Excerpts from latest analyst’s reports…
CIMB-GK initiates coverage of Avi-Tech Electronics (20-c) with 30-c target
Analyst: Tan Siew Ling
Initiate with BUY on improving prospects. We initiate coverage of Avi-Tech (http://www.avi-tech.com.sg) with a BUY recommendation and target price of S$0.30, offering 50% upside potential. Our target price is based on 1.5x CY10 P/BV, in line with the valuations of semiconductor-related stocks during the previous semiconductor upcycle.
To ride the recovery in semiconductor cycle. Avi-Tech provides services and products to the semiconductor industry. After a difficult FY08 and FY09, we expect its earnings to bottom in FY10 and recover in FY11 on the back of a recovery in the semiconductor industry.
The global semiconductor and semiconductor equipment industries are expected to grow 26% and 76% yoy in 2010, respectively.
Expanding non-semiconductor business to smoothen earnings. To reduce its heavy dependence on the highly cyclical semiconductor industry, Avi-Tech is hoping to expand its business into the life science industry, harnessing its existing expertise.
Undemanding valuations with strong balance sheet and good cash flows. Avi-Tech’s net cash per share of S$0.13 as at end-Dec 09 represents 65% of its current market cap.
Ex-cash, Avi-Tech only trades at about 3x CY11 P/E. This compares favourably with other semiconductor-related companies in the region. We believe it will continue to build up its cash hoard despite decent dividend payments given its limited capex spending in the near term, excluding any major M&As. Avi-Tech has been consistently paying dividends consistently since its listing in 2007.
DBS Vickers says China Animal Healthcare’s HK dual-listing to warrant higher valuation
Analyst: Patrick Xu
Green light for HFM production expected in mid May. Officials from the Ministry of Agriculture of China are finalizing the checks of production facilities and trial production. The company is expecting to commence production of HFM vaccines in mid 2010, in time for Aug bidding season.
Production of blue-ear vaccines already commenced in 1Q10. The company started production of blue-ear vaccines early 2010 and has participated in the Feb bidding season. We understand from the management that blue-ear vaccines have received good acceptance from provincial veterinary stations. We expect blue-ear vaccines to meet our revenue target of RMB150m for FY10.
Dual-listing in HK for higher valuation. The company has announced that it is seeking dual listing on SEHK, with public offering of new shares. If successful, the HK listing will give a higher valuation peg with smaller discounts to its key peers listed in China.
Maintain Buy, TP raised to S$0.40, P/E pegged to 15x FY10 P/E, as we expect the company to issue new shares on SEHK, closer to the 15x-18x FY10 P/E range, in line with the HSCI Index P/E. Key risk to earnings would be failure or further deferment in obtaining approvals for the HFM vaccine products.
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