Excerpts from latest analyst reports…..

Phillip Securities Research initiates coverage of ZIWO with 47-c target price

Analyst: Lee Kok Joo

Ziwo's foamed SBR products are used for making a wide range of consumer goods including diver suits and laptop bags. Photo: Leong Chan Teik
There are few listed direct comparables for ZIWO. We classify ZIWO as more of a raw materials company rather than classify it under the textile sector. Although the company started its operations producing chemical fibres, the management team has the foresight to change the product mix and has successfully transformed into a raw material producer and supplier.

On the Singapore Exchange, we listed 3 chemical fibre companies and also 2 companies that have a business segment selling foamed plastics and foamed rubber. For the regional chemical peers, we listed 2 companies in the chemical fibre industry and 3 companies in the foam materials business.

At a simple glance, SGX listed companies are trading at a big discount to the global peers, however this is no longer a new discovery to us. Both Broadway Industrial Group and Armstrong Industrial Ltd have a business segment that manufactures and sell foamed products.

If we compare the raw materials used, Armstrong is a closer comparable for ZIWO as Armstrong’s raw materials include SBR, EVA and PE. Compared to Armstrong, ZIWO is trading at close to a 100% discount at 4x FY10E PE compared to Armstrong of 8.7x.

We think the reasons are because Armstrong has a longer operating history and a bigger size. It has a turnover of $174 million for FY2009, which is more than double ZIWO’s. However we are projecting ZIWO to catch up to this figure in FY2012 with revenue of RMB842.2 million ($168.4 million).

ZIWO was listed at an IPO price of $0.235 and has performed remarkably well vis a vis other recent listings, having risen almost 50%. We believe this is a reflection of the strong fundamentals of the company. Given the growth plan in place, we believe ZIWO is position well to ride on the consumer boom and to grow strongly. 

The current discount to peers are unwarranted and ZIWO should command a higher valuation closer to peers. Thus we peg our target price to 6x FY11E earnings, in line with Armstrong 3 year average PE and a discount of 30% to Armstrong current valuation. This gives us a target price of $0.47. Buy with 40% upside.

For the full report, click here.

Recent story: ZIWO: Up 79% since IPO on strong business; headed for TDR listing

CIMB says SINOTEL’S current valuations 'do not reflect its growth potential'

Jason Li, CEO of Sinotel, in his Beijing office. Photo: Leong Chan Teik
Hitting a home run. Since our previous note, developments at Sinotel have made us sit up and visit the stock once more. We see a potential change in its business model, which could mean improving cash flows, higher quality recurring earnings as well as brand network expansion throughout China.

Over the past two weeks, Sinotel i) reported strong 3Q10 net profit of RMB 49m (+19.2%); ii) set up a tax exempt subsidiary in Tianjin; iii) won several contracts from China Mobile and China Unicom; and iv) inked a potential game changer deal with China Telecom.

With its reputation as a quality service provider, strong clientele network and rapid presence expansion, Sinotel will continue to be a beneficiary of the telecommunications infrastructure upgrade in China, in our view. We believe Sinotel is a good proxy for investors interested in increasing exposure to the Chinese telecommunications industry.

Recent development could propel Sinotel to new levels. Since its inception in 2002, Sinotel has evolved from a mobile phone distributor to a major service provider to the Chinese telcos. Sinotel appears to be in evolution phase again, this time from a telecommunications vendor to a service provider to end users. Sinotel will be able to ride on China Telecom’s expansion in the north, potentially boosting its growth trajectory.

Current valuations do not reflect growth potential. Sinotel is currently trading around 4x trailing 12 months P/E (50% discount to industry average). It is also trading at 0.7x P/BV (22% discount to peer average). We believe Sinotel should trade at higher valuation multiples in view of its growth potential from recent corporate developments.


Larger capex, higher risks. At present, Sinotel’s capex is minimal as materials are usually provided by the Chinese telcos. In its venture with China Telecom, Sinotel has to incur higher capex in the form of materials purchase (cables, system) and installation. Key risks could come from i) higher capex requirement resulting in drawdown on existing credit lines which increases borrowing; ii) potentially another round of capital raising from investors which could result in ownership dilution and iii) poor take up after installation of the infrastructure could severely impact the firm’s return on investment.

For the full report, click here.

Recent story: SINOTEL: The return of hey-days for Sinotel shares?


Kim Eng Research says HOTUNG is deeply undervalued

Analyst: YEAK Chee Keong

Isamu Sakakibara, chairman & joint MD retired mid-2010, paving the way for Ms Tsui-Hui Huang, joint MD, to become chairman
Hotung Investment Holdings Ltd is a Taiwan‐based venture capital firm with over 20 years of experience in venture capital investing. It focuses on high tech companies in the Greater China region and the US and has divested more than 140 companies through public listings in major capital markets. We believe the stock is deeply undervalued.

Recent development: MStar Semiconductor will likely be divested through an IPO next month, with plans to raise up to US$300m.

Investment portfolio value exceeds market cap.
Available‐for‐sale investments of NT$6.0b translate to US$197m which already exceeds its market cap. The stock is trading at a P/B of only 0.5x. Management strives to give out at least 80% of net profit as dividends. Based on 9M10 profit, this would translate to a 5‐6% yield.

Strong balance sheet.
Hotung has net cash of NT$1.7b as at September 2010, which is 50% of its market cap, and has not raised any additional funds since its listing.

Institutional fund interest, share buybacks. Major shareholders include institutional fund such as Third Avenue Management LLC which has invested in it since 2005. Hotung has also been buying back shares from the market.

Recent story: ANWELL, Z-OBEE, HOTUNG: Three unusual announcements....

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