Happy Vesak Day

Here's wishing all buddhist readers a very Happy Vesak Day!

Corporate Actions.

Recently, a lot of the SGX listed companies have announced a lot of corporate action - acquisitions, takeovers, joint ventures, etc. This is another indication that these companies are clearly very bullish about the long term prospects of the economy.

Note: This is not to say that a short term market correction will not take place.

These are some of the more noteworthy corporate actions taking place for the stocks on my watchlist:

China Powerplus: 12 April 2007
In discussions with private equity investors and industry peers over the possible investment/sale of shares in the capital of the company.

Eastern Holdings: May 2007
Has been aggressively purchasing properties, namely: (1) 110/111 Amoy Street for $4.7m, (2) 39 MacTaggart Road for $5m, (3) 12/14 Hoy Fatt Road for $6.2m. It also sold 87/88 Amoy Street for $14m.

Rowsley: 2 May 2007
Proposed an acquisition of the entire share capital of Perfect Field Investment Inc, a developer and manufacturer of solar energy products, for SGD$2.7 billion.

Timewatch: 3 May 2007
Acquired the Zijingshan Department Store Building in Zhengzhou City, Henan Province, PRC for RMB$96m (or SGD$18.8m). The acquisition will create a new earnings channel of rental income for Timewatch.

SIA Airlines: 22 May 2007
In advanced stages of a potential strategic investment - rumoured to be an approx. 25% stake in Shanghai-based China Eastern Airlines. (Disclaimer: this is unconfirmed)

China Energy: 24 May 2007
It intends to increase its DME production capacity to 2.6 million mtpa (metric tons per annum) by end 2008, up from the current 150,000 mtpa. It also intends to development new production capacity in Ningbo and Tianjin to raises its total DME production capacity to 3.2 million mtpa by end 2009.

Indofood Agri Resources: 26 May 2007
Proposed aquisition of 36.6% stake in PT Perusahaan Perkebunan London Sumatra Indonesia TBK, a major Indonesian palm oil producer. In return, Indofood will placed out approx. 98m new shares at $1.2758 to TBK.

Pan United Marine: 28 May 2007
Dubai Drydocks World LLC is offering $2.38 per share to take over the company.
Olam International: 28 May 2007
Announced an offer of up to A$5.90 per share or A$166.5m to take over Queensland Cotton.

WingTai: 28 May 2007
Entered into s strategic partnership with three international investors - (1) SEB Immobilien-Investment GmbH from Germany, (2) Forum Partners from U.S., (3) Eilam Group Ltd from Isreal - to invest US$1 billion in China through real estate investment or development.

Xpress: 29 May 2007
Signed an MOU with Shenzhen Securities Information Co Ltd for a six year collaboration to publish and launch the yearbooks providing investors with comprehensive information on all PRC-listed companies.

- Update -

First REIT:
22 January 2007: Acquires two Pacific Healthcare nursing homes at 6 Lengkok Bahru and 21 Senja Road, and Adam Road Hospital at 19 Adam Road for a combined $38.2m.
1 June 2007: Proposed acquisition of a nursing home from Sphere Investment Pte Ltd at 51 Lentor Avenue for $12.8m.

Eastern 4QFY07 Results.

I first wrote about Eastern back in December 2006 here.

Since then:



Its share price has appreciated almost 100% from $0.225 to $0.425.

It has expanded its involvement in the property business, and have acquired the following properties to add to its existing:

- 110 / 111 Amoy Street purchased for $4.7m on April 2007.
- 39 MacTaggart Road purchased for $5m on April 2007.
- 12/14 Hoy Fatt Road purchased for $6.2m on May 2007.

It also recently sold its properties at 87 / 88 Amoy Street for $14m on May 2007.

Ever since I took a stake in Eastern, I've been eagerly anticipating its 4QFY07 results, and when it was finally released yesterday, well, let's just say that the wait was certainly worth it.

As expected, the recent property boom had greatly contributed to improving its results drastically:

It registered record gains in Revenue and profit, rising 140.98% and 120.48% respectively. Revenue from the sale and rental of its properties rose from $1.035m to $28.671m.

As such, its EPS also rose from $0.0294 to $0.0824, and its NAV rose from $0.1625 to $0.2049.

And as if that was not good enough, it also will pay a final dividend of 3cts (after tax). Including the interim dividend of 2cts (after tax) paid in December, its dividend yield for FY2007 will be $0.05 / $0.425 = 11.76%.

Based on current price, Eastern currently only trades at 5.2x PE.

No doubt, property prices have already risen quite a lot over the past 3 - 4 years, and a result the market is unsure of how much more prices can rise - this is reflected in the fact that most property stocks have posted record rises in their profits recently, yet their share prices have not risen as much accordingly.

However, based on these facts:

1) Its PE Ratio is low.
2) Its dividend yield is high.
3) Its earnings growth is strong.

Eastern definitely deserves to be placed on the Stock Alert. It will replace Allgreen since both stocks operate in the same industry.

I'm estimating its current price of $0.42 as 40% below Fair Value.

Oldman's Investment Strategies.

Regular readers of my blog would know that I subscribe to Shareinvestor in order to track my stock portfolio and various watchlists (see here). I also regularly read the shareinvestor forum for posts and views of the latest stock market ongoings.

Recently, I chanced upon something wonderful whilst browsing the shareinvestor forum - Dr. Michael Leong, the founder of shareinvestor, and one of the most respected investora locally, who goes by the nickname "oldman" on the forum, has recently added some links to the end of his every post (or perhaps they've always been there but I only noticed them recently!!).

Two of the links lead to Part 1 and Part 2 of his Investment Strategies, and I must say that his thoughts and views provide a unique and candid insight to how the mind of an extremely skilled and experienced investor works.

No doubt, his strategy may not work for everyone - it requires a lot of time and expertise. But I do believe everyone can benefit from just reading and learning from his experiences.

Unfortunately, Shareinvestor is a paid site so the links cannot be viewed for free. However, one can always sign up for the free one-month trial (Note: I have no affiliation with Shareinvestor and have nothing to gain from this) just to view the forum and those links.

I will not be able to post all the contents of the links here (partly in case of copyright infringement, partly because the contents are too long), but here's some of it just to give you an idea:

My investing strategy:

1. Preserve capital
2. Focus on only a few stocks
3. Identify a tipping point for each stock (eg building a MRT station next to its key property)
4. Buy slowly into any stock (as my timing is usually not good)
5. My investments are long term (This is money I can afford to leave under the pillow for years)
6. Low liquidity is OK (I am a collector and have no intentions of selling early)
7. Have an exit price for each stock (but be prepared to sell when prospects are not as rosy or when the entire market is on a bearish megatrend)
8. Having cash in the bank is OK (if there is nothing that meets my criteria, I won't buy)
9. Have fun (invest for self fulfilment rather than making money)

Selection criteria for fundamental stocks (in order of preference):

1. NTA is at a significant discount to current market price. NTA to me is cash and Singapore properties. This gives a good margin of safety for the preservation of capital.
2. Potential to be a multi bagger (share price can double, triple, etc)
3. Strong cashflow with conservative accounting.
4. It is in a growth industry and has good competitive advantage. The business is scalable. It is not a professional type business.
5. Its products can command a premium. It has a brand name or a unique product. It is not a commodity.
6. It has strong recurring income.
7. Credible management (eg, no talking up stocks, false promises or creative accounting)

Dr. Michael Leong aka "oldman" also shares his views on these other subjects:

Financial Independence

Multi-baggers and margin of safety

Fundamental investing is about multi baggers

Demand & supply

Fishing and the stock market

When my stocks go down

Liquidity & the stock market

Margin of safety

Riding your fundamental stocks

Don't get too excited about high dividend yields

Accumulation and volume

Knowing the CEO

IPO stocks: Points to look out for

Margin of safety and a falling market

Are high dividend stocks low risk investments?

Are you a fundamental investor or a short term trader?

Putting all my eggs in only a few baskets

Riding the megatrends

Worry is good, but not excessive

Investing is a lonely occupation

Use margin wisely

Attributes of a successful investor

Fundamental investing vs trading

Investing: the career for life

Valuation of stocks

Information flow is not level

Buy on rumours, sell on news

Company issued warrants

Manic depressive nature of the stock market

Investing in IPO stocks

The market's mood swings

Controlling one's emotions in a falling market

Surviving a market downturn

Looking at megatrends rather than minitrends

Unit Trusts

Weak hands & Strong hands

Gut feel & Neural networks

Developing your own style of investing

Knowing both fundamentals & technicals

Companies I avoid investing in

Are high vol counters better than low volume counters?

