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Sim Siang Choon reports FY2007 results
  • Group revenue increased by 17% to $11.2 million as a result of improved property market.
  • Gross profit improved by $866,000 to $5.4 million.
  • Distribution costs increased by $181,000 due to higher advertising expenses for product awareness
  • Administrative expenses increased by $321,000 mainly due to employee share option expense and salary increments
  • Other charges increased by $130,000 mainly due to impairment of inventories amounting to $163,000
  • Although profit before tax increased by $158,000 to $1,317,000, tax expense decreased by 24% to $186,000, due to reduction in corporate tax rate and an increase in the partial tax exemption threshold.
  • Consequently, profit after tax increased by 24% to $1,131,000
  • Cash and cash equivalents decrease by $570,000 mainly due to payment of dividends
  • Inventories increased by $269,000 and short-term borrowings increased by $246,000 mainly due to purchase of goods in anticipation of higher demand
  • Trade and other payables decreased by $538,000 mainly due to deposit received utilised by customers
  • Barring any unexpected changes in economic conditions, we expect improvement in our revenue over the next 12 months


Revenue (SGD '000)

Yr 1H 2H Total
2008 11,164
2007 9,542 9,554 19,096
2006 10,634 8,567 19,201
2005 9,600 9,346 18,946
Earnings (SGD '000)

Yr 1H 2H Total

2008 1,131
2007 914 841 1,755
2006 1,267 890 2,157
2005 1,032 280 1,312

FY Interim Special Final Special (SGD)

2008 0.0080 NA
2007 0.0046125 0.0076875 0.0123 NA
2006 0.0024 0.0040 0.0104 NA
2005 NA NA 0.0056 NA
2004 NA NA 0.0032 NA
2003 NA NA 0.00546 NA
2002 NA NA 0.00546 NA
2001 NA NA 0.00604 NA
Bonus / Rights / Stock Split

Date Type Details

Share Data

NAV = $0.1153
EPS = $0.0084 (12M FY07)
Diluted EPS = $0.0082 (12M FY07)
No of Shares = 135,435,00


Broker Recommendation Target Price Date


Elec & Eltek International: Yield issues may only be partially resolved


Broker House: Phillip Securities Research
Analyst: Kok Fook Meng

Price: US $2.08
Target : US $3.32
Recommendation: HOLD
Upside: 59.61%


We expect capacity utilization at Elec and Eltek ("ELEC") to have improved sequentially from 84% in 1Q07 to about 90% in 2Q07. Revenue in the June quarter should therefore record sequential growth from US$123.2m in 1Q07. However, sub-optimal production yield at ELEC’s Kaiping plant that was highlighted in our previous report may still be an issue in 2Q07.

2Q07 net profit may fall short of our forecast. We expect 2Q07 revenue to be in-line with our forecast of US$132.2m. Net profit in the second quarter may fall short of our estimate of US$10.4m, as gross margins may be lower than our 18% assumption due to yield issues mentioned above. In fact, gross margin could still be in the 15% to 15.5% range (15.2% in 1Q07), in which case 2Q07 net profit would only be approximately US$7.3m compared to US$6.6m in 1Q07. The current production hiccup at Kaiping is temporary. We expect full resolution by end 3Q07, which is later than what we had anticipated earlier. Therefore, full-year gross margins may be lower than our earlier estimate of 17.9% (probably closer to 16.5%), and net profit should also decline more than our earlier forecast of -25% YoY to US$43.3m. We expect ELEC to pay out 60% of its FY07 net earnings, or 14.5 USD cents per share, for a dividend yield of 7%. Actual payout should be slightly lower as we are likely to revise downwards FY07 EPS estimates after 2Q07 results have been released sometime in mid-August.

