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Seacera 20100812 snP

Seacera 20100812 snP

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Published by limml63
We lift Seacera’s recommendation to Buy (from Hold) with a higher 12-
month target price of MYR0.51 (from MYR0.46).
We lift Seacera’s recommendation to Buy (from Hold) with a higher 12-
month target price of MYR0.51 (from MYR0.46).

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Published by: limml63 on Aug 12, 2010
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 All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
 
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 1 of 4
Seacera Tiles
Recommendation:
BUY
Stock Code:
7073
Bloomberg:
STB MK
Price:
MYR0.45
12-Month Target Price:
MYR0.51
Date:
 August 12, 2010
Price (MYR)
0.150.200.250.300.350.400.450.500.550.60Price30 Day Moving Average
 
Board:
 
Main
 
Sector:
 
Industrial Products
 
GICS:
 
Materials/Paper Packaging
Market Value - Total:
MYR26.1 mln
 
Summary:
Seacera’s core business is homogeneous tilesand Biaxial Oriented Polypropylene Film (BOPP)manufacturing. Apart from the above core businesses, thegroup is also venturing into property development.
 Analyst:
 
Kum Seng, Wan
Vol ('000)
0100200300Aug 07Oct 07Dec 07Feb 08May 08Jul 08Sep 08Nov 08Feb 09Apr 09Jun 09Aug 09Oct 09Jan 10Mar 10May 10Jul 10Volume
 
Results Review & Earnings Outlook
 
Although Seacera’s 1H10 revenue of MYR47.6 mln (+17.8% YoY) wasin line with expectations, net profit of MYR1.7 mln (-45.3% YoY) wasbelow forecast, reaching just 29.4% of our previous 2010 estimate.
 
The disappointing 1H10 net profit was mainly due to lower manufacturing EBIT of 6.7% (vs.13.6% in 1H09) after its BOPPdivision incurred higher resin costs in 1Q10 that it could not pass on toits customers due to the increased competition from importedproducts. Net profit was also affected by a higher effective tax rate of 36.9% due to unabsorbed tax losses.
 
Seacera’s 1H10 earnings, however, were cushioned by a maidenpretax profit of MYR1.2 mln from its property division with the sale of 29 link houses at the Pekan Kayu Ara (PKA) project in Petaling Jaya.
 
Going forward, Seacera is raising its tile manufacturing capacity by50% to 2.7 mln square meters per annum that will anchor its 2011earnings growth. Earnings will be further boosted with the launch of 309 units of medium cost apartments at the PKA project later thisyear. The performance of its BOPP division, however, is expected toremain stable due to sustained demand for its packaging materials.
 
We cut our 2010 net profit forecast to MYR4.1 mln (from MYR5.9 mln)after trimming our manufacturing margin assumptions and imputingmaiden property earnings. For 2011, we lift our net profit forecast toMYR8.4 mln (from MYR7.1 mln), after factoring in earnings from theexpanded tiles manufacturing capacity and new property sales.
Recommendation & Investment Risks
 
We lift Seacera’s recommendation to Buy (from Hold) with a higher 12-month target price of MYR0.51 (from MYR0.46).
 
Our target price remains derived from ascribing unchanged target PERmultiples of 3.5x and 4x to its 2011 (unchanged) tiles manufacturingand BOPP businesses respectively. For its property division, weascribe a target PER multiple of 5x to its 2011 earnings. Our targetprice also includes an unchanged net DPS estimate of 1.0 sen.
 
We raise Seacera’s recommendation to Buy given the improvingearnings visibility of its tiles manufacturing division when its capacityexpansion exercise is completed in 4Q10. The expansion is alsoexpected to raise economies of scale that could lead to improvedmargins from 2011 onward. We are also positive on its diversificationinto the property development sector that will add resilience to itsforward earnings. However, we continue to ascribe target PERmultiples that are lower than its industry peer average of 8x and 6x for its tiles and BOPP businesses respectively due to their smallcapacities that limits Seacera’s earnings growth prospects. We alsopeg its property division’s PER at the lower-end of the 5x-7x peer average range for small developers in our coverage due to the smallscale of its property project.
 
