Market Pulse: ECS and Goodpack (12 Sep 2011)

Market Pulse: ECS and Goodpack (12 Sep 2011)

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ECS Holdings: Higher risk profile; but focusing on addressing key issues

Summary: ECS Holdings' (ECS) management recently updated us that the working capital situation of the group has improved. We expect management to continue its focus on managing its working capital over the next two quarters, although this could mean softer top-line growth. Recall that the group's net gearing ratio had jumped up to 86.5% in 2Q11, beyond management's target of maintaining it below the 70% mark. We also expect HP's decision to possibly spin-off or sell its PSG business to have a limited impact on ECS. ECS has continuously been seeking to broaden its vendor and product base as a means of diversifying its business. Hence while the risk profile of the group has increased over the past couple of months, in our opinion, we are encouraged by management's efforts on addressing these key issues. Maintain BUY with an unchanged fair value estimate of S$1.04 (based on 7x blended FY11/FY12F core EPS). ECS is trading at 3.3x FY12F PER, below its average forward PER of 3.5x during the 2008-2009 global recession. As such, we believe that the market has already priced in the uncertainties concerning both the group and macro economy. (Wong Teck Ching Andy)

Goodpack: Dilution to set in with warrants expiring in Nov 2012

Summary: Goodpack currently has 63,998,910 warrants with a strike price of S$0.68 outstanding. These warrants are due to expire in Nov 2012 and will lapse if not exercised by then. Since its financial year-end in Jun 2011, 268,000 warrants have been exercised. With the remaining warrants in-the-money, we expect these warrants to be fully exercised (barring any significant market event), which will add 13% more shares to its total shares outstanding and raise S$43.5m for the company. Although this warrant exercise will not impact our revenue growth forecasts for the company, our valuation per share of the company will be reduced correspondingly to account for the increase in shares. Assuming full conversion of the warrants, our previous fair value estimate of S$2.15 is now reduced to S$1.90 in anticipation of the increase in shares outstanding. Maintain BUY. (Lim Siyi)


For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES

- G7 finance ministers and central bankers pledged to support banks and buoy slowing economic growth, and stressed that concerted, global effort is required for strong balance growth.

- China's economy showed resilience, as imports reached record levels (30.2% increase YoY) and exports (24.5% increase YoY) grew more than expected.

- Indonesians remain prominent buyers of Singapore property, remaining within the top 3 foreign buyers, with purchases largely within the S$1.5m to S$5.0m range.

- Global Logistic Properties (GLP) is planning an IPO of its Japanese assets, possibly raising at least S$1.6b, in the first real estate trust IPO in Japan in five years.

- CapitaLand has priced its 55-unit development, the Nassim condo, at between S$9m and S$33m.

- Due to the grounding of Tiger Airways' Australian operations, its load factor fell 22% YoY.

- Otto Marine has won a contract for two 12,000 brake horse power anchor handlers worth US$77m.

- Popular Holdings posted 1Q net profits of S$10.22m, up 25.3% YoY.

- Henderson Land has joined other Hong Kong companies in raising funds in Singapore's bond markets. It sold S$200m worth of bonds in Singapore.