CSE GLOBAL LTD (SGX:544)
FU YU CORPORATION LTD (SGX:F13)
KOUFU GROUP LIMITED (SGX:VL6)
PENGUIN INTERNATIONAL LIMITED (SGX:BTM)
SG Small-Mid Cap 3Q19 Results Round-up - More Beats Than Misses
- Most (65%) of the companies under our small/mid-cap coverage met expectations in this earnings season while 29% surprised on the upside. Beats were higher compared to misses at 6% due to better-than-expected performances from SHENG SIONG GROUP, our recently-initiated BRC ASIA as well as stocks in the manufacturing sector.
- We continue to recommend that investors selectively accumulate deep-value names with good track records.
- Our top picks are FU YU (SGX:F13), CSE GLOBAL (SGX:544), KOUFU GROUP (SGX:VL6) and PENGUIN INTERNATIONAL (SGX:BTM).
Manufacturing: Stronger-than-expected showing from Valuetronics and Fu Yu.
- Barring the one-off expense resulting from FU YU CORPORATION (SGX:F13)’s strategic decision to shift operations in Shanghai to its Suzhou factory, its 3Q19 results were strong and highlighted the group’s capability to optimise operations to achieve cost savings and prioritise higher-margin projects which resulted in a higher-than-expected gross margin expansion. In addition, the shift will help improve utilisation and lower overheads. See Fu Yu Share Price; Fu Yu Target Price; Fu Yu Analyst Reports; Fu Yu Announcements; Fu Yu Latest News.
- As for VALUETRONICS (SGX:BN2), we reckon its revenue will likely be less impacted by the US-China trade tensions going forward as most of its goods shipped to US, if not all, are already subjected to tariffs. Despite the US-China trade tensions which have been on-going for more than 17 months, its revenue has remained resilient with 1HFY20 revenue declining by a marginal 3.7% y-o-y. In addition, we believe its efforts to diversify its footprint to Vietnam will provide long-term growth for the group. See Valuetronics Share Price; Valuetronics Target Price; Valuetronics Analyst Reports; Valuetronics Announcements; Valuetronics Latest News.
- We continue to like both stocks for its attractive valuations, strong balance sheet (zero debt) and high dividend yield (Fu Yu: 7.2%, Valuetronics: 5.1%). See Fu Yu Dividend History; Valuetronics Dividend History.
Consumer: Mixed bag.
- Among our consumer staples stocks, SHENG SIONG GROUP (SGX:OV8)’s 3Q19 earnings were above our expectations while Japfa’s was a miss. The former reported a revenue increase of 11.4% y-o-y, of which new store sales contributed to 10.4% of the growth. We reckon growth in 2020 will mainly be driven by the full effect of the 10 stores openings in 2018, as well as the five new stores opened in 2019. In addition, it recently proposed the acquisition of a commercial premise in Aljunied with a GFA of 2,717 sqm (c. 29,000 sf) for S$29.5m; if it receives the approval from HDB for this acquisition, Sheng Siong would have already met our retail space forecast of 20,000 sf for FY20, providing potential upside to our forecast. See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
- On the other hand, JAPFA (SGX:UD2)’s earnings miss was due to continued challenges faced in Indonesia and Vietnam in 3Q19. We note that the Indonesian poultry prices have improved in the past two months as the government puts in place additional culling measures. At the same time, swine fattening ASP has recovered strongly as supply declines. However, we remain conservative as upside could be capped by lower swine fattening volume in the near term as Japfa reduces the piglets in high-risk ASF areas. See Japfa Share Price; Japfa Target Price; Japfa Analyst Reports; Japfa Dividend History; Japfa Announcements; Japfa Latest News.
- For the F&B service companies under our coverage, Koufu Group’s and Jumbo Group’s results were both in line with expectations.
