SG Market (09 Feb 18)

MARKET OVERVIEW
- Brace for another selldown after US markets tumbled into correction territory on rising inflation expectations, and shock revelation by a S-chip of serious irregularities at its China operating units.
- A similar 10% correction from recent peak would take the STI to the 3,248 level
- From a technical perspective, STI sees underlying support at 3,370 with near term resistance at 3,470.

CORPORATE RESULTS
*Frasers Property
- 1QFY18 core net profit slumped 62% to $69.2m, while revenue dropped 23.8% to $740m on absence of significant sales and settlements of development projects in China.
- Gross margin held relatively steady at 36.3% (-0.5ppt).
- Bottom line was dragged further by lower fair value change on derivatives, higher net interest expense (+188.2%) arising from increased debt, although pared by higher JV/associate income (+26.7%) and a $13.3m rise in fair value on investment properties.
- Net gearing climbed higher to 0.84x (4QFY17: 0.7x).
- Last traded at 0.81x P/B.

*Valuetronics
- 3QFY18 net profit leapt 35.7% to HK$58.2m, beating estimates.
- Revenue jumped 34.2% to HK$788.3m as the consumer electronics segment (+48.1%) remained strong on growing demand for smart LED lighting, while the industrial & commercial electronics unit (+22.3%) also saw higher customer demand.
- Gross margin of 14.4% (-1.1ppt) and operating margin of 8.5% (+0.1%) held relatively steady.
- Trades at 12.9x FY18 P/E and offers an indicative yield of 4.1%.

*BRC Asia
- 1QFY18 net profit surged 36% from a low base to $2.6m, while revenue jumped 26% to $100.9m on higher selling prices.
- Accordingly, gross margin improved 0.9ppt to 7.5%.
- But, bottom line was partly weighed by higher distribution costs (+13%) and other operating expense (+19%) arising from mark-to-market loss of foreign currency forward contracts.
- NAV/share at $0.9166.

*Lion Asiapac
- Turned around to a 2QFY18 net profit of $0.1m (2QFY17: $0.2m loss), help by a reversal in impairment loss of $0.5m and higher interest income of $0.2m (+51%).
- Revenue jumped 55% to $3m on increased demand for lime products.
- Gross margin inched 2.2ppt higher to 37.1%.
- Notably, net cash pile of $70.7m, or $0.871/share, is 182% above the current market cap of $39m.
- NAV/share of $1.0027.

*China Star Food
- 3QFY18 net profit slumped 33.7% to Rmb8m, swinging 9MFY18 to a net loss of Rmb4.8m (9MFY17: Rmb51m loss).
- For the quarter, revenue tumbled 20% to Rmb92.3m, as its Zilaohu factory had not been producing at optimal capacity following a resumption of operations in mid Sep '17 after a production halt.
- Accordingly, gross margin collapsed 16.7ppt to 27.3%, and this was exacerbated by lower sale prices due to a change in channel management strategy.
- But, the strategy alleviated some pressure on bottom line, as it passed on substantial marketing and distribution costs (-73%) to external distributors.
- NAV/share at Rmb1.41.

*SunMoon Food
- Sank to 3QFY18 net loss of $1.25m (3QFY17: $5.3m profit) due to absence of a $5.7m gain on disposal of subsidiaries.
- Revenue jumped to $10.8m (+744%) on increased in sales to Shanghai Yiguo E-Commerce.
- But, it barely broke even with a gross profit of $0.3m (3QFY17: -$0.08m), while gross margin turned positive to 3.2% amid less discounts provided.
- NAV/share at $0.0275.

POSITIVE NEWS
*ComfortDelGro
- Acquiring remaining 51% stake in ComfortDelGro Insurance Brokers (CIB) for $22.9m, or 4.5x FY16 P/E.
- CIB provides insurance broking, risk management and claims management services in Singapore.
- The deal is earnings accretive and estimated to lift FY18e earnings by 1.6%, or $5.1m.
- MKE maintains its Buy with TP of $2.40.

