SMC Monthly - DBS Research 2016-02-04: Review of Jan-16 Picks

RIVERSTONE HOLDINGS LIMITED AP4.SI MM2 ASIA LTD 41C .SI

SMC Monthly - Review of Jan-16 Picks

Between 8th Jan and 2nd Feb, our picks fell by 5.9% on average, underperforming the small-cap index (FSTS Index) and mid-cap index (FSTM Index), but outperforming the STI, which declined by 5.03%, 2.96% and 6.25%, respectively.
Weakness was led by double-digit decline of mm2 Asia and Riverstone, which lost 12.2% and 11.7% of their values, respectively.
The mid-cap index held up quite well due to a high concentration of REITS (which make up more than 43% of the index).
Sheng Siong, up 0.6%, was the best performer among our picks, while both Japfa and China Merchants Holdings (Pacific) were down about 3%.

We believe that the sharp decline in mm2 Asia’s share price over the month was not representative of the film producer’s earnings potential ahead.
With no changes in company fundamentals, we think that its share price should re-rate when earnings are delivered as the company takes on more productions and as it expands into the lucrative Chinese market.
We thus reiterate our positive outlook for mm2 and BUY call on the stock with TP of S$1.05 – which represents more than 50% upside to current price.

Despite trading down 11.7% since our last update, Riverstone’s share price has actually held up better than larger peers (Hartalega, Top Glove and Kossan), which fell by 14.6% on average between 8th Jan and 2nd Feb.
The sector was sold down after the strengthening Ringgit raised profitability concerns for the rubber glove exporters, whose products are largely priced in USD.
However, given Riverstone’s strength in the niche cleanroom segment, which is less price-sensitive and makes up c.50% of revenues, we expect margins to remain intact in the near term.

Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-02-04

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.41 Same 1.41

BUY Initiate BUY 1.05 Same 1.05