Stockwatch- FJ Benjamin, $0.87
Goldman Sachs initiate coverage on FJ Benjamin, target price $1.10
Report dated 3 April 2007
Making a come-back; initiating coverage with Buy
Source of opportunity
FJ Benjamin (FJB) has restructured for better profitability by exiting unprofitable brands and de-leveraging its balance sheet. This high-end fashion retailer is now embarking on a rapid store expansion plan which could grow retail space three-fold over FY2006-FY2008E. An underresearched stock, we believe it also offers rare exposure to discretionary consumer spending in Singapore which we estimate accounts for 60% of group revenues. We initiate coverage on the stock with a Buy rating and 12-month price target of S$1.10/share, offering 54% potential upside.
Catalyst
1) Strong earnings growth – our forecasts indicate a 2 year FY2006- 2008E fully diluted EPS CAGR of 33%; 2) Capital management – capex requirements are minimal, and we believe the company may return excess cash to shareholders (S$0.22/share net cash at FY2007E); 3) New
earnings accretive brands could drive potential earnings upside.
Valuation
Our S$1.10/share 12 month price target is based on a SOTP valuation valuing FJB’s retail business at 16X FY2008E P/E. In our view, this is reasonable compared to FJB’s recent 7X-17X trading range, the Singapore market average of 16X and the regional retail (apparel) sector average of 18X.
Key risks
1) Earnings disappointment – FJB has an inconsistent profitability track record, and new brands may disappoint; 2) Share price outperformance and profit taking from warrant conversions, 3) Franchise agreements may potentially be re-called by brand owner – but we see this as unlikely as the brand principals are more likely to focus their attention on larger Asian markets like China.
Stockwatch: OKP (S'pore) $0.25
Announcements:
8 Jan 2007- Award of Tender
The Board of Directors of OKP Holdings Limited ("the Company") wishes to announce that the Company's wholly-owned subsidiary company, Eng Lam Contractors Co (Pte) Ltd had been awarded contract no: CPS/821/06 for (A) Car Park Improvement Works at Tampines Car Parks No. T37(Part), T41 and T42, and (B) Repair of Existing Service Roads, Car Parks and other Civil Engineering Works within HDB Estates Contract No. 5 (East Zone) ("the Contract") by the Housing & Development Board.The amount of the Contract is SGD2,647,000.00 and the Contact period is from 17 January 2007 to 16 May 2008. The Contract is expected to contribute positively to, but has no material impact on, the earnings per share or net tangible assets per share of the Company and its subsidiary companies for the current financial year ending 31 December 2007.
31 Jan 2007- Rotary Engineering and OKP Holdings in joint venture to do civil engineering works in local Oil & Gas Sector
Rotary and OKP will each take a 45% and 55% stake respectively in the S$1 million joint venture company -- to be named OKP (Oil & Gas) Infrastructure Pte Ltd, subject to approval from the relevant authorities.
Mainboard-listed Rotary is a leading provider of engineering, procurement, construction and maintenance services supporting the oil-and-gas and petrochemical industry.
OKP is a leading home-grown infrastructure and civil engineering company in the region, specialising in the construction of airport runways and taxiways, expressways, flyovers, vehicular bridges, urban and arterial roads. The company has recently taken on projects in the oil and gas sector, providing civil construction work for petrochemical plants and oil storage terminals.
Both Mr Chia Kim Piow, Rotary’s Chairman and Managing Director, and Mr Or Toh Wat, Group Managing Director of OKP, were excited about their tie-up.
Said Mr Chia: “We have worked with OKP on various projects. Both our companies boast different strengths and we believe that we can synergise the existing capabilities in both our companies to tap on a rapidly-expanding sector. It’s a winwin situation.”
His positive sentiments were clearly shared by Mr Or. “OKP’s strength and core business have traditionally been in road construction and maintenance. This is an excellent opportunity to capitalise on our existing capabilities and track record to break into the rapidly expanding oil and gas sector. Rotary is well-known in that industry and is the perfect partner for us. We are confident that this joint venture will reap us good results,” he said.
