Excerpts from latest analyst reports
JP Morgan stays overweight on Wilmar (price target $4.20)
Analysts: Ying-Jian Chan, CFA and Simone Yeoh
China Agri (606.HK) announced that its 2H12 net profit is expected to be comparable to that of 2H11. This implies a net profit of c.HK$765 million which translates to a substantial c.50% H/H increase from 1H12. This is driven by a strong recovery in oilseeds processing margin in 2H12 which is in line with our view for the sector.
We believe both Wilmar and China Agri share prices will react positively on this news. However, we see more upside to consensus earnings estimates for Wilmar given the more conservative oilseeds margin assumption imputed by the Street. Our US$15/MT oilseeds & grains margin assumption for FY13E may still have upside. EveryUS$10/MT increase translates to 11% increase to Wilmar EPS.
Our Dec-2013 PT implies 15.5x/14x FY13E/FY14E P/E. Key downside risks: (1) losses from palm oil and/or oilseeds arising from wrong directional trades; (2) margin compression from competition. Key upside risks: (1) correction in soybean price providing relief to crush margin; (2) ability to increase cooking oil price to pass on cost increase to consumers.
OSK-DMG initiates coverage of King Wan with 40-c target
Analyst: Lee Yue Jer
We initiate coverage with a Buy rating and TP of S$0.40. King Wan (KWAN) is Singapore’s leading Mechanical & Electrical (M&E) services provider for the construction industry, and also operates the country’s largest fleet of mobile lavatories.
KWAN’s investment in two Thai associates for S$12.3m were sold last year for S$50m, and we expect this sum to be distributed over the next 10 years, doubling the dividend and raising the yield to 11%.
The Thai associates were sold to Kaset Thai Industry Sugar (KTIS) for 5% in cash and 95% in shares of KTIS (equivalent to an estimated 3% of KTIS), which is headed for IPO within five months. Being the third-largest sugar miller in Thailand, and the largest listed one, we expect the IPO to perform well, which provides upside to the value of the Thai Associates.
KWAN has no moratorium on the sale of its KTIS shares and thus enjoys full flexibility on the timing of the sale. From another angle – if KWAN sells its KTIS shares immediately on IPO, its net cash balance would be 74% of its entire market cap.
Very strong balance sheet prompting increasing core dividends. KWAN’s balance sheet is solid with a net cash of $21.5m (23% of the market cap). As the core businesses no longer require much capital expenditure, KWAN has been aggressively returning cash to shareholders – dividends grew by at a CAGR of 82% over the last five years. At the current 1.5¢ dividend, KWAN still has four years of dividends in its net cash balance.
Valuation: TP $0.40 based on 7.5% yield. DDM/DCF values of $0.40/$0.44. We value KWAN at $0.40 based on a dividend yield of 7.5%. This valuation ties in very closely with our DDM and DCF values, which are $0.40 and $0.44 respectively, and they incorporate some very conservative assumptions. In this yield-hungry environment, high-yield instruments like REITs have been compressed to a 5.9% average yield. We believe that early movers into this stock can enjoy both capital gains (+48%) from yield compression and a very attractive sustainable dividend (+11%) for a total return of 59%.
Recent story: Special Dividend To Come From High Yield Stock KING WAN?