Managing other people's money

Dressing down IPOs

20% returns should be achievable

Cutting loss or averaging down

My portfolio of fundamental stocks: Oct 06

My timing is usually not good

Having an investment strategy helps us overcome our emotions

Patience as a key virtue in investing

Use margin sparingly

Money makes money

Bank loans and margin accounts

Riding your stocks

Fear, fundamental investing and speculation

Investing for a Living

Exit Strategies

Ignition factors

Trading games are not the real thing

Minority shareholders & majority shareholders

A hill too far

A flight towards a higher margin of safety

Hedging using put warrants

Of shorting, liabilities and protection

Company buybacks

Students and the stock market

Investing & Entrepreneurs

Perceived wealth & True wealth

Starting off with just $1,000

Issuing of new shares

Stocks vs Property investments

Investing for a meaningful amount

Recommended investment books

The casino stock market

Types of Day Traders

Doing business in China

Flattening of the world

The irony of pageviews

The difference between private and listed companies

Potential conflicts between management and shareholders

The old internet model

Liking a business is different from investing in it

Great companies and fair companies

Substantial, controlling & minority shareholders

Don't put too much weightage on MOUs

Do you believe in win-win?

Smaller IPOs and the cost of listing

Courses on investment: beware

The sayings of Warren Buffett

Do you believe in profit guarantees?

Property investment vs stocks

Sales & leaseback agreements

Employee, Business owner & Investor

Being a remisier

Personal loans

Creative accounting

Coy buybacks & NTA

Revenues & margins

Share buybacks and allocation of excess capital

Bonus issues and stock splits

Of subsidiaries, associates and affiliates

NAV and NTA

Structured warrants, company warrants, time decay & volatility

Warrants, stock options and distortion to financials

The structured warrant game

Take my word for it - His views are a definite must-read!!

Hengxin 1QFY07 Results.

After Hengxin released its 1QFY07 results on 14 May 2007, its share price has been falling non-stop since, from $0.49 down some -20%+ to $0.42.

The most obvious reason has got to be the fact that its net profit fell -20.8%. Falling profits is never a good sign and it is always one of the first reasons behind a share price fall. However, if you examine its results more closely, the severity of the profit fall was largely attributed to increased taxation. As stated in it results:

Income Tax:

The company has no taxable income for the two financial years ended 31 December 2006. The statutory income tax applicable to the company for the year 2008 is 18%.

Take away the increased tax, and its profit would have only fallen -7.8%. Still not good, but not as bad as it seems initially.

The other factor affects its current price is insider selling. On 22 May 2007, it was announced that Mr. Qian Lirong had sold his entire 1.04% stake of 3.5m shares away. However, it was also revealed that Mr. Qian also holds another 68.839m shares or 20.49% stake via another company. In order to fully understand the impact of Mr. Qian's action, we have to look into the recent ongoings on Hengxin.

Back on 18 January 2007, it was announced four of its company directors were resigning (or were they forced out) because of boardroom squabbles. One of them was Mr. Qian Lirong, who was then its CEO.

As such, we cannot simply intepret his selling as a mere act of "lack of faith in the company's potential". It could be that he does not want to hold a direct stake in the company any longer since he is no longer involved in its day-to-day operations.

However, the impact of Mr. Qian's departure could potentially lead to potential further instability for Hengxin. According to its corporate information on its website:

Hengxin Technology was established in the PRC on 26 June 2003 with a registered capital of RMB60 million injected by our CEO, Qian Lirong together with our Non-Executive Directors, Cui Genxiang and Zhang Zhong, and 9 other individual shareholders. Upon contribution of the registered capital, Hengxin Technology was held as to approximately 10.0%, 48.2%, 15.0% by Qian Lirong, Cui Genxiang and Zhang Zhong, respectively and the remaining approximately 26.8% was held by the other 9 individual shareholders.

Prior to establishing Hengxin Technology, our CEO, Qian Lirong was the general manager of Hengtong Cable, a foreign investment enterprise. Before 1998, Hengtong Cable's principal business was in the manufacture and sale of indoor communications and data cables. Recognising the potential for coaxial cables and coupled with a personal vision to develop the coaxial cable business, Qian Lirong resigned from Hengtong Cable in 2003 to establish Hengxin Technology. Accordingly, Qian Lirong, initiated a buy-out of Hengtong Cable pursuant to which Hengtong Cable sold its land use rights, buildings, plant and machinery relating to the coaxial cable manufacturing business ("Operating Assets") to Hengxin Technology under an asset transfer agreement dated 21 July 2003. The purchase consideration for the asset transfer was approximately RMB72.2 million and was arrived at based on an independent valuation of the net tangible value of the Operating Assets.

Our history in the cable industry can therefore be traced to the origins of Hengtong Cable which dated back to 1996.

In 1998, anticipating a potential niche market for RF coaxial cables for mobile communications in the PRC, Qian Lirong (who was then general manager of Hengtong Cable) put forth the idea of developing RF coaxial cables for mobile communications to his then board of directors. In August 1998, Qian Lirong commenced market research and started a project to research and develop RF coaxial cables for mobile communications. In the first half of 1999, Hengtong Cable successfully commenced large-scale commercial production of RF coaxial cables for mobile communications by investing approximately US$9.7 million to import advanced production and testing equipment from Austria, the USA, England and Taiwan for the manufacture of coaxial cables.

In October 1999, RF coaxial cables for mobile communications produced by Hengtong Cable were successfully launched for the first time in a project managed by Jilin Mobile Communications Co., Ltd. （吉林移动通信有限公司）, a subsidiary of China Mobile. In December that year, RF coaxial cables for mobile communications attained the new product assessment and acceptance certification from the Ministry of Information Industry （中华人民共和国信息产业部）. Hengtong Cable was also recognised as an Advanced Technological Enterprise （高新技术企业） by the Science and Technology Committee of Jiangsu Province （江苏省科学技术委员会）.

Hengtong Cable also successfully developed and patented a type of leaky coaxial cable for use in wireless communication signal coverage in subways, highways, tunnels, underground car parks, elevators and high buildings. Such cables attained the new product assessment and acceptance certification from the Ministry of Information Industry （中华人民共和国信息产业部）.

Under the guidance of Qian Lirong, the coaxial cable business of Hengtong Cable continued to develop and expanded its range of products to include coaxial cables for cable television networks system and access network and high-frequency coaxial cables.

Obviously, Mr. Qian was very instrumental in guiding Hengxin to where it is today. Without him, the company may experience future instability and changes to its operations.

As such, even though Hengxin may appear to be cheap now (esp. since it has even fallen below its 200DMA) and I personally have vested interest, I'm intending to HOLD for now, instead of averaging in and buy more stock, not at least until the company begins to show signs of stability.

The 10 Commandments of Investing.

Original article by Andrew Beattie here.

1. Thou shalt set clear goals.

If you don't have a purpose or a set of goals to guide your investment strategy, don't invest. This sounds harsh, but there are so many types, styles and flavors of investing that, without a particular destination, you will be lost at sea.

2. Thou shalt put thy financial house in order.

To become a successful investor, you have to make sure that your personal finances are in order first. Investing without a purpose is bad, but investing when you have high-interest debt is much worse. If you are drowning in overdue bills and credit card payments that you can't meet, take care of those more serious problems first before getting too deep into investing.

3. Thou shalt question authority.

Investing is more about the art of asking and answering the right questions than it is about deciding when to buy and when to sell. CEOs, CFOs, CPAs, CFAs and all the other acronyms that we use to classify Wall Street's professional caste can't hide the fact that they are human, and that humans sometimes lie. Analysts get kickbacks, CEOs get stock options and recent accounting scandals, such as Arthur Anderson LLP's conduct regarding Enron, show that impartial accounting is not guaranteed.

To question authority, you will need to educate yourself, especially on the subject of financials. Press releases are flakes of snow that rain down on investors and melt away, but financials stick around. Although financials can be tampered with, there is always a trail left behind.

4. Thou shalt not follow sheep.

There is a lot of available information for such investors - much of which is true - but accepting it with an uncritical eye and neglecting to check it yourself is what leads to herding. This includes getting the latest and greatest stock tip from your Uncle George.

A person can effortlessly become one of the investors that the analysts shepherd into various "must-buy stocks" after they have become overpriced. This is how investors find themselves in the herd when skittish investors flee, causing the stock to plunge farther than it should have (whereupon a more astute investor buys a bargain off your loss).

When people buy cars, they try to find the best value for the lowest price; when people buy stocks, they only see the price and, ironically, gravitate toward rising prices. If you are going to invest, you have to check things for yourself in order to find the true value and get the bargains. This takes more time, and it could even cause you to miss out on early gains, but it will tell you when to stay out or when to sell well before the herd hears the bell.

