Excerpts from latest analyst reports.....
Kim Eng highlights CHANGJIANG FERTILIZER’S ‘significant discount’
Analyst: James Koh
Photo by Sim Kih
Top 20 for China, big in Hunan. Changjiang’s current capacity ranks it among the top 20 listed ammonia‐based fertiliser producers in China, Hong Kong and Singapore.
Competition is typically intra‐province, given the transport costs involved. With a market share of 20% and growing in Hunan, Changjiang has relatively good pricing power.
Buying and refurbishing. Given that industry capacity utilisation is estimated at only 60%, the company is choosing to embark on M&As of existing plants, which can be acquired for 60% of replacement costs. According to management, there are many opportunities because sellers are happy to be part of a bigger, listed entity.
Looking much cheaper than China XLX. Going by Changjiang’s 1Q11 net profit run rate, it will end the year with almost similar net profit numbers to China XLX, its closest peer on SGX, but with one‐quarter the market capitalisation.
Furthermore, ongoing expansion at its current plants should ensure growing effective capacity for another 24 months at the least.
Recent story: CJ FERTILIZER: 1Q2011 net profit jumps a whopping 158.5% to Rmb 46.3 million
OCBC pares UNITED ENVIROTECH’S fair value to 53 cents
Analyst: Carey Wong
More lumpy results in 4Q11. United Envirotech (UEL) posted more lumpy results in 4QFY11, with revenue falling 34.5% YoY to an estimated S$19.8m; this followed the completion of the Guangzhou Jingxi plant, Asia's largest underground MBR (membrane bio-reactor) wastewater treatment facility in 2QFY11.
Although UEL managed to secure more engineering work in 4QFY11, resulting in a 55% QoQ jump in revenue, we note that these jobs typically come with much lower margins, thus dragging its gross margin to just 20.8%, down from 59.9% in 3QFY11 (36.5% in 4QFY10).
As a result, its net profit fell by 63.0% YoY and 59.6% QoQ to S$1.6m; but if we strip out exceptional items (negative goodwill), we estimate that UEL may have booked a slight S$0.4m loss.
For the full year, UEL clocked in revenue of S$78.0m, up 12.8%, which was about 7.6% above our estimate; but due to the weaker profit margins, its reported net profit of S$16.0m, missing our FY11 forecast by 10.8%.
Nonetheless,management has decided to maintain a final dividend of S$0.003 per share, unchanged from last year; although it declared a special dividend of S$0.002/share in FY10.
Paring fair value to S$0.53. Still, in light of the lumpy 4QFY11 results and poorer-than-expected margins, we pare our FY12 revenue estimate by 5.5% and earnings by 20.1%.
As a result, our DCF-based fair value also eases from S$0.65 to S$0.53. But given the still positive prospects, we maintain our BUY rating.
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NRA Capital maintains 'buy' on BROADWAY INDUSTRIAL
Analyst: Jacky Lee
Photo: Leong Chan Teik
We are not surprised by the reduction in HDD volume projection by TRENDFOCUS, as we earlier stated the HDD supply chain will affected by uncertainty in the short-term.
As we have pegged our Broadway HDD’s shipment by industry projection, we now trim our FY11-13 estimates by 7-9%.
Our fair value S$0.66 (ex-bonus issue), is still based on 6x PER FY12 or 25% discount to its peer industry of 8x PER. Broadway’s share price has dropped 20% since it released poor 1Q results.
However we believe the decline is unjustified with the expectation of weakening HDD demand.
Given its undemanding valuation, maintain Overweight rating.
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