Risks to our recommendation and target price include: (i) lower-thanexpected demand for its tiles, (ii) unexpected rise in operating costaffecting its margins, and (iii) slower take-up rate for its upcomingproperty launches.
Key Stock Statistics
FY Dec.
2009 2010E
Reported EPS (sen)
14.0 7.1
PER (x)
3.2 6.3
Dividend/Share (sen)
1.0 1.0
NTA/Share (MYR)
1.30 1.29
Book Value/Share (MYR)
1.29 1.35
No. of Outstanding Shares (mln)52-week Share Price Range (MYR)Major Shareholders:Synergy Platform Sdn BhdDato' Samsudin Bin Abu HassanKhatijah AbdullahStock deemed Shariah compliant by the Securities Commission
20.85.058.60.31 - 0.50%24.4
 
Per Share Data
FY Dec.
2007 2008 2009 2010E
Book Value (MYR)1.201.351.291.35Cash Flow (sen)-3.612.519.812.7Reported Earnings (sen)-11.17.014.07.1Dividend (sen)0.01.01.01.0Payout Ratio (%)0.024.512.224.1PER (x)NM6.43.26.3P/Cash Flow (x)NM3.62.23.5P/Book Value (x)0.40.30.30.3Dividend Yield (%)0.02.22.22.2ROE (%)-9.66.211.45.3Net Gearing (%)81.073.360.871.1
 
 
 All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
 
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 2 of 4
Seacera Tiles
Recommendation:
BUY
Stock Code:
7073
Bloomberg:
STB MK
Price:
MYR0.45
12-Month Target Price:
MYR0.51
Date:
 August 12, 2010
FY Dec. / MYR mln
2Q102Q09% Change
Reported Revenue28.121.828.9Reported Operating Profit3.22.623.1Depreciation & AmortizationNANANANet Interest Income / (Expense)NANANAReported Pre-tax Profit2.31.921.1Reported Net Profit1.71.66.3Reported Operating Margin (%)11.411.9-Reported Pre-tax Margin (%)8.28.7-Reported Net Margin (%)6.07.3-Source: Company data
Quarterly Performance
 
Profit & Loss
FY Dec. / MYR mln
200820092010E2011E
Reported Revenue92.578.093.9134.6Reported Operating Profit6.911.48.113.4Depreciation & Amortization-3.2-3.4-3.3-3.3Net Interest Income / (Expense)-3.4-3.0-2.4-2.1Reported Pre-tax Profit3.68.45.711.3Effective Tax Rate (%)NM2.427.025.0Reported Net Profit4.18.24.18.4Reported Operating Margin (%)7.514.68.69.9Reported Pre-tax Margin (%)3.910.86.18.4Reported Net Margin (%)4.410.54.46.3Source: Company data, S&P Equity Research
 
 
 