5. Thou shalt be humble.

If you take the first four commandments to heart, there is a good chance that you will perform better than the majority of individual investors and many of the professionals. But sometimes, particularly during a bull market, gains are not dictated by investor actions as much as by having money in the market, so don't allow yourself to become overconfident. Overconfidence often leads to overtrading, taking unnecessary risk and eventual losses when the bull turns bear. Also remember that you incur commissions every time you trade - this expense can often erase profits or increase losses.

6. Thou shalt be patient.

Patience is a virtue for a good reason: It pays for itself. When the market dips, or even when a particular stock dips, there are always investors who panic and sell. Selling should be treated just as seriously as buying. If it is just a bump, ride it out. If it is truly a problem with the stock, take your time as well - you may find a way to use it in a gain-loss transaction that will save you taxes. By the time you hear it, bad news has already settled in - taking your time isn't going to make it much worse.

7. Thou shalt show moderation.

Investing too much is not a problem many people have, but it can happen. It is said that the pain of a loss has twice the emotional strength of the pleasure of a gain. For some people, this results in them pulling out of the market prematurely, as mentioned above.

For others, losing propels them into successively riskier ventures in an all-or-nothing attempt to win those losses back. Losses are hard to take, but look on the bright side: You can sell a loss to offset a gain in another sector or, if it is in a retirement account, you can use it as a tax write-off. Concentrating your money too much in one area, either by sector, risk level, or even keeping it all in the stock market, is a sure way to see more nothing than all in an all-or-nothing game.

8. Thou shalt not ogle thy investment.

There is nothing like a market correction or a general upswing to change perfectly normal investors into fanatics who have market updates text messaged to their cell phones every five minutes. As with fidelity, the axiom, "look, don't touch" is insufficient because the more you look, the more you want to mess around with your investments. It is not clear if it is a symptom or a cause, but this rabid over-monitoring almost always leads to unnecessary churning in sufferers' portfolios.

9. Thou shalt not court or spurn risk.

You should never put everything you have into futures, but you also shouldn't hold everything in Treasury bills. There is an appropriate level of risk for investors of every age and creed.

10. Thou shalt not make heros of mere men.

There are no perfect investors. Warren Buffett, George Soros and Peter Lynch have all slipped up from time to time. That doesn't stop them from being great investors who are worth studying and learning from. That said, you should never mimic an investing strategy that you do not fully understand.

There is too much guru-ism going on among investors - so much so that credentials are often lost beneath book titles in which the word "rich" is prominently featured. As with the early caution against trusting authority, you have to question everything. Even if a strategy works for a certain period of time, once it becomes widespread, it skews the system. For example, the publication of Lynch's tenbagger strategy has led to too many people searching for those stocks, leading prices to become inflated to adjust for the non-market driven demand. Skeptics survive on Wall Street much longer than believers.

Soup Restaurant IPO.

Closing date of application: 24 May 2007
Commencement of trading: 28 May 2007

Established in 1991, The Soup Restaurant group is a local restaurant operator owning 18 restaurants strategically located across Singapore. Their restaurant brands are:

Soup Restaurant (14 restaurants):
- Focuses on traditional, home-cooked dishes that originated from family recipes.
- Their signature dishes include “Samsui Ginger Chicken” and various traditional Chinese double-boiled herbal soups.

Kampong Days (1 restaurant):
- Serves a variety of home-cooked local dishes.

Dian Xiao Er (3 restaurants):
- Specialises in serving herbal roasted ducks.
- It was acquired through a 50.98% stake in Y.E.S. F&B Group in November 2006.

Financial figures

Intended IPO price: $0.21
No. of shares available for public offer: 1m
No. of shares available for placement offer: 25m
Total post invitation share capital: approx. 99.5m

Note: FY2006 figures were unavailable in the prospectus. The figures stated here are based on a hypothetical estimate of 20% earnings increase.

FY2005
Revenue: $20m
Profit: $1.4m
NAV: 0.0541
EPS: 0.0138
EPS % Incr: 60%
PE ratio: 15.2x
Price: 0.21

FY2006
Revenue: $22m
Profit: $1.6m
NAV: 0.0842 (incl. IPO proceeds)
EPS: 0.0166
EPS % Incr: 20% (Est.)
PE ratio: 12.6x
Price: 0.21

Dividend policy: No fixed policy.

Conclusion:

This write up is very short because there is not much to say really. Soup Restaurant’s business is very straight forward and uncomplicated, and quite frankly, I don't know why the the founders / owners even want or need to list this company at all.

A small cap company usually holds an IPO when and if it needs to raise additional capital for its expansion plans. But for Soup Restaurant, currently, there are no concrete plans to expand its business either locally or overseas. In fact, it has stated in the prospectus that:

“Its major growth driver will be the growth of Singapore as a tourist and business hub.”

If that is the only attraction, then based on that, there are better stocks to invest in earnings stability or growth potential – Breadtalk, FoodJunction, Lifebrandz, just to name a few.

Probability of getting allotted for the IPO – VERY LOW


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.

Stock Alert Update.

Ecowise rose a estimated whopping 50% this week to close at $0.415.

This puts its PE Ratio at 9.4x, which is quite close to Fair Value given that it is a small cap stock.

As such, I'll be removing it from the Stock Alert.



Sihuan also moved strongly upwards - rising 11% on extremely high volume of 34.8m shares on Friday alone to close at $0.745.

This puts its PE Ratio at 14x, which is still a discount to my Fair Value of $0.96 or 18x PE - hence Sihuan remains on the Stock Alert.

I also managed to dig up a research report on Sihuan dated 26 March 2007 by DMG, a Buy Call with a 12 month target of $1.23.

Sihuan Pharmaceutical provides an excellent exposure to the Chinese pharmaceutical sector, particularly the cardiocerebral vascular drug segment. Strong earnings growth is built on the foundation of Sihuan's popular cardiocerebral vascular medicines which are produced in-house and with proprietary and patented formulation. The regulatory environment in China has improved and favours "Sihuan-type" pharmaceutical companies with strong R & D and good manufacturing facilities.

1) Strong earnings growth.

We expect a strong 148% growth in 2006 net profit, a 43% rise in 2007 and a 30% rise in 2008. Growth will come from take off of new drugs introduced in recent years. Management is confident of introducing at least five new drugs a year in the next three years. Higher utilization of in-house production capacity will secure a
greater part of the value-add chain.

2) Ageing population.

An ageing population and change in lifestyle have contributed to higher incidences of cardiocerebral vascular diseases, which is Sihuan's specialty focus. Recent government's tightening on inferior drugs and sub-standard manufacturing facilities work in favour of Sihuan.


3) Strong and experienced management.

Management is led by former practicing neurologist and general surgeon, and its R&D team is guided by renowned academics. These factors gives credibility to the company.

We initiate coverage with a 12-month price target of $1.23. BUY.

Contel - cheap for sure....but is it good?

Contel was brought to my attention in a discussion on Sgfunds forum - it was first brought up by wyvern and then endorsed by sgfinancialservices....one must give credit when it's due, right?!

Background:

Contel was established in 2002, and from its production facilities in in Dongguan, PRC, it manufactures and sell a wide range of home and mobile digital entertainment products.

It derives the majority of its revenue from Europe (49%) and North America (44%), and counts amongst its worldwide key customers established global MNCs such as Polariod, Walmart, Carrefour, etc.

You can find out more about Contel from this briefing on its FY2006 full year results here.

Financials:

Current total share capital: 323.4m
Last traded price: $0.175

FY2006 results
Revenue: $217.2m
Profit: $15.3m
NAV: $0.2042
EPS: $0.0473

According to its results, Contel currently trades at only 3.7x PE and at about 10% discount to its NAV.

Strengths:

1) Its revenue and profits have been rising steadily at at least 20% growth for the past four years since its establishment.

In spite of that, its share price has been declining steadily since March 06.



2) It plans to expand its market share in the North America, Europe, Japan, and South America markets, and to diversify into new markets such as Eastern Europe, Russia, Middle East and South Africa.

3) Strong R&D team (see below).

4) It has declared that it expects FY2007 results to be better than FY2006.

Risks:

It operates in an industry that is highly competitive and volatile, with razor thin margins.

In order for any company to last the distance, it is important that the company possesses at least one product or service that is unique and irreplicable by its competitors, that will provide it with an economic moat. At present, Contel does not seem to have any moat at all.

To present the above idea in simple layman terms, just think: With even established electronics brands like Samsung, Sony, etc become every more affordable for the mass consumer, what so special about Contel's products that will enable it to increase (or even just to maintain) its market share and earnings.

In fact, this could even be why Contel has not been paying any dividends at all despite positive earnings thus far - uncertainty about its future earnings.

