Smallcaps - CIMB 2015-11-17: Subdued quarter

Smallcaps - CIMB 2015-11-17: Subdued quarter VENTURE CORPORATION LIMITED V03.SI  TIANJIN ZHONG XIN PHARM GROUP T14.SI  GUOCOLEISURE LIMITED B16.SI 

Smallcaps - Subdued quarter 

  • Subdued quarter. Only two smallcaps beat expectations. 
  • Revenue environment was tough. Exporters benefited from stronger US$. 
  • Our top smallcap picks are GL Limited, Tianjin Zhongxin Pharmaceutical Group and Venture Corporation


3Q15 performance 

  • Only two out of the 18 smallcaps under our coverage reported results above expectations. Six smallcaps reported results that were below our expectations while the remaining 10 stocks reported in-line results. 
  • Key recommendation changes post 3Q results were: 
    1.  Upgrade of Boustead to Add, 
    2.  Upgrade of Yoma to Hold, and 
    3.  Downgrade of China Merchants to Hold. 

FX was a saviour 

  • Year-on-year, the revenue environment was tough. Only five smallcaps reported doubledigit yoy revenue growth; the rest reported sales decline or weak revenue growth. 
  • Foreign exchange gains were evident in export-oriented stocks. For example, FX gains accounted for 40% of Innovalues’s 3Q15 pre-tax profit and 43% of Riverstone’s 3Q15 pre-tax earnings. 

Top pick 1: GL Limited 

  • The recent unfortunate terrorist attacks in Paris could have some short-term negative impact on the European hospitality industry. GL Limited may see some near-term impact from potentially slower tourist arrivals. 
  • Analyst Roy Chen sees every 1% drop in room occupancy potentially lowering his FY6/16F EPS forecast by c.3% (FY6/17F EPS by c.4%). However, this is only a short-term hiccup. 

Top pick 2: Tianjin Zhongxin Pharmaceutical Group 

  • Reflecting management’s concern on the uncertainty relating to the government’s procurement policy for pharmaceutical products, analyst Roy has cut his FY15-17 earnings forecasts to factor in the margin pressure. 
  • The group’s expansion plans remain on track and Roy estimates that the investments will generate operating profit of Rmb120m-160m p.a. in FY18 onwards. 

Top pick 3: Venture Corporation 

  • The completion of the amortisation of intangibles frees Venture’s P&L statement from a S$16.8m amortisation burden in FY17. The company remains in net cash position and we expect it to maintain its base DPS of S$0.50. 
  • With limited capex and no satisfactory acquisition targets, shareholder pressure for a higher payout could increase. However, Venture needs to factor in working capital requirements in its dividend decision.


William TNG CFA CIMB Securities | Roy CHEN CIMB Securities | NGOH Yi Sin CIMB Securities | http://research.itradecimb.com/ 2015-11-17
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.11 Same 10.11
ADD Maintain ADD 1.26 Same 1.26
ADD Maintain ADD 1.40 Same 1.40


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