Best World: (S$0.345) Direct seller gaining traction; entry into Growth portfolio
Best World's 9M15 earnings soared 219% y/y to $6.4m, exceeding FY14’s record $4.1m (+84%). This was achieved mainly from operational leverage on revenue growth of 21% to $60.7m, attributed to strong contribution from Taiwan and China, due to greater product demand from increased customer acceptance.
Best World is a multi-channel distributor which sells premium skincare, personal-care, nutritional and wellness products. It is also the only direct-selling company listed on SGX, and has presence in 10 countries across the region, supported by a sales force of 388,138 members.
The company is awaiting its direct selling licence in China, and according to management, is expected sometime between Mar 2016 and Mar 2017.
It has already gained entry into this market since 2014 via two distribution channels, export and wholesale. Management guides that products in China grew at a steady pace and saw a tipping point in 4Q14 on customer acceptance.
If the direct selling licence is obtained, management foresees a rise in profitability, stemming from a shift in sales mix and further operational leverage.
As at end-3Q15, Best World had net cash of $39.9m or $0.181/share. This represents 53% of its current market cap, underpinned by free cash flow generation of $8.7m in FY14.
Based on FY14’s payout ratio of 43.5% and trailing 12M profit, dividend yield is at a respectable 4.8% at $0.345/share. The stock is currently priced at 9x trailing P/E and 4.3x on an ex-cash basis, compared to larger peers’ average of 14.2x.
As such, we are including Best World into Market Insight Growth portfolio with an entry price of $0.345.
Tuesday, December 8, 2015
SMRT
SMRT (S$1.515): Is market jumping the gun over potential rail takeover by LTA?
CIMB cautioned about excessive optimism after SMRT surged 5.4% last Fri amid a speech by Transport Minister Khaw Boon Wan fuelled speculations that the government may take over the rail operations on favourable terms.
During an infrastructure forum on 4 Dec, Mr. Khaw highlighted that the Land Transport Authority (LTA) must establish a team to take on rail operations and maintenance, spurring talks that the government may nationalise Singapore’s rail operators.
While the house acknowledges that SMRT would benefit if it can unlock capital from its rail assets, it sees two key obstacles that hinder the group from receiving favourable terms for a potential asset transfer to the government:
1) SMRT’s asset purchase obligation of $2b under the old rail regime to buy over rail assets from the LTA between 2014 and 2019
2) Government’s objective to juggle interest of the general public and rail operators
These factors are expected to handicap the group during future negotiations for a possible handover of rail operations to the LTA.
Consequently, the foreign broker warned that terms for a potential rail asset transfer could turn out unfavourably for SMRT and the recent surge in share price suggests market may be overly bullish.
The house reiterates its Reduce rating with an upward revised TP of $1.37.
CIMB cautioned about excessive optimism after SMRT surged 5.4% last Fri amid a speech by Transport Minister Khaw Boon Wan fuelled speculations that the government may take over the rail operations on favourable terms.
During an infrastructure forum on 4 Dec, Mr. Khaw highlighted that the Land Transport Authority (LTA) must establish a team to take on rail operations and maintenance, spurring talks that the government may nationalise Singapore’s rail operators.
While the house acknowledges that SMRT would benefit if it can unlock capital from its rail assets, it sees two key obstacles that hinder the group from receiving favourable terms for a potential asset transfer to the government:
1) SMRT’s asset purchase obligation of $2b under the old rail regime to buy over rail assets from the LTA between 2014 and 2019
2) Government’s objective to juggle interest of the general public and rail operators
These factors are expected to handicap the group during future negotiations for a possible handover of rail operations to the LTA.
Consequently, the foreign broker warned that terms for a potential rail asset transfer could turn out unfavourably for SMRT and the recent surge in share price suggests market may be overly bullish.
The house reiterates its Reduce rating with an upward revised TP of $1.37.
SGX
SGX: (S$7.50) New structure to address challenges ahead
SGX is reorganising its business structure as it seeks to be an investment gateway to Asia.
The move will place greater emphasis on product lines over operational functions from the start of 2016 with the integration of its sales and product teams to form three vertical businesses - equity and fixed income, derivatives, and market data & connectivity.
Operational functions that are currently run by the sales and listings unit will now be split into the newly created businesses thus helping to reinforce the exchange’s priorities across its product offerings.
The new structure will also consolidate its international offices in China, Hong Kong, India, Japan, and UK into a new single unit called the Membership & International Coverage unit. The unit will develop specific country strategies to drive adoption of its products and services on an international scale.
The SGX will be hoping that the new, flatter organisational structure will help it take on the challenge of improving market liquidity and attract listings after Nov’s operating statistics pointed to a declining trend of securities turnover (-13% y/y) and daily traded volumes (-13% y/y).
In line with the weaker operating statistics as well as listing figures, a foreign broker downgraded the counter to Neutral from Outperformance with a TP of $8 from $10 as it feels that the weak equity market volumes would weigh on its overall financial performance given that equities account for 30% of the exchange’s topline.
