Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Stock Name: VizBranz
Company Name: VIZ BRANZ LIMITED
Market Pulse: Rotary Engineering and Viz Branz (05 Sep 2011)
FOCUS
Rotary Engineering: Increased downside risks
Summary: The recent worries over European sovereign debt issues and the slow-down in the US economy have led to a sharp sell-down in stock markets around the world. Some oil and gas infrastructure projects have also been delayed due to the global uncertainty. Against this backdrop, we see higher downside risks for Rotary Engineering arising from fewer contract wins over the few several quarters. This would in turn result in lower revenue in FY12. Thus, we cut our FY12 earnings estimate by 20%. We also apply a lower PER peg of 7x (from 8.5x previously) to reflect the cautious market sentiment. Maintain HOLD with a fair value estimate of S$0.66. (Chia Jiunyang)
Viz Branz: Profitability affected by margin squeeze
Summary: Viz Branz reported a 15.1% YoY decline in its FY11 net profit from S$14.4m to S$12.2m as the result of higher raw material costs experienced during the year. Although its FY11 revenue showed an 8.5% YoY improvement to S$165.7m, a 5% price increase in FY11 was insufficient to offset increases in its cost. Management also declared a final dividend of 0.5 Singapore cents to bring the total dividends declared in FY11 to 1.75 Singapore cents a share (dividend yield: 9.6%) Going forward, management expects sustained margin pressures if raw material costs continue trending upwards and any planned price increases for FY12 will likely trail cost increases. As such, we revise our revenue growth forecast for FY12 downwards to 2% (3.5% previously) to account for an anticipated softer demand but maintain our HOLD rating for Viz Branz at a revised fair value of S$0.27 (S$0.30 previously), which includes a 15% discount to account for its low trading volume. (Lim Siyi)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- The US economy added no new jobs in August, stoking fears of a double-dip recession and heightening expectations of more quantitative easing by the US central bank.
- Italy's economy minister pledged to meet the country's debt goals after the ECB called for swift action by the struggling centre-right government. Italy is under pressure to present a credible plan to balance its budget by 2013 and cut its EUR1.9t euro debt.
- EU is expected to toughen up the regulation of financial trading. According to a draft copy of the proposed changes, vertically integrated stock exchanges would be opened to competition.
- Hiap Seng Engineering announced that "certain key management" helped CPIB in investigations in early July and mid-August this year.
- Stamford Tyres Corporation Ltd reported a 208% YoY increase in net profit to S$3.5m for 1Q11, helped by stronger demand for its products.
Company Name: ROTARY ENGINEERING LIMITED
| Research House: OCBC | Price Call: HOLD | Target Price: 0.66 |
Stock Name: VizBranz
Company Name: VIZ BRANZ LIMITED
| Research House: OCBC | Price Call: HOLD | Target Price: 0.27 |
Market Pulse: Rotary Engineering and Viz Branz (05 Sep 2011)
FOCUS
Rotary Engineering: Increased downside risks
Summary: The recent worries over European sovereign debt issues and the slow-down in the US economy have led to a sharp sell-down in stock markets around the world. Some oil and gas infrastructure projects have also been delayed due to the global uncertainty. Against this backdrop, we see higher downside risks for Rotary Engineering arising from fewer contract wins over the few several quarters. This would in turn result in lower revenue in FY12. Thus, we cut our FY12 earnings estimate by 20%. We also apply a lower PER peg of 7x (from 8.5x previously) to reflect the cautious market sentiment. Maintain HOLD with a fair value estimate of S$0.66. (Chia Jiunyang)
Viz Branz: Profitability affected by margin squeeze
Summary: Viz Branz reported a 15.1% YoY decline in its FY11 net profit from S$14.4m to S$12.2m as the result of higher raw material costs experienced during the year. Although its FY11 revenue showed an 8.5% YoY improvement to S$165.7m, a 5% price increase in FY11 was insufficient to offset increases in its cost. Management also declared a final dividend of 0.5 Singapore cents to bring the total dividends declared in FY11 to 1.75 Singapore cents a share (dividend yield: 9.6%) Going forward, management expects sustained margin pressures if raw material costs continue trending upwards and any planned price increases for FY12 will likely trail cost increases. As such, we revise our revenue growth forecast for FY12 downwards to 2% (3.5% previously) to account for an anticipated softer demand but maintain our HOLD rating for Viz Branz at a revised fair value of S$0.27 (S$0.30 previously), which includes a 15% discount to account for its low trading volume. (Lim Siyi)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- The US economy added no new jobs in August, stoking fears of a double-dip recession and heightening expectations of more quantitative easing by the US central bank.
- Italy's economy minister pledged to meet the country's debt goals after the ECB called for swift action by the struggling centre-right government. Italy is under pressure to present a credible plan to balance its budget by 2013 and cut its EUR1.9t euro debt.
- EU is expected to toughen up the regulation of financial trading. According to a draft copy of the proposed changes, vertically integrated stock exchanges would be opened to competition.
- Hiap Seng Engineering announced that "certain key management" helped CPIB in investigations in early July and mid-August this year.
- Stamford Tyres Corporation Ltd reported a 208% YoY increase in net profit to S$3.5m for 1Q11, helped by stronger demand for its products.
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