The following is a posting by Kevin Scully, executive chairman of NRA Capital, on his blog this morning, and is reproduced here with permission.

Sinomem (52 cents) delivers strong set of Q1-2010 results with net profit higher by 39% to S$6.86mn......stock remains under-valued and mispriced


Sinomem's Q1-2010 results continued to show strong improvement with revenue higher by 55% to S$32.44mn.  Net profit after MI was S$6.86mn up 39% with EPS of S$ 1.37 cents and NTA of S$ 51.66 cents. 

Key highlights in the results:

a) both water treatment and downstream engineering rose to S$5.3mn and S$4.9mn respectively and are now one third of total revenue

b) membrane process and engineerng revenue rose 41% to S$22.8mn

c) interest expense declined 86% to S$0.1mn from the full repayment of the convertible bond
Dr Lan Weiguang, founder and MD, Sinomem. Photo: annual report

d) Sinomem has gross cash of S$45.1mn and net cash of S$23mn or about 4.6 cents per share

Sinomem is comfortably on track to meet my full year forecasts (see my Stock Picks section for the number) and could even exceed it.  Sinomem is significantly undervalued at current levels and is probably being grouped together with other "S Chips" and thus rated at a large discount to its sector and the Singapore market.  

Investors should take note of the following:

a) it's not an "S Chip" any more.  Dr Lan is a Singapore citizen

b its balance sheet is cleaned up with the full redemption of its Convertible bond and it still has net cash of more than S$22mn after that.

c) Its water treatment revenue is now about 30% and set to grow

d) there is no contribution yet from its Beijing municipal water project which it announced late last year.

e) the group contribution from its water treatment income should allow it to trade at a higher PER multiple - similar to Hyflux which is a hybrid bond and PER valuation.  The PERs charts of Sinomen and Hyflux show the potential.

f) the share is only trading at its NAV of S$ 51.7 cents.


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