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DBS Equity Research: Wired Daily 13 Aug 2014

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Publish date: Wed, 13 Aug 2014, 03:14 PM


Super Group - 2Q14 results below expectations on weaker Baht and Ringgit, and also lower margins. Downgrade to HOLD with lower target price of S$1.52

2Q14 results for Super Group below expectations on weaker Baht and Ringgit, and also lower margins. We have slashed FY14F/FY15F/FY16F by 9-11%. We expect immediate outlook to remain lacklustre due to weak demand and lower margins. However with a new business strategy in place to introduce new products and some respite in raw material price volatility, we project earnings decline to bottom out by 2H14 and revert to growth in FY15F. Downgrade to HOLD with lower target price of S$1.52 (Prev S$ 1.68).

1Q15 revenue for Valuetronicsin line but bottomline was affected by margin erosion for the Consumer Electronics (CE) segment. Going forward, we expect the Industrial and Commercial Electronics segment to drive growth and margins while higher volume for CE should counter margin pressure. Valuetronics trades at attractive FY15 PE of 7.4x, with at least one-third of its market cap backed by net cash. Maintain BUY and S$0.72 target price.

ST Engineering reported a relatively weak set of numbers for 2Q14. Results were lower than expected, as STE reported net profit of S$133.2m in 2Q14, down 10% y-o-y and 3% q-o-q. Typically, 2Q is a stronger quarter sequentially than 1Q, hence the results are not within the usual trend. Order book still remains robust though, at S$13.4bn, is higher than the S$13.2bn orderbook at end-FY13. Owing to the weak quarter, Management has lowered guidance for FY14 revenue and pretax profit (PBT) to be comparable vis-a-vis FY13, as against earlier guidance of higher revenue and PBT in FY14 over FY13 provided during 1Q14 results. 2H14 results are likely to be better, but overall FY14 earnings growth may now turn out to be tepid. Interim dividend of 4Scts was declared, higher than usual run rate of 3Scts interim dividend. More updates after briefing today.

Centurion is acquiring a land plot in the mainland of Penang for RM6.4m (S$2.45m). This proposed acquisition is pending consent by the State of Penang, and is expected to be completed in 4Q 2014. Upon completion of the acquisition, the Group will seek approval to convert the land, which is currently zoned for agricultural purposes, into use for workers accommodation development. The intended purpose-built workers accommodation will have capacity for around 5,000 workers, and will be managed under the Westlite brand.

This development will raise Centurion's total bed count in Malaysia to over 35,000 beds, which is in line with Centurion's overseas expansion strategy and definitely positive in helping the Group diversify away from Singapore's increasingly competitive dormitory market. Moreover, this plot of land is strategically located near to
several key industrial hubs. Land prices in Penang are higher than Johor. But, returns are expected to be better than Johor too. Pending approval from the relevant authorities, we believe this project would only begin to contribute in FY16/2017. Hence we are not changing our forecast for now. Maintain BUY, target price S$0.90.

COSCO Corporation said that its Dalian yard has secured contracts worth more than US$470m to build four subsea supply vessels. The contracts, which exclude ownerfurnished equipment from Maersk Supply Service, a part of A.P. Moller-Maersk Group, comes with options for two more vessels. The vessels are scheduled for delivery in the fourth quarter of 2016 and first-half 2017, respectively.

Halcyon Agri Corporation has signed a Memorandum of Agreement (MOA) to acquire New Continent Enterprises (NCE). NCE is a leading global distributor of natural rubber, with offices in Singapore, Germany, the Netherlands, United States, China and Vietnam. This acquisition is highly complementary to Halcyon Agri, with strong distribution channel for the Group's increased production. The consideration for the acquisition will be determined based upon NCE's Net Book Value as at 31 July 2014 and will be satisfied in four equal quarterly instalments in cash or, at the vendors discretion, in Halcyon Agri shares at issue prices ranging from S$0.90 to S$1.80 per share. Should the vendor choose settlement in the form of Halcyon Agri shares, these will be issued at S$0.90 (Sep 2014 tranche), S$1.20 (Dec 2014 tranche), S$1.50 (Mar 2015 tranche) and S$1.80 (Jun 2015 tranche) respectively. Based upon NCE's current estimated net book value as at 31 July 2014, the total consideration would be approximately US$30m.

Jubilee Industries is proposing a renounceable nonunderwritten rights cum warrants issue of up to 117.4m new shares at an issue price of S$0.06 for each Rights Share, with up to 117.4m free detachable Warrants on the basis of one (1) Rights Share with one (1) Warrant for every two (2) existing shares held. Each Warrant carrying the right to subscribe for one (1) new share at an exercise price of S$0.06 for each Warrant Share. The Issue Price and Exercise Price of S$0.06 represents a discount of approximately 20.4% to the last weighted average price. The net proceeds of about S$6.9m will be used to fund growth and for general working capital purposes.

Singapore eDevelopment (SeD) is buying a software developer - which owns applications for instant messaging (IM), social media and e-commerce platforms - and has entered into a Memorandum of Understanding (MoU) to acquire a telecom hardware and software developer. SGX Catalist-listed SeD said the acquisition of a 100%-stake in HotApps International and MoU signed with CloudTel are part of a major strategic shift to propel corporate recovery and future growth via info-communications technology and property development.

Non-oil domestic exports (NODX) are tipped to dip 1-2% this year. International Enterprise Singapore (IE Singapore) announced yesterday that it had trimmed its full-year NODX growth forecast from 1-3% to between -2 and -1%. NODX fell 2.3% y-o-y in the first half of this year. Forecast for total trade growth has also narrowed from 1-3% to 1.5-2.5%. Total trade rose 5% in the first half of the year. NODX and total trade slipped 6% and 0.5% respectively last year.

The 2-day rebound in U.S. stocks halted as German confidence declined more than economists' forecast and concerns grew over conflicts in Ukraine and the Middle East. The ZEW index of investor and analyst expectations in Germany, which aims to predict economic developments 6 months forward, dropped to 8.6 in August from 27.1 in July, the lowest level since 2012. Meanwhile, a Russian humanitarian mission was headed toward eastern Ukraine after the U.S. warned President Vladimir Putin not to use aid as a cover to send in troops. In Asia, Chiina is expected to release data on industrial production, fixed- asset investment and retail sales today. Factory output probably rose 9.2% y-o-y while retail sales growth increased to 12.5%from 12.4% a month earlier, this according to median estimates.

Source: DBS 
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