DBSVickers Report - 30 Nov 2007

Cerebos A good year and another bumper payout in Feb’08

Story: Cerebos Pacific reported a good set of FY07 results, which were slightly above our expectations.

Point: Topline grew 13%, while net profit ended at S$84.4m, up 21% from a year ago. The better-than-expected growth was largely from (i) slower operating expenses growth vis-à-vis topline; and, (ii) a lower effective tax rate against our forecasts. We adjusted our FY08F forecasts up slightly by 4% to account for higher sales growth from its businesses.

Relevance: We like this defensive counter for its steady business, geographical and business diversification spanning numerous countries across the Asia Pacific region and businesses, namely Health Supplements, Coffee and Sauces. More importantly, it pays out good dividends and, in our opinion, is likely to continue to do so. The proposed dividend of 25 Scts works out to rather attractive yields of around c. 6%. It also has a strong operating cashflow and is in a net cash position (about S$107m or S$0.34/share), which would come in handy should it decide to pursue more aggressive expansion plans. We maintain our BUY recommendation, TP raised marginally to S$4.65 as we roll our valuations to blended FY08/09 earnings, based on 16x PER.

MAP Technology HDD best buy: Growth, value & dividend

Story: MAP Tech is a dominant voice coil motor (VCM) plates and external hard disk drives (EHDD) supplier to Western Digital (WD), the faster growing of the two hard drive titans dominating the market currently. MAP Tech’s core competencies are metal stamping and PCB assembly with full box-build.

Point: Through WD, MAP Tech is a major beneficiary of the Seagate/Maxtor consolidation. Not only can MAP Tech participate in the growth of WD, it is also winning market share from competitors whose performance has deteriorated post buyouts. We believe MAP Tech has the potential to grow faster than the broader HDD industry (c.12-15% pa), as the company is also capturing more products (eg top cover) with WD. Additionally, the company has diversified into new businesses like auto and renewable-energy related products for its next phase of growth. All things considered, we expect net profit to grow 53% and 46% in FY07 and FY08 respectively.

Relevance: Apart from being the cheapest HDD proxy in Singapore at 5x FY08 PER and 1.5x P/B, compared to sector average of 8-9x FY08 PER and 2x P/B, MAP Tech has 7.5cts cash per share, generates strong free cashflow and maintains 25-30% ROE. As such, the stock offers attractive dividend yield of 5-7% based on conservative payout of 35%. Recommend Buy with target price of S$0.50 based on 8x FY08 earnings