30 Aug 2013~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : Man seeks to change the foods available in nature to suit his tastes, thereby putting an end to the very essence of life contained in them.
- SAI BABA
Singapore: The Day AheadSINGAPORE DAYBOOK : Now Minzhong says it was misunderstood. It dismisses fraud claims but will respond only later; analysts seek strong response [SINGAPORE] China Minzhong Food Corp has dismissed claims of fraud against it by a shortseller as a misunderstanding of its business and said that it would issue a response by the end of the week.
The company delayed reporting its full-year results from yesterday morning to yesterday evening to address some of the issues raised by shortseller Glaucus Research Group, but those numbers would mean little until Minzhong gives its response, observers said.
"It really has no meaning if people have doubt about the numbers, so the main thing is to restore investors' confidence," Voyage Research analyst Ng Kian Teck said.
Late yesterday, Minzhong reported a 4.9 per cent decline in fourth-quarter net profit to 162.7 million yuan, or 0.25 yuan per share, for the period ended June. For the full year, net profit rose 11.1 per cent to 755.1 million yuan, or 1.28 yuan per share.
Minzhong has declared a dividend of one Singapore cent per share.
Trade receivables turnover days, a metric that Glaucus raised questions about, increased by 31 days to 116 days.
Glaucus this week issued a report alleging that Minzhong faked its past sales numbers and manipulated receivables and capital expenditure to cover its tracks.
In a statement, Minzhong said that Glaucus misunderstood its business. "The company has done a preliminary review of the report and notes that most of the issues raised by Glaucus with regard to the financials of the company were nothing new and arose out of a complete lack of understanding of the company's business model as well as the operating environment in China.
"They have also failed to analyse the company's growth path over the years and have chosen to take snapshots of the company's results at specific times."
Minzhong expects to issue its response by the end of the week, and has extended its trading halt to Friday's close.
On Monday, the company had said it "will take all necessary steps to defend its reputation and will not hesitate to take legal action against those who put up and disseminate false or misleading statements without due regard to their truth and for the purpose of inducing others to deal in securities".
PT Indofood, Minzhong's largest shareholder with a 29.3 per cent stake, is also waiting to hear Minzhong's side.
"Indofood is still awaiting for the response from CMZ," Indofood director Thomas Tjhie said via e-mail. "Currently, Indofood remains committed to its investment in the company." It is the unusually serious nature of Glaucus's allegations that will require an equally strong answer, Voyage's Mr Ng said.
Referring to Muddy Waters attack on Olam International near the end of 2012, Mr Ng said it "was more about accounting treatment, but this one, it's very serious. It's like an outright slap." Minzhong will have to mount a robust defence to survive those allegations, he added.
"What the public wants is for them to address whatever they've raised, especially about the sales channels," Mr Ng said. "Are the sales numbers true? . . . It's quite challenging for Minzhong now, and market confidence is not strong."
Minzhong may even have to consider opening up more of its inner workings than normal, if that is what it takes to refute the allegations.
"I know there are some trade secrets involved, but it would be good if they can show some invoices," said Mr Ng. "They cannot leave the halt with so many questions lying around."
Glaucus said that the incorporation date and regulatory filings of two top customers suggest that Minzhong faked sales during its initial public offering in 2010.
It also claimed Minzhong's regulatory filings in China were inconsistent with its financial filings in Singapore. Minzhong's unusually high profit margins, rising receivables, cash flow and recent capital expenditures are also suspicious, Glaucus said.
Minzhong said: "The company would seek to substantiate in its detailed response to the report that its financials are sound and that there were no fabricated sales or alleged cover-up by the company.
