Water shortage, invest in water treatment stock?

Today, I read two analyst reports about the Hyflux and Epure from different broker. The timing is quite coincident that they feature the water stock on the same day. Water related stock has been quite a hot sector, on and off. Since year 2004 till now, I think. But if you bother to check on their performance, think one should be disappointed.

When the sector is hot(a usual stock market behaviour), the valuation get a little bit out of hand. At the current market condition, every stock is back on ground again. Often we hear, the world is short of water etc etc. It is logical to think the water related stock would do well.

Think again. If you are hoping for consistent earning growth, maybe this is not your cup of tea. Water treatment company operate on projects and the earning could fluctuate from quarter to quarter. Many wants to go into operating treatment plant and receiving recurrent cashflow. However, that also means they have to invest heavily upfront. It is a capital intensive business.

One should really think long term to do well. Having said that, the two companies mentioned seem to be the strongest on SGX right now.

Banyan Tree – The luxury tree

Banyan Tree posted 38% increase in Q1 net profit for FY08. Total revenue rose 34% because of strong growth in hotel investment and property sales. The company is expanding the resort and hotel business into new location.

The hotel business remain stable despite the cloudy global economic environment. They expect good response to the branded residence sales and property sales. In the result presentation, management has shown the planned expansion strategy. It looks pretty impressive. There should be a significant growth on the number of hotel they are going to manage.

The company has 3 business segment – hotel investment, hotel residence and property sales. The company first started as resort operator in Phuket and slowly diversify the business into related area. It is now trying to capitalize on the strong brand name it has built to expand and grow. I think the growth strategy is well articulated and with the strong management focus, it is more likely to succeed in the mid term. The key risks are funding issue and demand for the luxury resort and hotel.

I once owned a few lot from the IPO allocation. Unfortunately, I am not that familiar with the hotel and property business, so I sold off my position. It looks like a wrong decision now. I am considering to add it back to my portfolio base on the following points

• Strong luxury brand. As Asia people get richer, they would find way to indulge themselves. The luxury resort business should not be affect greatly by economic condition.

• Dedicated management who is focusing on growth. Look at the expansion plan, they have lots of work to do. If everything goes nicely, we shall see a different company 3 years later.

Avoid second tier consumer company

I like China consumer stock. Names like Hongguo, China Hongxing and Synear food are inside my portfolio. The emerging middle class and progressive increase in country wealth would increase the consumer spending power. These companies are good buy for long term, as they capitalize on their strong brand name to capture the market.

At the same time, I would avoid investing in second tier consumer stock. How do I classify them into second tier? I remember I read some analyst reports previously regarding company produces the intermediate goods for consumption. Analyst would claim there is a growing demand and bright industry outlook, hence a good buy. Sometime when you tell a story, you tend to emphasize more on the bright side. When time is gloomy, people tend to focus on the downside more.

As the demand soar, indeed they are getting good business, but don’t forget the supply side! For intermediate producer, you source the raw material and make into intermediate product. This good is sold to the end manufacturer which piece them together to produce the final good. The commodity bull cycle is squeezing the margin for these players. Very often, in the middle of value chain, there is a limit on how much you can pass on the cost. If you are really big player, you pass on all the cost increase, then your margin won’t be affected. What if you are not that strong?

For the first tier or end consumer company, I would think the situation is much more manageable. That is because you own the brand. If you are a big industry player, most of the time you can squeeze your supplier to lower the cost. If your brand is strong, you can pass on the cost to end consumer. There are also other ways of passing the cost on, like decrease the weight a little and repackaging. Of course, I sound too simplistic in these arguments. But I really think that they have better bargaining power. Go to the local supermarket to do a comparison. Price of same goods from different brand might vary a lot. However, the more expensive brand does not go out of business!

Companies like China Sun, Luzhou, Celestial didn’t have a good year because of the dramatic cost increase. Celestial does have its own strong brand, but it also has industry soy bean processing. The fiber player like China Sky and Fiberchem did amazing well to defray the oil price increase. Soft packaging companies also had a tough time because of the oil.

However, every company’s situation is different. It doesn’t mean by stereotyping the company, it is not worth the investment. We have to analyse the company on case by case basis to understand the growth driver and business prospect, in order to arrive at a conclusion.

Some stock idea for 2008

At the time of writing, the stock market outlook has never been so bleak compare to the past few years. I remain calm. Be it a short bear or long bear, it is better for fundamental investor to pick up strong company at discount. I re read some of the research document published by broker from Dec to Jan and compile the following list.