The most notable project on which OKP and Rotary have worked together is the Jurong Island oil terminal project that Rotary is building for Universal Terminal (S) Pte Ltd (“UT”). At S$535million and slated for completion by end 2007, this EPC contract is Rotary’s biggest to date. OKP was in turn awarded a contract by Rotary for part of the civil and related works for the UT project.
When completed, Universal Terminal will be one of the world’s largest independent oil terminals, with 2.3 million cubic metres of storage capacity in 73 custom-built tanks. The Universal Terminal will be the first oil terminal in this region to have its own 12 berths, including two VLCC berths. The terminal will have dedicated inner basin with six berths for coastal and bunker vessels of up to 15,000 DWT, while the outer berths are designed with the flexibility to handle vessels up to 320,000 DWT.
Following the award of the UT contract, OKP landed a number of deals to carry out civil works in this sector, including the New Polymer Storage for Exxonmobil Chemical Asia Pacific, the Singapore Parallel Train (“SPT”) Project by Foster Wheeler Asia Pacific Pte Ltd and WorleyParsons Pte Ltd (“FWP”). Indeed, OKP was one of the first civil contractors to be awarded a contract by FWP to provide support for ExxonMobil’s SPT, an expansion project for a new world-scale steam cracker that would be integrated with its existing refinery and chemical plant on Jurong Island.
Rotary has been active in the oil and gas and petro-chemical sectors in Singapore and the region. Last month, it inked a S$126 million deal in Thailand and in November, it announced a total of S$25.8million worth of contracts that its whollyowned subsidiary, Rotary IMC Pte. Ltd, had secured from Shell Eastern Petroleum (Pte) Ltd for its Bukom Shell Houdini Project.
Last year, Rotary also started participating in projects involving biofuels. In August 2006, it was awarded a S$24million contract to undertake the Engineering, Procurement and Construction of a bio-diesel process plant and its related facilities to produce biofuel and other downstream derivatives for Nexsol (Singapore) Pte. Ltd., a subsidiary company of Peter Cremer (Singapore) GmBH.
OKP Management Q & A 8 March 2007
Dear Investors,
Thank you very much for the questions and the opportunities to clarify them. We hope you have a better understanding of our business through this online exchange.Your questions will be reposted in blue followed by our replies in black.
Rgds, The Management Team OKP Holdings Ltd
Dear Brandon Koh, you wrote:
I notice the following facts:
In view of a competitive & challenging environment, what plans do you have in risk management & what are your key differentiating factors?
We have always been prudent in the way we manage our business and have various mechanisms in place to help manage and mitigate risk. These include:
Business risk: In the light of the finite size of the Singapore market, OKP is aware of the need to manage this risk. It does this by actively looking for overseas opportunities to diversify geographically and, more recently, it has diversified into the oil and gas/petrochemical industry.
Credit risk: We carefully assess each business opportunity that comes our way, and choose to tender for and secure projects by creditworthy customers.
Liquidity risk: Internally, we have strong and prudent financial controls, and monitor our cashflow carefully.
Investment risk: To mitigate this risk, not only do we seek a good understanding of the markets we enter. Where possible and appropriate, we will grow our business through strategic alliances and/or joint ventures. An example of the latter is our 55%-45% JV last month with mainboard-listed Rotary Engineering Ltd to tap on the oil and gas sector in Singapore.
Key differentiating factors:
Management's hands-on approach: Our management team adopts a hands-on approach to all their projects. This way, they are constantly in touch with their customers and are kept abreast of all developments in a project. They will be in a position to manage cost and provide the highest level of customer service.
Close relationship with customers and suppliers: One of the guiding principles at OKP is valued collaborations. The company takes pride in the maintenance of close relationships with its clients as well as suppliers, forging goodwill and close links that often go a long way to get work done faster and more efficiently.
Experienced management team: Established in 1966, OKP has a strong and capable team with the highest level of professionalism.