Upside catalysts include better market trading volumes, IPOs, secondary capital raisings, and the success of new product launches such as forex products.
The counter is currently trading at 22.2x forward P/E. The street is relatively neutral on the counter with 8 Buy, 8 Hold, and 3 Sell ratings with a consensus TP of $8.04.
SGX is reorganising its business structure as it seeks to be an investment gateway to Asia.
The move will place greater emphasis on product lines over operational functions from the start of 2016 with the integration of its sales and product teams to form three vertical businesses - equity and fixed income, derivatives, and market data & connectivity.
Operational functions that are currently run by the sales and listings unit will now be split into the newly created businesses thus helping to reinforce the exchange’s priorities across its product offerings.
The new structure will also consolidate its international offices in China, Hong Kong, India, Japan, and UK into a new single unit called the Membership & International Coverage unit. The unit will develop specific country strategies to drive adoption of its products and services on an international scale.
The SGX will be hoping that the new, flatter organisational structure will help it take on the challenge of improving market liquidity and attract listings after Nov’s operating statistics pointed to a declining trend of securities turnover (-13% y/y) and daily traded volumes (-13% y/y).
In line with the weaker operating statistics as well as listing figures, a foreign broker downgraded the counter to Neutral from Outperformance with a TP of $8 from $10 as it feels that the weak equity market volumes would weigh on its overall financial performance given that equities account for 30% of the exchange’s topline.
Upside catalysts include better market trading volumes, IPOs, secondary capital raisings, and the success of new product launches such as forex products.
The counter is currently trading at 22.2x forward P/E. The street is relatively neutral on the counter with 8 Buy, 8 Hold, and 3 Sell ratings with a consensus TP of $8.04.
CDL
CDL: Maybank-KE believes 2H15 share-price weakness is arguably caused by a tepid office market.
Due to lower investment-property valuations, house cuts RNAV by 4% to $12.22 and lowers its TP to $10.40.
However, CDL currently trades at a 40% discount to RNAV and Maybank-KE believes this is not warranted as it implies stub valuations during GFC period.
With any roll-back of cooling measures, home sales may be revived and CDL has multiple options to monetise held-at-cost assets.
The counter is now Maybank-KE's top sector pick.
Due to lower investment-property valuations, house cuts RNAV by 4% to $12.22 and lowers its TP to $10.40.
However, CDL currently trades at a 40% discount to RNAV and Maybank-KE believes this is not warranted as it implies stub valuations during GFC period.
With any roll-back of cooling measures, home sales may be revived and CDL has multiple options to monetise held-at-cost assets.
The counter is now Maybank-KE's top sector pick.
SGX
SGX: CS downgraded the counter to Neutral (from Outperform), with TP of $8.00 (from $10.00), given continued weak market activity.
The key investment case for SGX is the longer-term growth through both equities growth and success in its strategy to become an Asian regional gateway, with derivatives being the medium-term driver.
Nearer term, its fortunes are more linked to current equity market volumes.
The key investment case for SGX is the longer-term growth through both equities growth and success in its strategy to become an Asian regional gateway, with derivatives being the medium-term driver.
Nearer term, its fortunes are more linked to current equity market volumes.
SG Market (08 Dec 15)
Singapore Market: Investors will likely trade with caution today, following the tumble in oil price overnight. Oil-related companies are likely to weigh from further pressure to the gloomy industry climate that is plagued by oversupply issues and margin pressures.
Regional bourses opened mixed today in Tokyo (+0.2%), Seoul (+0.1%) and Sydney (-0.7%).
From a chart perspective, the STI faces immediate resistance at 2,905 (20-dma), with downside support at 2,865.
Stocks to watch:
*SGX: Announced changes to its organisational structure to better serve clients and improve operational efficiency.
*Rowsley: Signed MoU with Thomson Medical for a strategic partnership to develop the RM5b Vantage Bay Healthcare City project in Iskandar, Johor, Malaysia. Thomson Medical will advise on the wellness and healthcare aspects of the project.
*Roxy-Pacific: To acquire two vacant land sites in New South Wales, Australia, for A$67.4m. The area comprises two city fringe residential development sites with an aggregate land area of 7,125 sqm, with a development potential of 248 residential units.
*TTJ: 1QFY16 net profit dipped 1.7% y/y to $4.1m despite firmer revenue of $25.6m (+3.6%), due to positive contribution in its structural steel business. Gross margin was relatively stable at 30.2%, but bottom line was hit by FX losses, partially offset by lower staff cost.
*Jumbo: 70% owned subsidiary, JBT F&B Management (Shanghai) established a new branch office in Pudong, Shanghai for the opening of a third Jumbo Seafood outlet in China, at Shanghai IFC tower in Jan '16.
*Spackman: Signed a production contract worth US$3.6m, for a chinese reality series to be aired on China's state-owned network, CCTV.
