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Investors’ Corner (ChinaMinzhong, Genting HK, Sakari, Biosensors)
Investors' Corner | 31 August 2012
By: Nicholas Tan
Articles (71) Profile

China Minzhong Food Corp
Price – $0.715
Target – $1.16

FY12 results beat market expectations as China Minzhong turned in revenue of Rmb2.6b and net profit of Rmb679.6m. Minzhong’s FY12 results reaffirmed our view that Minzhong would gradually achieve a more balanced business model as its domestic cultivation revenue increased by 64.5% versus 19.1% growth in export business. Accounts receivables remained high at Rmb976m in FY12 but we think that any material default risk is minimal. Going forward, we expect higher production volume even without adding more farmland as we opined that the farmland acquired 2 years ago is approaching optimum yield and can support higher production volume. We maintain BUY and expect higher operating cash flow and less capital expenditure in FY13, thus we believe that there is a possibility of an inaugural dividends payment or share buyback in FY13 and such action if they eventuate, will boost the valuation. – Maybank Kim Eng (28 Aug)

Genting Hong Kong
Price – US$0.36
Target – US$0.32

Genting Hong Kong’s (GENHK) 1H12 core net income fell 30% to US$32.6m (excluding a one-off disposal gain and forex losses), falling short of market expectations. Contributing to the shortfall was Star Asia, as better net yields and a jump in capacity days was more than offset by lower occupancy rates, drop in gaming revenue and increased operating costs. Resort World Manila (RWM) also added to the disappointing numbers as higher operating expenses and provisions on gaming receivables eclipsed a 26% revenue growth and improved luck factor. NCL Corporation was the only reprieve as it generated strong revenue performance which climbed 17% to US$133.5m due to an increase in ticket pricing and solid occupancy rate. We downgrade GENHK to SELL as the lingering softness at RWM and Star Asia’s casino operations, combined with significant competition to RWM in 2H13, will more than offset the positives of a potential inaugural dividend and GENHK’s chance to bid for a casino concession in Taiwan. – UOB-Kay Hian (27 Aug)

Sakari Resources
Price – $1.49
Target – $2.65

PTT Mining which owns a 45% equity stake in Sakari Resources (SAR) has launched a voluntary conditional offer for SAR at $1.90 per share, which represents 27.5% premium to the current share price. This acquisition represents PTT Mining’s commitment to diversify its strategy into other commodities such as coal. We believe at the current 27.5%, PTT should be able to get a majority shareholding, but it could be challenging to get to 90% to force a compulsory offer. Should PTT acquire 90%, we see the potential for an Indonesia Stock Exchange listing to be considered as management opined that there were limited advantages of its Singapore listing. We expect minorities may try to hold out for a higher price, but we are mindful with PTT owning 45% that there is a low risk of a competitive bid arising. We reiterate our OUTPERFORM recommendation on the basis that the current bid is protected on the downside as coal prices are trading near the cost curve, and valuation does not capture any potential upside risk to current prices or potential expansion into the Western leases. – Macquarie Research (27 Aug)

Biosensors International Group
Price – $1.25
Target – $1.48

Biosensors International has emerged as a leading competitor in the US$6b global market for drug-eluting stents (DES) by virtue of its innovative technology and strong position in Asia. In particular, the US$500m China market which has grown 20-30% annually for several years and represents about one-third of the company’s revenue. Despite headwinds from reimbursement cuts through tenders and concerns about over-utilisation clouding the DES market in China, we are optimistic that China remains a promising market as currently only 3% heart attack patients in China receive stents compared to 30% in the developed world. With its leading position in China and focus on faster-growing Asia Pacific markets, it should be able to drive growth above the industry’s 3-4% growth globally and continue to expand on its current 8% market share. We forecast that the company’s market share will rise to 11% by 2016 and initiate with a BUY rating. – Religare Insitutional Research (24 Aug)

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

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