But in all fairness, I am judging this based on the Singapore consumer market, and Singapore is by no means its major market at all. For all we know, Contel's products are exceptionally popular in Europe and North America for whatever reason. Frankly, I have no idea.

Conclusion:

Based on pure figures, Contel is usually the kind of stock that I would start buying up a lot of - undervalued and unnoticed - just my cup of tea.

However, I just cannot get over the fact that its a tech stock (well, not exactly, but close enough) and that its earnings could potentially be unstable as hell.

In fact, I ran a stock screen for SGX electronics stocks, and the majority of them are trading below NAV at the moment - this means that Mr. Market may not have mispriced this stock after all, and that it is priced as it is not because it is unnoticed, but because of its possible instability.

Nevertheless, none of those stocks are trading at as low as 3.7x PE as Contel. It definitely deserves to trade at least at 5-8x PE, which would derive a fair value of $0.24 - $0.38.

DBS Vickers Report:

I also ran a search on my email, and managed to find an old DBS Vickers report on Contel, dated 21 November 2006, when it was trading at $0.265, and the STI Index was at 2771.41.

The analyst placed a Buy Call, with a 12 month target price of $0.34.

Story:

We visited Contel’s manufacturing facility in Dongguan and its R&D hub in Shenzhen to view the production of new products such as Liquid Crystal Display (“LCD”) and Liquid Crystal on Silicon (“LCoS”) TV.

Point:

Revenue outlook remains positive in view of the growing demand for DVD players and HDTV related products. Contel is on track to expand production capacity to 5.4m per year by end of 2H06 on expectation of strong orderflow from customers. However, bottomline growth would be slower due to margin pressure.

Expansion on track:

Contel is on track to expand production capacity to 5.4m per year by end of FY06. Capacity would be doubled by 4Q07 when the new plant starts operations. Mainstream products to be
launched next year include LCD TV, LCoS TV, Voice Bible, HD DVD and Digital Photo Frame. Trial orders have been shipped for these products and volume orders are expected in 2007.

R&D push to keep up with short product cycle for consumer electronics:

Contel has a fairly big R&D team consisting more than 90 staff. With the appointment of an experienced CTO, Mr. Arai Masaru, who has been with Sony Corp for more than 30 years, Contel’s product development capability has been strengthened. In view of the falling ASP resulting from short product cycles for consumer electronics, Contel is working closely with customers in generating ideas.

Riding on growing world demand for Digital Media Players:

Outlook remains positive. Global demand for DVD players should continue to grow by a CAGR of 2.2% to reach 110m units by 2010. In addition, digital broadcasting in Europe and USA will fuel the growth for HDTV related products. Order book for 2H06 is about US$100m.

Maintain BUY and target price of S$0.34:

Margins would be pressured by falling ASP and higher than expected operating expenses as the group beefs up its technical and marketing teams. As such, we are cutting our FY06 and FY07 earning estimate by 11% and 6% respectively. We still like Contel for its product development
capability. Maintain Buy with a target price of S$0.34, pegged to 5x FY07 Diluted EPS.

After taking all the above factors into consideration, it is clear that Contel may be undervalued, but the very nature of its industry means that it could be easily squeezed out by the major electronics companies....yes, that means going bust and disappearing from the face of this earth...kaput...end of story....100% loss.

Another point to note beyond fundamentals, is that that despite the STI rising to record highs, Contel's price has actually gone in the opposite direction to record lows. I don't usually like to market time, but in all probability, Contel can only shoot up in price if the STI Index does so as well. This is especially important since Contel pays no dividends, hence one can only profit via capital gains.

I'm generally optimistic that the STI will have a good 2007 showing, but I just don't think that the STI will surge up to 4000 in the short term to allow Contel to price to surge upwards correspondingly.

Nevertheless, I still think that at this price, the potential rewards are attractive enough for us to consider taking on the risks. As such, I'm going to stick my neck out here:

I'm going to include Contel in my Stock Alert.

I'm estimating its current price of $0.18 as 40% below Fair Value.

Discliamers:

1) This stock is not for this risk adverse. Please invest in it only if you can accept the possibility of making a loss.

2) My record sucks for tech stocks.

Results Analyser.

This is the analysis from DBS Vickers of the results released by some notable companies over the past 2 - 3 days:

F & N: Surely and steadily
S$5.85 BUY Price Target : S$ 6.60 (Prev S$ 6.00)

FNN’s 2Q/1H results were above our expectations. Topline grew 23% to S$2.2bn while PBIT increased 37% to S$370m. 2H07 revenue growth aided by strong contributions from property development, dairies and breweries operations. PBIT growth was driven largely by development property arising from strong residential property sales, with better margins in Singapore. Profit was also aided by a one-off gain of S$25.4m from disposal of interest in development site by Frasers Property Limited (China) Ltd. With its strong performance, property now accounts for 34% and 57% of the Group’s 1H07 revenue and PBIT, up from 29% and 50% a year ago. The Group also declared a 1-tier tax exempt interim dividend of 5 Scts, to be paid on 15 Jun 07.

Gems TV Holdings: Needs more polishing
S$1.27 HOLD (Downgrade) Price Target : S$ 1.43 (Prev S$ 2.60)

3Q07 results were well below expectations. Earnings fell by 88% y-o-y to US$1.3m on revenue decline of 12% y-o-y to US$39.1m. Adjusting for additional days of revenue carried over into 3Q06, sales growth would have been 16% y-o-y. Nonetheless, this was still disappointing as we were expecting double-digit growth in the UK, which actually saw sales decline due to increased competition. This was helped by first-time recognition of revenue in the U.S. Gross margins dipped slightly due to increased outsourcing to meet demand but the Group was impacted by significantly
higher operating costs as it expanded in the US, Japan and to a lesser extent, China. Selling expenses rose by 142% y-o-y while administrative expenses tripled. This reflects the start-up costs for the Group’s overseas expansion, while revenues had to be deferred due to the Group’s return policy. For 9M07, excluding overseas expansion costs, profit would have been flat at US$21m compared to a reported net overall profit of US$8.4m.

Parkway Holdings: Hospital services the star performer
S$4.18 HOLD Price Target : S$ 4.31 (Prev S$ 3.28)

The bottomline is slightly above our expectation with net profit increase of 39% y-o-y to S$21.4m. The increase is mainly due to: A) the 26% increase in revenue to S$106m and 10% increase in EBITDA to S$26.1m from the three Singapore hospitals. B) The international hospitals did well but the y-o-y result is lower due to proportionate consolidation of Pantai Holdings. If the same proportionate consolidation basis had been adopted in Q106 for Pantai, the international Hospitals segment would have reported revenue growth rate of 25%. They have declared an interim dividend of 1.5cents per share for 1Q07 to be paid out on 8 June 2007.

Thai Beverage Public Co: A better outlook to come?
S$0.26HOLD Price Target : S$ 0.27

Thai Bev’s 1Q results were in line with our expectations. Net profit grew 13% on the back of an 11% growth in revenue. The increase was largely contributed by a 16% growth in beer/water sales and a 7% growth in spirits sales. Overall gross profit margin dipped 1.5ppt to 29.5% due to a larger contribution by beer/water, which enjoyed a lower margin vis-à-vis spirits. Gross margins for spirits also declined by about 3ppt to 35% due to the decline in white spirit sales which has a higher margin than brown spirit sales. Lower marketing expenses and interest cost (as the Group reduced its debt from its IPO proceeds) resulted in a 13% growth at the bottomline.

United Overseas Land: Valuations remain attractive
S$4.90 BUY Price Target : S$ 6.45 (Prev S$ 6.10)

Revenue grew 10% y-o-y to S$145.7m. The improvement was mainly due to the progressive recognition of sales from residential developments, namely Pavilion 11, Newton Suites, Twin Regency and Regency Suites. Despite Parkroyal on Coleman Street being sold in Dec 06, revenue contribution from hotel operations also increased due to the improved performance from hotels in Australia, Vietnam and Malaysia and the inclusion of revenue from Negara on Claymore which was acquired in Jun 06. Higher revenue was also registered for property investments even though Central Plaza was sold in Jan 07. Income from associated companies increased 227% y-o-y to S$5.3m due to the improved performance of its associates and also the inclusion of Marina Centre Holdings Pte Ltd, which became an associate in May 06. Net profit rose 257% y-o-y to S$76.1m. Excluding the exceptional gain of S$38.2m (i.e. gain of S$37.1m from sale of Central Plaza and S$1.2m of profit from disposal of equity shares), net profit would have improved by 78% y-o-y.

