ZIWO, SERIAL SYSTEM: What analysts now say...

Excerpts from latest analyst reports…


CIMB upgrades Ziwo from ‘hold’ to ‘buy’ with 35-cent target price

Analyst: Leong Weihao

Upgraded to BUY (from HOLD); target price of S$0.35 unchanged. Ziwo’s 2Q10 net profit of Rmb32.4m (+12.2% yoy) was in line with our expectation, forming 30% of our FY10 forecast. 1H10 net profit of Rmb51.9m (+0% yoy) represents 48% of our full year estimate.

• We have upgraded the stock to a BUY (previously HOLD) rating, as we believe that prospects have improved, as seen from its 2Q results.

The stock trades at a mere 3x CY11 P/E, which in our view is unjustified, considering the improvement seen in 2Q and the expectations of a better showing in 2H10.

Moreover, nearly half (47%) of its market capitalization is backed by its net cash per share of 12.2 scts (no gearing). No change to our EPS estimates, while our target price remains at S$0.35, still pegged at 4x CY11 P/E.

• After a less than convincing 1Q10 performance, 2Q10 result calmed nerves with a positive showing that lifted 1H10 profits on par with 1H09 levels.

The positive in our view, came from the expansion of both output volumes and ASPs on a yoy basis. With a positive outlook for demand in 2H10 coupled with the gradual ramp up of production capacity, we believe that 2H10 could better the first half’s showing.

• Positive about 2H10. With the expanding market demand for Ziwo’s products coupled with its gradual ramp up of additional production capacity, we believe that the Group’s performance in 2H10 could better the first half’s showing. Moving forward, the Group will continue to focus on its strategy of developing its proprietary technology and know-how to develop new products and to improve its production process to enhance product quality and reduce production costs.

• Stabilising margins a key challenge. After the sharp rise in key raw material prices in 1Q10 against 1Q09 prices (when raw material prices were rock bottom), raw material prices have showed signs of stabilising in 2Q10.

We continue to expect raw material prices to remain volatile as competition for raw materials may further raisecurrent price levels. Nevertheless, we see indications that Ziwo has been able to gradually pass on the burden of higher raw material costs to its customers. We believe that it could continue to do so in the second half of the year, hence elevating some pressure on its margins.


Recent story: ZIWO HOLDINGS: Bullet-proof business in bullet-proof vests?

 

Derek Goh, chairman & CEO, Serial System, speaking to analysts. Photo: Cheng Siew Hooi

Analyst: William Tng

Second half should be exciting still

• Maintain BUY. Target price raised to S$0.175 still based on 20% discount to sector CY11 average P/E of 9.7x.