Kim Eng Research has a 'Chilli Pot' of stocks which are assigned a number of chillies according to how 'hot' the research team considers them to be. We excerpt Kim Eng's latest comments on a selected number of hot stocks.
LMA (31.5 cents): It reported 1H11 sales and profit figures which were the highest in its history.
Net profit of U$13.6m for 1H11 already exceeded the US$11.4m it made for the whole of FY10, although this was boosted by some one‐off items such as litigation settlement of US$4.5m and tax credit of US$2.3m.
Undemanding valuation: At FY10 PER of 12.3x, we think the stock’s valuation is undemanding considering that it is a healthcare‐related stock. If 1H11 earnings are stripped of one‐off items and annualised, FY11 PER would only be about 8‐9x.
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Adampak (25 cents): It is in a fairly mature industry, capex is not significant and free cash flow generation therefore remained strong.
In the past five years, the company has paid out all of its earnings in dividends, and even during the recession years, dividend payout averaged about 60%.
With an interim dividend of 1 cent per share (64% of 1H11 earnings), it looks set to continue a payout of at least 80‐90% for the full year. As at June 2011, net cash accounted for 19% of market cap, in line with historical trends.
Roxy-Pacific (41.5 cents): Unbilled profits estimated at $0.275/share. There remains $531m of progress billings, mainly from two nearly fully sold projects, Space@Kovan and Spottiswoode 18.
Pre‐tax profit from these billings is estimated to be $174.6m ($0.275/share and 69% of market cap).
Unsold landbank valued at $0.120/share. We value Roxy‐Pacific’s unsold landbank at $384m on the assumption that commercial buildings (70 Shenton Way, Singapura Theatre, Everitt Building and New Changi Hotel) are redeveloped into mixed use projects and sold.
Estimated pre‐tax profit is $76.2m ($0.120/share and 30% of market cap).
Book value of $0.70/share: Adjusting for the market value of Grand Mercure Roxy Hotel (kept at cost less depreciation), Roxy‐Pacific’s BV will be $0.70/share. In all, its RNAV adds up to $1.10/share. The stock trades at a 64% discount to RNAV.
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OKP (58 cents): It delivered a strong set of results for 1H11 with net profit rising by 56% to $12.1m from $7.8m a year ago. Outstanding orderbook reached a new record of $382m, with most projects completing over 2011‐13.
Property development. OKP is in a strong net cash position of $97m, which makes up more than 50% of its market capitalisation. With the cash, the company could venture into property development as the new business was approved in last year’s EGM.
Opportunities include taking a minority stake in China Sonangol’s Amber Towers, buying a GLS site, or entering the en bloc market.
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