YHI International: Positive start to 2007
S$0.43 BUY Price Target : S$ 0.50

1Q07 results were flat, as expected. Earnings rose by 1.5% y-o-y to S$5.2m on topline remaining flat at S$96m. Turnover from the distribution business segment declined by 12% y-o-y to S$64m due to exclusion of Yokohama tyre sales in China due to formation of a JV in which the Group has a 49% stake to undertake the distribution. Meanwhile, turnover from manufacturing rose by 37% y-o-y to S$32m, with the commencement of the new lines in Suzhou, China and Sepang, Malaysia. Gross margin fell by 1.8ppt to 22%, due mainly to higher costs of aluminium.

Asiapharm: Boosted by acquisitions
S$0.71 BUY Price Target : S$ 1.00

Asiapharm’s 1Q07 results were marginally below our expectations. 1Q07 net earnings accounted for 17.4% of our full year estimates. While 1Q is seasonally lower, we are disappointed by the 17% decline in sales from ‘Maitongna’ and ‘Nuosen’. Sales of these core products were affected by price cuts by the National Development and Reform Commission in Dec 2006, the impact was higher than expected. Revenue growth was boosted by new contribution from recently acquired products Tiandixin, Lipusu and CMNa which contributed Rmb43m in total, accounting for 40% of total 1Q sales. As a result, EBIT growth was sustained at 45%, but net profit grew at a slower 34% due to a higher effective tax rate of 9%. EBIT margin improved marginally to 29% due to a marginal improvement in gross margin and cost control measures which kept its selling and administration expenses lower as a percentage of sales.

Celestial NutriFoods Ltd: Still fundamentally strong
S$1.42 BUY Price Target : S$ 2.03

Celestial 1Q07 results were in line with our expectations. Revenue grew 71% yoy to RMB397.7m on continued contribution from its health food & beverages and strong contribution from its Soy Protein Isolate (SPI) and other new products from its Soybean Zone. Gross profits increased by 49% to RMB162.3m. Gross margins were lower as overall contributions from industrial products increased. This is still in line with our overall expectations that gross margins would trend towards around 39% for 07F.

City Development Limited: Right place, Right time, Right strategy
S$16.90 BUY Price Target: S$ 18.60 (Prev S$ 18.00)

The results are slightly above our expectation. Turnover for the Group increased by 42.1% yoy to S$769.1m and net profit increased by 206.1% to S$126.1m Revenue from property development segment increased by 247% to S$258.5m and profit before tax increased 170.8% to S$104m. Profits were recognised from pre-sold projects such as City Square Residences and the Tribeca, JV projects in St. Regis Residences, The Sail @ Marina Bay, Residences @ Evelyn, The Pier, Parc Emily and Edelweiss Park, as well as resale units from The Imperial and Cuscaden Residences. Rental properties, mainly driven by the commercial portfolio, saw profit before tax rise 437.5% to S$12.9m due to the strong office market. Hotel segment increased 55.2% to S$41.9m, backed by buoyant hotel market conditions in New York, Singapore and London.

Cityspring Infrastructure: On the acquisition trail
S$1.31 BUYPrice Target : S$ 1.55 (Prev S$ 1.68)

Core results did slightly better than expected. Pretax before management fee was S$10.5m vs a projected loss of S$1.6m. Both City Gas Trust and SingSpring trust performed slightly ahead of expectations. City Gas Trust reported revenue 2% ahead of expectations while pretax came in at S$2.1m vs a projected small loss of S$0.1m. This was due to lower fuel cost. Whilst revenue at SingSpring Trust was 9% lower, pretax was 207% higher at S$11.7m vs projection of S$3.8m. This was due to negative goodwill on acquisition and fair value gain on financial instruments and gain on settlement on
commodity swaps as SingSpring Plant operated at an average utilization rate of 24% vs the estimated 50%.

On the acquisition front, management is reviewing opportunities in Asia, Middle East
and Australia and the range of asset classes includes power generation, transmission and distribution, toll roads, bridges, ports, and water treatment. In terms of opportunities reviewed by region, 58% are in SEA, 10% in Australia, 29% in China and 3% from other regions. In terms of opportunities by sector, 31% are Utilities (power), 29% utilities (water), 10% in toll roads, 9% in ports and the balance
21% in logistics.

Jurong Tech Ind Corp: Concerns over slowdown
S$0.94 HOLD Price Target : S$ 0.92 (Prev S$ 0.98)

Net profit at 12.8m (-22% y-o-y and -28% q-o-q) was 9% lower than our estimate of S$14m. Revenue at S$218m (-27% y-o-y and -50% y-o-y) was also significantly below our estimate of S$295m. Gross margins at 16.3% were better than our estimate of 13% due to switch of more business to ‘consignment’ model from ‘buy-sell’ model. The slowdown in orders from Motorola was worse than expected. Motorola’s further lost its global handset market share that came down to 17.9% in 1Q07 down from 21.9% in FY06. For JurongTech, wireless PCBA and modules business contributed a mere 44.4% of total business in 1Q07, down from 54.1% for FY06. Although, there was a strong ramp up in battery pack business, it was insufficient to compensate for the decline in PCBA and modules business. Inventory days went up to 81 days, up from 41 days in 1Q07. However, management has assured us that there is no risk of inventory write-off as the product has been shipped back to JurongTech for design changes only and is customer’s liability.

Pan-United Corporation: Good showing from Industrial &Trading (I&T)
S$0.87 BUY Price Target : S$ 1.10

Net profit was slightly ahead of our estimates with 1Q07 net profit of S$6.8m making up 27% of our full year estimate of S$24.6m. Looking at the segment results in detail, port operations was slightly below our estimate, with net profit declining 18% to S$1.4m due to an absence of S$0.8m dividends received from an associate. On the other hand, Industrial & Trading (I&T) did better than our estimates, with net profit contribution rising 113% to S$4.9m, reflecting the higher selling prices of ready-mixed concrete that was not fully matched by the higher cost of sand. Taken
together, net profit rose 35% to S$6.8m.

Travelite IPO.

Closing date of application: 14 May 2007
Commencement of trading: 16 May 2007

Incorporated in 2005, Travelite markets, sells and distributes travel, business, and lifestyle merchandise, as categorized:

Bags and travel essentials:

- They carry a comprehensive range of luggage and travel bags, both trolley and hand carry, and also carry business and urban lifestyle range of bags.
- They also carry travel essential items such as waist pouches, foldable bags, camera cases, etc.
- This segment accounted for 73.8% of its FY2006 revenue.

Winter wear and accessories:

- These are winter jackets, sweaters, thermal underwear, gloves, etc.
- This segment accounted for 12.2% of its FY2006 revenue.

Executive accessories
- These are usually men’s accessories – belts, cuff links, ties, wallets, key holders, etc.
- This segment accounted for 8.6% of its FY2006 revenue.

Other merchandise:
- These include merchandise which are offered as premium items through gift redemption programmes implemented by financial institutions and credit card service providers. These merchandise are also purchased by companies and business enterprises for use as corporate gifts.
- This segment accounted for 5.4% of its FY2006 revenue.

Their distribution channels are department stores, specialty stores, third party retail outlets, and gift redemption or corporate gift programmes in Singapore and Malaysia. They also distribute wholesale to third party distributors in PRC, Middle East, Indonesia, Brunei, and Phillipines.

The bulk of their revenue is derived from Malaysia (75.4%) and Singapore (15.4%).

Financial figures

Intended IPO price: $0.30
No. of shares available for public offer: 0.6m
No. of shares available for placement offer: 19.4m
Total post invitation share capital: approx. 69.5m

Note: FY2007 figures were unavailable in the prospectus. The figures stated here are based on a hypothetical estimate of 10% earnings increase.

FY2006
Revenue: $25m
Profit: $2.4m
NAV: 0.198
EPS: 0.034
EPS % Incr: 8%
PE ratio: 8.8x
Price: 0.30

FY2007
Revenue: $27.5m
Profit: $2.7m
NAV: 0.206 (incl. IPO proceeds)
EPS: 0.0374
EPS % Incr: 10% (Est.)
PE ratio: 8x
Price: 0.30

Dividend policy: No fixed policy

Conclusion:

Given that there’s only a miserly 0.6m shares up for the public offering, and I do not see anything in its business that suggests exponential future growth potential, I would give this one a miss for the moment.

Probability of getting allotted for the IPO – VERY LOW


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.

Sihuan and GK Goh 1QFY07 Results.

Both Sihuan and GK Goh released their 1QFY2007 results yesterday, and the results were both quite strong, and thus warrants a closer look.

Sihuan's results (see

Sihuan posted strong growth in both revenue and profit, registering 45.8% and 71.1& growth respectively. I had previously stated here that Sihuan is a promising stock to look at because of the economic moat provided by its Kelinao patent protection, so it is no surprise that it was the biggest contributing factor to its good results.