Sino Env

The core VOC business remains intact and the desulphurization business would take sometime to take off/mature. Dust elimination business also started to contribute to the bottom line. Once the desulphurization takes off, then the earning growth could be accelerated. Forecast EPS by CIMB for 2008 is 16.2 cts.

Sino Techfibre

The stock has fallen quite a bit following the announcement for the delay of PMP equipment again. Obviously some confidence has been shaken. The PMP contribution would come late in 2H of 2008. Currently, China import all the PMP (pattern molding paper) from outside. Once the production line is on stream, the contribution could be quite significant. At the forecast 2008 EPS of 14.4 cts, the stock is unreasonably cheap.

The two beaten Sino

Coincidentally, the two companies with name of Sino had a bad run. From the excess optimism, market has turned to excess pessimisms. Depends on your risk tolerance level, I would say they are very good buy.

China Hongxing

Key expansion strategies are to increase the outlet, production capacity tremendously and increase the brand visibility. Forecast EPS by CIMB for 2008 is 4.7 cts. As the strong growth is expected to continue, the current valuation is relatively low compare to historical standard.

China Sports International

Their targeted market is low to mid end segment. The key expansion plans are increasing the A&P to increase brand visibility and doubling production capacity. The YELI brand is positioned as fashion sports brand. This is a good strategy as to avoid direct competition with other players. Forecast 2008 EPS by CIMB is 12.4 cts. As mentioned in CIMB report,

“YELI trails listed peers in China. There are six listed sports companies with a retail
presence in China: Hongxing (Erke), Li Ning (LI-NING), Anta (ANTA), China Sports
(YELI), Belle (multi-brand) and Yue Yuen (YY Sports). Among the six, we consider
Hongxing, Li Ning, Anta and China Sports to be competing in the same space, given
that: 1) retailing sports shoes is their main business; 2) they are all brand owners; and
3) their target market is middle-class consumers in second and third-tier cities.
However, Li Ning, Hongxing and Anta appear to be a step ahead of China Sports, in
terms of brand visibility and product pricing. We consider Belle and Yue Yuen to
compete in a different space as they retail mostly foreign brands like Puma, Kappa
and Mizuno (Belle) and Nike, Reebok and Adidas (Yue Yuen), respectively.”

The two sprinting players

For the only two sports player listed on SGX, both have embarked on aggressive expansion strategy to capitalize on the future sports good demand. The recent measure announced by china government might have cool the interest and cause investor concern on the sector outlook. But I still believe in the theme. I would pick China Hongxing as it is the stronger brand of two.

Swiber

Contract extension from Brunei Shell should be a strong vote of confidence, everything still going according to plan. Following the aggressive expansion strategy and continuous high oil price, this is another stock to watch in coming years. Analyst forecast that even oil price is at $50 per barrel, the new investment by oil company would still be viable. Forecast 2008 EPS by DBS is 24.6 cts.

Oil & Gas sector

DBS vicker mentioned that the outlook remains positive with strong contract flow. The mid tier oil and gas stock is expected to outperform peers. The picks are Cosco, Keppel Corp, Ezra Holdings, KS Energy, Jaya Holdings, and Swiber Holdings. As it is mentioned in the report –

“We believe that the impending strong orders for floating production units and FPSOs and high capex for fixed platforms are harbingers of more offshore EPIC projects, as oil majors increasingly move into the development phase of offshore oil fields for production and delivery of oil to the market. The beneficiaries of this trend are Swiber, Ezra, Keppel Corp, SembCorp Marine, and See Hup Seng.”

I remain confident that the FPSO story would continue this year.

“Three potential risks may emerge to dampen the optimism. We believe that there exist three potential risks in 2008 that may dampen an otherwise overwhelming bullish outlook for the oil and gas sector; namely unsustainably high oil prices, potential currency hedging issues, and rising equity market risk premium.”

I think the rising of risk premium or de-rating would be the biggest risk this year. Since the exploration activities would still have to continue despite any fall of the oil price.

DBS Vicker small cap pick

Hsu Fu Chi, China Sky, The Hour Glass, Boustead, Ferro China, Raffles Medical

I am more convinced on the first four. The steel business is hard for me to understand and the defensive medical sector is not for me at this stage.

Kim Eng 2008 Market outlook

In Kim Eng 2008 Market outlook, construction, tourism and retail are key investment theme this year.

The recommended portfolio is

Lian Beng
LC Development
FJ Benjamin
Kingsmen
Breaktalk
Cosco
Venture
Singapore Press Holding

I like FJ Benjamin and Kingsmen, because they are the key beneficiaries to the upcoming IR and the future Singapore tourism boom.

