OUE - Analyst love it

For the past one weeks, two brokers initiate coverage on OUE Ltd. The target price given is quite close, around $4.2. The stock was also covered in the edge year end issue. Why the buzz around the company?

The draw:
- Office rental recovery
- Hotel business doing well as more tourist arrive

- More initiative to unlock value


At this price, the upside is about less than 20%. Not that attractive compare to many undervalued small and mid cap. However, if you buy only blue chip, I think it has chance to continue to move up. As more people believe the stock will do well in coming year, it will move up slowly.

Wilmar diversify into property

Few weeks ago, Wilmar announced the plan to go into China property development with Kerry properties and Shangri-la. Wilmar's job will be sourcing the site for development with their connection, the partners will be managing the development.

The market reacted negatively on the deal. The logic is simple. Why diversify into something that is new and unproven? Furthermore, China property sector is under pressure from the cooling measure. However, I have a neutral view on the move.

While moving away from one's core competency is not a good idea, but we have to judge it on case by case basis. The investment and contribution from this property venture will remain small, and they are getting a good deal from the local government. It looks like an opportunistic move rather than purely losing focus.

Investor has to continue monitoring the situation to see whether there is any deviation to the core agri consumer business.

Selling Longcheer was a good decision

Longcheer is a handset design company which has customer in China, India and other emerging market.

I bought into the company share after being highlighted by Lim & Tan. The company is paying good dividend, having sufficient good return on equity, low valuation and business is doing well. Later on, DBS Vickers also recommended the stock. Although it is a tech stock I will usually avoid, I bought some share hoping for re-rating.

Things didn't pan out that well. After a good quarter, major share holder start selling out which makes me uncomfortable. The earning visibility is poor and Lim & Tan suggest that the earning might disappoint. Therefore, I took the decision to quickly cut it. It is drifting down slowly.

Eratat promising turn around and low valuation

Eratat has just released the Q2 result. A quick scan on the financial statement:

For 6 months result,
Gross profit +3.3%
Because of reduced in expenses, Operating profit increased 23.4%
Trade receivable is quite high at 347,747 because of lengthen credit term
Current liabilities 130,968
Cash and bank balance 131,936

Margin improvement +2.8% for 6 months
Operating cash flow at 99,189
But because of the high trade receivable, it registered a cash outflow

EPS is 17.16 RMB cts (3.31 SGD cts)

In the cut throat China sports wear market, Hongxing has suffered a lot. Eratat is moving away to lifestyle fashion sector. How successful it is, remain to be seen. However, this set of result is quite promising. There are few important points

- Margin increased
- ASP increased
- Profit growth

The negative part

- Higher receivable days
- Cash outflow (company earn money but no cash comes in)

The management may be smart in changing the direction of business, and on the surface, they might just have succeeded in doing so. However, challenges abound. Management is looking forward for better time ahead.

The risk is still there, especially there is no cash coming into the company. Distributors still haven't pay back the money. Comparing the cash balance and current liabilities, company should have enough cash to pay the liabilities until real cash flowing in.

The valuation is low. Without considering the seasonality, if you just double the half year EPS, we are looking at whole year earning of 6.62 cts. Last Friday closing price was 0.205 and it is trading at forward PE of 3. That is super cheap.

Healthway deflated

Healthway was in my watch list after it attracted the market attention that Peter Lim has became the major share holder. However, I didn't buy into the company since the valuation is quite high. Basically, the story sounds good but the numbers not delivered yet.

To my surprise yesterday, Peter Lim has pared down his stake in the company. Clearly, the stock is now in down trend because the confidence has been shaken. It would take sometime for the price to stablise and then investor can reaccess the attractiveness of the company.

Health care service company is usually more expensive. But not all the stocks are equal. The company has grand plan for China expansion, but it takes time for the result to show.

Monitor Wilmar

For the past few months, Wilmar has underperformed the general market. It is one of the stock that under my watch list. I seldom have big cap stock in the watch list, primary reason is the slower growth it provides.

However, after some brief study on Wilmar, I am interested in investing in the company. It has few draws:
- Market leader in China cooking oil
- Diversifying into flour and rice
- New sugar business

I think it will do well in the long run. It might not grow as fast as it used to be. However, the new business should provide enough growth driver. I am not really classifying it as CPO play, but the increase in CPO price might have positive impact on the company.

Eratat Lifestyle gaining momentum

My first investment in China sport sector was through China Hongxing which disappoint me very much. Obviously, after Olympic, there is excess capacity and cut throat competition which squeeze every player. In a very competitive environment, it is better to buy the leader than those playing catch up.

Recently, Eratat Lifestyle has been making headline. Being mentioned by media and analyst, I think they are trying to drum up the interest on the stock. Interestingly the company claimed they are out of sport shoe sector and into the lifestyle sector which allow them leeway to earn a meaningful profit. We shall see what number the company can produce in coming quarter annoucement before making further judgement.

The interesting fact about the stock is PE valuation is super low. Less than 5 based on previous quarters of earning and management hinting the margin is on the up trend. Valuation is cheap but whether the future is substantially changed is yet to see.