SMC Monthly - DBS Research 2016-08-12: Review of Jul-16 Picks

SMC Monthly - DBS Research 2016-08-12: Review of Jul-16 Picks ARA ASSET MANAGEMENT LIMITED D1R.SI MM2 ASIA LTD 43D.SI CHINA AVIATION OIL(S) CORP LTD G92.SI CITYNEON HOLDINGS LIMITED 5HJ.SI JAPFA LTD UD2.SI

SMC Monthly - Review of Jul-16 Picks


Indices down by nearly 1.5% on average since last issue (14th Jul – 11th Aug):

  • FTSE STI: 2906.92 to 2875.57/ -1.1%
  • FSTS Index: 392.70 to 382.99/ -2.5%
  • FSTM Index: 689.31 to 683.93/-0.8%


Our conviction BUYs outperformed, gaining 4% on average, led by strong gains on Cityneon and China Aviation Oil. .

  • Between 14th Jul and 11th Aug, our BUY picks gained 4% on average, outperforming the STI, small-cap index (FSTS Index) and mid-cap index (FSTM Index), which saw modest declines of 1.1%, 2.5% and 0.8% respectively since our last update.



Cityneon and China Aviation Oil (CAO), up 12.5% and 6.2% m-o-m respectively, were our best performing conviction picks for July 2016...

  • Outperformance of our conviction picks for July was led by Cityneon, which climbed to a new high of S$1.035 on 11th Aug, or +12.5% since our last issue. We think this was likely due to a combination of higher earnings expectations ahead (following recent announcements of new exhibition locations to be operated by subsidiary, VHE) and greater media coverage on the company – i.e. the immersive experience, Avengers S.T.A.T.I.O.N was named among Vegas’ elite attractions by Vegas Seven’s “Best of the City” publication. 
  • Meanwhile, CAO’s share price continued to soar alongside earnings delivery, as the Group’s 2Q16 net profit grew 32% y-o-y on 
    1. higher supply and trading volumes, 
    2. higher trading gains, and 
    3. 50% increase in the share of profits from associated companies – primarily SPIA, which alone contributed > 60% of 1H16 net profit. 
  • Following CAO’s good set of results, we lift earnings for FY16F/17F by 6%/5% despite lowering our GP/tonne estimates to reflect possible trading challenges, mainly as we believe that associate performance (especially for SPIA, which has been really firm) should more than offset trading challenges, if any. As a result of the earnings revision, our TP (which is based on 12x FY17F PE) was nudged up to S$1.70, from S$1.62 previously.

Meanwhile, Japfa - which was downgraded from BUY to HOLD on 27th Jul, underperformed.

  • Having posted gains for five consecutive months and growing up to 87% YTD (from S$0.47 in end-Dec 2015 to a high of S$0.88 on 7th Jul) on good earnings growth, Japfa’s shares began to reverse course in mid-July. 
  • While we raised EBITDA contribution from subsidiary JPFA by 22%/18% in FY16F/17F on stronger-than-expected margins from DOC and commercial farm segments, the higher contribution was offset by 35%/37% cuts in FY16F/17F Dairy EBITDA (given the weak demand YTD) and 33%/27% cuts in EBITDA contribution from the Animal Protein segment as we now expect lower margins than previously assumed – resulting in a net earnings adjustment of -6%/-18%. 
  • Following the above adjustments, our SOP-based TP (pegged to FY17F EV/EBITDA) was lowered to S$0.96, from S$1.10 previously. As this represented a 13% upside to previous close (of S$0.85 on 26th Jul), we had to downgrade our recommendation from BUY to HOLD, thus removing Japfa from our conviction picks on 27th Jul.










Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-08-12


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