China New Town 3Q loss

Luckily I didn't buy into the company while it was 68 cts. Only a few days after, they announced the 3Q loss which cause the price to go into violent downward swing. Before the announcement, I was expecting them to show some good result. Especially that is the 1^st result announcement after listing. I guess the price would drift down for quite a while. However, I suspect the fund manager would keep buying the company's share. This could provide some support to the price.

In year 2007, two of the most interesting China company listed on SGX should be China New Town and China Oilfield Technology. Valuation aside, both of them offer a good growth story to investor. However, listing timing is also important sometime. If they listed before subprime rout, the valuation should be much higher.

China Oilfield commands a high margin and have an unique niche in its own area. Valuation is at a compelling level now, but it could go cheaper if overall market remain weak. Company risk is higher than other China company, because the business is harder to understand and they rely on one big customer.

China New Town offers a good story on the urbanization which is a big and strong theme. The business is a little bit harder to understand, because it is different from your usual property developer and they have short operating history. Valuation has come down to a more manageable level, although I won't say it is cheap. Nevertheless, I think fund managers would think otherwise. Key risks are execution, getting more new projects and financing as the initial development requires huge capital. Having said that, I think key risk are mitigated by having strong connection and strong parent/shareholder. For short term, I don't expect it to fly. It is for long term holder.

if you want to buy a bank now

If you want to buy a bank now, what should you buy? First name come to my mind is citigroup. I know people would say about the problems it has - massive write down and leadership problem. But, that's the time you can pick up a financial group cheaply, isn't it? They have a strong franchise some more.

The capital base was weaken by the recent write down. Today, it announces the capital injection by Abu Dhabi fund. It proves that people have confidence in the brand.

Recall when Amex had the trouble and Warren Buffett went in to buy the company. Because they have strong franchise and it present a rare opportunity to buy cheaply. I think the situation is similar here. Of course, you need to have holding power for the counter for long term. When the financial market sorts itself out, it would come back.

Only pity thing is the stock is listed in US. Not convenient to buy from Singapore. It might drop some more depends on the degree of problem. One can accumulate over different period. Do your own home work first!

Company result update 15 Nov 07

Today, there are really lots of company result update. Took quite a while to digest all the news.

Sino Env

Note from UBS. We derived our price target using a DCF valuation, assuming 9.1% COE and 3% terminal growth rate. Our price target implies 16.9x 2008E earnings. We value the core business at S$2.25 and the option on desulphurisation at S$0.35.

>> Desulphurisation get delayed. Generally, project always get delayed. When you have factored in the future earning into price, and it doesn't come, that's the part it is going to be a little bit nasty. With hindsight, I didn't chase the high above 3.2. With the crash, it is still not safe enough to enter. Look at it below 2.

MIDAS

Note from Lim & Tan. At forward PE of 29x against growth rate of 40-50% and closest peer Hong Kong listed Zhuzhou CSR's 40x PE, we maintain BUY.

Note from OCBC. Resume with BUY. We resume coverage with a BUY rating using a PE based methodology as we believe that earnings will be the key share price driver in the future. Pegged at 30x FY08 PER, our fair value is S$1.85 cross checked with an undemanding 0.5x PEG ratio. Midas offers investors an opportunity to ride on the ongoing rail transport boom in China, and we project 52% net profit CAGR in our FY07-09 forecast period.

Note from DBS. We maintain our BUY call and target price of S$1.84, which is based on 24x FY08 earnings, translating to 0.4x PEG on EPS CAGR of 50% over FY06-FY09F. We continue to like Midas as a play on China’s booming railway sector.

>> I always think that its business is "safer" compared to others. The government already laid out the infrastructure spending plan. It is only a matter of time on when they would get the share. The rumour is unfound and the business profile still good. Buy if drift lower.

Ching Hongxing

Note from CIMB. Target price nudged up to S$1.48, maintain Outperform. We see continued demand for sporting goods in China, particularly from locals in 2nd and 3rd tier cities. Although the stock has done well recently, we believe there is room for more upside. Execution remains as a major risk. Maintain Outperform with our new target price of S$1.48 (previous $1.47) based on 24x CY09 earnings, which translates into 27x FD CY09 earnings.

