Valuetronics Hldgs Ltd - 1QFY12 results within expectations (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.225

Fair Value: S$0.41

1QFY12 performance within expectations. Valuetronics Holdings Limited's (VHL) 1QFY12 results were in-line with our expectations. Revenue accelerated 33.4% YoY but declined 0.9% QoQ to HK$527.1m. Gross profit rose 27.7% YoY but fell 2.6% QoQ to HK$84.2m while net profit rose 9.5% YoY and 12.7% QoQ to HK$31.6m. First quarter top-line and bottom-line was 3.7% and 0.8% above our estimates and formed 23.9% and 23.6% of our full-year estimates respectively.

OEM the shining star. The group's strong sales momentum was attributed largely to its OEM segment, which posted a stellar 36.1% YoY growth to HK$444.5m (84.3% of total revenue) thanks to a significant increase in demand from its largest customer. Its other core business, the ODM segment, also registered stable growth of 6.4% YoY to HK$68.5m, while the Licensing division delivered its fifth quarter of contribution to sales. While it is likely to take some time for this division to breakeven, we are encouraged by the ramp up in sales (HK$14.1m versus just HK$4m a year ago) and management's efforts to increase its product range of heaters, fans and air purifiers into more departmental and specialty stores. Notwithstanding VHL's positive sales growth, its gross profit margin experienced a 70 bps YoY decline to 16.0% as the OEM segment commands a smaller margin vis-a-vis the ODM segment.

Good working capital management. VHL exhibited good working capital management during the quarter as it generated positive operating cashflows of HK$44.7m (-HK$46.2m in 1QFY11) and also repaid all its debt. As at 30 June 2011, VHL's cash conversion cycle stands at 55 days, an improvement of four and fives days from 1QFY11 and FY11 respectively. We opine that VHL's healthy balance sheet would aid the sustanability of its business, especially in times of macroeconomic uncertainty.

Undervalued; favourable entry point. Moving forward, management remains cautious on the challenging business environment but we are encouraged that the group managed to secure a pipeline of new OEM customers, with expected mass production in early 2012. Hence contribution is likely to come in FY13. However, we update our HKD/SGD assumptions and also lower our target peg on VHL from 8x to 7x FY12F EPS as we take into account the uncertain global economic landscape, especially in the U.S. where a number of VHL's major customers are based. This in turn lowers our fair value estimate to S$0.41 (previously S$0.49). Nevertheless, with VHL now trading at 3.4x FY13F PER, against our projected EPS CAGR of 12.3% from FY11-FY13F and ROE of 26.0% in FY12F, we opine that valuations appear attractive. Reiterate BUY.

Midas Holdings - Not as bad as it seems (DBSVickers)

BUY S$0.41 STI : 2,850.59

Price Target : 12-Month S$ 0.72 (Prev S$ 1.05)

Reason for Report : Forecasts change after interim earnings.

Potential Catalyst: Contract wins and earnings execution.

DBSV vs Consensus: With share price having declined significantly, most of the street have kept their BUY calls despite also lowering eanrings projections, as we have done.

• Interim earnings slightly below expectations, PATMI +20% yoy to RMB123m

• FY11/FY12 forecasts cut by 5%/9% on lower order win assumptions

• Metro and export contracts to help cushion potentially lower HSR flows

• Maintain BUY, lowered TP to S$0.72, based on 12 FY12 PE.

2Q earnings up 15% yoy to RMB63m. Revenue grew by 33% yoy to RMB610m and GP increased 41% yoy to RMB210m in 1H2011. With associate NPRT reporting 51% lower earnings and doubling of taxes to RM42m, net profit only grew 20% yoy to RMB123.4m. An interim dividend of S 0.5cts was declared.

Metro and export wins to bolster current RMB1.1bn order book. In view of the Ministry of Railway’s stance to check the safety of existing and new high speed railway (HSR) lines, and temporarily suspend the examination and approval of new HSR projects, we lower our order win assumptions by about 15%-20% for FY11 and FY12, to RMB1.1bn and RMB1.3bn respectively. Thus we lowered our FY11 and FY12 EPS forecasts by 5% and 9% respectively. However, Midas should continue to win more metro and export orders to help cushion the lower orders from the HSR segment, which would lower but not derail Midas’ growth.

Maintain BUY. At 0.8x P/BV and 8x FY11 PE, the stock is clearly over-sold and our target price of S$0.72, based on 12x FY12 earnings, implies over 50% upside. We have lowered our PE multiple to reflect a de-rating for its HKlisted peers. For the stock to re-rate further, there needs to be better clarity on China's railway investment policy (whether or not the RMB2.8trn budget under the 12th 5-year plan is intact or if it's going to be reduced).

Hutchison Port Holdings Trust (DBSVickers)

COSCO Pacific July 2011 operating data - implications for HPH Trust

BUY US$0.675 STI : 2,874.40

Price Target : 12-Month US$ 1.05

Operating statistics for ports co-owned by Cosco Pacific and HPH Trust indicate that Yantian throughput volumes fell 2.9% y-o-y in July 2011. This is in line with our expectations as we have already highlighted that y-o-y growth rates in July and August will not make for good reading, owing to the early onset of the peak shipping season in 2010. We expect the 2011 peak season to arrive later, end later and also be weaker than previously estimated, and have already reduced our fullyear FY11 volume growth projections for Yantian to 4% and HK to 5% from 6-7% previously, in our last report.

A look at the chart below illustrates the point about how we feel volumes will play out at Yantian Port in 2011, compared to 2010. As highlighted earlier, the peak in 2011 will be more traditional months of August to October, rather than the July-August peak we saw last year. July is already a much better month than June 2011, with volumes up 11% m-o-m.

The operating numbers also indicate that volumes at HPH Trust's HK JV (COSCO-HIT) grew an impressive 8.7% y-o-y, and YTD performance at COSCO-HIT is above expectations (YTD throughput growth of 7.6%). As to data from Hong Kong port, we note that throughput growth at Kwai Tsing terminals came in at 2.8% for July 2011, and YTD growth stands at 2.9%. Given that competitor MTL has seen Maersk volumes shift partly to Nansha, we estimate HIT throughput growth to be comfortably tracking our 5% growth rate assumption for FY11.

Thus, we would prefer to look beyond the near term weakness in Yantian Port's operating numbers and advise investors to accumulate the Trust at current bombed-out valuations (8.0% FY11 and 8.7% FY12 dividend yield). Current valuations seem to be implying negative trade growth and negative EBITDA growth of almost 20% in FY12, which we don't think is a realistic possibility even if the world goes into similar levels of recession as in 2008-09. All we are expecting at this point of time is potentially slower-than-previously estimated economic growth and trade growth in the near-to-medium term, which does not justify the sharp selldown in HPH Trust's shares. Maintain BUY with TP of S$1.05.