Excerpts from CIMB's report
Fallen angels (possibility of strong re-rating over 3 years)
We highlight three dark horses that could make a comeback if the current issues depressing their share prices are resolved over the next three years.
 » Del Monte’s short-term challenges are: 1) demonstrating (in FY16) to investors that the US acquisition was not an albatross and the group is able to return to the black after factoring in the hefty interest cost of funding the acquisition,2) growing trend towards fresh vegetables and fruits over their canned peers, and 3) possible peach and pineapple shortages. Addressing its high gearing, development of the Asian/Hispanic market segment in the US and possible entry to the fruit beverage market in the US could be longer-term positives. |
» Sarine Tech’s woes are widely understood by the market. Structurally, market leader De Beers has been adamant about not lowering the pricing of raw diamonds significantly. There is only that much pain both raw diamond suppliers and Sarine’s Indian diamond manufacturing customers can bear. The pricing imbalance may be resolved in 1H16. What is more exciting for Sarine is the development of its third earnings stream, i.e. tools targeted at diamond retail chains (online and brick-and-mortar).
Given the large amount of diamonds that can be processed by Sarine’s tools for the retail market and the high margin of this new earnings engine, the earnings impact may be significant. At this juncture though, both Sarine and its diamond retail chain customers are still in the discovery process (customers are experimenting with how Sarine’s tools can best aid them while Sarine is still trying out various revenue-charging or -sharing schemes). We believe, if successful, this could lead to Sarine’s multiple expansion once again, although this could still be a few years away.
» Silverlake Axis’s longer-term opportunities are from 1) further consolidation of the banking sector in Malaysia and Indonesia, and 2) regional expansion ambitions of Malaysian and Indonesian banks. There is also the possibility that Silverlake Axis may attract M&A attention. China presents a huge opportunity, though not without challenges. In the short term, investors are awaiting the Deloitte findings and recommendations to help them get a better grasp of valuing Silverlake Axis.
Full report here.