Specialised teams: OKP is structured according to specialist capabilities. We believe that this gives us an extra edge as the special industry knowledge would enable us to handle projects more efficiently. Currently we have three such teams:
Oil & Gas/Petrochemical
Airport infrastructure
Roads construction and road maintenance
Dear DanielXX, you wrote:
1) Of your current $150M-odd order book, how much of it is oil-and-gas related? Is it possible to provide a breakdown of the order book currently?
2) How affected will OKP be by the current problems with sand? I understand road construction is one of the most intensive users of cement.
3) Would you be able to reveal the current Section 44 status post-1.5ct dividend?
1) For competitive reasons, it is not our practice to give a break-down of our order book.
2) Progress in some projects has been affected somewhat due to the sand shortage. However, we foresee that this situation will be resolved soon.
3) We do not have any Section 44 credits, so our dividend is a one-tier tax exempt dividend.
Dear Tony, you wrote:
Going forward, what is the future plan for the company?
Going forward, we will:
Stay focused on our core competencies: this means that we will concentrate on construction and maintenance projects; this is our area of expertise and it is where we have built up a distinctive track record over the years. We believe this is a prudent business strategy for OKP.
Diversify into Oil and Gas: To spread our risk, we will actively look to grow our niche in the expanding Oil and Gas Sector over the next three to five years. In so doing, we will not only be looking to grow our earnings base, but also ensure that we do not become overly-dependent on a single revenue source. In so doing we would also further strengthen our Oil & Gas project team; this will hold us in good stead as we prepare to tap the numerous opportunities in this sector.
Explore overseas opportunities: While keeping a firm grip on the local market, we will also continually look for opportunities to grow our business overseas.
We believe that engaging in the above strategies will help us to expand our earnings base.
Dear Investors,
Thank you for all your questions and the interest in OKP Holdings Ltd. We have come to the end of this Q&A session.
We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.
Rgds, The Management Team OKP Holdings Ltd.
Stockwatch: Spindex 1H2007 Result
Spindex 1H 2007 results announced on 13 Feb 2007:
The Group is a highly integrated solution provider of precision-machined components and assemblies for use in imaging & printing equipment, automotive systems, domestic appliances, consumer electronics and data storage equipment.
In 1H FY2007, the Group achieved healthy broad-based growth in turnover and profitability across all business sectors. Turnover increased 23% to S$33.9 million and net profit jumped 59% to S$2.1 million.
Turnover
Turnover by Business Sectors
1HFY2007 S$ ‘000 1HFY2006S$ ’000 Change (%)
Imaging & Printing (IP) 16,325 13,809 18%
Machinery & Automotive Systems(MA) 9,624 6,564 47%
Others 7,912 7,219 10%
Total 33,861 27,592 23%
Turnover from IP rose 18% to S$16.3 million with increasing sales to major customers. As a result, the higher production volume contributed to an improvement in the overall machinery utilization.
The MA sector recorded significant turnover growth of 47% to S$9.6 million. In this sector, the Group received increased orders and secured new projects from existing and new customers as a result of our market focus strategy.
Under Others sector, lower demand for telecommunication was offset by higher sales of components for tape drives, medical products and consumer-related industries. Turnover for the sector grew 10% to S$7.9 million.
Profitability
In line with higher turnover and improved operating efficiency, gross profit for 1H FY2007 grew 27% to S$6.5 million. Together with bulk purchasing from long-term suppliers to manage material costs, gross profit margin improved from 18.5% in 1H FY2006 to 19.1% in 1H FY2007.
Other operating income increased 106% due to higher scrap income and additional interest income from fixed deposits. While the weaker US dollar resulted in higher foreign exchange losses, the Group managed to moderate this negative impact with more effective cost controls and currency hedging. Included in other operating expenses was a payment of machinery import duty and value-added tax incurred by the Suzhou plant.
With reinvestment allowance enjoyed by our Malaysia plant as well as tax-free incentives for Suzhou and Hanoi plants, the Group’s effective tax rate declined from 19% to 13%. Underpinned by stronger performances in all business sectors, net profit rose 59% to S$2.1 million.