Undervalued but still a Hold. We continue to believe that ELEC is well positioned to compete in the PCB industry given its size, experience and access to its parent’s (KingBoard) network of resources. As mentioned previously, we also think FY07 net profit will not be reflective of ELEC’s earnings potential. Given its double-digit ROE and nature of business, ELEC should be worth between 1.5-2.0x NTA, i.e. US$2.78-3.70, per share. We will keep our current fair value per share of US$3.32 as it falls within this range. Although ELEC has an upside potential of 59.6%, and is currently trading at undemanding 7.3x TTM EPS, 8.6x FY07E EPS, and P/NTA of 1.1x, we will maintain our HOLD recommendation as we are still unable to find any strong share price catalyst in the next six-to-nine months. Longer-term investors who are attracted by its yield and undervaluation may add or initiate a new position, as we doubt the stock price will go down much further from current levels. We guess downside is probably at the US$1.90 level, or -8.7%, giving the stock an attractive risk/reward for the longer-term investor..

Delong Holdings: Resilient performance despite rough industry conditions


Broker House: OCBC Investment Research
Analyst: Kelly Chia

Price: $3.60
Target : $4.56
Recommendation: BUY
Upside: 26.67%


Resilient performance. Despite government regulatory cooling measures in the steel industry through sudden tax rebate cuts in May 07, hot-rolled steel coil (HRC) producer Delong Holdings (DLNG) gave a credible showing with 1H07 sales rising 37% YoY to S$646.2m. 1H07 net profit rose 26.1% YoY to S$77m despite incurring its first year of tax expense of 15%. On a quarterly basis, 2Q07's bottomline came in 8.1% YoY lower than 2Q06 due to rising raw material costs and slightly lower ASPs as the supply of steel increased locally.

Outlook for Chinese steel industry. China's macro control policies have somewhat cooled the red hot construction and machine building industries, slowing the demand for steel consumption. Despite these measures,industry watchers anticipate a 4-5% YoY increase in steel consumption in China for FY07 and even stronger consumption in FY08.

Optimistic of prospects in 2H07. DLNG has reported that its diverse pool of customers from the booming Bohai Economic Circle continue to display strong demand for its HRC products despite the rise in supply. Management has indicated that its HRC ASPs have already stabilised in Jul 07 (just 1 month after government intervention) and is expected to maintain or even rise incrementally in 2H07 as it focuses on selling better grade HRCs. Rising raw material costs will also be mitigated when its Phase 3 technical enhancements are completed.

Waiting for the big acquisition. Management has updated that it is in deep discussion with 2 potential acquisition targets to incrementally achieve 10m ton/yr capacity by 2010. In our last report, we forecasted that DLNG will need to acquire about 2m tons/yr to achieve this target. We anticipate that DLNG will not acquire any plant with capacity larger than 3-4m tons/ yr in its maiden M&A to prevent overwhelming integration issues.

Strong outlook. As capacity reaches 3m tons/yr by year end with the plant at full utilisation and M&A to increase output, we are confident that FY07/08 will be strong years. DLNG's exposure to raw material price increases will also be mitigated when its 2 new furnaces to process pig and molten iron come online progressively by end FY07. We maintain our BUY rating and fair value of S$4.56

Courage Marine: Riding on Higher Freight Rates


Broker House: DMG & Partners
Analyst: Tan Khow Siong

Price: $0.37
Target : $0.48
Recommendation: BUY (Maintained)
Upside: 23.68%

Net profit growth of 52% to US$20.1m in 1H07 was in line with our forecast of US$34m in FY07. Courage Marine benefited from higher freight rates. Outlook is positive as demand for raw materials and bulk commodities remain strong. Maintain BUY for 12-month price target of S$0.48.

Strong showing in 1H07. Courage Marine reported a 52% YoY rise in net profit to US$20.1m in 1H07, on the back of a 33% rise in revenue to US$34.9m. This strong performance occurred in a period when four of Courage Marine’s 10 vessels were out of deployment for 175 days due to special/intermediate surveys in 1H07.