*SIA Engineering
- Forming a 60:40 JV with Nasdaq-listed Stratasys to establish an additive manufacturing service centre to provide 3D printed parts for use in commercial aviation.
- The parts can be used for airline operators, MRO providers and OEMs.
- Trades at 22.1x forward P/E, near upper end of 13-24x historical range.

*King Wan
- Secured new mechanical and electrical projects in Singapore worth a total of $24.9m.
- New projects include electrical and installation works in 3 condos, 1 manufacturing support building and 1 HDB block.
- Projects are slated to complete by 2021.
- Order book stood at $173.1m with contracts lasting to 2024.

*Neratel
- Clinched a total of $3.2m worth of new contracts for its Network infrastructure business segment.
- First contract worth $2.2m was awarded by a local telco to supply and maintain IP network equipment for broadband and mobile networks.
- Second contract worth $1m is its first win with a key telco in Malaysia to design and manage the telco's internet service.

*Kingsmen
- Entered into a licensing agreement with Hasbro to create, build and operate NERF Family Entertainment Centre (FEC) attractions across Asia Pacific.
- NERF is a toy brand and has a variety of foam-based weaponry products.
- The group will co-conceptualise, build and operate NERF FEC attractions with first location to open in Singapore by 2019.
- Each indoor facility will feature multiple activity zones, merchandising and F&B areas.

*iX Biopharma
- Granted a patent for its WaferiX drug delivery tech in China, which expires ion 11 Oct '33.
- The IP rights are now secured in key Asian markets such as Singapore, South Korea, Malaysia, Indonesia and Japan.

NEGATIVE NEWS
*Midas
- Uncovered several litigations, freeze orders and undisclosed corporations within the group during an audit.
- The group highlighted that it is in the midst of fact finding and will assess whether it can continue as a going concern.
- Share price has shot up 78% YTD but financials can no longer be relied upon.

*AGV Group
- Proposed placement of up to 18m new shares (12.5% of enlarged share capital) at $0.11 apiece, 8.3% below last traded price.
- Placees are CJM Global (4.86%), China Equity Investment (3.13%), Teo Yong Ping (3.13%), Tiong Hua Ting (0.69%), and Ho Bee Ping (0.69%).
- Estimated net proceeds of $1.94m will be used for capex and general working capital.

NEUTRAL NEWS
*ST Engineering
- Aerospace arm ST Aerospace is divesting a 5% stake in ST Aerospace (Guangzhou) Aviation Services (STA Guangzhou) to Japan Airline for US$7m ($9.2m).
- Previously, STA Guangzhou is a 49:51 JVCo between the group and Guangdong Airport Authority, which provides aircraft MRO services within Guangzhou Baiyun International Airport in China.
- Post-divestment, ST Aerospace, Guangdong Airport Authority and Japan Airline will hold now 44%, 51% and 5% in the JVCo, respectively.
- The strategic investment by Japan Airline will facilitate cross-learning, enabling STA Guangzhou to enhance its safety and quality standard and better positioned for greater growth.

*Singpost
- 62.5%-owned Famous Holdings has acquired the remaining 10% stake of Famous Pacific Shipping (NZ) for NZ$0.53m ($0.51m).
- NAV of the acquired firm is NZ$2.8m as of 31 Dec '17.

*Singapore Medical Group
- Reallocated $1.7m of unutilised proceeds from its private placement for M&A opportunities and growing its existing business (prior: expansion into other South East Asia countries).

*The Trendlines
- Appointed as one of the partners along with venture cap firm, K2 Global, under the Startup SG Equity scheme (SSC) administered by SPRING SEEDS Capital, Singapore govt's investment arm.
- To recap, SSC announced $100m investment allocation to groom start-ups and issued a call to appointed partners to co-invest in health and biomedical science fields in Jul '17.
- As such, the group will collaborate with Singapore-based K2 Global to invest in medical technology seeking Series A funding.
- The partnership enables the group to leverage on its expertise in grooming medical technology companies, while K2 Global provides growth capital to support scaling of operations.
- Both parties anticipate co-investing with SSC in more than 11 companies over the next 8 years.