Balance Sheet & Cash Flow
With a higher level of business activities, stocks and trade debtors were correspondingly higher as at 31 December 2006. Although the Group generated positive cash flow from operations, investment in fixed assets resulted in higher bank borrowings and a reduction in fixed deposits, cash and bank balances.
Notwithstanding the lower cash balances, the Group maintained a healthy net cash position of approximately $6.3 million as at 31 Dec 2006.
Outlook
Business conditions are expected to remain challenging in the second half of FY2007. Any further weakness in the US dollar will be partially mitigated by purchases in US dollars and currency hedging. To better manage the prices of raw materials, the Group undertakes bulk purchasing from long-term suppliers.
With generally improved market demand for the Group’s services, the business sectors are expected to maintain their high level of activities. Under our major market sectors, IP and MA, the expected commencement of new projects with existing customers in early 2007 will contribute to higher sales.
All manufacturing plants in the Group will benefit from the growth in business volume and higher economies of scale. The Group will continue with its strategy of targeting key customers. Full year investment in machinery is expected to reach $5 million to support further business growth.
Barring unforeseen circumstances, the Group is cautiously optimistic of its performance for FY2007.
Key positive points:1. High operating leverage- as the Suzhou plant just turn profitable in 2HFY2006, while the Hanoi plant is expected to breakeven in FY2007, according to its 2006 Annual Report.
2. Expected commencement of new projects with existing customers in early 2007.
3. Single-digit PE at current price of $0.22.
4. Large discount to NAV of $0.37.
5. Strong balance sheet, with net cash position of about $0.055.
6. Stock still not crowded, as few people are noticing it at the moment as evidenced by the difficulty of accumulating it at good price; however, this can turn into a negative if its fundamentals turn for the worst as it will be difficult to unload if one has built up a position of reasonable size.
Stockwatch- SBS Transit (Singapore) Goldman Sachs raised target price to $3.21
Today SBS closed at $2.75......
Goldman Sachs report:
Results above expectations; reiterate Conviction Buy
What's changed
SBS Transit (SBST) reported 4Q06 and full year 2006 net profit of S$16mil (+8% qoq and +14% yoy) and S$56mil (+9% yoy) respectively, which came in about 9% ahead of our estimates on a full year basis. The stronger than expected performance was mainly due to higher bus and NEL ridership volumes, and advertising revenue. SBST had also proposed a gross final and special dividend of S$0.065 and S$0.17 respectively; SBST will trade ex-dividend on 11 May 07 and the final and special dividends will be payable on 28 May 07.
Implications
In response to the better than expected results, we have revised our 2007E and 2008E earnings estimates by +8% and +10% respectively. We have raised our share price target by 3% to S$3.21 due to (1) higher free cash flow estimate arising from ridership adjustments; and (2) a lower cost of equity assumption of 8.5% (from 9%) for our DCF-based valuation. Note that we have not taken into account the proposed 2% GST hike, increase in CPF employer contribution and reduction in corporate income tax rate; details of these proposals are expected to be unveiled in the 2007 Singapore Budget.
Valuation
We have raised our 12-month share price target marginally to S$3.21 (vs previous S$3.13), implying 18% potential upside. Our DCF-based share price target is derived by adding the present value of SBST’s potential upcoming dividend streams (S$0.49) to our estimated value of its core bus and train operations (S$2.72). Maintain stock on Conviction Buy list.
Key risks
The key risk to our positive view is that management does not fully utilize SBST’s available balance of Section 44 tax credits for distribution of dividends.
Stockwatch- MMC (Malaysia)
Future catalysts:
1. If Gas Malaysia receive an increase allocation of gas from Petronas
2. Approval from the government to Gamuda-MMC's new proposal to double-tracking project,
which would only involve the northern portion of Peninsular Malaysia (expected in mid 2007)
3. Award of any potential long-term concession-type earnings from the doubletracking
project
4. Injection of the port and power plant concessions within the Jizan project into MMC
Stockwatch- MMC (Malaysia) RM5.25 Macquarie initiate coverage
Spicy infrastructure play
Event
We initiate coverage on MMC Corp with an Outperform rating and a RM6.75 target price, providing a 47% upside from current levels.
