Company update 19 Nov 07

There are really lots of company news these two weeks. The economy is booming and every company wants to expand.

Update for Olam

From CIMB. Wilmar and Olam to form 50:50 JV to invest in integrated palm oil, natural rubber and sugar assets in Africa. Maintain target price of S$3.83; reiterate Outperform. We have estimated that Olam will make about S$600m in investments in FY08. YTD investments, including Nauvu, amount to S$245m, within our forecast. We have kept our earnings estimates intact as we earlier incorporated such acquisitions in our model as mature existing businesses grow at a slower rate. Maintain target price of S$3.83, still based on DCF valuation (WACC of 9.4% and terminal growth rate of 2%).

From DBS, We maintain our BUY recommendation, leaving our target price of S$3.80 intact, which is based on 30x FY09 earnings. We continue to like Olam for its strong earnings growth prospects, driven by both organic expansion and via acquisitions.

>> Fantastic. Having missed the Olam ipo at 60c, scared of the high valuation of 80c, didn't buy during the pull back at 1.80. Olam is one of the stock I want to own but dare not have the courage to take up. One notable about the company is the business model, which is hard to find and consistently increase the earning. At the current PE, I still won't buy, only wait until it is more reasonable. Normally, when people cannot justify the buy call using PE, they would use other means like discounted cashflow, enterprise value etc etc. However, the final return won't be great either, and you are subjected to the PE de-rating if something does happen to the company.

Update on China Hongxing again.

From CIMB, Target price lowered to S$1.32 from S$1.48; downgrade to Neutral from Outperform. Our new target continues to price the stock at 27 CY09 fully-diluted earnings, which is at a slight premium to the average valuation for the sports-shoe sector. Given the limited upside to our target price, we downgrade the stock to a Neutral. However, we continue to like Hongxing as a key beneficiary of the Olympics and China’s rising consumption spending.

From DBS, Valuations now look stretched against larger, more established peers. Downgrade to HOLD. The stock is now trading at 32x FY08 and 24x FY09 earnings, which is similar to Anta’s 32x FY08 FY08 and 23x FY09 earnings. As such, with valuations now at par with Anta, which is a larger and more established peer, we believe that valuations for China Hongxing are now fair and downgrade the stock to a HOLD, TP S$1.25 (24x FY09 PER).

>> Like I mentioned early, the risk has increased. Both to company and investor. Company faces the aggressive expansion risk and investor face the share over hang & earning dilution. Having said that, I believe the company is doing the right thing. They might become the sport shoe giant.

DBS on Boustead. We have resumed coverage on Boustead with a fair value of S$2.74, based on sum-of-the-part valuation. This would translate to 15xFY08 PER and 13xFY09 PER and offers 21% potential upside. Recommend Buy.

>> When company is doing well, analyst would come back to cover it. At current price, and given the project risk(project always face unexpected situation), wait for a better entry point. I was caught by the recent property down turn by a small amount. This proves that the theme play could swing very fast. For example, shipping, technology, oil & gas, who knows? I think the consumer stocks are more resilient.

Old Chang Kee Pte Ltd – The curry-puff maker is headed for an IPO. The food and beverage group announced Friday that it has lodged its preliminary prospectus with the MAS, and intends to list its shares on Sesdaq, the secondary board.

>> Unless you aspire to support the local brand, I see no reason to subscribe to this issue. F&B business is tough. Just look at the peers listing on SGX, and you would know the answer.

SembCorp Industries – Intends to increase its piped Indonesian gas imports by 26% to meet growing demand for natural gas from petrochemical plants on Jurong Island, and expects to conclude a gas sales agreement for this by the first quarter of next year.

>> The petro chemical industry is growing in Singapore. If you are keen on the idea, can explore which are the companies doing business in Jurong island. The support industry should get the major deals and increase the earning. Base on recent report from Kim Eng, they still view Rotary as the primary beneficiary of this boom.

According to zaobao news today, Brothers Holdings' "Singapore City" at Shenyang China received an overwhelming response on the first five days. More than 250 units already sold with 70% of buyers are the city's people. The project is a mid to high end integrated property project, leveraged on Singapore good brand name.

>> I expect the project to do well. However, I have yet to have time to study fully on the company. It should be a worthwhile bet. After I have done my research, I shall post my finding here.