CNA Group: Update on Middle East receivables (DMG)

(SELL, S$0.154, TP S$0.14)

CNA’s 2Q11 net profit was in line at S$0.4m, down 81.3% YoY, mainly attributable to the absence of contribution from its associate Standard Water Ltd (SWL), which was sold in 3Q10. We note signs of CNA turning around - 2Q11 revenue has grown 11.7% YoY, 15.7% QoQ and a S$0.8m profit from 2Q11’s operations (+95.5% QoQ) versus a loss of S$0.6m last year. An update on its Middle East (ME) receivables - CNA has initiated arbitration proceedings for the S$43.4m receivables outstanding on the Dubai racecourse project. It had made provisions of ~16% of the outstanding receivables so far. Following the share placements to Mitsui and Mitsubishi, CNA’s balance sheet is strengthened and it is tapping on their businesses/network to expand. However, in the absence of a strong near-term catalyst, investors will probably take a while before revisiting this stock. Maintain SELL recommendation, with a TP of S$0.14, based on 11.9x FY11 earnings (its 6-year historical average).

2Q11 in line with expectations. 2Q11 earnings was in line, down 81.3% YoY at S$0.4m, in spite of a 11.7% YoY growth in revenue (arising from growth in Singapore, China and Vietnam). This is mainly attributable to the absence of contribution from its associate, SWL, following its disposal in 3Q10. On a positive note, 2Q11’s profit from operations came in at S$0.8m, up from a loss of S$0.6m a year ago and almost doubled QoQ.

Arbitration for Middle East receivables. CNA has initiated arbitration proceedings for the S$43.4m still outstanding pertaining to Dubai’s Nad Al Sheba Racecourse for Meydan LLC. In FY09 and FY10, CNA had already made provisions totalling ~S$7m (~16% of S$43.4m) with regards to the receivables. It is unclear at this stage whether any additional provision will be made. In terms of the legal procedures, arbitrators from both parties would be appointed and once arbitration commences, it may take as long as 18 months to resolve the dispute.

No change to our estimates. Order books have grown from S$47.6m as at Jun 10 to S$73.4m currently, to be fulfilled over the next 18 months. This is an encouraging sign and hence, we continue expect to see growth in CNA’s topline in upcoming quarters.

ConscienceFood Hldgs - On course for steady growth (CIMB)

BUY S$0.215 STI : 2,733.63

Price Target : 12-Month S$ 0.35

Reason for Report : Company update

Potential Catalyst: Beverage business commencing in FY12F

DBSV vs Consensus: FY12F below on gradual ramp up of new busineses

• Expect margin to improve on moderating raw material prices and higher ASPs

• Beverage business and cup noodle businesses remain key growth catalysts in FY12F

• 2Q11 results (+21% yoy) within consensus expectations, but below ours

• Counter at pedestal 4.9x PE, <0.2x PEG. Maintain Buy. TP unchanged at S$0.35

Expect to see continued improvement in margins. We expect sequential improvement in margins as seen in 2Q on lower raw material prices. Wheat prices are now trading at lowest levels in the last 4 quarters. Prices averaged US$295/mt in 2Q11, down c.7% qoq from 1Q11’s US$317/mt. As ASP increase filters through, we expect gross margins to improve sequentially, which will aid in net profit growth, projected at 32% for FY11F.

Catalysts for earnings growth remain intact. We expect FY11F’s earnings to be supported by instant noodle sales volume growth of 29%. New products will further drive growth in FY12F as its cup noodles production ramps up from 2Q11, and beverage business starts from 2H12. We estimate that these new businesses will contribute c.18% to the Group’s revenue in FY12F.

2Q11 net profit +21% yoy. 2Q11 results were within consensus, but below our aggressive estimates. This came about on lower than expected sales volumes, as we had expected strong 1Q growth of 48% yoy to continue into 2Q. Nonetheless, revenue grew 25% yoy to Rp173b driven by sales volume increase of 13% and higher selling prices while earnings grew 24% to reach Rp27b. Despite an expected drop in gross margins to 27.6% (1Q10: 29%) on higher raw material prices, it was an improvement from 25.2% in 1Q11.

Maintain Buy, TP unchanged at S$0.35. We have adopted a more conservative stance in our earnings estimate, and trimmed our FY11F/12F earnings forecasts by 11%/23% due to (i) a moderated increase in instant noodles volume; (ii) slower ramp up in cup noodles; (iii) adjustment in the start up of its beverage business into 2H12. Our TP is maintained at S$0.35 (7x PE), as we roll our valuations to FY11/12F earnings. CSF currently trades at a pedestal 4.9x FY11F PE with a PEG of <0.2x, compared with peers’ average PE of 16x

Roxy-Pacific Holdings (KimEng)

Background: Roxy-Pacific is principally engaged in the development and sale of residential properties, and has developed more than 23 small- and mid-sized projects comprising over 1,000 residential and commercial units. It owns the Grand Mercure Roxy Hotel in East Coast and has Roxy Square and Kovan Centre among its investment properties.

2Q11 results: Roxy-Pacific achieved $46.7m revenue in 2Q11, down 16% YoY due to lower revenue from property development. At the net profit level, this was offset by a fair value gain on Roxy Square, resulting in a 15% rise from $12.9m to $14.9m.

Key ratios…

Price-to-earnings: 6.0x

Price-to-NTA: 1.4x

Dividend per share / yield: 1.5 cts / 3.8%

Share price S$0.40

Issued shares (m) 636.6

Market cap (S$m) 254.6

Free float (%) 24.9%

Recent fundraising activities Nil

Financial YE 31 December

Major shareholders Kiam Lam Investment – 36.0%, Sen Lee Development – 11.1%, Teo Hong Lim – 8.5%

YTD change -13.98%

52-wk price range S$0.305-0.52

Our View

Unbilled profits estimated at $0.275/share. There remains $531m of progress billings, mainly from two nearly fully sold projects, Space@Kovan and Spottiswoode 18. Pre-tax profit from these billings is estimated to be $174.6m ($0.275/share and 69% of market cap).

Unsold landbank valued at $0.120/share. We value Roxy-Pacific’s unsold landbank at $384m on the assumption that commercial buildings (70 Shenton Way, Singapura Theatre, Everitt Building and New Changi Hotel) are redeveloped into mixed-use projects and sold. Estimated pre-tax profit is $76.2m ($0.120/share and 30% of market cap).

Book value of $0.70/share. Adjusting for the market value of Grand Mercure Roxy Hotel (kept at cost less depreciation), Roxy-Pacific’s BV will be $0.70/share. In all, its RNAV adds up to $1.10/share. The stock trades at a 64% discount to RNAV.