(BUY, S$0.022, TP S$0.046)
Stable business with growth potential, maintain BUY with TP of S$0.046. Listed on the SGX in Feb 02, Swing Media is mainly a manufacturer of optical storage media (e.g. DVD-Rs) and has lately moved into a green-energy related business. Its share price performance has been hit over the past six months, till a point in which value has emerged. We favour this counter due to 1) stable cash flow generated from the mainstay business; 2) additional sources of revenue coming from the new Blue-ray segment as well as its solar business JV; and 3) potential revision of dividend policy to distribute more cash to shareholders. We maintain BUY on the stock with a TP of S$0.046, based on 0.51x industry average P/B.
Continue growing in FY12. Swing Media saw earnings rise 4.9% to HK48.1m on the back of a 5.5% sales increase to HK$842.0m, which is credible compared to its closest competitors such as CMC Magnetics and Ritek Corp. Management continues to be confident over the Group’s performance in this financial year. We expect earnings to surge 44.2% in FY12 on the back of strength in the DVD business, new contribution from the solar business, as well as margin expansion (+1.7ppt to 7.4%).
Benefiting from industrial consolidation. Swing media has emerged from the optical media industry consolidation that occurred as a result of technological obsolescence. With less competition, the group now has a bigger market share and better bargaining power.
Kick-off of the green business. Partnering with a Chinese solar energy specialist, Swing Media entered into non-binding MoU with franchise owners of about 500 PetroChina petrol stations, providing turn-key installations. With each contract valued at about RMB400,000, yielding a comfortable 25% profit margin, there is huge upside potential for the group’s earnings. We expect the JV to bring in additional revenue of HK$16m and HK$40m for FY12 and FY13 respectively.
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