Note from Kim Eng. Downgrade to HOLD, prefer China Sports
At S$1.25, CHHS is valued at 31x 2008F fully diluted EPS or 0.63x 3-year PEG, still below the valuations of Anta (36x 2008F EPS, 0.5x PEG) and Li Ning (44x 2008F EPS, 1.1x PEG). It has been a great run but we are not comfortable with the rising risk profile. We also believe CHHS’s growing funding need, in-line with its aggressive market expansion, could lead to EPS dilution. A 20% dilution, the maximum allowed under the share issue mandate, will push 2008F fully diluted PER to 36x (33x basic EPS) – fairly valued in our view. With less than 10% upside to our new target price of S$1.35 (33x 2008F EPS), we are downgrading to a HOLD until we are comfortable that future growth will be balanced, risks-wise. We prefer China Sports.

>> Different people have different view. Generally, given so high the PE, I would be reluctant to put the money in. Usually, the idea case is business performed as expected, then the valuation keep roll over. However, one quarter of surprise is enough to pull it back to ground.

Olam

Note from CIMB. Target price raised from S$3.83 to S$3.72; maintain Outperform. We maintain our earnings estimates but raise our target price to S$3.83 as we roll forward our DCF (WACC 9.4%, 2% terminal growth rate) target price from end-CY07 to end CY-08. The group’s fundamentals remain strong with management having the track record and clear strategy to deliver organic and inorganic growth. Maintain Outperform.

>> Although not cheap, Olam is one of the few which has a stable earning profile. They earn a cut from the whole supply chain and is one of the largest supply chain manager. If a sudden crash occurred, it is worth to pick up some.

Boustead

Note from Philip. BUY on Boustead. Our fair value of S$2.69 represents a 13.2% upside and we reiterate our positive recommendation on Boustead. We change our method of valuation1 so as to reflect better the earning streams coming from Boustead’s diverse businesses – the 4 core business segments

>> I started notice the company, when one of the fund manager start buying it. However, at that time, I am not so sure what it does(even now), didn't consider buying. The business is doing really well, Philip has a strong call on the company. Worth study during free time.

Swiber

Note from CIMB. Maintain Outperform; higher target price of S$5.05 from S$3.95, as we roll forward our 15x P/E to CY09. Swiber is trading at undemanding valuations for its 117% 3-year CAGR in earnings. Our valuation excludes earnings contributions from the drilling barge. Short-term catalysts could include a stronger 4Q07, contract wins and margin enhancement. Key risks are delays in fleet deliveries, loss of key management and a sudden collapse in offshore E&P spending.

>> Another set of excellent result. However, the target price is a bit unrealistic. The risk is still high as they are wondering into unchartered water. I hope they would be a bit more correction to bring the valuation down to attractive level. If you got deep pocket, can consider it for long term.

Wilmar

Note from DBS. We have adjusted our forecasts to take into account higher merchandising and processing segment profits, other operating income as well as higher minority interests, resulting in EPS upgrade of 26.7% for FY07, 25.3% for FY08 and 29.0% for FY09. Our valuation on the company has consequently been raised to S$5.55/share – based on 10-year DCF (using WACC of 7.4% and terminal growth of 3%), implying 22.9x FY08 EPS. At the current price, the stock still offers upside potential in excess of 15%, excluding dividends. Maintain Buy.

>> Sometime people say big is beautiful. In this case, most would argue it certainly is. Caveat! The earning outlook is linked to CPO price. CPO is also correlated to oil price. At the current dizzy level, the room to go higher has narrowed. I expect a pull back for oil and the CPO.

FJ Benjamin FY08 Q1 result

Today, FJ Benjamin announces 1st quarter result for FY08. CIMB and Kim Eng both maintain a buy on the company.

Key highlights:
Revenue and net profit growth 43% and 33%
Gross margin increased from 37% to 42%
Rental cost jumped 96% yoy with new store opening

My view is the management is still doing all they can to growth the company. Increase the brand they managed, move the in house brand RAOUL to higher level, and together with coming Singapore tourism boom(or even Asia). There are still plenty room for growth. At current price, it is trading at FY08 forward PE 18. Given volatile market condition, buy only if a good price emerged.

Renewable energy

At the start of the year, I noticed a company China Enersave was involved in the biomass energy sector in China. The review was quite good, and indeed it had a good run till 0.20. Frankly speaking, I don't have time to do a very in depth research on the company, so just rely on the review and reports.

Since the recent market correction and announcement of several fund raising activities, the counter is going downwards at 0.105 now. A good entry price, subject to valuation check and the prospect didn't actually change.

Found a website which dedicated to renewable energy and had some news regarding the company.
Biomass Plant and Enersave.

I think it is good to place it under the watch list. Just in case it trended lower, it might be worthwhile to pick up some for future growth. High risk high return. Once they can make it, the return could be quite spectacular. This together with Guangzhao IFB are the two under my speculative list, which I would consider enter at very low price.

