SG Small Cap Stocks - CGS-CIMB Research 2020-04-01: COVID-19 ~ Net Cash Companies Will Survive

SG Small Cap Stocks - CGS-CIMB Research | SGinvestors.io JUMBO GROUP LIMITED (SGX:42R) VALUETRONICS HOLDINGS LIMITED (SGX:BN2) FU YU CORPORATION LTD (SGX:F13) CHINA AVIATION OIL(S) CORP LTD (SGX:G92) CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)

SG Small Cap Stocks - COVID-19 ~ Net Cash Companies Will Survive




Net cash companies will survive - Manufacturing sector

  • In the manufacturing sector, all the companies under our coverage have net cash balance sheets with some having zero borrowings. As such, we think these companies will not face cash flow issues even if the COVID-19 outbreak extends till the end of 2020F. We also note that the average dividend yield for FY20F for the manufacturing sector is 6.5%.

Valuetronics (SGX:BN2)

  • Amongst manufacturing stocks, we note that Valuetronics offers an attractive dividend yield of c.9% and the highest margin of safety with net cash position representing 90% of its market cap.
  • The group announced that while over 80% of its employees in China have resumed work, widening virus transmission, travel bans and city lockdowns in its major markets have led to factory shutdowns at some of its suppliers and end customers. We expect wider repercussions from these and potential global slowdown in consumer demand, and trim our FY21F EPS by 20.0%, resulting in a lower target price of S$0.50; we keep our HOLD rating unchanged.
  • We believe improving revenue visibility and new customer/product wins could pose upside risks to our HOLD call and re-rate the stock post the COVID-19 outbreak resolution. See Valuetronics Share PriceValuetronics Target PriceValuetronics Analyst ReportsValuetronics Dividend HistoryValuetronics AnnouncementsValuetronics Latest News
  • Downside risks: higher costs of material and growing economic uncertainty. Upside risk is better than expected orders from customers.
  • Valuetronics traded at a record-low (1 s.d. below historical mean) of 3.3x forward P/E and 0.7x P/BV during the 2008-09 global financial crisis, which was compounded by its Danshui plant flooding and goodwill impairment due to a poor acquisition. In the worst case scenario, those trough valuations imply entry prices of S$0.26 and S$0.35, respectively.

Fu Yu (SGX:F13)

  • We see value emerging for Fu Yu as we think earnings risks are being reflected in its share price de-rating. The share price has fallen 32% from its 52-week high of S$0.285 (17 Jan 2020). Hence, we upgrade our recommendation from Hold to ADD even after our 16-23% earnings cuts to factor in lower revenue. Our non-consensus earnings downgrades are in response to lockdowns arising from the COVID-19 outbreak and concerns of weaker end demand as global economic growth slows.
  • Our revised Target Price is lowered to S$0.21 (from S$0.26), based on Gordon Growth derived P/BV multiple of 0.95x (previously 1.16x) to reflect the ROE decline as earnings fall in the midst of the COVID-19 outbreak.
  • Projected FY20F dividend yield is 8.5%. We estimate Fu Yu’s net cash position as at end FY20F to be S$93.7m (zero debt balance sheet). As at end 26 Mar 2020, net cash was 61% of Fu Yu’s market cap. See Fu Yu Share PriceFu Yu Target PriceFu Yu Analyst ReportsFu Yu Dividend HistoryFu Yu AnnouncementsFu Yu Latest News
  • Downside risks are unfavourable foreign exchange movements, increased competition and the worsening COVID-19 outbreak.


Other Net Cash Companies


China Sunsine (SGX:QES)


China Aviation Oil (SGX:G92)


Jumbo Group (SGX:42R)



Not rated stocks

  • We also screened through other Singapore-listed small cap stocks with market cap between USS$50m and US$1bn (excluding REITS and finance-related companies) using
    1. net cash as a percentage of market cap, and
    2. net gearing position.
  • Figure 11 in attached PDF report shows small-cap names outside our coverage with net cash accounting for more than 50% of its current market cap. Companies on the list that has also demonstrated a track record of being profitable and cash flow generative for the past three years include






William TNG CFA CGS-CIMB Research | NGOH Yi Sin CGS-CIMB Research | ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-01
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.220 DOWN 0.47
HOLD MAINTAIN HOLD 0.50 DOWN 0.62
ADD UPGRADE HOLD 0.210 DOWN 0.26
HOLD MAINTAIN HOLD 0.860 DOWN 1.25
ADD UPGRADE HOLD 0.380 DOWN 0.42



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