DMG's forecast for Hi-P's performance.
DMG & Partners initiates coverage of HI-P with 87-cent target
Analysts – James Lim & Terence Wong: We believe that the market has already priced in a dismal 3Q09 for Hi-P given that management has officially mentioned it is anticipating much lower revenue and net profit YoY in the coming quarter – we nevertheless expect the company to recover and record net earnings growth in FY10.
Valuations-wise, relative to its peers, Hi-P is looking attractive as it trades at just 8.2x FY09F P/E as compared to the industry average of 10.1x. As we are of the opinion that Hi-P should trade up to such a valuation, we initiate coverage with a BUY recommendation with target price of S$0.87.
Blackberry 8220
The pros... We have compared Hi-P against its SGX-listed peers and found that the company has historically commanded the highest net margins amongst all of them, a testament to its efficient cost structure. Other positives of Hi-P include its strong balance sheet, its vertically integrated model, established track record and a bullish macro outlook in the smartphone space.
And the cons... Hi-P’s 3Q09 results are not expected to see any growth due to some of its existing product lines ceasing earlier than expected – we believe this is mainly attributed to the muted demand for the BlackBerry Storm. Competition in the smartphone space is also yet another negative aspect.
NextInsight story: HI-P INT'L: Chairman is still fighting fit at 69
DBS Vickers maintains ‘sell’ rating on MERCATOR
Analyst – Chong Wee Lee: Mercator announced at mid-day trading break that it has taken delivery of its first Post-Panamax vessel, named Chaitali Prem. Our concerns remain on the expected delivery of another chartered-in Post-Panamax vessel by Mercator in 2009, and one in 2010.
These two vessels will be bareboat chartered in at US$25,300-27,000 per day each, and Mercator has yet to secure back-to-back chartered-out contracts for them. We expect Mercator to face pressure from the still depressed freight rates for newly delivered vessels that are without chartered-out contracts, and contract renewals for existing vessels.
Our target price for Mercator is S$0.26, using 0.6x Price to Book ratio. Maintain SELL on Mercator, due to the lack of price catalysts and a still vulnerable shipping market.
Daiwa Institute of Research downgrades CAPITALAND
Analyst – David Lum: We have downgraded our rating for Capitaland to 3 from 2 after the government’s announcement (on 14 September) of measures to ensure a ‘stable and sustainable’ property market, including a surprise (in our view) withdrawal of the Interest Absorption Scheme (IAS).
We expect CapitaLand’s shares, a proxy for the Singapore property sector, to be pulled down by the negative sentiment.
A different share-price driver: We see CapitaLand’s share-price driver as deal flow (capital productive announcements, including the possibility of monetising its China-mall assets or a major acquisition) and not the state of the Singapore residential market, although the company is poised to launch The Interlace next month. We have not changed our earnings forecasts.
Six-month target-price lowered to S$3.84 from S$4.30: We have lowered our six-month target price, to S$3.84, based on a reversion to its average premium to NAV (based on our estimates) of 29% over the past five years, from S$4.30 (based previously on one-half standard deviation above the average NAV premium). We have not changed our NAV estimate of S$2.98.