Required Disclosures
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 3 of 4
Standard & Poor’s Equity Research Services
Standard & Poor’s Equity Research Services U.S. includes Standard & Poor’sInvestment Advisory Services LLC; Standard & Poor’s Equity Research ServicesEurope includes Standard & Poor’s LLC- London; Standard & Poor’s EquityResearch Services Asia includes Standard & Poor’s LLC’s offices in Hong Kongand Singapore, Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’sInformation Services (Australia) Pty Ltd.
GlossaryStrong Buy:
Total return is expected to outperform the total return of the KLCI or KL Emas Index respectively, by a wide margin over the coming 12 months, withshares rising in price on an absolute basis.
Buy:
Total return is expected to outperform the total return of the KLCI or KL EmasIndex respectively, over the coming 12 months, with shares rising in price on anabsolute basis.
Hold:
Total return is expected to closely approximate the total return of the KLCI or KL Emas Index respectively, over the coming 12 months with shares generallyrising in price on an absolute basis.
Sell:
Total return is expected to underperform the total return of the KLCI or KLEmas Index respectively, over the coming 12 months and share price is notanticipated to show a gain.
Strong Sell:
Total return is expected to underperform the total return of the KLCI or KL Emas Index respectively, over the coming 12 months by a wide margin, withshares falling in price on an absolute basis.
 S&P 12 Month Target Price
 – The S&P equity analyst’s projection of the marketprice a given security will command 12 months hence, based on a combination of intrinsic, relative, and private market valuation metrics.
Shariah-compliant stock -
As defined by the Shariah Advisory Council of Malaysia’s Securities Commission
Required Disclosures All of the views expressed in this research report accurately reflect theresearch analyst's personal views regarding any and all of the subjectsecurities or issuers. No part of analyst compensation was, is, or will be,directly or indirectly, related to the specific recommendations or viewsexpressed in this research report. Additional information is available upon request.Other Disclosures
 This report has been prepared and issued by Standard & Poor’s and/or one of itsaffiliates. In the United States, research reports are prepared by Standard & Poor’sInvestment Advisory Services LLC (“SPIAS”). In the United States, research reportsare issued by Standard & Poor’s (“S&P”); in the United Kingdom by Standard &Poor’s LLC (“S&P LLC”), which is authorized and regulated by the FinancialServices Authority; in Hong Kong by Standard & Poor’s LLC, which is regulated bythe Hong Kong Securities Futures Commission; in Singapore by Standard & Poor’sLLC, which is regulated by the Monetary Authority of Singapore; in Malaysia byStandard & Poor’s Malaysia Sdn Bhd (“S&PM”), which is regulated by theSecurities Commission; in Australia by Standard & Poor’s Information Services(Australia) Pty Ltd (“SPIS”), which is regulated by the Australian Securities &Investments Commission; and in Korea by SPIAS, which is also registered in Koreaas a cross-border investment advisory company.The research and analytical services performed by SPIAS, S&P LLC, S&PM, andSPIS are each conducted separately from any other analytical activity of Standard& Poor’s.A reference to a particular investment or security by Standard & Poor’s and/or oneof its affiliates is not a recommendation to buy, sell, or hold such investment or security, nor is it considered to be investment advice.Indexes are unmanaged, statistical composites and their returns do not includepayment of any sales charges or fees an investor would pay to purchase thesecurities they represent. Such costs would lower performance. It is not possible toinvest directly in an index.Standard & Poor's and its affiliates provide a wide range of services to, or relatingto, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries,and accordingly may receive fees or other economic benefits from thoseorganizations, including organizations whose securities or services they mayrecommend, rate, include in model portfolios, evaluate or otherwise address.
CMDF-Bursa Research Scheme (“CBRS”)
This report has been prepared by S&PM for purposes of CBRS administered byBursa Malaysia Berhad, independent from any influence from CBRS or the subjectcompany. S&P will receive total compensation of RM15,000 each year for eachcompany covered by it under CBRS. For more information about CBRS, pleasevisit Bursa Malaysia’s website at:http://www.bursamalaysia.com/website/bm/ 
Disclaimers
 This material is based upon information that we consider to be reliable, but neither S&P nor its affiliates warrant its completeness, accuracy or adequacy and it shouldnot be relied upon as such. With respect to reports issued to clients in Japan and inthe case of inconsistencies between the English and Japanese version of a report,the English version prevails. With respect to reports issued to clients in Germanyand in the case of inconsistencies between the English and German version of areport, the English version prevails. Neither S&P nor its affiliates guarantee theaccuracy of the translation. Assumptions, opinions and estimates constitute our  judgment as of the date of this material and are subject to change without notice.Neither S&P nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is notnecessarily indicative of future results.This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinionsexpressed herein are given in good faith, are subject to change without notice, andare only correct as of the stated date of their issue. Prices, values, or income fromany securities or investments mentioned in this report may fall against the interestsof the investor and the investor may get back less than the amount invested. Wherean investment is described as being likely to yield income, please note that theamount of income that the investor will receive from such an investment mayfluctuate. Where an investment or security is denominated in a different currency tothe investor’s currency of reference, changes in rates of exchange may have anadverse effect on the value, price or income of or from that investment to theinvestor. The information contained in this report does not constitute advice on thetax consequences of making any particular investment decision. This material is notintended for any specific investor and does not take into account your particular investment objectives, financial situations or needs and is not intended as arecommendation of particular securities, financial instruments or strategies to you.Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professionaladvice.For residents of the U.K. This report is only directed at and should only be relied onby persons outside of the United Kingdom or persons who are inside the UnitedKingdom and who have professional experience in matters relating to investmentsor who are high net worth persons, as defined in Article 19(5) or Article 49(2) (a) to(d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, respectively.For residents of Singapore - Anything herein that may be construed as arecommendation is intended for general circulation and does not take into accountthe specific investment objectives, financial situation or particular needs of anyparticular person. Advice should be sought from a financial adviser regarding thesuitability of an investment, taking into account the specific investment objectives,financial situation or particular needs of any person in receipt of therecommendation, before the person makes a commitment to purchase theinvestment product.For residents of Malaysia. All queries in relation to this report should be referred toAlexander Chia, Desmond Ch’ng or Ching Wah Tam.
 

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