Aztech Systems: Another good quarter
Labels:
Aztech
Broker House: DMG & Partners
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
Thursday, July 26, 2007 | 0 Comments
Aztech Systems: Look forward to a strong second half
Labels:
Aztech
Broker House: DBS Group Research
Analyst: Sachin Mittal
Price: $0.705
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 33.33%
Summary:
Analyst: Sachin Mittal
Price: $0.705
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 33.33%
Summary:
Comment on Results: Aztech reported 2Q07 profit of S$5.2m, up 3% y-o-y and 37% q-o-q.
The results were in line with our estimate of S$5.4m in a seasonally slow second quarter. We want to highlight two major points.
- Excluding one-off gain of S$1m in 2Q07 from disposal of Aztech building and factory equipment, operating profits grew at 13% y-o-y, inline with the revenue growth of 13% y-o-y.
- Projects worth S$13m for a major customer slipped into 3Q07 due to a delay in component sourcing, otherwise 2Q07 numbers would have been even better. Subsequently, we
hope to see a strong 3Q07 with contribution from these projects.
The cash flow from operations improved to $4.4m from S$2.9m last year due to improvement in working capital management. Management revealed that current order book stands healthy at S$85m (providing three-month visibility) slightly better than S$83m in 1Q07. The company declared an interim dividend of 0.75 cents compared to 0.50 cents last year.
Outlook: We keep our estimates unchanged with net earnings of S$26.8m for FY07. As seen historically, 3Q07 should be much better than 2Q07 while 4Q07 should be the strongest quarter. We believe that 65-70% of the full year earnings could come from the second half with the following drivers in place.
- Launch of PC-less Skype phoneb in Aug 07 and 3.5G adapters towards the end of FY07.
- Orders from a new European customer for high-end video conferencing phone using VoIP.
- Shipment of ADSL2+ modems to one of the largest Telco in the US.
- Shipment of Homeplug adapters to a satellite service provider in the US.
Recommendation: We maintain BUY with 12-month target price of S$0.94 pegged at 10.8x FY08 earnings, a 10% discount to the peer average of 12x FY08 earnings. Expected launch of new products in 3Q07 should be the catalyst for the stock price.
Thursday, July 26, 2007 | 0 Comments
Jackspeed Corporation: Aviation segment taking off
Labels:
Jackspeed
Broker House: OCBC Investment Research
Analyst: Selena Leong
Price: $0.275
Target : $0.33
Recommendation: BUY
Upside: 20%
Summary:
Analyst: Selena Leong
Price: $0.275
Target : $0.33
Recommendation: BUY
Upside: 20%
Summary:
Aviation - sustainable high margins. We visited Jackspeed's (JS) plant facility in Singapore recently and what stood out was the growth potential of its aviation business. JS repairs and refurbishes the aircraft's interiors such as its carpets and seats. Revenue from this sector grew 143.6% in FY07, contributing to approximately 10% of revenue. As indicated by management, gross profit margins averaged 40% at the minimum, with net profit margins hovering around 20 - 25%.
Buoyant outlook for aerospace industry. Moreover, Singapore is gearing up to be the region's hub for aerospace activities (like aircraft MRO); as evidenced by JTC and EDB jointly developing a S$60m, 140ha plot of land adjacent to the Seletar airport as an aerospace park expected to be completed in 2018. The Singapore aerospace industry has been experiencing a compounded annual growth rate of 12% over the last 15 years, accounting for approximately 25% of Asia's aerospace/ MRO activity. This is one of the fastest rowing industries, registering an output of S$6.3b in 2006, up from S$5.2b in 2005. In addition, fuelled by increasing demand for air travel, with the introduction of budget airlines and growth in air traffic from the strong economic growth of China and India, Boeing projects a doubling of aircrafts in Asia by 2015, indicating a potentially larger base for JS' repair services.
Slow down in auto segment offset by aviation growth. Sluggish auto sales have negatively impacted auto production in Malaysia and the cessation of a Ford contract in Thailand has contributed to a slowdown in demand for JS' leather seats. This caused a decrease in revenue of approximately S$6.5m in FY07 versus FY06. In addition, rising raw material costs have started to squeeze profit margins. Leather hide prices have risen around 10-15% since the beginning of this year. However, we believe that the growth in revenue and net margin from the aviation segment will more than mitigate the current slow down in demand for leather seats.