- Post JUMBO GROUP (SGX:42R)’s FY19 results, we upgraded the stock to a BUY as we roll forward our valuation base and see earnings growth in FY21 coming from margin expansion, stronger contribution from its Singapore operations and narrower losses from the China operations (report: Jumbo Group - FY19 Earnings Growth Driven By Margin Expansion). See Jumbo Group Share Price; Jumbo Group Target Price; Jumbo Group Analyst Reports; Jumbo Group Dividend History; Jumbo Group Announcements; Jumbo Group Latest News.
- KOUFU GROUP (SGX:VL6)’s earnings are on track to meeting our 19% forecast growth for 2019, with full year contribution from Rasapura, new outlets ramping up and steady roll out of the R&B Tea outlets. It remains one of our top picks given it is the most profitable listed F&B company and is trading at a deep discount of 13.5x 2019F PE, vs peer average of 22.7x (report: Koufu Group - 3Q19 Results In Line; Robust Outlook). See Koufu Share Price; Koufu Target Price; Koufu Analyst Reports; Koufu Dividend History; Koufu Announcements; Koufu Latest News.
Other beats include BRC Asia and Propnex.
- BRC ASIA (SGX:BEC)’s FY19 net profit was 5% above our forecast and it also announced a dividend surprise – final dividend of 8 S cents (3 S cents in special dividend), compared to our expectation of 5 S cents. Going forward, we think earnings visibility is strong for the group and it would be able to capitalise on improved margins from larger scale of operations post-merger with Lee Metal. If the group were to maintain a similar DPS of 8 S cents in FY20, this provides an attractive yield of 5.4%. See initiation report: BRC Asia - Good Proxy To Singapore’s Infrastructure & Construction Upcycle. See also BRC Asia Share Price; BRC Asia Target Price; BRC Asia Analyst Reports; BRC Asia Dividend History; BRC Asia Announcements; BRC Asia Latest News.
- For PROPNEX (SGX:OYY), while 9M19 net profit fell marginally short at 70% of our full-year forecast, we expect a back-end loaded 4Q19 (with higher OTP completions). Private new sales will see earnings visibility from unsold inventories ( > 36,000 units at end-3Q19), while HDB resales will also see catalyst from the Enhanced CPF Housing Grant. Management also suggested the market has found footing, evidenced by its stronger 3Q19 top-line. See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
Other small and mid-cap companies’ result highlights.
- 3Q19 net profit of S$2.0m (+51.8% y-o-y) is in line with our expectations, with 9M19 net profit forming 74% of our full-year estimate. Earnings growth was largely driven by cost savings from the refinancing of borrowings. In addition, revenue grew for the first time on a y-o-y basis since the relocation to Pasir Ris, signalling a potential stabilisation in student enrolment.
- See Overseas Education Share Price; Overseas Education Target Price; Overseas Education Analyst Reports; Overseas Education Dividend History; Overseas Education Announcements; Overseas Education Latest News.
- CSE’s 3Q19 core net profit of S$5.9m was in line with expectations, with 9M19 core net profit forming 70% of our full-year estimate. Earnings were driven by strong revenue growth of 21.9% y-o-y, driven by higher growth in Asia Pacific and the Americas region. Order intake soared 94.5% y-o-y, setting up for a strong 2020. Post results, we raised our 2020-21 net profit forecasts by 1.1-1.8%.
- See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
- ISOTeam announced a 1QFY20 core net profit of S$1.1m, up 44% y-o-y. 1Q seemed seasonally weaker and we remain optimistic of the group’s ability to deliver better performances in subsequent quarters given its record high orderbook. The acquisition into Pure Group remains fundamentally sound and the group expects to complete the acquisition by the end of Nov 19.
- See ISOTeam Share Price; ISOTeam Target Price; ISOTeam Analyst Reports; ISOTeam Dividend History; ISOTeam Announcements; ISOTeam Latest News.
- Driven by strong growth in the shipbuilding and chartering segments, Penguin International reported 3Q19 net profit of S$5.6m (+739.1% y-o-y), accounting for 72% of our and 81% of consensus full-year forecasts. Net cash rose from S$47.9m in 2Q19 to S$53.1m in 3Q19. Penguin International has introduced offshore windfarm Crew Transfer Vessels to its internally funded build-for-stock programme.
