THE MARKET downturn has been brutal. Globally, this is the third sharpest decline in stock prices since 1965.
Global equities are down by 10-15% in August, discounting a significant decline in earnings for 2012.
Investors who believe the falls have been over-done vis-a-vis the growth in earnings for Singapore-listed companies may wish to consider the recommendations of DMG & Partners issued yesterday.
Here are excerpts from its report which highlighted its top picks among small-caps:
Leader Environmental Technologies (BUY, TP S$0.47). LET’s share price had taken a hit, down 13.6% to S$0.14 (trading at 2.7x FY11F P/E) since our last report on 27 July, as investors avoid small caps amid recession fears.
However, we believe that given LET’s solid fundamentals and strategically important position, the stock provides a safe investment opportunity while having the potential to be a multibagger.
LET derives all its revenue from the environmental protection industry in China with growth driven by the favourable policies. The 12th 5-yr Plan targets have to be met regardless of whether double-dip occurs and thus ensuring LET’s stellar performance.
Furthermore, the recent open-market purchase made by the executive chairman on 2nd Aug at an average price of S$1.95 dropped yet another positive hint. Reiterate BUY with an unchanged TP of S$0.47 based on 8.9x P/E (-1 SD industry P/E).
China Animal Healthcare (BUY, TP S$0.42). CAL is a key PRC animal drug manufacturer with ~2% market share in China. It produces 500 types of animal drugs, and three out of the four compulsory vaccines mandated by the PRC government. We believe that CAL is key beneficiary to PRC meat consumption growth that is expected to reach 61kg per person by 2015, from 54kg in 2009.
We project 25% earnings growth in FY11, driven by contribution from two new vaccines i.e. food-and-mouth disease and blue ear. Although share price is down some 30% YTD, we continue to like CAL for its strong projected free cashflow of RMB259m and RMB329m over the next two years. We recommend BUY with TP of S$0.42, pegged to 7x FY11F EV/EBITDA.
Lian Beng (BUY, TP S$0.715). Main contractor Lian Beng no longer rides on the booms and bust of construction sector. 4QFY11 earnings were in-line with our estimates, coming in at S$11.6m, up 73.8% YoY, on the back of strong construction demand.
FY11 was a record year, with earnings hitting S$48.2m, well within our expectations of S$47.6m. LBG is set to ride on Singapore's current building boom, from both public and private projects and its ventures in private residential and industrial developments will help boost its bottom line. As at May 2011, LBG has a healthy order book of S$839m (up from S$661m in Feb 11).
The contracts will run till FY14, lending some visibility to its earnings. LBG’s cash hoard, which stands at S$149.9m, will allow it to grow its property development business. On the back of strong construction demand and LBG’s strong track record of project wins (it secured two projects worth S$279.5m in Jun 11), we estimate LBG’s FY12 earnings to come in at S$54.1m, which suggests a prospective P/E of just 3.3x. Our TP of S$0.715 is pegged to sector average of 7x prospective P/E.
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