Excerpts from latest analyst reports…
CIMB says HU AN CABLE on track to meet (or better) its 4Q profit forecast
• Yesterday, the China-based management team from Hu An Cable hosted a conference call to address issues about rising copper prices and outlook for the Group. Given that copper is the key input (raw material) for producing the Group’s products (cables, wires and rods), the run up in copper prices in 4Q10 may have induced fears about pressure on profitability.
• According to the management, rising copper prices have minimum impact on the Group’s profitability as it is able to pass through the higher costs to its customers. When the company secures an order from its client, it would immediately place an order for the required raw material with its suppliers.
As a guideline, Hu An Cable is committed to securing at least 80% of the raw material requirements on the award of a contract. During periods of fast-rising copper prices, the Group may purchase up to 120% of its copper requirements.
• In fact, Group Chairman, Mr Dai, sees the rising copper price trend as a slight positive for Hu An. The company has observed a pick up in the number of projects put out for tender by customers in 4Q10 versus the previous quarter, and Mr Dai attributes this to customers who are eager to lock in orders at current level of copper prices.
• A check with the management indicates that the strong projects momentum from 3Q continued into 4Q10. As such, we believe that the company is track to meet (or better) our 4Q10 net profit forecast of RMB40m.
• With a 9M10 net profit that has exceeded net profit for full year 2009, we expect Hu An to declare healthy dividends for 2010. We believe that the potential dividend payout should be stable relative to FY09 (1 scts; yield of 2.5%).
• Reiterate our BUY call, and target price of S$0.64.
Recent story:HU AN CABLE: Powering up for greater investor interest
DMG comforted by Wilmar’s briefing on property venture
We came away from Wilmar’s briefing on its venture into property development in China comforted that it would not be to the detriment of the company’s business focus. Though a very different product compared to its existing agribusiness, this new endeavour will essentially ride on China’s rapid urbanization and rising wealth, which are the very same factors driving its agribusiness there.
We also think the risk relating to the project is very much contained and the downside minimal. The recent decline in its stock price should have factored in the uncertainty over the property venture.
We are reiterating our Buy on Wilmar, with an unchanged S$7.88 target.
No loss of focus on agribusiness. Management stressed that Wilmar will continue to be focused on the agribusiness, having invested US$3bn last year and would likely invest as much this year. The venture into property development is very much opportunistic in nature although it may grow the business further.
Leveraging on existing network. Wilmar currently has operations in more than 30 cities in China. These are locations which the company is very familiar with and where it can leverage on its local knowledge and relationships in relation to its property venture. Management stressed that it will not undertake property development in cities where it does not have a presence. Neither would it buy land in tier-1 cities where prices have skyrocketed as a measure to contain risk.
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