Based on estimates from its results, Its NAV has now risen to $0.1593, and its EPS has now risen to $0.0532.

Pegging Sihuan to 18x PE (the industry standard for pharmaceutical stocks is 20x) would give a Fair Value of $0.96.

Do take note of the following risk factor: The PRC pharmaceutical companies operate in a very volatile environment because of the government's constant changing of both the drug and tax regulations. Any new change will definitely have an adverse effect.

GK Goh's results (see here):



GK Goh also posted strong growth, with revenue and profit rising 21% and 60% respectively. The report states that the improvement was largely due to gains from its short term investment portfolio, and that its expects its results for 2007 to be satisfactory.

Obviously, the use of them term "satisfactory" does not inspire a lot of confidence in its future prospects, but in the current buoyant market where value can be hard to find, GK Goh is one of the few stocks that still offer value.

It is currently trading at $1.08 - which is a slight discount to its NAV of $1.20. This compares favourably to its peers:

Kim Eng is trading at $1.64, slightly above its NAV of $1.54.

UOB KH is trading at $1.59, significantly above its NAV of $1.12.

GK Goh has also been paying a constant 4 cent (approx. 4% yield) annual dividend for the past few years, and another 3-4 cents (approx. 7% yield) special dividend for the past 3 years.

As such I will be adding both Sihuan and GK Goh to Stock Alert.

For Sihuan, my estimate for it at 40% below Fair Value is $0.57.

For GK Goh, a buy at $1.00 would be a purchase of 20% below NAV.

Sinopipe Research Report.

Sinopipe is one of the more obscure stocks in my portfolio, hence it is not surprising that it is not widely followed by the major research houses. But here is one rare report on Sinopipe by Fraser Securities dated 30 April 2007.

Sinopipe Holdings
Price: 39.5 cents (Apr 30 2007)

Initiate Coverage: Buy
12-month Target: 50 cents

About the company

A leading piping specialist in China, which designs, manufactures, distributes and installs a comprehensive range of plastic pipes and pipe fittings has 10 well located production facilities in the country, with estimated annual total production of about 87,000 tonnes with utilisation rates of 72-77%. Order book has reached RMB 227.2m as at March 2007 thanks to its extensive distribution network.

Strong R&D capabilities in its product series covering drainage & sewerage, water supply, telecom & electrical, have been recognised by the Fujian province with PRC’s Ministry of Personnel accrediting it as approved workplace for research activities by post-doctoral & qualified researchers.

Sinopipe’s CEO also chairs China’s Industry Association of Piping Specialists. Always ahead of the industry, it had received multiple awards and achievements with its well-accepted brand names “Aton” and “SUN”.

Investment merits

Prospects of moderately high 15-17% annual earnings growth in next 2-3 years on organic growth in China and existing and new export markets in Pakistan, Africa, Middle East and as far as Cuba.

The Middle East has become a promising market after Dubai Ventures took up the largest chunk (28m shares) of the recent 37.5m new share placement at 32 cents each (raising $11.95m), giving it a 4.4% stake.

Low PE stock (5-6x) compared to its 2 China-listed peers trading at astronomical PEs. Shenzhen listed Shangdong Shengli trades at 104x PE with market cap at RMB 356.7m while Anhui Guotong listed in Shanghai with a higher market worth of 751m, trades at 83x.

Revenue and gross profits CAGR stood at 25.3% and 21.5% over fy04-06 with pre-tax profits at 22.7 CAGR. But due to higher tax payments in fy05-06, net profit margins were trimmed from 12.9% in fy04 to 11.5% and 11.4%.

Healthy balance sheet with current ratio at 1.45, and cash and bank balances of RMB 79.1m in fy06 with shareholders funds at RMB 307.42m.

Strong Industry Prospects- Water supply market waiting to be tapped

Government’s drive to develop and upgrade infrastructure facilities – 2010 National Development Program calls for west to east gas piping & transmission network, replacing metal fuel gas piping systems with plastic pipes and upgrading existing & build new water saving irrigation networks.

Government needs to provide RMB 6.4b annual funding from 2006 to 2010 to solve problem of safe water consumption for 32m now and up to 160m rural people by 2010. The government in fact plans to spend 1 trillion yuan (US$125.5b) by 2010 to build waste water treatment plants and upgrade water distribution systems around China.

Products for drainage, sewerage & water supply segments, an essential part of the water supply and water disposal industry, account for over 80% of group’s fy2006 revenue.

Management of risks and rising costs

The group has been able to anticipate market competition well and manage risks, mainly raw material costs which are oil-based eg PVC and thus affected by rising oil prices by adjusting other costs to balance up.

Key Growth Drivers

Focus on segments where competitive advantages can be sustained eg Build-Transfer Projects, natural gas piping works. BTP tend to be shorter at 3-5 years with more visibility and predictability as well as enhance barriers to entry, which work to Sinopipe’s advantage and maintain its leading market share.

Developing products that are desirable to target markets and differentiated from competition and leveraging economies of scale and value chain capabilities, upstream and downstream to drive costs down and enhance profitability.

Exploring M&As and JVs and penetrating new markets with Middle East a main target. The $12m proceeds from recent placement of 37.5m new shares at 32 cents each will come in handy as the group expands its business through investments and acquisitions/joint ventures.

Share price performance



The counter reached a new minor high of 43.5 cents in January, beating the April 2006 42.5 cents peak and recently it rallied again climbing to 42 cents. It has continued to stay close to the April 18 and 23 high of 42 cents, with minor pullbacks to 38.5-39 cents, suggesting more upside potential than downside risk.

Moreover the short term 19 and 39 days moving averages have turned up since a month or so again following the rebound after the correction to 29.5 cents in March that ensued after the year-end/new year rally to 43.5 cents from 21 cents.

We have a 12-month target of 50 cents which can be reached earlier based on bullish signals from the MAs which usually continue their climb for about 3 months and this time they have been rising for just over a month.

The averages were up for 3 months from December to end-February this year following a lengthy 7 month downtrend soon after the first 42 cent peak in April 2006. Momentum indicators do not suggest any danger of the current uptrend ending abruptly.

Ho Bee 1QFY07 Results & Property Market Update.

Ho Bee released its 1QFY07 results yesterday, and in a clear indication of how the property market has been doing recently, the results were nothing short of spectacular.

Here is DBS Vickers' analysis of the results:

Buoyant 1Q07 results due to higher than expected recognition of income
from The Coast at Sentosa Cove.

Revenue grew 366% y-o-y from S$52.8m to S$245.8m. This improvement was mainly due to the increase in the sale of development properties by 381%, with the main contributor from The Coast at Sentosa Cove. The investment properties also registered a slight improvement of 7% y-o-y as a result of higher office rental rates at Suntec City and inclusion of rental income from the two newly acquired light industrial buildings (i.e. Cencon 1 and Dragon Land Building). Net profit rose 425% y-o-y from S$13.2m to S$69.1m.

Update on residential projects.

Ho Bee’s launched residential projects have received strong response, with almost all of its development projects fully sold. Ho Bee continues to build up its landbank and has recently acquired The Seaview Collection (50% stake) to further establish its
presence in Sentosa Cove and Elmira Heights in Newton Road for S$459.8m and S$279m respectively.

Up for launch in 2007.

Ho Bee expects to launch two development projects in 4Q07, namely The Waterfront Collection at Sentosa Cove and the Orange Grove Condominium site. With the strong take-up rate achieved for its launched developments and the continued positive
outlook for the residential market, we expect similar strong response to be received for these two prime sites.

AlthoughDespite its spectacular results, DBS Vickers is downgrading the stock from a Buy to Hold for the following reason:

Downgrade to Hold with target price of S$2.41.

We have a raised target price of S$2.41 (10% premium to RNAV of S$2.19) due to higher assumed ASP for the residential developments and inclusion of The Seaview Collection and the Elmira Heights site in our valuation. The 10% premium is to account for potential acquisition of sites in Sentosa Cove. We continue to like Ho Bee for its strategic land acquisitions but as the stock price has surged by around 31% since our last report in Feb 07 and that valuations are now stretched, we downgrade our recommendation from Buy to Hold.

Do I agree with DBS Vickers?

Although the property market seems to show no signs of slowing down, the fact remains that at the current price of $2.36, Ho Bee is trading at almost 3x of its $0.81 NAV, and its current yield is only at a miserable 0.53% pa.

My take is that people who are already invested the stock should give themselves a pat on the back and enjoy the ride, but for those not vested, though I think the stock still offers potential upside, I'm not comfortable with the risk involved with the downside.

China Print Power IPO.

Closing date of application: 10 May 2007
Commencement of trading: 14 May 2007

Incorporated in 2006 and based in He Yuan, Guangdong province, PRC, China Print Power is a books and specialized products printing group serving the international market, with a customer base extending over a wide geographical reach covering Europe, North America and Asia.