Impact
1. Malaysia’s largest infrastructure play. MMC will likely become Malaysia’s largest infrastructure play with 75-80% of its earnings coming from power, gas distribution and ports. The inclusion of Malakoff’s (MAL MK, RM10.00, Neutral, TP: RM10.35) assets from mid-1Q07, implies that 50% of pretax earnings will likely be derived from power generation. Further upside to infrastructure earnings could come from the award of port and power plant projects within the Jizan Economic City project in Saudi Arabia.
2. Earnings boost from local and foreign construction projects. MMC should be a beneficiary of increased construction-based spending under the 9th Malaysia plan (9MP). At the very least we see MMC together with joint – venture partner Gamuda (GAM MK, RM5.75, Outperform, TP: RM6.30) winning the RM10bn northern section double-tracking rail project, which would
contribute about RM444m to earnings between FY07-10. The US$30bn Jizan project meanwhile should provide more construction-based earnings although at this time they are not incorporated into our estimates.
3. IPP restructuring – room for valuation upside. We believe the conclusion of the IPP restructuring process by mid-2007 should allow for further upside to our valuation of MMC. While every 10% reduction in capacity payments to Gen-1 plants would lead to a 3% reduction in MMC’s FY08 earnings, we believe the extension of PPA concessions would provide NPV upside.
Earnings revision
1. We are currently establishing base forecasts.
Price catalyst
1. 12-month price target: RM6.75 based on a PER methodology.
2. Catalyst: Resolution of the IPP restructuring process and award of the doubletracking project to MMC would be major catalysts over the next 12 months.
Action and recommendation
1. We initiate on MMC with an Outperform recommendation.
2. At 9x FY08E PER and 6x EV/EBITDA, MMC trades at a discount to its various peer groups (13-17x PER and 8-12x EV/EBITDA) as well as the Malaysian market at 14x FY0-8 PER. The company meanwhile offers a 44% FY06-09 EPS CAGR.
3. MMC fits in well with our key Hunting Stock themes of increased government spending and increased domestic demand. As spending under the 9MP takes off, expect MMC’s earnings and valuations to follow suit.
Stockwatch- SBS Transit (Singapore) $2.47
1. beneficiary of lower energy price
2. final/special dividend coming soon, year end result mid February 2007
3. loads of s44 credit to be released
4. improving NorthEast Line ridership with vivocity
5. impact of fare hike in oct shd surface in the coming result
6. last goldman sachs target price is around $3
Stockwatch- Technics Oil & Gas $0.79
CORPORATE PROFILE
Singapore-headquartered Technics Oil & Gas Limited is a one-stop, fully integrated specialist
services provider catering to MNC companies in the upstream oil and gas sector.
The Group designs, concept engineers and fabricates process modules and equipment, including gas compression packages, which are integrated to form the operating system for production operations and storage applications in offshore and onshore oil and gas exploration and production activities. (“O&G”)
From a modest start-up in 1990 with only 12 staff, Technics became a listed entity on the Singapore Exchange SESDAQ in April 2003 and embarked on a multi-pronged expansion programme to maximise leverage on the robust demand in the O&G sector.
With a current strength of 240 full-time employees and still expanding, Technics has now emerged as one of the leading premier supply vendors for topside process modules and equipment required for FPSO (Floating Production, Storage and Offloading) ships and MOPUs (Mobile Offshore Production Units), as well as oil rigs and semi-submersibles.
The Group has been synonymous with safety, quality and reliability and is an authorised integrator of gas compression systems for two world-leading USA gas compressor manufacturers, Ariel Corporation and Cameron.
Main business segments are:
• Engineering, Procurement, Construction and Commissioning (“EPCC”):Design, procure, construct, install and commission process modules and equipment for O&G exploration and production on a turnkey project basis;
• Contract Engineering (“CE”):
For customers who do not require the full turnkey services, Technics customizes the oil or gas flow and fabricates according to their specifications;
• Procurement and other services (“PS”):
After-sales maintenance service and supply of spare parts and equipment; as well as the Group’s new leasing business for gas compression systems.
