Kevin Scully, executive chairman of NRA Capital, wrote the following article in his blog yesterday. It is reproduced here with permission.

was added to my Stock Picks in early June 2009 when the share was S$0.20. 

The 2009 results came in better than expected slightly exceeding the high end of my forecast which was S$20-23mn for FY2009.

Full year net profit is S$23.02mn compared to a loss of S$4.08mn in 2008.  At Q3-2009, Sinomem had reported nine net profit of S$15.8mn with Q3-2009 net profit being S$5mn - signalling that Q4-2009 was the best quarter for the year. 

During 2009, Sinomem placed out 50mn new shares at S$0.62 and raised its cash position to more than S$85mn.  This money has been used to retire its CB of S$54mn.

Key highlights of the results:

Revenue - up 22% to S$130.2mn

Net profit - S$23.02mn compared to a loss of S$4.08mn in 2008

EPS (2009) - S$4.6 cents

PER at S$0.50 - 10.9NTA - higher to S$0.506 1 from S$0.454

Final dividend - 1 cent compared to nil in 2008. 2009 dividend yield at S$0.50 - 2%

Gearing ratio - 5.2% from 23.2% (Sinomem is now is a net cash position of S$15.2mn)

An excellent set of results which show a strong sequential recovery in profit throughout 2009.  The CB issue has been resolved and fully paid using existing cash and proceeds from the share placement. 

The shares continue to be undervalued compared to its peer group, its own historical PER range (see PE chart below) and also do not reflect any benefit from the change in its earnings profile from its Beijing Municipal water contract announced in Q3-2009. 

I still like the stock which despite rising more than 100% since my initial recommendation, still offers significant upside and remains in my Stock Pick list.  More on this can be found in my Stock Pick section.

Sinomem shares no longer over-bought following recent consolidation.

PER chart below shows that it normally trades in the mid teens PER compared to single digit for 2010 based on my forecasts (see chart below). That jump in PER to more than 100 was because of the small profit/loss in 2008.


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