DBS Vickers initiates coverage on Bright World with ‘Buy’ call; TP 80ct

Analysts: Tan Ai Teng, Ling Lee Keng

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Bright World's stamping machine

DBS Vickers has initiated coverage on precision stamping equipment maker, Bright World, with target price at 80 cents based on 10.5x PE.

Bright World is China’s leading metal stamping machine supplier with an 8% share of the domestic market. It has 3 revenue streams: conventional and high performance stamping machines to manufacturers of home appliances (34% of sales), automotive (32%), and electronics (15%). It recently forayed into making railway engine components.

Its growth is underpinned by China’s sustained industrialization and transformation into the world’s supplier of manufacturing equipment. China’s voracious demand for electrical appliances, auto and railway, and the push for automation will drive growth for Bright World.

The firm would also benefit as more manufacturers in China localize equipment purchase and when China accelerates equipment exports to other developing countries. DBS Vickers forecasts FY11 sales and net profit to grow by 33% and 25% respectively compared to management’s growth target of 30-40%.

Its target price of 80 cents is based on a 20% discount to sector average. Machine makers in Asia trade at an average of 13.3x forward earnings.

Continued delivery of better-than-expected results with sustainable margin would re-rate the stock further, according to the analysts. More contract wins in railway or other high growth sectors should also drive valuations higher.

Its key risk is to manage cost. Apart from an unexpected shortfall in demand, price hikes in iron (38% of COGS) and steel (20%) pose risk to DBS Vickers’ earnings forecast. As of now, the company is raising average selling prices to help combat higher costs.

Related story: BRIGHT WORLD, TECHCOMP: What The Edge S'pore Reported



CIMB-GK maintains ‘Outperform’ rating on Midas, TP S$1.07

Analyst: Leong Weihao

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Midas owns 32.5% in Nanjing SR Puzhen Rail Transport, which manufactures metro trains, bogies and related parts. Photo from company.

Following Feb’s sell-down in Midas by 10% to 20% over the corruption scandal involving China’s former Railway Minister, CIMB-GK has maintained its ‘Outperform’ rating.

Midas is a leading manufacturer of aluminum alloy extrusion products and polyethylene pipes, and its products are mainly used in the transportation and infrastructure sectors in China.

State officials have been giving the assurance that China would continue to develop its high-speed rail network in the mid- to long term: the draft of China's 12th Five-Year Plan released in Mar outlines the construction of 21,750 miles of high-speed rail.

China plans to connect every city with a population greater than 500,000. There are also plans to improve subway and light rail facilities in cities that already have urban transit systems, building new systems in at least nine other cities, and making plans for six or more cities.

CIMB-GK sees limited downside risks for Midas and maintains its earnings estimates and target price of S$1.07, based on 13x CY12 P/E, in line with peers. This translates to upside of 33% based on its recent price of 80.5 cents.

Train contract wins for international and China projects are also re-rating catalysts.




JP Morgan maintains ‘Overweight’ rating on China Minzhong Food, TP S$2

Analysts: Chan Ying-jian and Ebru Sener Kurumlu

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JP Morgan maintained its ‘Overweight’ rating on China Minzhong Food following its announcement to lease another 15,200mu of farmland.

Its price target is S$2, is based on DCF using a WACC of 13.5% and long-term growth rate of 2%.

A PRC vegetable processor integrated with farmlands in various provinces, China Minzhong also announced it was constructing a new processing factory in Putian, Fujian for Rmb50.5 million.

JP Morgan views the new land leases as a strong reflection of good execution as well as ability to source for and lock in new farmland leases in order to implement planting plans and growth strategies.

The analysts expect China Minzhong Food's upcoming 3QFY11 results to be strong due to the pushing back of key product – champignon mushrooms sale into the quarter due to the late arrival of winter in 2010.

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