DBSVickers Report - 25 Feb 2008

Meiban Group (Buy S$0.39; MEI SP)
Maintaining its stride Price Target : 12-Month S$ 0.68 by Ai Teng Tan +65 6398 7967 and Sachin Mittal +65 6398 7950

Story: Meiban reported an impressive set of 4Q07 results. Net profit of S$7.5m (+133% y-o-y, -3% q-o-q) exceeded our S$6.1m forecast on further margin expansion and lower tax rate. Notwithstanding a lower than expected sales of S$146.2m (+12% y-o-y, -14% q-o-q) vs our forecast of S$150.3m, gross margin improved 30bp sequentially to 12.3%, thanks to better sales mix. For the full year, Plastic surged 35% on higher HP orders whilst organic growth and new model introductions by Dyson propelled Contract Manufacturing to expand 19%. Fundamentally, Meiban continued to generate positive free cashflows and ended the year with a strong balance sheet and net cash of S$5m.

Point: Although prevailing macroeconomic uncertainties have yet to improve, we remain positive that Meiban has a good chance of holding bottomline stable instead of negative growth because 1) it is still gaining market share for HP’s products from a weakening competitor; 2) HP (20% of sales) has guided positively for growth in FY08; 3) Aggressive new products in the pipeline from Dyson (50%) to capture new market segment; and 4) further margin expansion, courtesy of vertical integration as Meiban undertakes production of higher margin critical components ( cyclone) which were previously outsourced. As such, we are maintaining FY08 net profit of S$23m, indicating flat bottomline.

Relevance: In addition to compelling valuations of 5.7x PER and 1x P/BV, Meiban pays a handsome dividend of almost 11% dividend yield. We are maintaining our Buy rating and fair value of S$0.68, based on 10x FY08 earnings.

SembCorp Marine (Buy S$3.53; SMM SP) Confidence restored
Price Target : 12-month S$ 4.88 (Prev S$ 5.15) By: Jesvinder Sandhu +65 6398 7965

Story: FY07 net profit came in 9% ahead of our expectations; with 4Q reporting a net profit of S$0.8m rather than a loss of S$8.6m as previously expected. Key points to note: (a) The better performance was due to better higher operating margins which improved a significant 2.8ppt to 9.4% for 4Q07, thus reversing the decline that we had seen over 1Q to 3Q07. (b) This improvement was due to: (i) a strong baseload of rig building projects, especially the better priced contracts that have moved past the initial phase of completion as reflected in the 44% increase in rig building turnover to S$2.5bn; and (ii) better margins from shiprepair as SMM has been able to cherry pick jobs given the tight dock capacity. (c) SMM also maintained its dividend payout ratio at 75% - 2H DPS is 5.16Scts; bringing total DPS for the year to 8.73Scts. (d) A forex hit of S$308m has been taken through the 4Q numbers with US$50.7m reported as a contingent liability.

Point: Order book stands at an all-time high of S$7.4bn underpinned by S$5.4bn of order wins in 2007 and S$403m YTD. Enquiries are strong and we believe that order flows for this year is not a concern. We do not think that rising steel prices will have a significant impact on SMM’s margins. We confirmed with management that major cost components such drilling package, high tensile steel as well as other steel costs are locked in at the time that the contract is signed. Thus, SMM should only be exposed to labour costs and overheads, which account for around 20% of cost of sales for the rig building division.

Relevance: Maintain Buy. We have raised FY08-09 earnings by 6% and 9% respectively due to better margins of 8% (from 6.9%) and 8.2%(from 7%) respectively. TP reduced to S$4.88 (from S$5.15) to take into account our lower target price for Cosco (Buy, TP S$6.70) and the lower PE ratings ascribed to Cosco’s shipbuilding and shiprepair/conversion activities.