Small Caps - CIMB Research 2016-05-18: Revenue woes

Small Caps - CIMB Research 2016-05-18: Revenue woes MM2 ASIA LTD 43D.SI  GL LIMITED B16.SI  VENTURE CORPORATION LIMITED V03.SI  SARINE TECHNOLOGIES LTD U77.SI  BEST WORLD INTERNATIONAL LTD 5ER.SI 

Smallcaps - Revenue woes

  • The 1Q16 reporting season saw a muted performance with 4 beats vs. 5 in 4Q15.
  • Revenue growth was either missing or slow in most of the smallcaps.
  • Outlook remains cautious.
  • Recent initiations (Best World and mm2) are added as top picks, while Innovalues is removed with the stock having reached our target price.
  • We also highlight Dutech Holdings and Nera Telecoms, both not rated stocks.



1Q16 performance

  • For the 1Q results season, the net earnings of four companies came in above expectations (4Q15: 5), 7 companies performed in line with expectations (4Q15: 10), while six companies were below expectations (4Q15: 2). 
  • We downgraded our calls on four stocks and upgraded our call on one stock. 
  • For the stocks with unchanged recommendations, we raised target price for 3 of these stocks and cut target price for 2.


Strong growth potential in waste water treatment sector

  • Water treatment continues to stand out as a growth sector. China Everbright and CITIC Environment saw revenue growth of 51% and 63% yoy, respectively, for 1Q16. Both companies continue to see project wins in China. 
  • Best World stood out among the stocks under our coverage, with its 1Q16 revenue growing 161% yoy and core net profit up 2,295% yoy.


Best World – still early in the upcycle

  • Best World’s 1Q16 was way above our expectations on a very strong showing in Taiwan. 1Q net profit formed 37% of our full-year forecast. 
  • We believe that the stellar growth in Taiwan will continue into 2H16. 
  • At the same time, we also think it is only the tip of the iceberg with regards to its China business potential. 
  • 1Q is seasonally the weakest quarter and even without the direct selling licence in China, we believe earnings can be 16-21% higher than our original forecasts.


mm2 – teeming with growth plans

  • We believe mm2, a film/TV producer, is poised to ride on the growth of the film business in China. We think its multiple acquisitions in cinema and events management will complement its growing core business in production, driving FY16-18F topline growth of 16-122%. 
  • We initiated coverage with an Add recommendation and TP of S$0.70, based on a CY17 P/E of 22.0x, backed by a 3-year forecast EPS CAGR of 28.8%.


Stocks worth highlighting 1 - Dutech Holdings

  • Dutech Holdings is Asia’s largest safe producer, supplying 60-70% of the safe demand from Diebold and Wincor Nixdorf, the world’s number 2 and number 3 ATM suppliers that collectively have 30-40% share of the global ATM market. Dutech reported a 21% yoy increase in its 1Q16 results, benefitting from lower steel prices (its key raw material). 
  • Dutech believes that it can win more orders post the merger of its customers Wincor and Diebold. The company declared a dividend of 1Sct and trades at 0.89x historical P/BV.


Stocks worth highlighting 2 – Nera Telecoms

  • Nera Telecoms has announced that it is currently at an advanced stage of discussion with a third party on the possible disposal of its payment solutions business. 
  • Given that the major shareholder of Nera is a private equity fund, a special dividend following a successful sale is not unexpected. This could also mean that Nera will once again be a network and telco solutions specialist with a business that is less capital intensive. Hence, a return to its high dividend payout ratio is a very likely outcome.









William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-05-18
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.70 Same 0.70
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