Small caps - CIMB Research 2016-08-17: Expect better 2H16

Small caps - CIMB Research 2016-08-17: Expect better 2H16 CITYNEON HOLDINGS LIMITED 5HJ.SI  DUTECH HOLDINGS LIMITED CZ4.SI  UMS HOLDINGS LIMITED 558.SI  SARINE TECHNOLOGIES LTD U77.SI  YOMA STRATEGIC HOLDINGS LTD Z59.SI 

Small caps - Expect better 2H16

  • 2Q16 reporting season saw two stocks beating our expectations, while 11 stocks were in line.
  • The outlook for 2H16 has improved for most small caps, in our view.
  • Our top growth picks are Cityneon, Dutech and Sarine Tech.
  • Our top dividend pick is UMS Holdings, given the recovery in the semiconductor industry.
  • We have a Reduce on Yoma, as its core net profit performance continued to disappoint in 2Q16.



2Q16 earnings performance 

  • The earnings performance of the small-cap stocks under our coverage was lukewarm in 2Q16. 
  • The 2Q16 results season saw net profit of two companies coming in above expectations (1Q16: four companies), 11 companies performed in line with expectations (1Q16: seven) and four companies were below expectations (1Q16: six). 
  • The 2Q16 earnings outperformance came mainly from better operating profit and lower raw material costs.


Top growth pick 1: Cityneon 

  • Cityneon’s 1H16 core net profit outperformed, at 82% of our FY16 forecast, thanks to its Victory Hill Exhibition (VHE) acquisition. 
  • We forecast core EPS growth of 109% for FY17 and 28% for FY18, driven by the launch of the Transformers’ exhibition in Las Vegas. 
  • Wining a third set of licensing rights would be a re-rating catalyst. 
  • Execution missteps and exogenous threats such as impact from terrorist attacks are key risks.


Top growth pick 2: Dutech 

  • We believe that Dutech will deliver stellar FY16 earnings performance, with potential record-high net profit, driven by Rmb weakness, low raw material prices and contribution from Krauth. 
  • Balance sheet remains strong, with net cash (mostly in US$) at ~26% of its market cap at end-2Q16. 
  • M&As and potential new order wins from customers are key drivers. 
  • Dutech also offers 2.1% FY16-17 dividend yield.


Top growth pick 3: Sarine Tech 

  • After a washout year in 2015, industry dynamics have normalised and Sarine Tech now expects 2H16 earnings to be better than that of 1H16. In its traditional core business of diamond-manufacturing tools, Sarine Tech remains the only viable player in the industry.
  • Its efforts to develop a new earnings stream in the polished diamond trade is also gaining traction. The potential success of this earnings engine over the next few years would cause the stock to re-rate, in our view.


Top dividend pick: UMS 

  • We think UMS is set for hoh stronger 2H16 earnings as demand returns. Its key customer reported record-high new orders recently and the highest order backlog in nine years. 
  • Industry forecaster SEMI expects the semiconductor equipment industry revenue to expand by 13% in FY17. 
  • Given its limited capex needs, we expect UMS’s base DPS of S$0.05 to be defensible. If FY17 does turn out to be a record year, DPS could rise to S$0.06. 
  • Key risk is its customer reducing production allocation to UMS.


Maintain Reduce on Yoma 

  • Yoma continued to experience sluggish residence sales, which led to core net loss of US$8m in 1QFY3/17. 
  • Yoma’s huge property investment in Star City and PHGE could take 20-30 years to be fully sold. Its other non-property businesses are still small and offer limited profit contribution. 
  • We maintain our Reduce call on Yoma, which trades at 1.5x FY17 P/BV against ROEs of just 2-4% over FY18-19F.



CIMB Research Small Caps Universe 20160817




Willam TNG CFA CIMB Research | Roy CHEN CFA CIMB Research | NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2016-08-17
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.19 Same 1.19
ADD Maintain ADD 0/61 Same 0.61
ADD Maintain ADD 0.63 Same 0.63
ADD Maintain ADD 1.95 Same 1.95
REDUCE Maintain REDUCE 0.40 Same 0.40


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