Small Mid Cap Monthly - DBS Research 2016-11-21: Are buybacks a boon?

Small Mid Cap Monthly - DBS Vickers 2016-11-21: Are buybacks a boon? MM2 ASIA LTD 1B0.SI CNMC GOLDMINE HOLDINGS LIMITED 5TP.SI CHINA AVIATION OIL(S) CORP LTD G92.SI SINGAPORE O&G LTD 41X.SI CITYNEON HOLDINGS LIMITED 5HJ.SI

Small Mid Cap Monthly - Are buybacks a boon?

  • Amidst the lull market, we look for firms with active share buyback mandates which could provide some support for share prices.
  • Keeping most conviction picks for November: China Aviation Oil, Cityneon and Singapore O&G.
  • Add movie production and entertainment play, mm2 Asia, and newly initiated CNMC Goldmine, which is attractive as a less-risky, gold proxy given its low production cost.
  • SMC Radar: Global Invacom.


Conviction Picks – October & November 2016 


Review of our performance for October 

  • Singapore’s equity markets were relatively volatile over the last six weeks as it suffered shocks in the lead-up to the US presidential elections and following Trump’s subsequent presidential win, but appear to be stabilising as the indices (FTSE STI, FTSE Small Cap and FTSE Mid Cap indices) have fallen by a modest 2.4% on average since our last issue.
  • Our conviction picks were not spared from the volatility, underperforming the indices slightly despite Cityneon’s m-o-m gain of 16.2%. This was mainly as Katrina Group – which lost 22% of its value since our last issue, was dragged by poor market sentiment and poor retail sales for food service.

Add movie production and entertainment play, mm2 Asia and new initiation, CNMC, our preferred leveraged play on gold with yield! 

  • This month, we include: 
    1. mm2 Asia, a leading producer of films and TV/online content in Asia, is projected to grow at an EPS CAGR of 50% from FY16-FY19F, underpinned by growth in productions, expansion into the China market, contributions from cinema operations and entertainment company, UnUsUal Group.
      Additionally, the successful listing of UnUsUal Group - in which mm2 acquired a 51% stake for S$26m (at 10.2x PE) in Feb 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion.
    2. Kelantan-based low-cost gold miner, CNMC Goldmine, which supported by well-run operations, steady cash flow generation and competitive cash costs, is attractive as a less risky, leveraged gold play with a prospective yield of 3%.

DBS Group Research Small Mid Cap Conviction Picks 2016-11-21



Can buybacks drive better returns? 

  • While there are proponents both for and against the use of share buybacks, we believe that in times of macro uncertainty (where companies have funds beyond current working capital and investment needs), buybacks - if executed properly, could provide some support for share price as they send positive signals about companies being undervalued.
  • Often cited as a means of returning wealth to shareholders, with a lesser aim of facilitating employee share option schemes, share buybacks appear to have been largely responsible for holding up the value of the S&P 500 (+7% YTD), even as underlying earnings growth have remained relatively flat - as evidenced by T12M earnings trends.
  • This month, we screen for SGX-listed SMC names of market capitalisation between US$20m and US$1bn with active share repurchase mandates (have repurchased shares over the last 12 months), and also fulfil the following criteria: 
    1. Profitable over the last 12 months 
    2. Repurchased > 0.3% of current market cap over the last 12 months, and 
    3. Cash resources (either internally-generated or through access to loan facilities) are in excess of curent reinvestment needs.

DBS Group Research Small Mid Cap Stocks Screening 2016-11-21



SMC Radars: 

  • We also share our first impressions on Global Invacom, a manufacturer and supplier of integrated satellite communications equipment to large-scale satellite broadcasters, which could see stronger growth ahead following the recent product approval secured from its largest customer.




Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-11-21
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700




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