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

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 

Absolute price performance of indices (8th Jan – 2nd Feb): 

  • STI: 2751.23 to 2579.23 / - 6.25% 
  • FSTS Index: 397.54 to 377.54 / - 5.03% 
  • FSTM Index: 650.02 to 630.80 / -2.96% 

A challenging beginning 

  • 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%.

What happened with mm2 Asia and Riverstone? 

mm2 Asia [- 12.2% m-o-m] 

  • 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. 

Riverstone Holdings [- 11.7% m-o-m] 

  • 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