that FJB will continue expanding its stores to an estimated 192 by end FY12, we maintain BUY on solid brand execution.
– Kim Eng (9 May)

OSIM International
Price – $1.255
Target – $1.60

OSIM International released record breaking results with quarterly earnings at $22.2m, meeting 26.5% of our FY12 estimates. OSIM attributed the increased earnings to sales that were driven by products such as uDivine and uPhoria. OSIM’s emphasis on its branding efforts using celebrity endorsements on key product launches, coupled with constant innovation and a push for productivity constitute a recipe for new product launches as well as higher sales per store/man. We also understand that OSIM intends to aggressively add 50 OSIM stores in China and 20 GNC stores in Taiwan and Malaysia. Inclusive of same-store-sales growth of 3%, we expect sales to grow at a 10.8% CAGR till FY14 owing to increasing net margins. In view of this, EPS is expected to experience a 13.3% CAGR till FY14F. Along with a dividend yield of 2.8%, we see total upside of 30.3%. Initiate BUY.
– AmFraser Securities (8 May)

Viz Branz
Price – $0.53
Target – $0.52

Viz Branz (VB) posted a stellar set of results in our view even though 3Q12 revenue fell marginally by 0.4% y-o-y to $43m. We substantiate this view as gross margins improved to 34% on the back of an easing in raw material prices, coupled with better inventory control. Operating profit jumped 38.3% y-o-y as operating expenses were trimmed. As a result earnings leapt 50.9% y-o-y to $4.6m on quarterly basis. We feel that the adjustments to VB’s cost structure will continue to be streamlined as a representation of increased efficiencies in its operations. We see potential growth for VB in Myanmar, especially so it is currently a market leader in the cereal segment with an estimated 30% market share. In our view, VB is thus well-placed to benefit from Myanmar’s growth and increase in domestic consumption. With the encouraging set of results, we adjust our costs estimates for VB whilst leaving our revenue and gross profit projections unchanged. Maintain HOLD.
– OCBC Investment (8 May)

Keppel Corporation
Price – $11.02
Target – $12.70

Petrobras has issued a tender request for the topsides integration of 8 replicant floating production, storage and offloading (FPSO) vessels. Word from Upstream puts Keppel Corporation among 3 frontrunners to secure the tender. Upstream mentioned that each of the leading bidders could secure 2 FPSO jobs each, with the final 2 contracts spilt between the 2 best bids. Although the price tags of the bids have not been disclosed, we anticipate the integration of each FPSO could be worth upwards of US$500m, and can vary depending on the complexity of the jobscope and the size of the vessel. We opine that Keppel is best positioned, given its established Brazilian BrasFELS shipyard and track record in FPSO integration. We note that management is looking to grow its capacity in Brazil, as well as enhance its productivity. Keppel remains our preferred play on the Brazilian offshore equipment theme. Maintain OUTPERFORM.
– Credit Suisse (7 May)

Sembcorp Marine
Price – $5.10
Target – $6.40

Sentiment and carrier behaviour will continue to affect Singapore shipyards such as Sembcorp Marine. Rates have seen to be holding so far with about 50-80% of the 1 May hikes being implemented. The biggest concern about the sustainability of recent rate hikes will depend on the decline of idle fleets. That number has come off highs of 5.8% to the current 3.9%. However, there have been announcements of new services being introduced. This could lead to falling load factors and put pressure on rates. Dry bulk rates have continued on its labourious limp throughout 1Q12 with spot rates remaining depressed. Although new ship orders have slowed to a trickle, we note that build prices are back to 2003 levels, which could attract new orders over the next year. In the meantime, offshore orders will continue to support Singapore yards such as Sembcorp Marine. We maintain OUTPERFORM.
– Macquarie Research (7 May)

XinRen Aluminium Holdings
Price – $0.32
Target – $0.33

XinRen Aluminium has announced that it is expected to incur losses of around RMB10m in 1Q12 due to lower selling prices, higher electricity and alumina costs as well as a decrease in sales volume. Primary aluminium prices have weakened 1.2% q-o-q, while its average selling price is likely to decline more than market prices. The losses have fallen far short of our initial expectations. In view of weakened aluminium prices under harsh market conditions, we have revised our FY12 and FY13 EPS by 37.5% and 34% respectively. Recently, the firm announced its decision to acquire a 21% stake in a Xinjiang plant which could provide positive impetus in the longer term. Although profit is expected to be bolstered from FY13 onwards, we view the $377m acquisition price tag with some prejudice as it could be a burden in the next 2 years. We thus opine that management could seek to raise funds through more debt or through equity financing. With that in mind, we cut the 12 month target price and downgrade the counter to HOLD.
– DBS Vickers (7 May)

CapitaMall Trust
Price – $1.82
Target – $2.15

CapitaMall Trust (CMT) announced that it would be divesting Hougang Plaza for $119m, versus its book value of $34m and an initial purchase price of $49m. We note that this will be CMT’s first divestment and signals a new avenue for CMT to recycle its capital base and unlock higher value for non-core assets. We are of the view that the divestment will have limited earnings impact, but will help to lift CMT’s book value by $0.025/unit or 2.4%. The divestment will also serve to improve the trust’s financial flexibility, with gearing to be lowered by around 1%. Coupled with the recent results release, we adjust our distribution per unit (DPU) FY12E to $0.098 with potential upside. We opine that the accretive divestment coupled with strong DPU growth profile will help to reverse the year-to-date 9% underperformance. CMT is one of our top picks among S-REITS. Reiterate OVERWEIGHT.
– JP Morgan (4 May)

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.

COSCO Shipping Int'l (S)  0.285 -0.005 -1.72%   
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
F J Benjamin Hldgs  0.031 -0.001 -3.13%   
Business: Co engages in the brand building and management, and development of retail and distribution networks for international luxury and lifestyle brands.

Insight: Aug-18, FY18 net loss narrowed significantly to $1... Read More
Keppel Corp  6.080 -0.02 -0.33%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Sembcorp Marine  1.260 -- --   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More
CapitaLand Mall Trust  2.610 -0.01 -0.38%   
Business: Co owns and invests in quality income-producing assets which are used, or predominantly used, for retail purposes primarily in Singapore.

Insight: Apr-19, 1Q19 gross revenue and NPI rose 10% and 11... Read More

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