DMG says buy ADAMPAK as it offers ‘high yields, good growth’
Analysts: James Lim & Terence Wong, CFA.
Maintaining BUY and increasing TP to S$0.35. Adampak reported 1Q10 profitability that was within our expectations although we have raised our profit forecasts as we believe that the company’s plans to further expand its non-hard disk drive (HDD) business would be another earnings driver.
Based on our revised dividend discount model, we are retaining our BUY recommendation and upping our fair value estimate to S$0.35 (from S$0.31 previously). At our TP of S$0.35, we note that this translates to 7.2x FY11 P/E, in line with its 3-yr historical average P/E.
Earnings were inline. Adampak reported 1Q10 revenue of US$15.4m (+59.7% YoY, -6.3% QoQ) while net profit came in at US$2.3m (+262% YoY, -7.7% QoQ) as the company’s HDD segment continued to shine with sales from this division climbing 56.1% YoY to US$8.3m. While impressive, this set of numbers reported by Adampak had arrived within our forecasts.
High dividend yields and profit margins make Adampak stand out. We continue to like Adampak for its attractive dividend yield (presently at 8.5%) while net profit margin at c.14% is also arguably the highest amongst all the SGX-listed HDD-component manufacturers. Additionally, earnings growth in 2010 that is expected to hit 41.5% is yet another positive attribute of this company.
Upping our FY10 and FY11 estimates. While the HDD growth story remains at play, we believe that management’s initiatives to expand its business outside of the HDD space coupled with its efforts on costs control would bear fruit in the current year. Given this bullish setting, we have raised our profit forecast in FY10 to US$9.2m (+13.6%) while FY11 bottomline is now anticipated to hit US$10.1m (+9.8%). Following our revised dividend discount model where we are now assuming WACC at 8.2% (from 9.1% previously), our TP is thus accordingly raised to S$0.35 from S$0.31.
CIMB-GK reiterates ‘buy’ call on UNITED ENVIROTECH
Analyst: Gary Ng
• We like UENV for its projects visibility in the municipal sector, and its proven execution in overseas projects. UENV offers excellent value trading at 5.5x FY11 P/E against its 3-year core earnings CAGR forecast of 37%.
• Bigger capital base to take on new order book and projects. Given UENV’s expertise in wastewater treatment for the difficult to penetrate petrochemical industries, the company has been gunning for lucrative industrial parks BOT projects. We expect most of the BOT projects that UENV targets to come with EPC contracts that will help shore up its order book of Rmb630m. This should enable the group to accelerate conclusion of new contracts.
• Stable and recurring income. For its BOT/TOT projects, the concession periods usually start after trial operations and government approval. Over the 25-30-year lifespan of the concessions, UENV books recurring income based on treated volume and agreed tariffs with the government. It can also earn income from the further treatment of discharged water for sale as recycled water to nearby industrial consumers.
• We believe that investors who want to participate in the water sector exposure would also benefit from investing in UENV, which pitches itself at a 20-30% discount to the bigger names industry peers.
Recent story: UNITED ENVIROTECH: Record profit, more recurring revenue to come