Have a cold shower, property

Today, Singapore government announced measures to cool the property market.

*****
SINGAPORE, Oct 29 (Reuters) - Property counters such as City Developments fell after the government said real estate developers could no longer let home buyers delay payments on the bulk of their property purchases.

City Developments fell 3.1 percent, Wing Tai Holdings was down 4.4 percent and Allgreen Properties lost 3.9 percent.

"We may see annual double-digit residential price increases come to a halt, or grow at a more gradual pace," said Morgan Stanley analyst Melissa Bon in a note.
*****

It is a good thing. We have seen both the property price and property stock price going through the roof recently. This is a timely measure to cool the things down, to ensure we have a sustainable upturn. Recent HDB price is too unrealistic. It is all hype.

Guangzhao IFB good time ahead...

I have been following the company since its IPO on and off. If you looked at the price chart, it would know this is a volatile stock. Volatile because the fundamental is shaky. Since its listing, it remains as a concept play. The company profit is good, but the cash flow is negative. That means, they are unable to bringing cash while the tree grows on ground. That was a time when auditor/analyst raise the question whether the company can still survive. However, they keep having bond/warrant issue which raises new cash to keep the company running. I think nobody likes the share dilution. But to keep the company up, maybe that's the only way.

We know the 2008 would be a watershed year. Because they would start logging and bring in the cash. Once the cash flow is positive, then the company's future would be brighter. Monday Kim Eng issue the following report, maintaining a buy on the company. However, don't buy too expensive, there might not be much upside left.

Propagating the `Green Revolution’
- Sprouting new branches with rich pickings
Commonly viewed as a fledgling poplar forestry company in the PRC, GIFB has been
quietly building up its biotechnological knowhow and its R&D efforts is starting to yield
significant results. The key success factor hinges on its ability to rapidly propagate its
plant tissue culture beyond the laboratory into mass production. Having achieved this
critical breakthrough, the company is now ready to commercialise its ornamental plant
seedlings, tropical fruit plantlets/seedlings and jatropha plantlets on a mass scale.

- Tropical fruit/orchid seedlings – strong overseas demand
Under a 5-year supply contract worth RMB16m, GIFB is cultivating 13.5m orchid
seedlings at its Shanghai facility (annual capacity: 12m) for export to Japan, Taiwan and
Europe. Through its new Malaysian JV, Jalur Lipur, the group will be delivering an initial
10m tissue-cultured tropical fruit plantlets to Malaysia’s Department of Agriculture over the
next 5 years. The first batch of 600k banana plantlets has been shipped in late Sep. Jalur
has a tissue-culture facility in KL and plans to set up a 50-ha nursery to produce 40m
plantlets annually. This, coupled with its ongoing research in disease resistant oil palm,
would pave the way for the group’s entry into the lucrative SEAsian agriculture market.

- Jatropha – powering the biofuel of the future
High crude oil prices and environmental concerns have spurred several biodiesel projects
in the Asia-Pacific region. Amid soaring prices of traditional feedstocks such as palm oil,
some producers are turning to jatropha curcas, an inedible hardy shrub that does not
compete with food crops for scarce arable land. Utilising tissue culture techniques, GIFB
has selected and developed 2 superior jatropha cultivas, which has attracted interest from
at least 2 Singapore-based firms. In collaboration with NTU’s IESE, it has signed an MoU
with APVC Holdings (which is constructing a 300k mta biodiesel plant in Ningpo, PRC) to
supply jatropha plantlets over the next 3-5 years with a total contract value of $100-120m.

- Poplar/Orient fir – nearing harvest time
To-date, the group has harvested 3.2k m3 of pine trees and has contracted a buyer to log
another 41k m3 of its Jiangxi forest in 2H07. Continued demand and shortage of timber
and pulp in PRC has pushed up wood prices ahead of large scale logging of its poplars
this winter. GIFB is awaiting licencing approval to harvest 30-40k mu of poplar plantations
(15-20% of planted area). Meanwhile, the group is exploring opportunities to reforest
marginal land tracts in Xinjiang and the Mid-East with its salt-tolerant poplars. It has also
received orders from the Chinese government for 400k sapling of Orient fir which could
act as an excellent wind barrier in typhoon and flood-prone coastal cities.

