Excerpts from analysts' reports

CIMB highlights likelihood of maiden dividend from China Minzhong

Analysts: Kenneth Ng, CFA, & Lee Mou Hua

minzhong_percentage2012*As a % of total revenue less sales of mushroom spores, bamboo related products and branded processed products. Image: annual reportMinzhong’s investor relations manager, Dave Tan, participated in CIMB’s annual Asia Pacific conference in Kuala Lumpur on 19-20 June. The key takeaways from his meeting with investors are:

1) it will be the cultivation business rather than the processed business that will drive earnings. And to capitalise on this, it will be ramping up industrialised farming facilities. Management is targeting to open three new facilities in Tianjin, Jiangsu and Sichuan.

2) Indofood is likely to get a board seat but this tie-up will take time to yield significant impact on earnings. Supply contracts for the processed business can be achieved within six months but the potential JV to build cultivation facilities in Indonesia will take time.

3) The board is seriously considering paying dividends in FY13 but nothing is firm yet. It is possible that Minzhong will look to match Indofood’s 40% payout over time. FY13 operating cash flow is guided to be about Rmb700m-800m.
What We Think: The key re-rating catalysts will be Indofood getting a board seat and dividends. These two events should ease corporate governance concerns.
Although free cash flow in FY13 will be low given management guidance that free cash flow will hit a below-expectation Rmb1bn, we think dividends are still possible because of Indofood’s Rmb455m cash injection. A 10% payout would translate into a
yield of 2.2%. 

We raise out target price to ($1.27) a 10% premium to sector average (4.5x CY14 P/E).

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Maybank Kim Eng says Vard Holdings has most attractive valuation among O&M stocks

Analyst: YEAK Chee Keong, CFA

Vard’s share price is off its low of SGD1.015 following an unwarranted selldown previously. While there are some easing of concerns over margins and order intake, further rerating would need to be triggered by real order wins which we believe would gather pace towards 2H13.

Vard has the most attractive valuations among the O&M stocks under our coverage, trading at 5.8x FY14F PER, 5-6% forward dividend yields and FY13-15F ROEs of >25%.

Reiterate Buy and TP of SGD1.65.

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#1 James 2013-06-28 15:04
The guidance on 28 June is not pretty:

"While the Company remains confident in the long-term potential of the Brazilian market, the
overall industrial context in Brazil is still challenging, being characterized by high personnel turnover and very high pressure in the subcontracting market.

"As a consequence, based on a revised assessment of the status of operations in Brazil, it is
expected that financial results for the period ending 30 June 2013 (“2Q 2013”) will be lower than the current consensus market estimates. Margins are impacted by further delays and cost
overruns at the Niterói yard due to lower productivity than expected, additional costs for
outsourcing of hull construction activities to subcontractors, and revisions to the estimates of start-up costs at the new shipyard, Vard Promar."

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