(BUY, S$0.40, TP S$0.53)
4QFY11 results boosted by revaluation gains. Second Chance achieved revenue growth of
6.0% YoY to S$49.1m and EBIT of S$16.7m (+14.1% YoY). The results were in line with
expectations. PATMI grew 87.8% YoY to S$30.1m, exceeding our expectations, due to higher
than expected revaluation gains. Second Chance recorded revaluation gains of S$13.5m (we
were expecting S411.0m). Going forward, we expect EBIT growth to remain stable, backed by
stable rental income from its properties segment, and continued healthy demand for its retail businesses. However, gains from property revaluation are not likely to be as high as FY11. This would result in lower PATMI in FY12. We are estimating PATMI of S$21.7m (-28% YoY), EBIT (excluding revaluation gains) of S$18.7m (+12.0% YoY) in FY12. Second Chance issued 1-for-4 bonus shares and declared dividends of 3.2 S¢/share for FY11. Maintain BUY and TP of S$0.53, based on DDM methodology, for a company that consistently distributes attractive dividends.
Lofty aspirations. Second Chance intends to focus on real estate activities to grow the
business. It aims to achieve a market capitalisation of at least S$1b by 2022. Target real estate activities could take the form of property developments (via joint ventures), developing and managing budget hotels (likely in Malaysia), acquisition of warehousing / storage space and picking up distressed properties. Nonetheless, management intends to retain its profitable retail apparel and gold businesses. With a time frame of 10-years, this goal does not seem impossible to achieve.
Maintain BUY with TP S$0.53. We believe management would be able to maintain its policy of
returning high value to shareholders. At current levels, it implies an attractive dividend yield of 7.6%, which we believe is sustainable, given Second Chance’s stable operating cash flow.
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