Small caps - CIMB Research 2017-03-07: 4Q16 Earnings mostly in line

Small caps - CIMB Research 2017-03-07: 4Q16 Earnings mostly in line Singapore Small Caps Companies Singapore Stock Top Picks TALKMED GROUP LIMITED 5G3.SI CITYNEON HOLDINGS LIMITED 5HJ.SI UMS HOLDINGS LIMITED 558.SI SUNNINGDALE TECH LTD BHQ.SI MEMTECH INTERNATIONAL LTD BOL.SI

Small caps - 4Q16 Earnings mostly in line

  • 4Q16 reporting season saw three stocks beating our estimates (3Q16: 3), while 10 stocks were in line. Four stocks reported earnings below our estimates (3Q16: 3).
  • Our top pick for growth is Cityneon. Execution is the key risk.
  • Talkmed could continue to garner investor interest after its proposed one-for-one bonus issue. M&A is the fastest way to grow the business.
  • UMS Holdings will benefit from the strong outlook for key customer Applied Materials in 2017. Renewal of the manufacturing contract has removed uncertainty.
  • Sunningdale is trading at 0.79x historical P/BV, while peers Fu Yu and Fischer Tech trade at P/BV of 0.96x and 1.02x.

4Q16 earnings performance 

  • The earnings performance of the small-cap stocks under our coverage was lukewarm in 4Q16. The 4Q16 results season saw net profit of three companies coming in above expectations (3Q16: three companies), 10 companies performed in line with expectations (3Q16: 13) and four companies below expectations (3Q16: 3). 
  • The 4Q16 earnings outperformance came mainly from slightly better sales performance and improved cost control.


  • Cityneon posted FY16 net profit of S$6.7m (+667% yoy), accounting for 87%/88% of our/Bloomberg consensus full-year numbers. This might appear a miss, but stripping out one-off expenses of S$1.4m attributed to i) Victory Hill Exhibitions (VHE) acquisition, and ii) pre-opening marketing expenses at Vegas’ Avengers Station, FY16 core net profit (S$8m) was in line with our full-year forecast. 
  • Potential re-rating catalysts are the acquisition of a third IP and successful launch of the Transformers’ travelling set.


  • Talkmed is backed by a strong net cash balance sheet. Potential re-rating catalysts include faster-than-expected turnaround of its associate, which saw a qoq reduction in 4Q16 losses. Any accretive M&As would also be positive. 
  • Key risks are the company’s high dependence on its CEO and founder Dr Ang and a negative outcome of Dr Ang’s appeal against the Singapore Medical Council (in the Singapore High Court).

UMS Holdings 

  • Uncertainty overhanging UMS share price has been removed with its successful renewal of a manufacturing contract with key customer, Applied Materials for another three years with an option for another three years of renewal. With a strong balance sheet, we expect DPS of S$0.06 (9% dividend yield) over FY17F-19F to be sustained. 
  • The outlook is also positive as SEMI (industry forecaster) expects 9.3% yoy growth for the global semiconductor manufacturing equipment industry in 2017.

Eyes on the Ground recap 

  • We launched a new product “Eyes on the Ground” in 4Q16 to highlight more stocks to clients. 
  • Of the eight stocks that we highlighted, five have seen double-digit percentage gains in their share price after we highlighted them. Two stocks saw single-digit percentage gains versus the time we highlighted them. One stock’s (Singapore Myanmar Investco) share price has fallen 17% since the date when we first highlighted the stock.

William TNG CFA CIMB Research | 2017-03-07
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.830 Same 1.830
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