It derives approximately 58% of its revenue from books, and 42% of its revenue from specialized products.

For books:

- They provide a full suite of services from pre-press (including colour separation, creating ozalids and design) to printing to finishing / binding services (including folding, collating, finishing and binding).

- Their customers include book distributors, publishers, exporters, e.g. Parragon Books Ltd, Barnes and Noble Distribution, World Print Ltd, Bookbuilders Ltd, Jade Productions, and Phoenix Offset.

For specialized products:

- These products include leather or fabric bound journals and organizers, greeting cards, postcards, calendars, packing boxes for gifts, stationary, photo albums, puzzles and desktop stationary sets.

Risk factors

1) The typical risk factors associated with investing in small cap china stock applies here. In fact, the risks are higher for China Print Power because of its short operating history.
2) Their major customers account for a significant proportion of their total revenue, and in the event that they should no longer require their services, their revenue will be adversely affected.
3) After the IPO invitation, their directors, Thomas Sze, Raymond Chan, Kwan
Wing Hang, and Lam Shek Kin, will retain a combined majority control of 72.36% of the total share capital, hence any of their decisions would have a strong influence on the company and its stock.

Financial figures

Intended IPO price: $0.25
No. of shares available for public offer: 2m
No. of shares available for placement offer: 30m
Total post invitation share capital: approx. 115.8m

Note: FY2006 figures were unavailable in the prospectus. The figures stated here are based on a hypothetical estimate of 20% earnings increase.

FY2005
Revenue: $30.6m
Profit: $4m
NAV: 0.1314
EPS: 0.0345
EPS % Incr: 80%
PE ratio: 7.2x
Price: 0.25

FY2006
Revenue: $36m
Profit: $4.8m
NAV: 0.144 (incl. IPO proceeds)
EPS: 0.0414
EPS % Incr: 20% (Est.)
PE ratio: 6x
Price: 0.25

Dividend policy: It intends to pay out 30% of profits as dividends up till FY2008.

Conclusion:

Although this IPO is very attractively priced – pegging it to 8x PE gives a fair value of $0.33 – its hard to see how much further its business can grow, especially in its cut-throat competitive industry.

Furthermore, I don’t really like the fact that it is going for a public listing so soon after incorporation, and that its directors will be holding so much of its stock. This seems to be the kind of stock whereby the minority shareholders will be mostly getting the short end of the stick.

In any case, given that there’s only a miserable 2m shares up for the public offering, I would give this one a miss and to wait and see how the stock unfolds after some time on the market.

Probability of getting allotted for the IPO – VERY LOW


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.

Singapore Corporate Guide.

This is a Singapore Corporate Guide by UOB-KH - it is basically a 33 page long research report on UOB-KH's take on the Singapore Market outlook and strategy for the remainder of 2007.<

Personally, I find such lengthy reports quite tedious, but those of you who like reading or don't mind market noise might find it enjoyable.
Corporate Guide.

Yongnam - Fundamental Study.

This report is a little bit old, but it is a good indicator of why Yongnam's strong rise has been backed by good fundamentals and not mere speculation.

Yongnam's all-time historical price chart:



Introduction

Yongnam was established in 1975, but was only publicly listed in 1999. It is Singapore's single largest fabricator of steel structures used in infrastructure. Its fabricated structural steel holds up the roofs of some of the most recognisable buildings in Singapore's landscape:

Suntec City, the National Library, Singapore Post Centre, Capital Tower, the Expo MRT station, KL International Airport and the new Suvarnabhumi Airport in Bangkok, among others.

Increasing demand

Its ongoing projects include Fusionpolis at One North. Meanwhile, its strutting systems support almost 90 per cent of the underground works at Circle Line MRT and at least 9km of the Kallang-Paya Lebar Expressway.

Industry insiders estimate that the upcoming Integrated Resort (IR) projects alone would require some 30,000 tonnes of strutting steel and 60,000 tonnes of structural steel.

Analysts also see the company's orderbook swelling to over $250 million a year over the next three to five years as projects like Orchard Turn, the upgrade of Changi's Terminal 1, the two IR projects, the Kallang Sports Hub Stadium, and the new Ocean Building take off.

Overseas, the company is already in advanced negotiations involving projects like the New Doha Airport and the Qatar World Trade Centre.

And with many other projects in the pipeline, demand is outstripping potential supply. But this places Yongnam in a nice 'sweet spot'.

It currently has some 58,000 tonnes of strutting steel, which will increase to 80,000 tonnes by year-end. And its 76,000 square metre facility in Tuas - the size of over 20 football fields - is already churning out massive amounts of structural steel required by the numerous projects coming onstream.

Barriers to entry into this business are high, especially in struttings. In Yongnam's case, it invested in these assets in the early part of this decade, and at prices which were 40 per cent below the current steel prices.

As it stands, Yongnam appears to be the only player here with the capacity and capability to handle this growing demand for structural steel and struttings required by the emerging infrastructure boom.

All this marks a remarkable turnaround in fortunes for a company which was in serious financial difficulties just three years ago.

Having invested the bulk of its $60 million in IPO proceeds in its facilities and steel assets, it was forced to sit idly on its huge investments for the next few years as the property market went into a seemingly inexorable slide and various infrastructure projects were shelved. In 2003/2004, it was forced to undergo a Section 210 Scheme of Arrangement to restructure its debts.

Today, the company's $60 million debt is nicely balanced off against $120 million in fully utilised assets. And it faces a virtual 'seller's market'.

Swelling margins

With margins - which are traditionally around 30 per cent at the gross level - getting fatter as an industry-wide capacity crunch takes hold, some industry insiders reckon Yongnam's earnings will hit new records in the next few years.

Quite a turnaround for a company which suffered a loss of some $15.5 million in 2003.

Yongnam recently did a new share placement of 230m new shares at $0.161 in January 2007 to raise $19 million, much of which will go towards reducing borrowings and building up its steel assets.

In a business notorious for its ''feast-and-famine' cycle, Yongnam looks set to enjoy one very big and extended party as it sits pretty in an industry sweet spot.

Disclaimer: My view may be biased due to my personal significant holdings in Yongnam. Yongnam's future potential is also strongly dependent on its future projects, and any disruption to those projects may adversely affect its earnings. This blog reserves the right to liquidate my holdings in Yongnam without prior notification.

Indofood 1QFY07 Results.

Kim Eng analysis of Indofood's 1QFY07 results: Maintain buy with a target price of $1.62

Earnings in-line

Indofood Agri Resources Ltd (Indo-Agri) posted 1Q07 of Rp86.8 bn that was broadly in line with expectations. 1Q07 net profit grew 52% versus 1Q06 on the back of a 42% rise in turnover to Rp. 1,201bn. Thisheadline number, however, also included a revaluation of biological asset surplus of Rp. 87.3bn, as well as a impairment of goodwill write down of Rp. 76.3bn - both these items are non-cash.

The goodwill write-down arose as the difference between the cost of acquisition of
assets and fair value within the reverse takeover company i.e. City Axis. It therefore does not pertain to any operating assets of the ongoing business acquired under the complex RTO and reorganization structure, and will not be recurring henceforth.

Price hikes kick in, offsets higher input prices

Gross margins have improved to 20.5% in 1Q07 from 18.2% in 1Q06. Indo-Agri was able to raise its selling price of cooking oil in December 2006, in order to offset the higher cost of CPO inputs that it has to buy from the open market. As a result, average selling prices for cooking oil in 1Q07 rose to Rp. 6,560 per kg versus Rp. 4,890 per kg in 1Q06, and an average of Rp. 5,244 per kg for FY06. Along with this 34% rise in prices, Indo-Agri was also able to increase sales
volume by 7.3% to 84,991 tons. While maintaining its market share at 43% of total branded cooking oil, volume growth likely came from organic increases in demand as well as the market's migration from unbranded cooking oil to branded products such as Indo-Agri's leading Bimoli brand. More positives - Indo-Agri has raised its cooking oil prices further as of 1 May 2007 to Rp. 9,000 per kg versus Rp.7,500 per kg as of end-of-year 2006.

1Q seasonally the slowest quarter

Stripping out non-cash items from this set of results, we derive a core net earnings of around Rp.106.4bn. This makes up just 15% of our previous full year core net profit forecast of Rp.685.4bn. However, this lower percentage in for the 1Q is not unusual. FY06 numbers also confirm the seasonal trend - 1Q06 net profit only accounted for 18% of FY06's full year net profit. Expect to see acceleration of earnings in 2Q07, with a peak in 3Q07, from seasonal peak buying of Indo-Agri's final cooking oil product due to sales ramps ahead of Indonesia's festive seasons.