High Freight Rates. Courage Marine benefited from high level of dry freight rate. The Baltic Dry Index (BDI) averaged 5700 in 2Q07, more than double 2Q06’s average of 2700. Freight rates were high because of China’s strong demand for minerals and commodities. This was complemented by high level of building activities throughout Asia and Middle East, leading to demand for transportation of building materials.

Outlook. BDI is currently above 6500. Management expects present buoyant market conditions to continue and BDI to remain strong. This is due to no significant new supply of vessels in the immediate future to meet the strong demand for freight transportation. Demand for the transportation of raw materials and commodities in Asia Pacific and Middle East remains strong.

Valuation. Management has committed and fulfilled a pledge to pay 50% of net profit as dividend. Forward dividend policy is not stated explicitly but we expect the 50% payout ratio to remain, particularly when management is accumulating a cash hoard and is reluctant to pay exorbitant pricing for second-hand vessels to augment existing fleet. An interim dividend of US 0.66 cents has been proposed. We expect a total dividend per share of US 1.6 cents for FY07. Maintain BUY for a target yield of 5.1% or 12-month price target of S$0.48.

Jadason Enterprises: Interims weaker than expected


Broker House: Kim Eng Live Research
Analyst: Geraldine Eu

Price: $0.18
Target : $0.22
Recommendation: HOLD (Downgrade)
Upside: 22.22%


Jadason’s latest set of interims is the weakest of the last four. Owing to a soft PCB industry, 1H07 profit fell 43% YoY to $5.5m (representing only 22% of our initial full year estimates) while revenue declined 12% YoY to $114.6m. 2Q failed to gain traction as utilisation rate averaged 50% in 2Q; as a result, we are slashing our FY07 and FY08 earnings estimates by 36% to $15.8m (implying a lower 19% bottomline vs. FY06) and 31% to $20.3m respectively.

Segment margins affected by product mix. While 1H07 Manufacturing and Support Services sales came in marginally weaker at $26.9m, operating margin fell to 13% from 31% in 1H06. The sharp decline in margin was due to changes in product mix which saw Jadason producing less of its higher margined handset PCB. Management estimates handset PCB to be c20% of its drilling product mix in 1H07 vs. 70% in 1H06. There is also no evidence of improvement in the drilling product mix, which is overly skewed towards lower margined computer, car, LCD TV PCBs. Equipment and supplies sales declined 14% to $87.6m due to lower equipment sales whilst its operating profit margin improved slightly to 5% due to lower SG&A expenses and lower provision for variable incentive bonus in 2Q07. Overall group operating margin fell to 7% vs. 10% in the previous corresponding period.

Capacity expansion may be a double edged sword. Management will continue its planned expansion of 45 mechanical drilling machines by August; up to this juncture, the company has installed 30 new mechanical drilling machines of the planned 45. However, mass lamination capacity will be reduced to one additional production line from the previously four production lines planned. The key risk for Jadason is demand turn-up. Should this not materialise, factory loads will fall further with the addition of new capacity.

Downgrade to Hold. We are downgrading Jadason to a Hold and see fair value at $0.22 based on 8x FY08 PE; on par with its two year valuation band. Currently Jadason trades at 6x FY08 PE.

Multichem: Changing landscape


Broker House: CLSA
Analyst: Justin Yeoh

Price: $0.22
Target : $0.217
Recommendation: NA
Downside: 1.36%


Printed-circuit board service provider Multi-Chem’s 1H07 sales grew a strong 45% YoY in revenue to S$63.7m, accounting for 55% of our original forecast. Distribution business continues to see strong growth, surpassing the Manufacturing division to account for 65% of 1H07 revenue. Given the lower margins in the distribution business as the company shifts, profitability has come in lower. Our revised forecast has resulted in a fair value of 21.7Scts, maintaining our 6x 08PE.