- See initiation report: Penguin International Ltd - Riding The Wave, Backed By Favourable Industry Trends.
- See Penguin International Share Price; Penguin International Target Price; Penguin International Analyst Reports; Penguin International Dividend History; Penguin International Announcements; Penguin International Latest News.
- Sunpower Group’s 3Q19 core net profit posted robust growth (+38.9% y-o-y) to Rmb78.8m. The 38.9% y-o-y growth in core net profit was driven by the strong performance in the GI segment. Underlying core net profit rose 46.9% y-o-y for 9M19 to Rmb189.9m, forming 63.4% of our full-year forecasts. Ramp-up of existing GI projects and a strong M&S orderbook should continue to drive revenue growth for 2019.
- See Sunpower Group Share Price; Sunpower Group Target Price; Sunpower Group Analyst Reports; Sunpower Group Dividend History; Sunpower Group Announcements; Sunpower Group Latest News.
- Sunningdale Tech (SGX:BHQ)'s 3Q19 core net profit (+5.5% y-o-y) was in line with our forecast, with 9M19 core net profit forming 74% of our full-year estimate. 3Q19 revenue and gross profit fell y-o-y due to declines across all segments. Two new plants have started ramping up gradually. However, the Consumer/IT segment has become challenging due to slowing demand from customers.
- See recent report: Sunningdale Tech - Still Challenging.
- See Sunningdale Tech Share Price; Sunningdale Tech Target Price; Sunningdale Tech Analyst Reports; Sunningdale Tech Dividend History; Sunningdale Tech Announcements; Sunningdale Tech Latest News.
- Tianjin Zhong Xin Pharmaceutical’s 3Q revenue (+4.3% y-o-y) and gross profit (+11.7% y-o-y) are in line with expectations, forming 76.3% and 77.4% of our full-year forecasts respectively. However, 3Q19 PATMI (+12.3% y-o-y) was dragged down by a surge in income tax expense (+140% y-o-y), meeting 69.1% of our full-year forecast. We believe this could be due to timing difference in tax payment.
- See Tianjin Zhongxin Pharmaceutical Share Price; Tianjin Zhongxin Pharmaceutical Target Price; Tianjin Zhongxin Pharmaceutical Analyst Reports; Tianjin Zhongxin Pharmaceutical Dividend History; Tianjin Zhongxin Pharmaceutical Announcements; Tianjin Zhongxin Pharmaceutical Latest News.
Our top picks are Koufu, Fu Yu, Penguin International and CSE Global.
- We believe the market has overlooked KOUFU GROUP (SGX:VL6)’s strong performance and cash generation ability that has helped it build a significant net cash position (equivalent to 22% of Koufu Group’s market cap as of 3Q19), and is trading at a deep discount of 13.4x 2020F PE, vs local peer average of 17.8x.
- We also like FU YU CORPORATION (SGX:F13) for its high sustainable dividend yield of 7.1% for 2019F and cheap 2020F EV/EBITDA at 3.2x. We note that at this attractive valuation and with its geographically diversified plants, it is a potential takeover target.
- Recently initiated PENGUIN INTERNATIONAL (SGX:BTM) is also our top pick as we forecast strong EPS growth of 42.9% for 2019, backed by a healthy delivery pipeline and growing demand for its new products in the fields of fire-fighting and renewable energy. Penguin International should continue to benefit from Nigeria’s piracy issues and the low transportation costs of offshore crewboats.
- As for CSE GLOBAL (SGX:544), we believe its healthy orderbook and earnings-accretive acquisitions should lift earnings in 2020. Strong 3Q19 order wins will likely see CSE GLOBAL end 2019 with an orderbook of S$300m-320m – the highest in recent years. In addition, we expect recent acquisitions to drive earnings growth in 2020, particularly its acquisition of Volta from which we conservatively forecast net profit contribution of S$3m in 2020. At current prices, the stock also offers an attractive dividend yield of 5.1%.
John Cheong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2019-12-06
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