Maintain BUY, up fair value estimate to S$0.33. We expect JS to maintain its profitability in FY08. Our estimated fair value for JS has also been revised upwards from S$0.25 to S$0.33, with a forward PER of 13x. With JS' closing share price of S$0.275, this represents a potential upside of 20%. We are therefore maintaining our BUY rating for the stock.
Thursday, July 26, 2007 | 3 Comments
Man Wah Holdings: Battling increasing leather costs
Labels:
Man Wah
Broker House: OCBC
Analyst: Lee Wen Ching
Price: $0.505
Target : $0.58
Recommendation: BUY
Upside: 14.85%
Summary:
Price: $0.505
Target : $0.58
Recommendation: BUY
Upside: 14.85%
Summary:
Strong revenue, weak bottom-line. We recently met Man Wah Holdings Ltd's (MWH) management to get an update of its future plans. In May, MWH posted an impressive 58% YoY increase in 2H07 revenue to HK$476.5m, supported by a 102% increase in revenue contribution from the North American market. However, higher cost of leather eroded its profits, resulting in a lackluster 1.3% YoY growth in 2H07 net profit to HK$42.2m.
Increasing cost of leather. The bulk of the cost increase was attributed to leather, a key raw material, which constitutes 55% of MWH's cost of goods. Global leather prices, which rose 25% YoY in FY07, are not expected to ease in the near future, given the strong demand for leather from the shoe and automobile industries in China. To tackle this, MWH has increased its inventory of leather. As a longer-term measure, MWH has sought to raise the average selling price of its products by shifting its production towards higher-end micro-fabric sofas. The gradual step-up in selling price will serve to stabilize MWH's margins in FY08 and beyond. MWH's net profit margin fell from 15.6% in FY06 to 10.6% in FY07. We expect net profit margin to hold at around 9.0% in FY08.
Expansion of capacity. Margin squeeze aside, the demand for MWH's sofas remains strong. In FY07, MWH completed phase 1 of its expansion plans, which ramped up its production capacity by 49% to 153,000 sets of sofas per annum. Running at full capacity now, MWH is in the midst of its phase 2 expansion, targeted to be completed by August 2007, which will increase capacity by another 98% to 303,000 sets of sofas per annum. Given that the phase 2 expansion is expected to be fully operational in 2H08, we project an annual output of 191,000 sets of sofas in FY08. This brings our projected revenue to HK$1.2b for FY08, a 44.5% YoY increase from FY07, and our projected net profit to HK$111.1m, a 22.5% YoY increase.
Maintain BUY. As we expect MWH to continue to face challenges such as increasing costs of leather and labour and a strengthening yuan against the USD, we have taken these factors into consideration in our earnings projections and valuation. We have lowered our fair value estimate from S$0.615 previously to S$0.58 based on 8x blended FY08/09 PER. At current price of S$0.505, we are maintaining our BUY rating.
Wednesday, July 25, 2007 | 0 Comments
Fu Yu Corporation: 2Q07 should still be a loss
Labels:
Fu Yu
Broker House: Phillip Securities Research
Analyst: Kok Fook Meng
Price: $0.355
Target : $0.46
Recommendation: SELL
Upside: 29.58%
Summary:
2Q07 revenue may beat our forecast. We have forecasted 2Q07 revenue of S$95.5m and operating loss of S$2.6m for Fu Yu Corporation (FUYU). However, based on checks with other suppliers to a key common customer for printers, the delayed program that we had highlighted in our earlier report has maintained strong unit shipment for the months of April and May, following an unseasonably strong 1Q07. Therefore, we believe FUYU’s 2Q07 revenue may instead grow QoQ in the single digit percentage range compared to 1Q07’s sales of S$104.4m. FUYU could therefore record a small operating profit for 2Q07, but only if there are no further significant provisions at its China operations.
Recent share price appreciation perhaps ahead of fundamentals. FUYU has appreciated 20.3% since our last report, and was as high as S$0.375 on 29th June 2007. We are not as optimistic about FUYU compared to the market, as indicated by the recent price appreciation. We believe FUYU’s China operations is still in recovery mode and will probably have better results only in FY08. We are also uncertain if further provisions will be required for China.
