Summary: China's GDP per capita has grown by an impressive 10% p.a. for the last two years, and economic indicators continue to paint a rosy outlook for the economy, setting the stage for continued growth of China companies. We expect the interest in S-Shares to sustain in 2008, bolstered by the influx of QDII funds as well as the introduction of the FTSE ST China Index. Among the universe of S-Shares, we like the Consumer sector for its ability to leverage on China's strong consumption growth, and the Manufacturing sector for its strategic advantage of having a low cost manufacturing base.
Our stock picks are:
Cacola Furniture International Ltd (BUY, Fair value estimate of S$0.75),
Man Wah Holdings Ltd (BUY, S$0.99),
China Sports International Ltd (BUY, S$2.4,
Pacific Andes Holdings Ltd (BUY, S$0.87) for the consumer sector,
Bright World Precision Machinery Ltd (BUY, S$0.80),
Dutech Holdings Ltd (BUY, S$0.535),
Midas Holdings Ltd (BUY, S$1.85)
Midsouth Holdings Ltd (BUY, S$0.90) for the manufacturing sector.
(Lee Wen Chin, Kelly Chia & Research Team)
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Tat Hong Holdings Ltd: Crane load of development projects
Summary: We are optimistic that the order momentum for the construction and infrastructure sectors will roll over into 2008, especially from the slew of planned projects in the petrochemical, industrial and commercial sectors. We view Tat Hong Holdings Limited (THH) as a direct beneficiary of these investments. In addition, we believe that the quantum of global construction investments, especially in the oil and petrochemical sectors, has only began to peak. The result is a further tightening of supply capacity, coupled with rising crane rental rates on the back of the high utilisation rates and tight supply crunch environment. As for its overseas operations, we believe THH, through its respective subsidiaries, will continue undertaking the M&A strategy to make further inroads into both China and Australia. Against this backdrop of the budding construction outlook and THH's growth potential, we are raising our FY08F and FY09F earnings to S$107.1m and S$147.0m respectively to account for the healthy earnings visibility. Our fair value is now S$4.02 based on 16x FY08/09 forecasted earnings. Maintain BUY. (Serene Lim)
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Chartered Semiconductor: Reiterates muted 4Q07 outlook
Summary: Chartered Semiconductor has reiterated its disappointing outlook for 4Q07 as the quarter is essentially progressing in line with what it had anticipated earlier. During its 3Q07 results, Chartered guided for revenue to fall 2-6% QoQ to US$334-346m while net profit is expected to come in at US$1-11m. It was also looking for ASP to vary between -3% and +1% QoQ at US$858-898, and with utilization rate to hover at around 78-84%. But things are unlikely to improve much in 1Q08, which is seasonally the slower quarter. And for the rest of the year, there may be a risk that a sharp slowdown in the US economy could dampen the expected recovery from 2Q08 onwards. We are leaving our estimates for 4Q07 and FY07 unchanged but have revised down our FY08 numbers marginally to reflect a more cautious outlook for the semicon industry. We are also paring our fair value from S$1.13 (based on 1.3x blended FY07/FY08F NTA) to S$1.04 (1.2x FY08F NTA). We continue to retain our HOLD rating. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- Delong Hldgs said its production capacity of steel coils has been boosted by 25% to 3m tones a year with the commissioning of a new blast furnace.
- AsiaPharm Group has appointed Sandoz, a subsidiary of the Novartis pharmaceutical group, as its sole distribution partner in China for a proprietary drug used in treating Parkinson's disease.
- STATS ChipPac is postponing the termination of its American Depositary Receipts program.
- Koh Brothers has won a S$78.9m contract to build a range of teaching and hostel facilities at Boon Lay Avenue.
- KTL Global, which debuts on SGX Mainboard today, announced that its IPO of 40m shares at S$0.28 was 11.3 times subscribed.
- Mercator Lines (IPO price S$0.76), an Indian-owned dry bulk shipping company, will also debut today am on SGX.
- CWT Ltd has secured a 256k sq ft of land for S$5m in Yangshan, China with plans to build a new logistics facility, its third in China, with an estimated capex of S$15m.
- Transpac Industrial Hldgs has granted a call option to UBS to buy 49.8m of its shares in Hsu Fu Chi at US$1.0048 each within 2 years.
- China New Town Dev posted a RMB220m loss in 3Q versus a gain made in the same period last year. The firm attributed the loss to zero sales of land infrastructure in the quarter.
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