DMG takes stock of S-CHIPS after 2Q results
Analysts: Tan Han Meng CFA, CPA & Terence Wong CFA
2Q results slightly below expectations. Out of our S-Chips universe that had reported their results, three (25%) came in above, four (33%) were in line and five (42%) fell below
expectations.
Those that surprised on the upside include Sino Grandness and Yangzijiang (BUY, TPS$1.62). In the current quarter, HL Asia (BUY, TPS$2.38) and Yamada had witnessed margin pressure, while Fuxing China (BUY, TPS$0.14) cautioned on its industry outlook.
Post 2Q results, we have revised down five companies’ estimates (versus two earnings upgrades) and 11 S-Chips’ target prices, except for Sino Grandness. We expect FY11F net profit growth to average 25% (down from 30% in 1Q) to support price appreciation.
Continue to like food and environmental plays. Based on our available quarterly estimates, the coming 3QCY11 earnings are unlikely to excite. We continue to like upstream food-related players e.g. China Animal HC, China Minzhong and Yamada; and environment counters e.g. Leader Environmental and Sound Global.
One could ride on Sino Grandess’ growth momentum as it expands its beverage distribution network in China. Also, one might want to consider Midas. We believe at historical trough of 0.8x P/B (vs. 2007 trough of 1.4x), concerns over the future of PRC railway industry and a dwindling order book are likely to be in the price.
Kim Eng highlights Hu An Cable's significantly expanding production capacity
Analyst: Eric Ong
Hu An is planning to launch five new production lines, which are expected to be ready in 3Q11. Upon completion, this would double the production capacity in the mid-to-high-end power cable segment.
The group is also in the process of installing two ultra-high voltage power cable production lines due in 1Q12.
Hu An has posted a decent set of 1H11 results, which saw net profit grew by 11.6% YoY to RMB62.2m on the back of a 35% increase in revenue. The group is poised to benefit from the huge capex plans in the renewable energy sector by the Chinese government.
Valuation-wise, the stock currently trades at FY11 consensus PER of about 6.5x.
Recent story: HU AN CABLE: 1H2011 revenues up 35%; strong orders from power sector
NRA Capital says Foreland Fabrictech stock has 70% upside potential
Analyst: Lee Khai Chian
Foreland (FLFT) recorded another quarter of impressive profits. While other textile players whiffed signs of weakness in their business in the coming quarters, unbelievably, FLFT continues to see demand staying strong through the year end.
We revised our earnings forecast up by 32% in FY11 and 5-7% in FY12-13 to reflect 2Q’s outstanding results.
In view of the strong earnings, we raise our target price to 19.4 cts (prev 17 cts), based on a 40% discount (prev 30%) to 7x FY11 PER, given market’s current cautiousness and skepticism towards China issues.
We also view that smaller issues are unlikely to be re-rated unless market turns around which will not be for some time yet. The TP represents upside potential of 70%.
Recent story: FORELAND: Magic show of fabric technology
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