Excerpts from CIMB's report
Our small-cap top picks are: Auric Pacific, Best World, CEI, Cityneon, Dutech, Mermaid Maritime, Sunningdale and Valuetronics.
Auric Pacific (Add, TP S$1.96)
• We like the leading positions of Auric’s house brands, including Sunshine bread, SCS butter, and Buttercup margarita, in the Singapore and Malaysia markets.
• We expect Auric’s profitability to return into positive territory in FY16, and to expand further in FY17, driven by 1) closure/disposal of its loss-making food retail outlets, and 2) continued growth of its bread and butter business.
• Auric currently trades at FY16F/17F core P/E of 7.7x/7.3x (3.5x/3.2x if ex-net-cash), vs its bakery peers’ average of 17.1x/13.8x, or general F&B players’ 26.9x/23.3x. FY16F/17F ex-cash P/E.
|Best World (Add, TP S$2.21)
This is below peers’ 16x and its historical peak band of 15-18x during its last earnings upcycle. • The stock’s valuations are undemanding at just 10x forward P/E.
• FY17 is poised to be another record year as Best World converts its distribution in China to its core direct selling model. This is set to propel the group to a new level of profitability. Also, sales growth momentum in Taiwan remains strong on the back of increased product acceptance. The stock offers a 3% yield.
• Risks include regulatory changes or poor execution in China.
CEI Limited (Add, TP S$1.04)
• CEI trades at 7.4x/6.8x FY17F/FY18F P/E. Earnings growth is expected to pick up in FY17F and FY18F due to rising contributions from medtech and life science customers.
• Its balance sheet is net cash and the company has also been a good dividend paymaster. Dividend yields are projected to be 10.9-11.8% over FY17F-FY18F. The stronger US$ versus ASEAN currencies will also be a boon.
• Short-term catalyst will be dividend announcement in 1Q17 when full-year results are announced.
|Cityneon (Add, TP S$1.41)
• FY16 was only the start of a multi-year earnings growth for Cityneon, having secured and developed the licensing rights for Avengers S.T.A.T.I.O.N and Transformers, in the form of permanent installations at Las Vegas and travelling sets around the world.
• Our current Add call and TP of S$1.41 is premised on 15x FY18 P/E (10% discount to peers’ average) and 33-115% EPS growth in FY17-18F.
• We believe the catalysts of more travelling sets and the potential acquisition of more IPs could materialise in 1H17.
Dutech Holdings (Add, TP S$0.65)
• We like Dutech for its leadership position in the niche safe manufacturing sector. Dutech assumes c.20-25% share of the global ATM safe market.
• Three positive business developments driving Dutech’s growth in FY17-18F are: 1) potential new contract wins from existing customers, 2) the manufacturing contract for a new transmission product from a leading automotive player, and 3) the recently completed acquisition of METRIC.
• Dutech currently trades at an FY16F/17F core P/E of 7.9x/6.8x vs. peers/downstream players’ average of 17.3x/14.4x.
|Mermaid Maritime (Add, TP S$0.17)
• The TP is based on 0.5x on FY17 P/BV. Our c.17% discount to 1.s.d levels below mean of 0.58x is largely due to the key downside risk of the non-renewal of AOD III’s contract
• We are positive on company as it boasts a stable balance sheet with minimal gearing (0.02x in 9MFY16) and is churning positive operating cash flows even at low levels of vessel utilisation.
• The stock is trading at trough valuations of 0.36x FY16F P/BV (5-year mean: 0.8x), despite having minimal default risks.
• Best time to enter the stock: Post Dec 16, once MMT has greater clarity on the AOD III.
• Our TP would be S$0.20/share if we re-rated the stock to -1 s.d. levels.
Sunningdale Tech (Add, TP S$1.51)
• Sunningdale Tech trades at 8.9x/8.5x FY17F/FY18F P/E. Earnings growth is muted at 4.6%/5.2% with low ROEs of 6.8%.
• Over the years, despite the challenging industry conditions, Sunningdale has managed to stay profitable and has been rewarding shareholders with dividends.
• We believe the company will continue to improve its cost efficiency and capitalise on its global manufacturing footprint. Trading at just 2.4x/1.9x FY17F/FY18F EV/EBITDA, it could also be of interest to private equity funds.
|Valuetronics (Add, TP S$0.60)
• We think Valuetronics deserves to trade above its current valuation of 7.4x CY18 P/E (ex-cash P/E of 2.9x only), given its sustainable earnings growth of 6- 13% for FY3/17-19F, and cash-generative business.
• Its penetration into the automotive sector and increasing exposure to Internet of Things (IoT) have not been fully priced in, in our view. The stock also offers 6.9% dividend yield.
• Continued order wins and higher-than-expected dividends payout could catalyse the stock; key risk is unexpected order delays or cancellations.
Full CIMB report here.