| CIMB SECURITIES | KGI FRASER |
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Set to grow even with marine’s blip
■ Marine was a disappointment, with more cost incurred for Con-Ro projects.
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Frencken Group Results Update Event
4Q17 in line; net cash position. Frencken reported a 4Q17 net profit of S$5.2m (+19% YoY), in line with our expectations. The performance was mainly driven by its semiconductor, medical and analytical business segments. The group generated free cash flow of S$9m for 2017 and cash inflow of S$39m from divestments of several subsidiaries (e.g. Precico Electronics, NTZ). As a result, Frencken had a net cash position of S$4.5m as at end 4Q17, compared to a net debt position of S$40.3m as at end 4Q16. Special dividends declared. The group declared 1.66 SG cents final and 0.73 SG cents special dividend for 2017, bringing full-year dividend to 2.39 SG cents (3.6% dividend yield). We expect the group to be able to pay dividend of 2.0 SG cents for 2018F based on a pay-out ratio of 33%, implying a 3.0% dividend yield. Impact Positive forward guidance. Frencken has guided for positive YoY growth in 1Q18 across all its business segments. Interestingly, the underperforming industrial automation segment is expected to pickup due to improvement in demand for production equipment for storage drivers. On a macro level and medium-term outlook, Eurozone business activity remains at a 12-year high according to IHS Market PMI data, providing a basis for sustained growth for the group. As a recap, ~50% of its sales is derived from Europe. Valuation & Action Downgrade to HOLD but accumulate on price weakness. Since our last report in Nov-17, Frencken’s share price has gained 25% and has reached our target price. Thus, we downgrade to HOLD, with a fair value of S$0.72 based on 12x 2018F EPS (previously 10x 2018F EPS). We continue to like Frencken’s diversified business model and list of blue-chip customers, which helps provide stability in cash flows and dividend pay-outs. However, we would prefer to wait for opportunities to accumulate on price weakness. Risks Frencken’s main business segments are cyclical in nature. A spending slowdown in its key business segments, namely semiconductor, automotive and analytical machines may impact margins and new orders. However, its track record has shown revenue resilience which may be due to the well-diversified mix of its business.
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| MAYBANK KIM ENG | OCBC |
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Genting Singapore (GENS SP) Could have been better but maintain our positive view
Maintain BUY and SGD1.46 TP Despite an ‘unlucky’ 4Q17, FY17 results were still within our expectations. Our FY18/FY19 EBITDA estimates are slightly trimmed by 2%/3% after model adjustments and we introduce FY20 EBITDA estimate of SGD1.3b (+4% YoY). Our DPS estimates are raised 17% to 3.0 cents. Resorts World Sentosa (RWS) regained market share, while trade receivables hit another record low in 4Q17. GENS’ outlook remains bright, in our view. SGD1.46 TP based on an unchanged 12x FY18 EV/EBITDA (post-Jun 2009 12M forward EV/EBITDA mean).
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Sembcorp Industries: Double-digit ROE in five years
Sembcorp Industries reported full year net profit of S$230.8m (-41.6% YoY) vs. our estimate of S$269.9m and the street’s estimate of S$358.2m. Results were dragged by poorer performance in marine and one-off items in utilities. Excluding exceptionals worth about S$120.8m in utilities, the segment saw a 25% drop in core net profit to about S$260.8m in FY17. SCI announced that it has initiated the process of an IPO of Sembcorp Energy India (no surprise to the market), and also plans to divest a number of peripheral utilities assets which is estimated to deliver cash proceeds of up to S$0.5b. What was a surprise and at the same time encouraging to us, however, was management’s commitment to achieve double-digit ROE in five years, based on underlying profit (i.e. not distorted by asset disposals), and we think aloud ways to achieve this in our report. A final dividend of S$0.02/share has been proposed, bringing full year dividend to S$0.05/share. We tweak our estimates and our FV eases slightly from S$3.95 to S$3.84. Maintain BUY.
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Check out our compilation of Target Prices
