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.
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"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
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.
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.
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.