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Investors’ Corner (M1, Yongnam, Ezra, Biosensors)
Investors' Corner | 22 July 2012
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By: Jade Lee
Articles (97) Profile

Price – $2.61
Target – $2.80

M1 reported a softer-thanexpected set of 2Q12 results due to lower handset sales and a change in sales mix. Going forward, M1 expects capital expenditure to be around $120m (versus its earlier $110-130m guidance).M1 removed stable outlook guidance but guided that the strong interest in new high-end smartphones seen in 2Q will contribute to revenue growth over a 2-year period. It also expects handset subsidies expensed upfront to have an immediate impact on profitability, but believes that margins will recover over the 2-year contract period. Meanwhile, M1 is looking to be Singapore’s first telco to have a nation-wide 4G smartphone and dongle coverage by end-3Q. However, the adoption of this new technology could take up to 2 years to reach an optimal level and the higher roll-out cost could depress nearterm margins. In view of M1’s latest guidance, we are revising down our FY12 earnings and revenue forecast by 5.4% and 3.4% respectively, and kept our FY13 revenue forecast but cut earnings by 2.6%. Lastly, free cashflow remains strong, reflecting M1’s defensive earnings and ability to sustain a dividend payout ratio of 80%. We maintain our BUY rating.
– OCBC Investment (17 Jul).

Yongnam Holdings
Price – $0.235
Target – $0.27

Yongnam has secured 3 contracts worth a total of $63.8m. The tenure of these projects will last through mid-16. With these contract wins, Yongnam has secured orders worth a total of $138.1m as of Jul-12. However, we see downside risks to our earnings forecast as contract wins have been slow for Yongnam in 2012. The group had already secured more than $200m worth of contracts by this time last year as compared to $138.1m as of now. Accordingly, we slashed our contract wins forecast to $260m and $300m for 2012 and 2013 respectively, and cut our 2012 and 2013 net profit forecasts to $55.5m and $54.7m respectively. The company also has a policy of paying approximately 15% of net earnings as dividends which we project at 0.67 cents for 2012. Although management remains positive on the outlook, they highlighted that strong competition may impact margins going forward. We downgrade Yongnam’s rating to HOLD.
– UOB-Kay Hian (16 Jul)

Ezra Holdings
Price – $1.09
Target – $1.38

Ezra’s 3Q12 subsea gross margin stood at 15% (2Q12:12%), revenue rose 23% q-o-q to US$155m, while vessel utilisation improved to about 70% (2Q12: about 60%). We expect 4Q12 to see a strong pick-up in revenue and profits, with 4Q12 gross margins increasing to 16-18% to meet management’s target of 10-15% in FY12. Subsea order book grew 10% q-o-q to US$1.2b despite revenue booking. However, the effects of low-day rates are kicking in as offshore’s gross margin came in lower at 18% versus 20% in 2Q12, while average day rates dropped to US$1.80/brake horsepower (bhp) versus US$1.90/bhp. This compared with the company’s historical rates of US$2-2.20/bhp. We believe that it is taking longer to charter out vessels profitably as only 2 out of 8 vessels are back in operations after dry-docking and maintenance since 2Q12. We think that Ezra is on track for a strong earnings recovery in FY13, backed by subsea. We maintain our OUTPERFORM rating.
– CIMB (13 Jul)

Biosensors International Group
Price – $1.21
Target – $1.50

We think Biosensors is well positioned to capture volume growth in the ex-US global stent market through product life cycle management and market share gains. Thanks to product differentiation, Biosensors has been able to limit average selling price (ASP) erosion to a low singledigit level, much better than its competitors. We expect the launch of BioFreedom to repeat the success of BioMatrix Flex, the key to future ASP stabilisation. We forecast market share of its biodegradable stent platform to increase to 6.6% in FY15 from 3.7% in FY12. We also project an FY12-15E CAGR of 20% for the stent business. In addition, we think diversification is instrumental for Biosensors’ next phase of growth as the company is actively looking for acquisition targets with technology differentiation and the potential to penetrate the global medical consumables market. The key risks are increasing competition, ASP erosion in China and, globally, regulatory delays, dilutive acquisitions and potential dilution from further financing activities. We initiate coverage with BUY.
– Deutsche Bank (11 Jul)

Jade manages and oversees a portfolio of stocks which are mainly focused on the mining and property sectors at Shares Investment.

Please click here for more information about this author.

Ezra Hldgs  -- -- --   
Business: Co is a provider of integrated offshore solutions to the oil & gas industry. [FY16 Turnover] Marine Services (68.9%), offshore support and production services (25.7%), subsea services (5.4%).

Insight: Oct-17, The US Bankruptcy Court approved the appli... Read More

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