The Group’s expanded facilities comprise two waterfront yards extending over approximately
17,000 sqm and 22,500 sqm respectively, in Singapore and Indonesia’s Batam Island.
Business coverage now encompasses Singapore, Malaysia, Thailand, Vietnam, Indonesia, USA, Dubai, Bangladesh and the People’s Republic of China; operating through offices in Singapore, Batam and Vietnam.
Fuelled by a strong commitment to excel and backed by a network of leading MNC customers, major equipment principals and strategic partners, Technics is now poised to embark on a new dimension of growth.
2 Alliances (announced 5 Sep 2006)
to springboard into new market segments (Mgmt is optimistic that this generation of new earnings streams will kick in strongly from FY2007):
(i) Strategic partnership with Global Process System (GPS); leased to GPS certain equipment that are typically utilised in the construction and supply of production and process modules to FPSOs and MOPUs. GPS owns and operates jack-ups and MOPUs in this region while partnering others to exploit the booming turnkey business for FPSOs. GPS has accorded Technics the first right of refusal to undertake contract engineering project work for the MOPU/FPSO process topsides, e.g. the supply of gas compression systems; electrical, controls and instrumentation systems; and process equipment vessels. This alliance has quickly ramped up the activities and output of our new Batam Island yard.
Global Process Systems Inc (GPS) provides turnkey services in all areas of process equipment and Process Engineering Solutions for customers in the Oil & Gas industry. GPS is strategically located in Dubai , UAE, Kuala Lumpur, Malaysia, Moscow and Houston, with branch and affiliate corporate offices throughout Europe, Asia and Middle East. GPS is 70% owned by Al Jaber Group, a multi-billion USD conglomerate headquartered in Abu Dhabi with diversified businesses ranging in infrastructure to integrated logistics. For more information about GPS, please visit the company’s website at : www.globalprocesssystems.com
(ii) 51% Joint Operation with an Indonesian partner, namely PT. Promatcon Tepatguna; able to secure EPCC gas c0mpression systems contracts in Indonesia for on both outright purchase by customers or term leasing basis.
Outlook:a. Management is optimistic: There has never been a better time in the history of Technics when our prospects will be brighter than the present.
b. KeppelFELS, a subsidiary of Keppel Offshore & Marine, a global leader for the design and production of jack-up rigs and a leading player for the conversion of old tankers into FPSO/FSO/MOPU vessels, has been one of Technics' key long term customers.
c. Batam is fast-assuming the mantle as a hub for FPSO process modules benefiting from the spillover effect as customers face long queues for Singapore yards. Large MNC players such as Halliburton and J Ray McDermott have commissioned major projects to yards on Batam Island.
d. Technics' new yards in both Singapore and Batam Island have been qualified by our MNC O&G customers.
e. Technics is focussing on extending the growth of EPCC business for gas compression systems to ride on the strongly emerging demand for natural gas as an alternative energy source to oil.
f. 2 main growth drivers in FY2007:
(i) FPSO market- based on discussion with customers, there are 10 FPSO conversion projects that are scheduled to be awarded by the oil majors in 2007 to leading FPSO players.
With several of Technics' partner-customers in the front-running for these large scale projects, it is optimistic of maintaining our historical participation or strike rate, given its current available capacity as well as proven safety and on-time delivery track records. In particular Technics stand a good chance for EPCC gas compression systems, in view of our authorised integrator status for Ariel and Cameron, which serve as barriers to entry by non-qualified competitors.
(ii) Leasing of Gas Compression Systems- Technics is excited at the upside potential of an emerging leasing trend that has caught on strongly in Indonesia. Its Joint Operation in Indonesia has received indicative demand amounting to about 15 gas compression systems in the short-term from its customer base, either for leasing arrangement or outright purchase.
Technics anticipates that leasing will soon catch on in Malaysia and Thailand, paving the way for Technics' 2nd stage development for this new business to expand beyond Indonesia.
There are 3 drivers for the strong emerging leasing trend. Firstly,
