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Investors’ Corner (Serial Sys, China Minzhong Food, F&N, OCBC)
Investors' Corner | 22 February 2013
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By: Nicholas Tan
Articles (71) Profile

Serial System
Price – $0.133
Target – $0.17

4Q12 net profit came in at $2.1m, in line with our forecast of $2.2m. Sales increased 9% in 4Q12 mainly due to higher contribution from newer product lines and additions from new customers in Greater China. Gross profit margin improved from 9.6% in 4Q11 to 10.1% in 4Q12 mainly contributed by sales of higher margin products to Greater China customers by the Group’s Hong Kong subsidiary. Net gearing improved to 54% as a result of $5.4m positive free cash flow generated in 4Q12 from improved inventory turnover. Serial System through its subsidiary Serial Microelectronics (SMPL) entered into a joint venture (JV) agreement on 1 Feb-13 with AMSC, to sell and distribute semiconductors and other electronic products in Japan. SMPL will hold a 60% stake in the JV. We believe the successful penetration into the Japanese market should further extend its leadership in Asia Pacific as Japan accounted about 10-15% of global semiconductor sales. Given Serial is still gaining market share from its competitors, we maintain OVERWEIGHT. – NRA Capital (19 Feb)

China Minzhong Food Corp
Price – $1.02
Target – $1.36

China Minzhong announced the issuance of 98m new shares to Indofood Sukses Makmur Tbk, a leading Indonesian packaged food producer, at $0.915 per share. The new shares take up 14.95% of total shareholdings after the private placement, making Indofood the biggest shareholder of China Minzhong, surpassing GIC. We view the alliance as beneficial for China Minzhong despite the earnings dilution effect, as it could expand its revenue by supplying raw materials to Indofood, and also leverage on Indofood’s distribution network to march into a fast-growing Southeast Asia market. The acquisition front by Indofood might not stop here and could lead to it acquiring more shares in the open market or from other big shareholders such as GIC. We even do not rule out the possibility of a privatisation bid by Indofood some day in the future. We continue to like China Minzhong for its prosperous growth outlook and undemanding valuation, and better use of the net proceeds from the placement would be a catalyst for the stock. Maintain BUY. – Maybank Kim Eng (18 Feb)

Fraser & Neave
Price – $9.43
Target – $8.95

Excluding executive condominiums, Jan-13 new home sales were up 43% m-o-m to 2,013. The jump caught us by surprise given the seventh cooling property measure imposed from 12 Jan-13. This was mostly due to sales made prior to the policy implementation and price discounts at select projects. We note that developers extended show flat hours on 11 Jan-13. Moving on, we expect Feb-13 new home sales to feel the full impact of the curbs, with slower investment demand, which we estimate to account for some 30% of home sales. For 2013, we forecast 16,200 new home sales, down 26% y-o-y, with home prices falling 0-5%. We expect the high-end segment to be under greater pressure than the mass market segment. Overall, for the property sector we maintain a neutral view with upside limited by policy risks and oversupply concerns in 2014-2015. However, we do not expect a collapse in home prices given low rates, pent-up demand, strong developer balance sheets, and higher land costs. In the long term, we remain concerned on slower population growth which structurally reduces real home demand. Maintain HOLD. – BNP Paribas (15 Feb)

Oversea-Chinese Banking Corp
Price – $10.03
Target – $10.70

Oversea-Chinese Banking Corporation’s (OCBC) 4Q12 earnings were 5% above our consensus estimates driven by better-than-expected non-interest income (NII). Core non-interest income (ex-one-off gains from sale of Fraser & Neave and Asia Pacific Breweries) grew 31% y-o-y led by wealth management, which were up 43% y-o-y contributing 28% to total group revenues, and its insurance unit with strong underwriting profits and improved investment performance. Although net interest margins (NIM) slid 5bps q-o-q mainly from lower non-loan related yields, strong loans growth (+3% q-o-q, +7% y-o-y) offset the impact from NIM compression. Going forward, OCBC will be placing emphasis on deepening its presence in Indonesia and China, such as leveraging on onshore-offshore Chinese companies for further growth in China. Loan growth is guided at high single digits and mortgage growth should remain healthy as there are loans yet to be drawn down. We like OCBC for its ability to garner better NII traction amid a situation of NIM compression which will remain an issue in the next few quarters. Maintain BUY. – DBS Vickers (15 Feb)

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

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Serial System  0.080 +0.001 +1.27%   
Business: Co engages in the business of semiconductor components distribution and consumer appliances. [FY18 Turnover] Electronic components distribution (96%), consumer products & others (4%).

Insight: Apr-19, 1Q19 revenue fell 43.3% to US$230m mainly ... Read More
Fraser & Neave  1.720 -0.010 -0.58%   
Business: [FY18 Turnover] Dairies (60%), beverages (25.4%), printing & publishing (14.6%).

Insight: Apr-19, 1H19 revenue inched 1.9% to $931.8m underp... Read More
Oversea-Chinese Banking Corp  10.850 -0.10 -0.91%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More

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