*mm2 Asia: Proposed placement of 6.4m new shares at $0.7872 apiece, to Hesheng Media (1.3m), Apex Capital (2.5m) and Maxi-Harvest Group (2.5m). Net proceeds of $5m will be used to improve its cash flow and pursue M&A opportunities.
*AsiaMedic: Proposed placement of 51.5m new shares at 5.5¢ apiece, to five individual subscribers. Estimated net proceeds of $2.8m is intended to expand its healthcare business.
*China Environment: In negotiation with CITIC bank for a partial loan repayment of Rmb14m and refinancing of the outstanding Rmb30m into a new mortgage loan. The process is expected to be completed within two weeks.
Regional bourses opened mixed today in Tokyo (+0.2%), Seoul (+0.1%) and Sydney (-0.7%).
From a chart perspective, the STI faces immediate resistance at 2,905 (20-dma), with downside support at 2,865.
Stocks to watch:
*SGX: Announced changes to its organisational structure to better serve clients and improve operational efficiency.
*Rowsley: Signed MoU with Thomson Medical for a strategic partnership to develop the RM5b Vantage Bay Healthcare City project in Iskandar, Johor, Malaysia. Thomson Medical will advise on the wellness and healthcare aspects of the project.
*Roxy-Pacific: To acquire two vacant land sites in New South Wales, Australia, for A$67.4m. The area comprises two city fringe residential development sites with an aggregate land area of 7,125 sqm, with a development potential of 248 residential units.
*TTJ: 1QFY16 net profit dipped 1.7% y/y to $4.1m despite firmer revenue of $25.6m (+3.6%), due to positive contribution in its structural steel business. Gross margin was relatively stable at 30.2%, but bottom line was hit by FX losses, partially offset by lower staff cost.
*Jumbo: 70% owned subsidiary, JBT F&B Management (Shanghai) established a new branch office in Pudong, Shanghai for the opening of a third Jumbo Seafood outlet in China, at Shanghai IFC tower in Jan '16.
*Spackman: Signed a production contract worth US$3.6m, for a chinese reality series to be aired on China's state-owned network, CCTV.
*mm2 Asia: Proposed placement of 6.4m new shares at $0.7872 apiece, to Hesheng Media (1.3m), Apex Capital (2.5m) and Maxi-Harvest Group (2.5m). Net proceeds of $5m will be used to improve its cash flow and pursue M&A opportunities.
*AsiaMedic: Proposed placement of 51.5m new shares at 5.5¢ apiece, to five individual subscribers. Estimated net proceeds of $2.8m is intended to expand its healthcare business.
*China Environment: In negotiation with CITIC bank for a partial loan repayment of Rmb14m and refinancing of the outstanding Rmb30m into a new mortgage loan. The process is expected to be completed within two weeks.
Monday, December 7, 2015
NOL
NOL: (S$1.225) Time to exit with CMA CGM's $1.30/share offer?
The world’s number three (by capacity) container shipping company, CMA CGM has offered to snap up Neptune Orient Lines (NOL) for $3.4b (US$2.4b), or $1.30/share.
The deal is expected to be complete by mid-2016, subject to regulators' approval.
Substantial shareholder Temasek Holdings has given its undertaking to sell its 66.8% stake in NOL, on condition that the deal is completed within 12 months.
The offer price is 6.1% above the last close and represents a slight discount to NOL’s NAV/share of $1.36 (US$0.97).
However, market observers note that the five container terminals in the group’s portfolio have not been marked to market and could therefore mean the group's NAV is undervalued.
As at end-3Q15, NOL operates 89 vessels and has five container terminals in the US, Japan and Taiwan. It also has stakes in terminals in Vietnam, China, and Thailand.
That being said, the offer does provide for a good exit plan for weary investors who have now seen consecutive losses for the past eight quarters amid the industry structural decline.
Trading in NOL's counter is currently halted pending an official announcement to resume trading.
The world’s number three (by capacity) container shipping company, CMA CGM has offered to snap up Neptune Orient Lines (NOL) for $3.4b (US$2.4b), or $1.30/share.
The deal is expected to be complete by mid-2016, subject to regulators' approval.
Substantial shareholder Temasek Holdings has given its undertaking to sell its 66.8% stake in NOL, on condition that the deal is completed within 12 months.
The offer price is 6.1% above the last close and represents a slight discount to NOL’s NAV/share of $1.36 (US$0.97).
However, market observers note that the five container terminals in the group’s portfolio have not been marked to market and could therefore mean the group's NAV is undervalued.
As at end-3Q15, NOL operates 89 vessels and has five container terminals in the US, Japan and Taiwan. It also has stakes in terminals in Vietnam, China, and Thailand.
That being said, the offer does provide for a good exit plan for weary investors who have now seen consecutive losses for the past eight quarters amid the industry structural decline.
Trading in NOL's counter is currently halted pending an official announcement to resume trading.
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