- First growth target price: $0.60 with room for possible re-rating
With the impending sale of its poplar/pine timber and quicker revenue streams from
seedlings, plantlets and saplings soon to kick in, GIFB is expected to turn cash flow
positive by end 07. Consequently, we are switching our valuation model from P/B to DCF
(WACC: 12%) and raising our TP to $0.60(previous: $0.33). Thiss does not include a few
possibilities of G2 poplar/jatropha plantations, which could lead to future re-rating of GIFB.

Oil & Gas cycle

We are in the high oil price era. Due to increasing world demand on oil and emerging economies like China and India, the oil price has risen from $30 to $80 now. The significant increase of oil price prompt the oil companies to speed up their oil exploration activities. Exploration is only the initial phase. Once the field is being confirmed and contract signed with the government, oil company would have to prepare to extract the oil.

In South East Asia, majority of the oil site is situated in the middle of sea. We need to build many drilling rig to drill and pump out the oil. Keppel Corp and Semcorp Marine have been building so many rigs for the driller. Progressively, these rigs would be delivered and the oil production starts.

Beside rig building, there are many offshore related activities involve. Swiber is a niche service provider tot he oil and gas sector. The services provided include setting up production platform, pipelines, mooring of FSO/FPSO on sea bed etc. As the SEA or middle east region exploration activities grow, it provide ample opportunity for them to expand the business.

Once the rig is installed and production starts, the oil has to be transported to the shore. This job is being carried out by FPSO. A Floating Production, Storage and Offloading vessel (FPSO; also called a "unit" and a "system") is a type of floating tank system used by the offshore oil and gas industry and designed to take all of the oil or gas produced from a nearby platform (s), process it, and store it until the oil or gas can be offloaded onto waiting tankers, or sent through a pipeline.

Links below show the demand for rig and FPSO remain robust in the next few years.
http://uk.reuters.com/article/oilRpt/idUKSIN17435320070109
http://www.energyme.com/energy/2006/200600759.htm

They are many FPSO builder. Keppel Corp is one of them which is capable of building a FPSO. Since the FPSO process and store the oil on the vessel before the tanker comes, it would need facilities to perform these activities. Technics Oil & Gas designs and develops process modules and equipment that are integrated to form the operating systems and storage facilities for oil and gas exploration and production. Their key expansion plan is to explore more opportunities in the FPSO space.

Technics is not the only one to be involved in this space. Hiap Seng start up as a engineering sub contractor, now they are moving into the compression and offshore fabrication business. It is involved in gas compressors and FPSO topside fabrication. At the same time, it still provide the mechanical construction work in Jurong Island. Both would serve as diverse revenue stream. Technics seems to be involved in the production system design and construction, while Hiap Seng only produce the gas compressor sub module.

With favourable industry environment, these 3 companies should do well in the coming years.

* Part of material were extracted from company website, broker report and internet.

Oil and gas update Oct 07

Some news on the oil and gas sector play these two days.

CIMB

Hiap Seng Still cheap. HSE is trading at 10x CY08 P/E vs. peers 15x. We believe HSE
share-price weakness (-23% in the past 14 days) has discounted investors
concerns over delays and margin compression and presents another opportunity
to accumulate for the strong FPSO market outlook and heightened activities on
Jurong Island. Following our earnings reduction, our target price has been trimmed
to S$1.20 from S$1.25, still based on 15x CY08 earnings, in line with peers.

>> According to the SGX filing, one of the fund manager is pulling out. This contribute to the share price decline of Hiap Seng. At the current price, without any significant fundamental deteriotion, I would say it is a good buy.

Kim Eng

Swiber Holdings – Has stepped up its fleet expansion programme with the acquisition of four new vessels for US$108m. The marine group said that wholly owned subsidiary Kreuz Engineering has acquired two sub-sea support vessels and two deepwater anchor handling tug/supply (AHTS) vessels from Thaumas Marine. The purchase amount does not include the cost of equipment that Swiber will retrofit or purchase for the vessels. Swiber said that the acquisition of the vessels would extend its capabilities in sub-sea and deepwater activities. This would enable it to take on more offshore oil and gas projects and broaden its revenue streams. The company expects revenue synergies and growth potential from these acquisitions. The acquisition will be financed by proceeds raised from the successful completion of the group's recent bond offering and sale and leaseback arrangement.

>> Management continue to execute their expansion plan. It would be interesting to see what Swiber would become in the next two years. Looking at the current price, it is a bit pricey, waiting for share price weakness for accumulation.

Technics Oil & Gas – A wholly owned subsidiary has secured a contract worth $17m for two modules of gas compression systems and one unit of gas treatment and processing module.

