Mewah International (DBSVickers)

BUY S$0.98 STI : 3,160.60
Price Target : 12-Month S$ 1.23
Reason for Report : Reviewing timing of capacity additions
Potential Catalyst: Delivery of expansion projects

On track for delivery
• Sales volume normalizes from weak 1Q11
• Sabah refinery tracking ahead of schedule
• No change in forecasts - Sabah refinery still 12 months away
• Reiterate BUY call, TP of S$1.23

Rebound in sales volume. We caught up with Mewah and sales volumes in 2Q11 to-date have recovered consistent with trends indicated at the 1Q11 results briefing. African and Middle Eastern customers are buying for their current requirements as well as restocking. 1Q11 sales volumes were negatively affected (-10.8% y-o-y) by the political unrest in certain African and Middle Eastern countries. 2Q11 margins have improved from 1Q11 in line with traditional seasonal trends.

Sabah refinery ahead. The Sabah refinery project is going well and is tracking ahead of schedule. Guidance to date is for delivery in 2HCY12. For the specialty fats, commissioning will occur sometime in 3QCY11 versus guidance of 2HCY11.

Maintain forecast. We are maintaining our earnings forecast as the recovery in sales volumes, improvement in margins in 2Q11 and timing of specialty fats capacity are within expectations. Since the commissioning of the Sabah refinery is still 12 months away, we prefer to remain conservative and not to revise our Sabah refinery projections.

Buy for 26% upside. We believe increased clarity on capacity additions will trigger a re-rating as investors become more confident about Mewah’s ability to execute on its growth plans. Hence we reiterate our BUY call as the stock is attractively priced at FY11 PE of 11.1x with threeyear earnings CAGR of 15%.