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Old Chang Kee Ltd.

Puffing up capacity and margins


 Inorganic and organic growth through new stores and higher same store sales.  Integrated factory to widen range of product offerings and improve margins.

 Completion of factory redevelopment targeted for 1QFY18F, with tapering of CapEx thereafter.

 Improved free cash flow profile post-consolidation could lead to higher dividends.

 Initiate with “Buy” rating and SGD0.98 TP, implying a 42% upside.


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Singapore Post Ltd

Doing the dirty work now for future volumes

■ 2QFY17 core net profit of S$27.1m was below expectations as investments kicked in before volume growth. 1H formed 41%/40% of our/consensus full-year forecasts.

■ We expect an improvement in 3Q during the peak shopping season, which should bring some margin relief amid higher volumes.

■ New dividend policy will be based on 60-80% payout ratio vs. fixed DPS of 7 Scts previously. We think this is more sustainable amid investments in its network.

■ Maintain Add. We tweak our FY17-19F EPS for lower revenue and higher expenses, but our DCF-based target price stays at S$1.76 (7% WACC).

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Venture Corp: Scaling new heights

Venture Corporation Ltd’s (VMS) 3Q16 revenue grew 1.8% YoY to S$705.7m, mainly driven by the Test & Measurement/Medical & Life Science/Others (TMO) segment. As 3Q16 operating expenses increased at a slower pace of 0.7%, VMS’ profit before tax (PBT) and PATMI jumped 18.0% and 16.9% to S$56.7m and S$47.4m, respectively. 3Q16 PBT and net margins saw solid YoY improvement of 1.1ppt and 0.8ppt to 8.0% and 6.9%, respectively.

Looking ahead, we expect VMS’ steady growth momentum to remain steady, driven by its sustainable strategy of creating value for customers, as it continues to

1) invest in its research and development (R&D) capabilities, and 2) put in efforts to drive productivity improvements.

With a solid set of 9M16 results, and expected improvement in margins ahead, we increase our FY16/17F PATMI by 2.8%/6.8%, respectively. As we rollforward to 15x FY17F PER, we reiterate BUY on VMS, as our FV increases from S$9.35 to S$10.36.



Singapore Airlines (SIA SP)

2QFY17 Analyst Briefing Takeaways: Cloudy Skies Ahead

SIA has S$17b of capex commitments over the next four years. This will mandate debt funding or increased sale-and-leasebacks, given the tight widebodied aircraft resale market. We estimate that OCF will fund less than 50% of capex over the next three years and we expect SIA to go from net cash into net debt position. Although we expect profitability to improve in 2HFY17 on the back of lower fuel hedging losses, we do not envisage a near-term re-rating catalyst. Maintain HOLD. Target price: S$10.10. Suggested entry price: S$9.50.


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Best World International (BEST SP)

China outperformed; direct selling licence approved

Results beat; strong momentum in 4Q; Raise EPS/TP

3Q16 earnings grew 121% YoY and beat our expectation by c.10%; core earnings for 9M16 met 79% of our FY16E. China outperformed, where revenue grew 309% YoY. Taiwan, the largest market, was in line, and revenue grew 67% YoY. We expect the growth momentum to continue, as BEST enters into the seasonally strongest quarter in 4Q, where its anniversary promotions take place. We raise FY16-18E EPS by 2-4% after increasing our China sales assumptions. Maintain BUY and raise TP 2% to SGD2.16 from SGD2.11 (the previous TP of SGD2.63 adjusted for 1-for-4 bonus shares issued). Our TP is still pegged to 16x FY17E EPS, on par with peers’ average. BEST is trading at a 26%/31% discount to the average of peers’ FY16E/17E P/E despite having the second highest growth profile.

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LionelLim8.16Check out our compilation of Target Prices

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