Note: So this is why its earnings seem to be lower.

Maintain Buy, target price S$1.62

We are adjusting our full year headline net profit up marginally to Rp.692.1 from Rp. 685.4bn previously, to take into account the non-cash adjustments. Core earnings remains at Rp. 685.4bn. However, we see the potential of raising this further as Indo-Agri is exhibiting a strong
ability to narrow the cost gap to higher CPO input prices with

1) further cooking oil price hikes and,
2) a higher proportion of CPO sourced in-house, with the ongoing development of its plantations.

For now, we maintain our fair value of S$1.62, in line with its regional peer average of 19x FY07 PER, based on core earnings. We maintain our Buy recommendation.

Allgreen 1QFY07 Results & Re-ratings.

After its spectacular 1QFY07 results (here) released yesterday, this was how various research houses re-rated the stock:

DBS Vickers: Hold with a 12 month price target of $1.83

Allgreen reported 1Q07 results that were better than expectations. Revenue grew 161% y-o-y to S$181.2m due to higher revenue contribution from all three business segments. Net profit rose 309% y-o-y to S$49.6m.

We expect Allgreen to continue to benefit from the sustained rise in the Singapore property market with its exposure in the different property segments. Moving forward, we expect good take-up rates from the launch of its three developments namely The Cascadia, One Devonshire and VIVA at Jalan Korma expected in 2007.

With the revaluation of the investment properties, higher, assumed ASP for the residential developments and inclusion of the developments at Handy Road and West Coast Road, we have a raised target price of S$1.83, which is at parity to RNAV. Given that valuations are stretched and upside is limited, we are maintaining our Hold recommendation.

Citigroup: Buy with a 12 month price target of $2.24

Results ahead of expectations – Net profit came in sharply above both consensus and our expectations. 1Q 07 earnings were 45.4% of consensus FY07E S$109.3m and 43.4% of our FY07E S$114.4m net profit. Profit was boosted by a S$27.3m write-back of provision on development properties. The lower effective tax rate of 7.1% helped the bottom line and was due to nontaxable income from the S$27.3m write-back.

Better performance at all divisions – Revenue surged 161.5% yoy while pretax excluding write-back was up 67% yoy. Traders Hotel saw higher room rates and occupancy rates. Great World City Office, Retail and Serviced Apartments also enjoyed higher occupancies and rental rates. Development properties revenue rose due to more units sold and higher progressive sales recognition.

Earnings and RNAV raised – We have raised both our earnings and RNAV to reflect the two recent sites acquired, namely, at Handy Road and Regent Garden. We have assumed selling prices of S$1300psf and S$800psf, respectively, in our estimates.

Valuation - Our target price of S$2.24 is based on our ‘best case scenario’. This assumes that residential prices are 30% higher than now. Our target price is at a 10%
premium to our FY08E RNAV of S$1.99/share. We believe the risk of upside surprises for both residential and office prices is higher than the risk of disappointment.

Allgreen has the shortest listing history of developers under our coverage as it was listed in 1999. Since listing, it has traded at an average discount to RNAV of 25%, although the discount narrowed to 0% during the property upturn in 1999 and widened to as high as 40-50% when property prices fell in 2001. In anticipation of a broad-based recovery, we expect the current discount to narrow over the next 6-12 months. We made the following assumptions in our RNAV estimates:

1) 5.0-5.5% yields for its investment property portfolio;
2) Price rises of 5-10% for selected residential developments;
3) Average selling prices of S$950psf for Cascadia, S$1300psf for Holland and
S$1000psf for Viva.

Risks - Our risk-rating system, which tracks 260-day share-price volatility, rates
Allgreen Low Risk. The main risks to the stock price are:

1) Changes in government policies either in CPF contribution or HDB could affect demand for mass market properties;
2) Mass-market property buyers are generally more price-sensitive and interest rate sensitive so further increases in mortgage rates could have a negative impact on affordability and hence demand;
3) Management indicates that only 20% of the group's debt is on fixed rates with the remaining floating, which means further increases in interest rates could reduce its profitability;
4) If HDB resale prices rise and demand for mass market rises sharply, the stock could exceed our target price.

CIMB-GK: Underperform with a price target of $1.66

1Q07 above expectations - 1Q07 EPS of 3.3cts (+185% yoy) represents 43% of our full-year forecast and 49% of consensus, despite the fact that 1Q is traditionally the weakest quarter. The strong results were underpinned by higher than-
expected development profit bookings and margins, and a lower tax rate.

Sales - 1Q07 revenue of S$181m (+162% yoy) was boosted by income recognition of Blossoms@Woodleigh (Blossoms; freehold, 240 units) and CairnhillResidences (Cairnhill; freehold, 97 units). Another 133 units of Blossoms were sold during the quarter, lifting the take-up to 86%. ASP of the entry-level condominium remains at about S$650 psf.

Commercial properties - Rental rates and occupancy at Great World City and Traders Hotel continued to improve. Asking rents for Great World City offices have reached S$6.50 psf per month, up an estimated 12% from the start of this year.

Coming launches - We expect the launch of at least two more prime residential projects this year – Viva (district 11, freehold, 290 units) and Devonshire Residences (district 9, freehold, 152 units). We are assuming ASPs of S$1,200 psf and S$2,000 psf for Viva and Devonshire respectively for now but prices could surprise on the upside.

Acquiring Regent Garden in West Coast for S$34m (S$392 psf ppr, inclusive of development charges) - We envisage the development of a freehold 85-unit condominium on this site and estimate breakeven at S$690 psf. Assuming an average price of S$750 psf (10% premium to current transacted prices in the
vicinity), we estimate an undiscounted gain of S$5m from this project.

Valuations remain rich - Our FY07-09 EPS forecasts have been raised by 20-24% to account for higher development profit bookings and margins. Our target price and end-CY08 RNAV estimate have been lifted to S$1.66 from S$1.48 to incorporate the changes in our assumptions as well as accretion from the latest Regent Garden purchase. The stock is trading at an 8% premium to our end-CY08 RNAV estimate, which implies rich valuations. Maintain Underperform.

Conclusion

With 3 different fund houses all giving different ratings for Allgreen, this means only one of them can be right, which means the other two would have gotten their analysis wrong.

The current situation reminds me of what happened to Capitaland last May - when Capitaland's price plunged sharply along with the overall market decline, many fund houses were quick to slap it with a sell or underperform call, citing rich valuations and/or an overvalued property market. With the benefit of hindsight now, we know just how correct those fund houses were.

In fact, Allgreen's current situation is quite similar to Capitaland's (or the other first tier property stocks) at about the same time last year. The high end property market was staging quite a recovery, and analysts were in two camps as to whether the recovery would continue, or prices would backtrack. Only this time, it is the turn of the mass property market to be at similar crossroads.

In my opinion, Allgreen (with its significant mass market property landbank) is a great proxy to the mass property market, and people wanting to benefit from its rise should definitely look at the stock. Bear in mind though, that current valuations are not exactly low, so this is not a buy-and-forget kind of value play.

April 07 Portfolio.

This is my April 07 portfolio.

The April 07 portfolio value of $524,138 is an increase of $68,578 (or 15%) over the March 07 portfolio value of $455,560. However, there was a cash reduction of $17,305 from the sale of stocks (less the capital to buy new stocks), so in actual fact, the portfolio value had increased by $85,883 (or 18.9%).

Here are the key portfolio changes:


Obviously, one of the biggest eye catching gains for this month were due to Taisin, where I picked up 30.5 lots of the stock at a ridiculously low $0.10 for an immediate $9,455 gain. I bet my buddy GHChua must be profiting like crazy from rights issue for this year.

But besides that, I am also very proud of the fact that out of the 17 stocks I hold in my portfolio, there are 5 stocks which have achieved double bagger status in less than 2 years - Pan Utd, Tat Hong, Yongnam, Taisin, and Eastern.

Sometimes I have to pinch myself in disbelief - is this really what I have achieved when a short two years ago, I didn't even know the difference between a current or savings bank account (seriously, this is true!!)??

However, I'm not so foolish as to take full credit for my results. I count myself as very fortunate to have begun my stock investment journey just as the stock market was starting to pick up speed.

In fact, realistically speaking, I honestly doubt I can maintain this kind of outperformance for years and years to come. That said I will definitely try my darnest, but I'll be happy to have a long term outperformance of 10% above the market average.

Going forward, I personally am expecting the stock markets to have some correction in the next month or two. Don't ask me when or by how much though - I have absolutely no idea!

Whatever it is, I may take some more profit off the table from here and there, but I will be holding on to the bulk of my portfolio, and will be looking to add some stocks to my portfolio should they be attractively priced.