CIMB-GK maintains 'outperform' rating on AUSGROUP
Analyst: Lim Siew Khee:
Results below expectations; but maintain Outperform. 1Q10 net profit of A$1.7m (-70% yoy) was 50% below our expectation and 60% below consensus due to weaker-than-expected order-book recognition. We lower our earnings estimates by 10-37% for FY10-12 to incorporate lower order-win assumptions.
Accordingly, our target price drops from S$1.08 to S$0.96, still based on 13x CY11 P/E, its average since listing. Nevertheless, we retain our Outperform rating as we expect margin expansion and an acceleration in order wins from LNG and mineral projects in Australia by mid-2010.
• Revenue below expectations. 1Q10 revenue of A$74m (-43% yoy) was below our expected A$82m due to a slower-ramp up of projects and order-book recognition mainly from the mineral resource sector.
• Improved gross margins. 1Q10 gross margins of 14% improved 9% pts yoy thanks to productivity gains. We see the potential for further margin expansion if more high-margin contracts from the oil & gas sector are executed.
• Order book of A$350m; A$60m secured YTD. The order wins were below our expected A$150m. Ausgroup had bid for A$600m worth of projects in 1Q10 and plans to submit another A$700m-1.1bn by end-FY10 for projects in the oil & gas and mineral resource sectors. We have lowered our order-win assumptions for FY10 to A$400m (from A$540m) and A$500m for FY11 (from A$540m). We expect a pickup from 2H10 from a recovery in Australia’s mineral resource sector as projects are revived.
• Positive sector outlook. We continue to see Ausgroup as a key beneficiary of a surge in capex in the Australian LNG sector. Ausgroup recently secured a A$30m contract from the Pluto LNG project and is bidding for A$1bn of fabrication work for the Gorgon project. We see positive newsflow in the LNG sector providing stock catalysts.
DBS Vickers downgrades CHINA HONGXING to ‘hold’
Analysts – Patrick Xu and Paul Yong:
3Q09 earnings down 78% y-o-y, with revenue dropping 29% y-o-y. The decrease in revenue was attributed to continued product discounts to distributors to help them digest inventory. The Group’s distribution network expanded slightly to 3,896 POS, and sales per store fell 32% y-o-y in 3Q09.
Margins compressed. Gross margin further decreased 1ppt q-o-q to 35% in 3Q09, whilst operating margin plunged significantly from 11% in 2Q09 to 6% in 3Q09, mainly due to the scaled up advertising and promotional activities as well as RMB15m forex loss in 3Q09.
Balance Sheet remained strong, supported by robust cash flow. Net cash per share further increased to S$0.22, fueled by on-schedule collection of receivables from distributors.
Earnings estimates cut by 23-24% through FY09 to FY11, by assuming lower revenue growth rates, lower gross margins, and higher A&P expense as % of revenue.
Downgrade to HOLD, because of its poor earnings prospects going forward. Target Price cut to S$0.22, based on net cash per share as of end Sep 2009.
Dividend likely to be restored. The board has not given explicit guidance on dividend payout, but as shared by management, dividend payout would probably be brought back to a comparable level as previous years.
Average payout between 2006 and 2008 was 14%. We are expecting RMB0.01 per share final dividend for 2009, or 30% payout for the full year (2009 interim dividend was RMB0.01 per share).