Better distribution, lower margins. Revenue came in S$5.3m in 2Q07, up 61.4% YoY. 1H07 revenue was up 45%, but gross profit was down 1% YoY. Operating profit was down 42%, largely due to higher operating costs in the Distribution segment, resulting in 1H margins of 9% VS 21% from a year ago. Overall increase in depreciation and salary were part of the reason for the increased in costs. Inventory and receivables are higher due to the change in balance of sales in the two business segments, resulting in lower cash on hand at S$7.9m, compared S$12.6m at the end of March. Effective tax rate is also higher in 1H07 at 31%, compared to 16.6%, lowering net margins to 5% instead of 15.2% in FY06 due to expansion of Distribution business in South East Asia. No interim dividend was declared.

More pressure ahead. Multi-Chem operates in the PCB drilling segment which has lower value than full scale PCB manufacturer, outlook remains though for the segment, especially for the Singapore manufacturing segment. We expect distribution to be the key business driver for Multi-Chem, even as raw material costs dampen the slower Manufacturing segment. The expansion of the distribution business also requires a larger sales force to promote products, while lower utilization of drilling machines will continue to depress manufacturing gross margins. We expect the 2nd half to do better based on seasonal trends.

Fair value of 21.7 Scts. Adjusting our forecast for the lower margins of the Distribution segment, our new 07 net profit comes in lower at S$8.7m. Maintaining our 6x 08PE suggests fair value of 21.7 Scts.

Jadason Enterprises: Margins declined because of product mix


Broker House: DMG & Partners
Analyst: Lynette Tan

Price: $0.21
Target : $0.30
Recommendation: BUY (Maintained)
Upside: 42.86%


Jadason reported net profit of S$5.4m in 1H07, down 43% from S$9.7m in 1H06. This was due to a 56% YoY drop in 2Q07 operating profit from manufacturing services, which management attributed to changes in product mix and lower demand for handset PCBs.Nevertheless, management has proceeded with its expansion plans of adding mechanical PCB drilling machines as it expects the PCB industry to improve in 2H07. Given the high operating leverage of drilling operations, 2H07 may produce upside surprises. Maintain BUY with a reduced 12-month target price of 30c, down from 38c.

Weakness in 1Q07 continues into 2Q07. After a 54% YoY decline in 1Q07 net profit, Jadason follows with another 32% YoY decline in 2Q07. Net profit of S$5.5m in 1H07 is 43% lower than 1H06. Management attributed this poor set of results to lower equipment sales, and unfavorable product mix in its manufacturing service, which include mechanical drilling services, and mass laminate production. However, the second quarter saw a sharp fluctuation in Jadason’s utilization rates, with 100% utilisation in April and 60% in June. Management explained that a major handset PCB producer suddenly delay its orders in May. 30 new drilling machines were added in 2Q07, bringing the total number to 170 by end Jun 2007.Compounding this weak performance was an unexpected strengthening of US and Hong Kong dollar in 2Q07 against Sing dollar. This led to an unrealized forex loss of S$323k in 2Q07 against S$269k gain in 2Q06.

Outlook for 2H07 is better. Management expects the PCB industry to improve in 2H07. This prognosis is based on indicative orders from Jadason’s customers. We concur with such optimism in view of the impending launch of 3G phone services in China, latest by 4Q07. As handset need to be delivered to the distribution channels before the service launch, we expect orders for handset PCB to ramp up in 3Q07.

Orders flow should improve. Orders for PCB typically pick up in 3Q to be in time for year end consumption binge. We expect the pick up to be stronger in 3Q 2007 because the PCB industry has been in the doldrums since Dec 2006. Channel stockpiles are not excessive. However, there are lingering uncertainty as Windows Vista has not taken off strongly, and sales of new games consoles were not as strong as earlier expected.

Valuation and recommendation. We have reduced our 2007 net profit forecast from S$22.4m to S$17m (EPS: 2.4c) and 2008 from S$36.5m to S$30m. (EPS: 4.3c) Maintain BUY with a reduced 12-month price target of S$0.30, down from S$0.38, on an unchanged target of 7x FY08 earnings.