Personal opinion on 2 top picks 1. Eratat Lifestyle Closing px on 21 Jan 11: $0.250 Potential upside on 31 Mar: 26% Rationale: a) Order book visibility: According to SIAS Research, the balance of RMB236m, together with any additional restocking by distributors and contribution from third party footwear would be recognized in 4QFY10. Coupled with the RMB477m orders won (to be delivered from January to June this year), this lends earnings visibility. b) Successful reposition as a casual lifestyle wear manufacturer: The recovery of its gross margins and rise in order books lend credence to its successful repositioning as a casual lifestyle wear manufacturer. c) Cheap valuations: At approx 4x FY11F PE, it is cheap relative to its strong earnings growth, improving margins and strengthening order books. 2. China Taisan Closing px on 21 Jan 11: $0.185 Potential upside on 31 Mar 11: 38% Rationale: a) According to mgmt, it is sanguine in 2011 as it expects to get more orders from existing customers and clinch new customers. Furthermore, the aggressive expansion from 24,000 tonnes in 2010 to 39,500 tonnes in 2012 reflects the strong recovery in the textile industry. b) Possible dividend surprise: With the strong profits registered in 9MFY10, it is likely that mgmt will distribute a significantly higher dividend than FY09, possibly even rivaling that of the dividend of RMB8.15cts distributed for FY08. c) Cheap valuations: At 4.5x FY11F PE, it is cheap relative to its strong earnings growth, possible dividend surprise, improving margins and sanguine industry outlook.
Taisan did a placement of 30 million new shares in May 2010.
The company issued another 125 million new shares in Sep 2010 for the TDR listing. Total share capital now is an astounding 1,109,587,735!
Compare that with Foreland, zero placement and the market has re-rated the stock about 50% in a few weeks, in anticipation of strong FY10 and FY11 earnings.
China increase reserve ratio of banks again.. This after the interest rate hike recently. Think s-chip is going to face further selling pressure. The hikes and tightening of credit is coming fast and furious. This could be the third whammy for s-chips after accounting scandal, japan crisis. Given that many of the readers' choice are of s-chips. Get ready for rough ride. Mid to long term, valuation is good, short term think there isn't much chance for a strong rally even after the japan crisis is settled. (quickly, I hope. Power is brought back quickly and the reactor gets cool)
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