Towards Financial Freedom
DBS Equity Research: Wired Daily 15 Oct 2014
Valuetronics - TP under review amid uncertainties in LED lighting division
VARD - 3Q profit warning
Too early to turn positive on airlines despite lower jet fuel price
Valuetronics share tumbled yesterday on worries that the company could lose its LED lighting business as a major lighting customer announced intension to restructure their lighting business division. Our analyst says business is usual for now but its customer's divisional restructuring bears watching. The uncertainty would no doubt affect volumes and/or profits but as long as it is not an extreme case of a sale to a rival who will instantly impact the entire business line and the related supply chain, existing vendors would have time to adjust. As of now, LED lighting accounted for about 25% of profits. Industrials, which accounted for 60% of profits, continue to grow with more accounts in the pipeline while the remaining 15% of profits are from stable PCBA (shavers, electronic gadgets) business. Current TP of $0.65 is under review.
While oil prices, and thus jet fuel prices, have moved lower in recent weeks, our analyst thinks it's too early to turn positive on airlines for the following reasons 1) The lower jet fuel price is offset somewhat by a stronger US$ 2) Most, if not all airlines, would have hedged some of their fuel requirements, so lower jet fuel will not benefit airlines significantly unless it stays lower for a year 3) Demand environment remains weak and continues to put downward pressure on yields. No change to recommendation/TP for SIA (Hold, TP: $10.12) and Tiger Airways (FV, TP: $0.31).
Vardissues profit warning for its upcoming 3Q results, saying it now expects a marginally negative EBITDA. Slower-thanexpected improvements in throughput and productivity at the new Vard Promar shipyard in Brazil are impacting profitability during the ramp-up phase. Additional cost was also incurred for the 2 vessels in the Promar order book that were built at a 3rd-party yard and are currently undergoing outfitting at Vard Niterói. The Group has also revised its estimates for a limited number of projects in its European order book where cost overruns were incurred.
Singapore economy's sequential growth has averaged less than 1% for the past 3 quarters. Some of the slow growth is due to the economic restructuring under way, some of it's due to weak global demand and some of it is due to weak domestic demand that follows from both. While FY average growth of 2.8%-3% is still possible, its mere statistics that highlights how misleading FY average numbers can be. Global demand is weak and restructuring is painful in the short-run. Both are impacting domestic demand. Despite the restructuring effort and the ongoing appreciation of the Sing dollar NEER, Singapore's exports have yet to be impacted. The global outlook has deteriorated in recent months. The US continues to grow at a 1-2% trend pace but it does not appear to be accelerating. Europe is on the verge of a third recession in five years and Japan's economy has contracted by nearly 1% over the past six months. Against this backdrop and the ongoing restructuring effort, we do not expect Singapore's growth to accelerate much, if at all, in the near future.
US markets gave up early session gains to end mixed. Energy shares slid with the price of oil, snuffing out most of an earlier rally in benchmark indexes led by industrial companies, airlines and banks due to concerns about global growth slowdown and Ebola. Citigroup Inc. shares rose after reporting earnings that topped estimates while Wells Fargo & Co. shares fell after posting results.
Source: DBS
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