Excerpts from analysts' reports...
Hafary rides on Singapore’s increasing housing units
Analyst: Loke Chunying, UOBKH
As Singapore’s leading tile supplier, Hafary Holdings is a major beneficiary of its increasing housing demand. It was a key tile supplier to the HDB BTO programme in FY2013.
It has a market share of about 50% of the general segment (eg interior design firms, walk-in customers) and 15% of the project segment (eg HDB, developers). Revenue from the general and project segments saw an impressive CAGR of 21.5% and 38.1%, respectively, from FY2007 to FY2013.
As resale flat owners renovate their new homes, Hafary's market will also grow.
Earnings boost from new rental income source
Hafary recently relocated to its new HQ at 105 Eunos Ave 3. We expect Hafary to generate additional annual rental income of about S$800,000 (14.0% of Hafary’s FY13 core earnings).
New HQ worth more than double its book value
Hafary’s newly completed HQ is strategically located near the future Paya Lebar Commercial Hub, and is a 10-minute walk from Paya Lebar MRT Station. With the impending TOP of Paya Lebar Square by 2Q14, the fair value of the new HQ is currently worth about S$50 million (or S$28.5 million or 6.6 cts/share in excess of book value).
Cost savings from streamlined operations
Its new warehouse facility at Changi North is also expected to result in huge cost savings. In the past, delivery trucks had to stop at three different warehouses to pick up tiles. With the larger warehouse facility, Hafary is now housing all its tiles in a single location, (eg. retail segment tiles at Changi, project segment tiles at Defu) allowing the company to enjoy huge cost savings from reduced manpower and transport costs.
Possible gain on disposal of HCCM
Hafary recently took a full impairment of S$4m on its investment in associate, HCCM. No further loss is expected from HCCM going forward. While management is optimistic that operations will gradually stablise, they are also open to cashing out of HCCM if a good opportunity arises. As the investment has been fully impaired, any proceeds from the possible sale will be recognised as a gain on disposal for Hafary.
Maintain "BUY" call and target price of 33 cents.
Related story: HAFARY: Riding On Building Boom Over The Next Few Years
OCBC Investment Research upgrades Dyna-Mac to ‘Buy’
Analysts: Andy Wong and Low Pei Han, CFA
Dyna-Mac Holdings looks set for a busy year ahead in 2014, buoyed by improving prospects in the Floating, Production, Storage and Offloading (FPSO) market and a robust net order book of S$346 million (as at 13 Nov 2013), thanks to year-to-date order wins of about S$320 million.
If it clinches the six to seven FPSO projects it is currently pursuing, order wins can amount to between S$280 million to S$350 million, according to our estimates.
Positive developments for major customers
Bumi Armada Berhad (BAB), one of Dyna-Mac’s top three customers, was recently awarded a Letter of Intent from EnQuest for the Kraken FPSO project. Upon confirmation of this contract, BAB will award the FPSO conversion project to Keppel Corp and the topside modules fabrication orders to Dyna-Mac.
Another of Dyna-Mac’s major customer, SBM Offshore, nailed US$7.5 billion of orders in 1H2013, driven largely by two FPSO awards from Petrobras in March. Dyna-Mac will supply topside modules to these projects. SBM Offshore also sees strong demand for FPSOs and associated products in the medium term with an encouraging pipeline of projects.
Maintaining our target price earnings ratio (PER) peg of 16x (approximately 0.25 standard deviation below its historical average forward PER to account for possible delays in global FPSO tenders) and rolling forward our valuations to FY14F EPS, our fair value estimate is raised from S$0.44 to S$0.47.
Coupled with a prospective FY2013F dividend yield of 5%, we upgrade Dyna-Mac from "HOLD" to "BUY".