Analyst: Carey Wong
Li Heng Chemical Fibre (LHCF) reported a decent set of 1Q10results. Revenue rose 20.3% YoY to RMB568.3m, or about 7.6% above our forecast, while net profit surged 5.8x YoY to RMB59.6m; however if we exclude the impact of forex, core earnings would have still jumped by an impressive 90.0% to RMB58.8m, which was also 35.8% ahead of our estimate.
We note that the stronger-than-expected showing came from a better-than-expected recovery in gross margin from 12.9% in 1Q09 to 15.9%; this was also slightly ahead of the management's target of just 15.0%, likely boosted by the increased efficiency of its new PA chip plant, which helped to lower its cost of production.
More importantly, we are pleased to see continued sequential improvement, where revenue added 3.0% and core net profit climbed 49.2% QoQ despite the first quarter being the traditionally slower one.
Where Li Heng is in the value chain. Source: annual report
Going forward, management retains its cautiously optimistic outlook but notes that uncertainties remain; we will also be checking with LHCF to get more details on the impact of the anti-dumping tariffs recently imposed on imported PA chips.
We will have more after an analyst briefing -meanwhile, we maintain our BUY rating but put our S$0.34 fair value under review.
Credit Suisse says Genting is ‘one of the most expensive casino stocks in the world’
Analyst: Loke Foong Wai
UK impairment: Genting Singapore’s (GENS) 1Q10 results were hit by a S$478 mn impairment relating to its UK gaming operations, and we have cut our FY10 estimates to a net loss of S$76 mn to reflect this.
■ Boosted by Singapore contributions: GENS’s revenues were boosted by S$335 mn of maiden Singapore revenue, which is largely attributed to the casino and hotels (as the theme park only opened in mid-March). Singapore contributed S$109 mn of EBITDA, thanks to the Chinese New Year festivities (traditionally a peak season for gaming) and GENS was also the sole casino operator in Singapore.
Given the short duration captured in the1Q10 results, the seasonality factor and lack of competition, we caution against relying too heavily on the 1Q10 data as an indicator of sustainable business levels for GENS.
Source: Credit Suisse
■ Weaker margins ahead?: The 33% 1Q10 EBITDA margin for its Singapore operations is in line to our forecasts but there is risk of weaker margins ahead due to: 1) junket operations beginning in 2Q and 2) higher theme park contributions.
■ Rich valuations: GENS is one of the most expensive casino stocks in the world, trading at FY10E EV/EBITDA of 16.5x. It is also expensive relative to other Singapore large cap stocks. As such, we continue to maintain our UNDERPERFORM rating.