>> An interesting oil and gas play beside Hiap Seng, there are many corporate development that support their push into the new growth market. Yet to access the management plan and future direction. But this could be a potential winner also.

New STI 2008

It was announced that STI component stocks would be changed next year 2008. From the 48 stocks trim to 30 stocks. By then, it would become a big cap index. SIA Eng, Wilmar, Yangzijiang, Yanlord would be added to STI while some of the stocks relegated to mid cap index or being removed.

The implication for those new addition is the share price would likely go up. This is without consider the company specific news which could affect the share price. The fundamental argument is very simple. Once the stock is added to the index, those index fund would have to buy it, and push up the share price. Another possibility is once the stock is added to STI, it would be more prominent to the institutional investor.

Of the 4 new additions, Yanlord looks most interesting to me. It has appreciated a lot this year. At the current valuation, it would be quite pricey. However, in the long run, it is like betting China consumer would want to buy a house. The demand is definitely there. It is better to wait on the sideline and collect the share, if a meaningful correction happens.

Buy... China fund is coming, the QDII factor

If you don't know what does QDII means, it is actually short form of Qualified Domestic Institutional Investors. China is allowing the local fund house to invest money in overseas stock with QDII status. The purpose is to let part of the saving to go out of the country to ease RMB appreciation pressure.

Last Thu/Fri, Merrill Lynch has recommended investor to load up Singapore based China stock, citing undemanding valuation and the potential fund flow. Stocks suggested were Yangzijiang, Cosco, Synear, MIDAS, China Hongxing, Yanlord, Celestial, Hongguo, Capital Retail China Trust, China Energy, China Sky and Beauty China.

In the Saturday Business Times "Show Me The Money" column, the writer presented a table of China stock that could be the potential winner. From the list, my pick for the good stock which would benefit from the increase China consumption and also QDII fund flow are Fiberchem, Synear, China Sky, Chine Lifestyle, Celestial, Hongguo, China Hongxing, Sihuan Pharma, Sino-Env, China Energy and China Sports. Personally, I favour consumer stocks, consider them to be safer than the rest. In the list, other than consumer stocks, there are few companies with unique competitive advantage.

Today, CIMB also issues similar report citing their picks are Cosco, Synear, China Hongxing, China Energy, Fibrechem, Delong, China Sky, China Fishery, Hong Leong Asia, Sino Techfibre. From here it is not difficult to spot the trend. In order for the fund manager to load up the counter, the company must have substantial size or market cap. Many undervalued small cap remains under valued because the fund house has restriction on market cap of the stock that they can buy.

Ok, we got so many good stocks on the exchange, but which one to put your money in? Stock do well when your business is doing well. We need to pick those which offer unique value and growth potential. However, as a retail investor, the capital is limited. We can only affort to put that much.

My pick for this run,

Hongguo - Trading at significant discount relative to Hongkong listed woman shoe maker. With past 3 years annual growth of more than 20%, this is one of the "safer" stock you can get.
Synear - Consider the market leadership, bigger market cap (which would attract the institutional investor). This would also be a "safer" bet. Bigger size company recover better from any earning disappointment or business change.

Sentiment aside, after Fri and today's great run, the margin for error would be significant narrower. The room for upside is limited, but I do not see it peak as of now. Be careful... Invest at your own risk.

Company update Sep 24 - Tiong Woon

A very common scenario in Singapore market. After a company has turn around, people start taking notice, more and more analyst would start cover the company. Today, here is the comment from CIMB-GK regarding Tiong Woon. In the short term, one more buy call would definitely support the share price. We are unlikely to see it goes back to 0.6x region. Hopefully I would be able to buy some at 0.7x or 0.8x.

I do hope there is a second wave of sub-prime problem which would trigger another correction. I believe after another round of correction is cleared, then the market would be prepared to go back. On the other hand, we hope some of the foreign money or china money would enter South East Asia market in coming months.

CIMB-GK:

Initiate with Outperform and target price of S$1.50, set at 15x CY08 P/E,
comparable to valuations for SGX-listed construction peers. Our target implies
upside potential of 43%. TWC trades at an attractive 10.7x CY08 P/E against a 3-
year core earnings CAGR forecast of 50.3%.

Forbes Asia 200 'Best Under A Billion' list

According to Business Times,

TWENTY Singapore Exchange-listed companies have made their way into the latest Forbes Asia 200 'Best Under A Billion' list, which ranks companies with less than US$1 billion in turnover but which have shown consistent growth in sales and profits over three years.

