Summary: Biosensors International Group (BIG) reported 2Q08 results with product sales rising 10% YoY to US$9.2m despite the difficult industry conditions but expectedly reverted back to a net loss of US$11m for the quarter. Overall gross margins dropped due to operational restructuring and shift in focus of products. We expect BIG's 50% acquisition of JWMS in China to be accretive and give it a spring board for the Chinese DES market that is anticipated to grow some 50-70% in the next 2 years. BIG also expanded to Indonesia but we don't expect significant contribution in the near term. Despite patchy info on forecasts and regulatory approval, we remodel our financials as we assume CE mark approval between Jan and Mar 08, Terumo licensing revenue to start in CY09 and consolidate JWMS. We adopt the typical Medtech valuation of discounting BIG's first substantial year of profit (in FY10) back to present day (see Table 2). Our fair value is now S$0.99 (vs S$1.21). Maintain BUY. (Kelly Chia)
Jurong Tech: Sequential recovery in 3Q07
Summary: Although Jurong Technology Limited (JTL) posted a softer set of 3Q07 results, with revenue down 15.2% YoY at S$239.9m and earnings down 28.5% at S$13.3m, there were strong sequential improvements. Revenue was up 22.4% QoQ and while earnings fell 3.2%, we note that it was mainly due to an exceptional gain of S$3.8m in the previous quarter; excluding this item, net profit was 31.7% QoQ. Nevertheless, we need to pare our FY07 estimates as 9M07 revenue of S$654.2m (down 21.3%) and S$40.1m earnings (down 23.8%) only met 57.8% and 60% of our FY07 numbers respectively. This in turn reduces our fair value from S$0.83 to S$0.665, still based on 6x blended FY07/08 PER. Given the limited upside, we retain our HOLD rating. (Carey Wong)
Micro-Mechanics: Bright start to FY08
Summary: Micro-Mechanics Holdings (MMH) made a bright start to its new financial year, after posting a record S$9.6m revenue for 1Q08, up 7.1% YoY and 6.9% QoQ, while net profit jumped 8.6% YoY and 15.8% QoQ to S$2.5m, despite the still sluggish conditions in the semicon industry. Management attributes the better-than-industry showing to (1) increase in sales in China (+22% YoY), Malaysia (+13%), Europe (+23%) and US (+26%). Also paying off were its efforts to strengthen its CMA (Custom Machining and Assembly) division, which saw an impressive 58.4% YoY jump in revenue, versus a more modest 3.7% rise from its semicon business. We will be meeting with management for an update of its 2Q08 prospects later. For now, we retain our BUY rating and S$0.76 fair value. (Carey Wong)
Noble Group Ltd: At the right place, at the right time
Summary: Noble Group Ltd (Noble) turned in a strong set of 3Q07 results with net profit surging 158.5% YoY to US$60.6m. Revenue grew 52.9% YoY to US$5.6b, while fully diluted EPS climbed 141% YoY to 2.27 US cents. The Group's strong growth, supported by broad-based organic growth across all its segments and led by its commodities businesses, was attributed to strong demand for its diverse suite of products. Noble looks set to benefit from high oil prices, as it expects coal prices to rise in tandem. It has also gained from the PRC's booming steel sector, whose strong demand for steel led to a 119% YoY increase in its Iron Ore division's 3Q07 revenue. Following its better-than-expected 3Q07 results, we have raised our FY07 revenue and forecasts to US$21.1b and US$241.8m respectively. Based on a similar 17x blended FY07/08 PER, we derive a fair value of S$2.76. Upgrade from Hold to BUY. (Lee Wen Ching)
Pine Agritech Limited: The worst is yet to come
Summary: Pine Agritech Limited's (PAG) announced 3Q07 with revenue falling 12.3% YoY to RMB365.1m and net profit collapsing 40.4% YoY to RMB93m. PAG missed our topline and net profit forecasts by 15% and 30% respectively as a plethora of factors affected its margins. Only the SPI product recorded a 31% QoQ revenue increase as PAG reduced dependency in the Chinese market by exporting to South East Asia and East EU. Its star SOS fell from glory as it suffered its first performance disappointment with gross profit diving 44% YoY to RMB66.6m due to reduced orders from its Master Distributor. PAG will go into 4Q07 and FY08 feeling the full impact of its Convertible Bond costs (abt RMB18m/qtr), TV advert costs (abt RMB30m/qtr) and escalating soy prices. We have revised our net profit between 16-35% for FY07/08 to take account for the reduced sales, soaring costs and depression of margins. We roll over to FY08 using the same 12x EPS valuation and our fair value is been cut to S$0.30 (vs S$0.44). Downgrade to SELL until substantial positive developments in costs controls, new product sales are executed or accretive M&As occur. (Kelly Chia)
R H Energy Ltd: Biting the bullet for longer term payoff
Summary: R H Energy Ltd (RHE) posted bitter and sweet news yesterday. Its 3Q07 revenue slipped 10.9% YoY to US$6.3m and net profit fell 52.8% YoY to US$0.9m. It also warned that FY07 results would be below that of FY06 due to delays in delivery of projects. To sweeten the bitter news, RHE announced that it was in advanced negotiations with Sinopec Group for a US$34.3m contract. If successful, this contract would bring its order book to US$62.2m, of which US$4.7m would be delivered in 4Q07 and the remaining US$57.5m would be delivered in FY08, surpassing our FY08 revenue forecast of US$52.5m. We have not factored this contract in our projections as it remains uncertain. While we expect near term volatility due to RHE's anticipated weak FY07 results, its FY08 outlook remains rosy. We have slashed our FY07 revenue and earnings forecasts to US$18.7m and US$2.8m respectively, but maintain our FY08 projections. Based on 16x FY08 PER, we derive our fair value estimate of S$0.69. Maintain BUY. (Lee Wen Ching)
For more information on the above, visit http://www.ocbcresearch.com/ for the detailed report.
NEWS HEADLINES
- SGX has announced wide changes to its listing rules, effective Dec 3, including stricter disclosure on option grants, shorter time for companies to remain listed without a business and greater clarity on when stocks are suspended in takeover situation.
- MacarthurCook Industrial REIT has signed two sale and purchase agreements to acquire two office and warehouse properties for a total consideration of S$39.1m. The properties at 61 Yishun Industrial Park A and 103 Defu Lane 10 will be leased back to current vendors.
- Bukit Sembawang Estates saw its 2Q net profit go up 44.6% YoY to S$8.4m. The company said that profit for the current financial year is likely to be higher than the year before because of a one-time S$46.5m capital gain from the sale of 2.29m shares in HSBC Holding plc.
- Hyflux Ltd announced a 124% YoY increase in 3Q net profit to S$4.2m. Revenue rose 76% YoY to S$51.9m, with strong increases in industrial and municipal sales.
- Banyan Tree Hldgs saw 14% YoY gains in operating profit to S$18.9m as revenue rose 19% to S$82.5m from continuing strong contributions from hotel operations. Due to a one-off exceptional gain of S$44.5m, PATMI saw a 1122% YoY jump to S$49.1m. The one-off exceptional gain relates to negative goodwill arising from its listed subsidiary, Laguna Resorts and Hotels' rights issue in July 2007.
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