Retained fair value and recommendation. We have left our revenue estimate alone as we feel that the potential marginal difference between actual 2Q07 results and our forecast will not be material. FUYU will report 2Q07 results within the first two weeks of August 07. We have retained our fair value peg for FUYU to 1x FY07E NTA, i.e. S$0.46 per share. We repeated our view in the last report that we believe FUYU’s stock price has bottomed but advised investors to avoid the stock for the time being as we were unable to identify a catalyst. Also while operations are certainly improving, we still see more work ahead for FUYU before sustainable growth can re-establish. Contrary to our view, FUYU’s share price seems to have found a life of its own in the past two months. In spite of that, we are still unable to identify any fundamental catalyst that could sustain the stock’s momentum. In fact, we believe risk is on the downside at this price level. Therefore, although FUYU is still 22.8% below our fair value, we feel that there are better investment alternatives with more attractive risk/reward. We advise investors to sell into the current strength of its share price.
Analyst: Kok Fook Meng
Price: $0.355
Target : $0.46
Recommendation: SELL
Upside: 29.58%
Summary:
2Q07 revenue may beat our forecast. We have forecasted 2Q07 revenue of S$95.5m and operating loss of S$2.6m for Fu Yu Corporation (FUYU). However, based on checks with other suppliers to a key common customer for printers, the delayed program that we had highlighted in our earlier report has maintained strong unit shipment for the months of April and May, following an unseasonably strong 1Q07. Therefore, we believe FUYU’s 2Q07 revenue may instead grow QoQ in the single digit percentage range compared to 1Q07’s sales of S$104.4m. FUYU could therefore record a small operating profit for 2Q07, but only if there are no further significant provisions at its China operations.
Recent share price appreciation perhaps ahead of fundamentals. FUYU has appreciated 20.3% since our last report, and was as high as S$0.375 on 29th June 2007. We are not as optimistic about FUYU compared to the market, as indicated by the recent price appreciation. We believe FUYU’s China operations is still in recovery mode and will probably have better results only in FY08. We are also uncertain if further provisions will be required for China.
Retained fair value and recommendation. We have left our revenue estimate alone as we feel that the potential marginal difference between actual 2Q07 results and our forecast will not be material. FUYU will report 2Q07 results within the first two weeks of August 07. We have retained our fair value peg for FUYU to 1x FY07E NTA, i.e. S$0.46 per share. We repeated our view in the last report that we believe FUYU’s stock price has bottomed but advised investors to avoid the stock for the time being as we were unable to identify a catalyst. Also while operations are certainly improving, we still see more work ahead for FUYU before sustainable growth can re-establish. Contrary to our view, FUYU’s share price seems to have found a life of its own in the past two months. In spite of that, we are still unable to identify any fundamental catalyst that could sustain the stock’s momentum. In fact, we believe risk is on the downside at this price level. Therefore, although FUYU is still 22.8% below our fair value, we feel that there are better investment alternatives with more attractive risk/reward. We advise investors to sell into the current strength of its share price.
Wednesday, July 25, 2007 | 3 Comments
CWT Limited: Unlocking value
Labels:
CWT
Broker House: SIAS
Analyst: Koh Chin Lek
Price: $1.01
Target : $1.19
Recommendation: BUY
Upside: 17.82%
Summary:
Analyst: Koh Chin Lek
Price: $1.01
Target : $1.19
Recommendation: BUY
Upside: 17.82%
Summary:
Company updates/Events
Sale & Leaseback deal: C & P Asia Warehousing Pte. Ltd., a wholly-owned subsidiary of CWT, has proposed a sale & leaseback deal on the sale of its logistics property at 1, Tuas Avenue 3 to Cambridge Industrial Trust (CIT). This 30year leasehold property commencing from 1 October 1979, with lease extended for another 23 years from Jurong Town Corporation (JTC), has a land area of approximately 30,682 sq m and a gross floor area of approximately 28,480 sq m.
The sale price of S$32.5m includes S$26.5m for the existing property, and S$6m for works to add an estimated gross floor area of 5,255.96 sq m (A&AWorks).
CWT will leaseback the property for a period of eight years at an initial annual rental of S$2.1m and another S$0.48m per year for the additional area upon completion of A&A works. The rental is subject to an escalation of 7% each onthe fourth and seventh year of the lease term.
The proposed S&L will enable the CWT to realise its investments while continuing to use the property for its existing operations. The cash generated will beutilised to fund for business expansion locally and in the region, as well as for working capital.
Based on the aggregate net book value of the property of S$13.755m as at endFY06, the company will realise a gain of approximately S$9m from the sale, after accounting for relevant costs.