Forbes Asia 200 'Best Under A Billion' list

Asia Enterprises
ASL Marine
Best World
BH Global Marine
China Sun Bio-Chem
CSE Global
Ezra
Food Empire
Hongguo International
Inter-Roller Engineering
Jiutian Chemical
Labroy Marine
Midas
Midsouth
Multi-Chem
Raffles Education
Raffles Medical
Rotary Engineering
Tat Hong
Unisteel Technology

Interestingly, some of the companies on the list are actually found in my portfolio or my watch list. We have to access the fundamental attractiveness of each of the company, before deciding whether to invest. Consistent growth is a very important factor here, people value consistent increase of profit and doesn't like fluctuation.

Company update Sep 22

For the past week, stocks under my radar released some news. Here are some analysts' view on them. Generally, the companies are on track for future growth, and we should stay vested.

Due to Rotary venturing into LNG in China. OCBC research is upgrading the fair value.

Upped fair value. We are optimistic of Rotary's pursuit in the LNG business in China. As the first transportation route will only be operational from November, we do not expect this to have much impact on its FY07 results. However, we expect this business to contribute 9% to our FY08 estimates. We are keeping our forecasts of S$46.7m in FY07, but revising up FY08 to S$54.5m. Based on 18x PER FY07/08 blended earnings, we are raising our fair value estimate to S$1.60. Maintain BUY.

DBS has reiterated a buy on Swiber citing

Revenue visibility for Swiber is high. Our offshore EPCIC revenue projection in FY07 is now fully backed by orders on hand, as compared to 94% previously. Our FY08 offshore EPCIC revenue projection is 30% backed by secured orders. Swiber’s orderbook now stands at US$230.7m.

Kim Eng initiated coverage on Orchard Parade Holding with a Buy

We think that OPH offers a rare dual exposure to hospitality and F&B. With
tourism in Singapore set to grow further and YHS being a household brand
name, we think that OPH is an enticing value proposition. We are initiating
coverage with a price target of $3.31, based on parity to RNAV.

CIMB-GK reviewed again the call on FJ Benjamin

Maintain Outperform. Following our earnings adjustments, we have lowered our
target price from S$1.29 to S$1.17, still based on sum-of-the-parts valuation. Our
new target continues to value its retail/entertainment business at 16x CY08 P/E and
takes into account potential capital distribution from the sale of investment
properties and warrant conversion.

DMG maintains the view on FJ Benjamin

FJB announced the listing of its associate, St. James Power Station through a reverse
takeover. The RTO is targeted for completion by 1Q 2008. FJB’s 30.4% stake is valued
between S$24.3m – S$32.8m, depending on the financial performance of St. James. Post
listing, FJB’s stake will be reduced to 25.2% with potential for further dilution upon a
subsequent placement. Maintain BUY with price target of S$1.03.

I always believe if you buy a good company and hold for long term, you would be rewarded.

Swiber - company update Sep 07

After the quarter 2 result which
Revenue: 1H Y-o-Y growth: +220%
Net Profit: 1H Y-o-Y growth: +280%
Swiber announced following news.

06 Sep - Swiber acquires AmClyde M-80 offshore derrick crane for US$53.13 million. The derrick crane will be one of the largest heavy lift cranes in the Asia Pacific region with a maximum lifting capacity of 4,180 tons
30 Aug - Swiber continues fleet expansion with acquisition of four vessels for US$70.6 m
24 Aug - Swiber successfully places inaugural bond issue for S$108.5 million. Proceeds will be used to finance Swiber’s fleet expansion programme
22 Aug - Swiber Appoints New Vice President for its Floating Production Systems Business

I went through the annual report, recent announcement and news flow. I think this is a good company. They aspire to be top EPCIC specialist in Asia Pac and management is taking serious steps to achieve it. Buy on dip. Accumulate across different period.

Singapore chemical hub story

Exxon Mobil announce the new chemical complex at Jurong Island. Including the previous project and project from Shell. Singapore is attracting major oil company to set up processing centre here.

"Implications – an obviously positive development for both the economy and Singapore’s petrochemical sector which the market has been eagerly awaiting for. Together with Shell’s Houdini project, SPT will keep the downstream engineering construction sector humming for the next 3 to 4 years with obvious benefits for players which have been servicing the likes of EM and Shell over the past 20 years or more. Our picks include Rotary Engineering (TP S$1.79), Hiap Seng Engineering (TP S$1.33) and Tiong Woon (S$1.15)." -- Comment from Kim Eng

The 3 companies were all my radar. Prefer to buy on dip. Although at this juncture, no one can see the bull coming back, we still have time to wait for something bad to happen. That is the time for bargain hunting.