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:
- Upgrade of Boustead to Add,
- Upgrade of Yoma to Hold, and
- 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
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Roy CHEN
CIMB Securities
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NGOH Yi Sin
CIMB Securities
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http://research.itradecimb.com/
2015-11-17
CIMB Securities
SGX Stock
Analyst Report
10.11
Same
10.11
1.26
Same
1.26
1.40
Same
1.40
