OCBC Report - 25 Feb 2008

SembCorp Marine Ltd: Sanguine outlook, but capacity limitations may inhibit growth

Summary: SembCorp Marine (SMM) FY07 revenue surged 27.3% to a record of S$4.5b, driven by a 44.5% increase in its rig building revenue, which accounted for 55% of group turnover. Taking into account the sale of Cosco shares and the forex losses, SMM's FY07 net profit edged up 1% to S$241.0m, 6.2% lower than our estimates.

SMM is proposing a final dividend at 5.16 cents per share. FY07 operating margins improved 1.3 ppt YoY to 7.7%, and we expect operating margins to improve in FY08 and FY09 as SMM continues to cherry pick higher value contracts.

Execution cost would also decrease as familiarity with rig building processes improves. We have raised FY08 net profit estimates by 6.5% mainly to include higher contributions from SMM's 30% interest in Cosco Shipyard Group. We are also introducing our FY09 estimates. Based on 18.5x FY08 forecasted earnings, our fair value for SMM is revised up to S$4.31 (from S$4.04 previously). We are retaining our BUY rating for SMM. (Serene Lim)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Europtronic: Improved FY07 results

Summary: Europtronic Group Ltd (EGL) registered an improved set of FY07 results, with a net profit of S$171,000 (FY06 net loss of S$9.2m) and 6.7% YoY rise in topline to S$82.0m, which is only marginally below our projected S$86.1m.

Revenue growth was fuelled by a 10.7% jump in contribution to S$56.4m from its distribution segment, translating to a 5-yr CAGR of 21.3%. Gross margin went up from 9.5% to 14.9%, due to EGL's adoption of a new marketing strategy, which resulted in a bigger customer base and higher-margin customers.

On a quarterly basis, EGL's 4Q07 topline gained 15.8% YoY and 1.1% QoQ to S$21.9m, similarly helped by its distribution segment. Although EGL reported a net loss of S$1.7m, it was a reduction of 86% from 4Q06. Meanwhile, EGL has proposed to pay S$6m to acquire the remaining 75% of Dinghan Biotechnology Co Ltd (Dinghan), of which it had already forked out US$250k to purchase the initial 25%. We will be speaking to management to find out more about this acquisition. For now, we will maintain our BUY rating. (Brandon Lee)

Innovalues: Looking to turn the corner in 2008

Summary: Innovalues Ltd posted a disappointing 2H07 performance as guided. Although revenue rose 1.9% YoY and 7.1% HoH to S$63.1m, it was blighted by USD weakness, a significant drop in its HDD business as well as ramp-up delays in its Automotive (AU) projects.

Throw in start up costs for its new HDD and AU products and factory overheads, and Innovalues sank into the red to the tune of S$3.6m, versus a profit of S$7.9m in 2H06 and S$6.0m in 1H07.

For the full year, net profit slipped 81.7% to just S$2.5m, while revenue inched up 2.1% to S$122.0m. But management remains upbeat about its overall business outlook in 2008, where it expects the outsourcing trend of American and European automotive components makers to Asia to continue and will positively boost its AU business.

It also expects its HDD business to show continued recovery although its Office Automation (OA) business may remain soft. We do not have a rating on the stock. (Carey Wong)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Meiban Group: Strong FY07 performance, decent FY08 outlook

Summary: Meiban Group Ltd produced a good set of FY07 results. Revenue rose 26.7% to S$602.9m, gross profit jumped 51.3% to S$66.9m and net profit surged 165.1% to S$23.3m.

On a quarterly basis, 4Q07 revenue increased 11.6% YoY to S$146.0m, while gross profit jumped 41.0% to S$17.8, and net profit surged 133.4% to S$7.5m. And to reward shareholders, Meiban has declared a final and special dividend amounting to S$0.02/share, bringing the total payout for FY07 to S$0.0426.

Going forward, management expects its business to experience the usual seasonal slowdown in 1H08, and the key market for its CM business in US could face a potential slowdown. But Meiban expects the sales momentum in its PM business to continue in FY08, where the demand from new projects and new customers are expected to increase the capacity utilization of its plants in China and Malaysia.

We also understand that this is part of its ongoing efforts to diversify customer base and product lines, and that several new projects are already in the final evaluation stages and could see volume ramp up in 2H08. We do not have a rating on Meiban. (Carey Wong)

For more information on the above, visit www.ocbcresearch.com for detailed report.

NEWS HEADLINES

- Genting International recorded losses of S$381.5m for FY07 due to impairment of goodwill arising from its acquisition of Genting Stanley in 2006. Meanwhile, revenue rose 156% YoY to S$749.4m.
- United Fiber has awarded a US$863m contract to China Metallurgical Group Corp for the building of a bleached hardwood kraft pulp mill in Indonesia.
- C&G Industrial posted a 22% YoY growth in FY07 net profit to RMB164.2m due mainly to higher revenue, which rose 24% to RMB875.9m, spurred by increased capacity.
- FibreChem posted a 62% surge in FY07 net profit to HK$538.6m, as revenue rose 44% to over HK$1.8b because of higher contributions from a newly commissioned long fiber facility.
- Changtian Plastic & Chemical Ltd posted a 20.9% growth in FY07 net profit to RMB180m on the back of revenue growth and improved gross margins in two product segments.
- China Hongxing Sports Ltd clocked in FY07 net profit of RMB416.5m, up 94% YoY, and proposed a final dividend of RMB2.2 cents per share.
- Chunghong Holdings Ltd posted a 14% gain in FY07 net profit YoY to RMB49.8m on the back of a 37% increase in revenue to RMB752m.