Outlook
More gain from S&L: As mentioned in our last report dated 20 July 2007, only two, and now coming to three, of its warehouses are under the S&Larrangement. There are possibilities for more S&L arrangement which may furtherboost earnings and able to provide capital for further expansion.
New development in China and Ukraine: CWT is expanding its warehouse facilities in China by developing an integrated logistics hub in Tianjin to be completed by end 2008. This new hub will comprise of a 110,000 sq m ramp up warehouse and a 40,000 sq m container depot. Another 86,000 sq ft new warehouse in Shanghai should be developed by end 2007.
Risk
Higher operating cost: Although S&L helps to free up cash and capital for business expansion, CWT loses the flexibility over the ownership of the properties. CWT will also likely pay a higher rental rate to the buyer (i.e. CIT) than to JTC and thus increase the operating cost. However, CWT is able to mitigate this through higher lease rate and better returns from new projects.
Valuation/Recommendation
Revised forecast: We are raising our earning forecast for FY07 by 28% to S$32.3m as a result of the S&L. Sales and operating profit forecasts remain. We increase the EPS for FY07 from 4.4cts to 5.6cts and FY08 remains at 5.2cts.
Recommendations: We have a price target of S$1.19 for CWT, based on a 20% discount to its average historical PE of 28x. Our new target price represents a 17% upside from the current share price of S$1.01. Upgrade to BUY.
Wednesday, July 25, 2007 | 0 Comments
Singapore Computer Systems
Labels:
SCS
Broker House: SIAS
Analyst: Goh Si Xian
Price: $0.92
Target : $0.88
Recommendation: HOLD
Downside: -4.35%
Summary:
Analyst: Goh Si Xian
Price: $0.92
Target : $0.88
Recommendation: HOLD
Downside: -4.35%
Summary:
Incorporated in 1980, Singapore Computer Systems (SCS) is a leading information communications technology (ICT) serviceprovider in Asia. The Group operates in seven countries regionally, with the bulk of revenue coming from Indonesia and Singapore. Following two years of relatively huge losses in FY03 and FY05, SCS is taking steps to improve its business model and operational efficiency. A successful turnaround would allow the company to benefit from the steady and sustained growth expected of the local and regional ICT markets in the coming years.
With a new management at the helm, SCS is showing promise by returning to profitability and achieving its sixth consecutive quarter of profitability in 1Q07. Year on year, gross margins improved from 11.4% in 1Q06 to 15.3% in 1Q07. At the close of 1Q07, SCS’ order books stood at S$299.3m, 45% of which will be recognised in FY07. At S$0.92, SCS is currently trading at 19.3x FY06 earnings. This is roughly inline with its peers average PER of 19.9. Given its improved business performance in 1Q07 and the positive outlook for the rest of FY07, we are estimating SCS’ earnings to grow 13.2% for the year. This would translate into an FY07 EPS estimate of S$0.054. As we are expecting SCS to trade at a forward PER close to its industry average of 16.3x forward earnings, we derive a target price of S$0.88.
We are initiating coverage with a “hold” recommendation.
Tuesday, July 24, 2007 | 0 Comments
Aztech Systems: Multiple drivers pushing growth
Labels:
Aztech
Broker House: DBS Group Research
Analyst: Sachin Mittal
Price: $0.655
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 43.51%
Summary:
Story: We hosted Aztech for “Pulse of Asia” conference where management briefed investors about the company’s prospects.
Point: There were three key takeaways.
Analyst: Sachin Mittal
Price: $0.655
Target : $0.94 (12 Mth)
Recommendation: BUY
Upside: 43.51%
Summary:
Story: We hosted Aztech for “Pulse of Asia” conference where management briefed investors about the company’s prospects.
Point: There were three key takeaways.
- Aztech is poised to benefit from IPTV growth in Europe, US and Asia
- It is about to enter another exciting growth area of 3.5G broadband
- Investors should expect broad-based growth across all business segments with high sustainable margins.
We expect 2Q07 numbers to be moderately positive due to the high base in 2Q06 while on a half yearly basis, we expect to see about 25% growth y-o-y.
Relevance: We are raising our FY08 earnings estimates by about 5%, after factoring in potential revenue from soon-to-be launched products - 3.5G adapters and VDSL modems. Rolling forward to FY08 earnings, we maintain BUY with 12-month target price of S$0.94 pegged at 10.8x FY08 earnings at 10% discount to the peer average of 12x FY08 earnings.
Monday, July 23, 2007 | 0 Comments
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