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Mayor of Putian City, Liang Jian Yong (2nd from right) gracing the opening ceremony of China Minzhong's new industrial park and accompanied by China Minzhong CEO Lin Guo Rong. Photo: Company

KIM ENG RESEARCH has kept its target price of $1.47 for China Minzhong (today's price 93.5 cents).

It noted that export demand is steady, despite the global economic uncertainty.

In fact, management expects the total export orderbook in FY Jun12 to surpass that of the previous year.

Recently, China Minzhong announced that it has commenced operations at its New Industrial Park processing facilities in Putian City, Fujian Province.

Kim Eng analyst Eric Ong wrote: “We expect the capacity expansion to give a fillip to its bottomline in 2HFY Jun12, especially since this is the traditional peak season for the group. Maiden contributions from the 22,176mu of new farmland acquired last year will be another earnings sweetener.”

With the fundamentals intact, and the latest developments, Kim Eng Reearch said its view is reinforced that earnings momentum will remain firm for Minzhong in the next 2-3 years.

Its target price of $1.47 is pegged at an undemanding 6x FY Jun12F PER (in line with its historical mean).

Unlike most S-chips, China Minzhong (market cap: S$505 million at stock price of 90.5 cents) can boast of the Government of Singapore Investment Corporation (GIC) owning a stake in it -- a 16.9% stake to be precise.

Recent story: KIAN ANN, CHINA MINZHONG, REITS: What analysts now say....



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Robin Ting, chairman of Technics Oil & Gas. NextInsight file photo

"TECHNICS OIL & GAS' fair value is $1.22"

AMFRASER analyst Lee Yue Jer is maintaining his BUY call on Technics Oil and Gas, after Technics announced that it intends to spin off two subsidiaries, 51%-owned Norr Systems and 55%-owned Wecom Engineering, on the Gretai Securities Market in Taiwan as the Norr and Wecom Group.

Setting his fair value at $1.22, the analyst said the listing would unlock shareholder value for investors of Technics (trading at 84.5 cents today).

The stock currently trades at 8.1x 2012F earnings while the average P/E on the GreTai Securities Market is 25.4x today.

"We believe that the new Norr and Wecom Group should be able to secure a market valuation comfortably north of 10x, thereby unlocking value for existing shareholders," wrote Mr Lee.

These subsidiaries account for a quarter of Technics’ earnings for 2012F at a combined $5.5m. The implied market cap of the new entity, at 10x—20x P/E, would be $55m—$110m, or between 31% to 61% of Technics’ current market cap.

With the additional cash from the IPO, in addiiton to Technics' current hoard of $8m in free cash and no plans for a special dividend, Technics could made significant acquisitions, according to the analyst.

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Comments  

#6 Aha! 2012-01-13 03:39
Thank you ValueInv. Who's right and who's wrong is not the key. But let's just say that the market is not completely efficient, and to assume that it "already" values Norr&Wecom at >10x while the rest at 5x may be putting the cart before the horse.
#5 ValueInv 2012-01-12 17:13
If Norr & Wecom are valued at 10-20x PE, Technics will get a lot of cash inflow if it sells the entire stake. (e.g. if 10x, $55m which is 30% of Technics' market cap). The much stronger balance sheet will send the stock price jumping up.

If they don't sell the entire stake, the remaining shares will now be valued on the balance sheet at the market price, which helps lower Technics' gearing and also strengthens the balance sheet.

Hence, the value inherent in the subsidiaries is "unlocked" via a market reappraisal of their value. Everything in Technics is now valued at 8x, but now parts of the whole will be valued at 10x+, helping raise the valuation of the whole.
#4 Action 2012-01-12 16:51
Interesting issue raised here. 'Wed' assumes the subsidiaries' earnings are lumped into parent group's earnings and the market then values the stock at 8X PE. 'Dusty' assumes the market values different subsidiary's contribution at diff PE and then the group as a whole is at 8X. At the end of the day, who really knows which methodology is applied by this nebulous thing called 'market'? The answer would be apparent after the listing of the subsidiaries and we can see the PE accorded to Technics.
#3 Dusty 2012-01-12 04:50
The parent company trades at 8.1X PE "because it has a subsidiary that is valued to have a higher PE, and other parts that are vlaued to have a lower PE"

In other words, the calculation from the buyers point of view should be (20x PE for sub + 5x PE for other parts of parent) divided by all = the 8x PE right now.

In other words, the stockholder is already valuing the Sub's at 10x-20x PE.

In other words, selling does not unlock value.

No, I dont get it.
#2 Wed 2012-01-11 17:20
Dear Dusty, currently the parent company, Technics, trades at 8.1X PE. If it can sell its subsidiary at, say, above 10X, then that is the meaning of unlocking value. You question how selling something worth 100m for more than 55 m is unlocking value -- i think you mixed up things. The valuation of the to-be-sold subsidiary could be between 55 m and 100 m (based on 10-20X PE). No one is saying that the subsidiary is worth 100 m and going to be sold at more than 55 m. That would be absurd. U get it now?
#1 Dusty Taiwan 2012-01-11 13:08
The logic of "unlocking value" is absurd.

May I ask how selling something worth 100m for north of 55m is going to unlock value for us shareholders?

The value of Norr and Wecom has already been accounted for in the current stock price of Technics by reasonable shareholders.

If it only goes slightly north of 10x, it will be a loss for the company.

Unless there are other reasons that we do not know about of course.

I think the price of the sale must be closely monitored before anyone can say it "unlocks value"

If I'm wrong, im ready to be taught, please.
 

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