"In particular, the company wishes to highlight that its accounts have been prepared in accordance with Singapore Financial Reporting Standards and audited by external auditors Crowe Horwath First Trust LLP, and there has been no qualification in their reports over the years." (Source: The Business Times)
MARKET SCOOP
Singapore's Fraser & Neave says in beer spat with Myanmar partner
Singapore's Olam Q4 net profit down 48% on higher tax charges
JTC, URA offer 4 industrial sites for sale
Record 21 billionaires in Singaporethis year: Forbes
Ezion secures deal to provide service rig over 4 yrs
Chinavision half-year earnings up on growth in core businesses
China Minzhong refutes Glaucus report, FY13 results to be released this evening
Moody's upgrades Keppel REITto Baa2; outlook stable
China Minzhong says short-seller misunderstands its business model
(Source: The Business Times) CIMB Securities says... FRASER & NEAVE | OUTPERFORM | TP: S$6.61
We expect more corporate actions to form the share price catalysts
Meanwhile, we retain our Outperform call with unchanged target price of S$6.61 (still on 20% discount to property RNAV)
We estimate the current share price of FNN implies a 34% discount to RNAV for FCL (in line with the sector average),backed by S$3.3bn of unbooked presales and a low pro forma net gearing of 36%
FNN management held a briefing for sell-side analysts on the demerger of its property entity (FCL) via a proposed separate listing on SGX by undertaking a dividend in specie
For FNN (excl.FCL), management plans to go deeper into its ASEAN markets, with Thailand an obvious longer-term target
Some cost savings are expected on the procurement side as a combined group with Thai Bev -a positive
The bulk of the discussion was on FCL about how synergies can be reaped with TCC
Management says that it is studying the possibility of acquiring TCC's international hotels (excl.Thailand) and sees future development collaboration opportunities in Thailand
With TCC, FCL believes it can be very competitive in that segment
As such, it is likely to be more proactive in the development space. For now, it sees its asset allocation mix as optimum. It is now ready to explore a hospitality REIT, which could come by 1H14
It looks like it is status quo for now with the same assets, mandate and management
But we get the sense that the two new entities are likely to be more aggressive in acquisitions compared to the past
Management says that its Thai shareholders are acquisitive in nature
FNN (ex-FCL), in a net cash position, will be on the look-out for things to buy
For FCL, we believe the prospect of integrating with TCC to form a property behemoth is the long-term driver for the stock
Overall, we expect more corporate activity at the FCL level, including restoring the free float to above 10% before 31 Dec
Management says that a key reason for keeping FCL listed is to be able to tap the equity markets in the future
FNN remains an Outperform
UOB KAY HIAN says ...
EZION HOLDINGS | BUY | TP: S$2.85
Ezion has secured a US$49.1m 4-year bareboat charter to provide a refurbished service rig to support an oil major's oil & gas activities in the Middle East
The oil major is a new client
The rig to be deployed around mid-14
The rig will be owned by a 50:50 JV company between Ezion and Kim Seng Holdings Pte Ltd
Ezion will charter rig from the JV company to re-charter to the oil major
This is a different arrangement from Ezion's past JVs in which it was typical for both the charter contract and rig to be owned by the JV company
Ezion said this time round is different because Ezion was a pre-qualified supplier of the oil major whereas the JV company was not, hence the entire charter contract could only be awarded to Ezion
Ezion will pay the annual charter revenue of US$12.3m to the JV company
All the profit margin is captured by JV company
Rig capex, estimated at US$40m, will be funded by US$12m equity and US$28m debt at the JV company level
Cost of debt is estimated at 6% p.a., which is 1ppt higher than the usual 5% p.a. because the JV company will be utilising floating debt facilities
We estimate a net profit of US$6.6m p.a. from the project, with Ezion's 50% share at US$3.3m p.a.
With the rig deployment around mid-14, this would translate into a marginal net profit enhancement of 0.8% (a 6-month impact) in 2014 and 1.3% in 2015 for Ezion
We estimate the project's ROE at 55% which is well above Ezion's minimum ROE of 30% for new projects
No change in our earnings forecasts and target price of S$2.85 which is pegged at 11x 2014F fully-diluted EPS (adjusted for dividends on perpetual securities and preference shares)
This is 16% above the long-term 1-year forward PE mean of 9.5x for the offshore support vessel (OSV)-owner segment of the offshore & marine sector
Maintain BUY
OSK DMG Securities says... EU YU SANG | BUY | TP: S$0.92
4Q13 revenue came in at SGD77m, driven mostly by a 23% surge in Hong Kong sales to SGD34m, buoyed by its strong retail and wholesale businesses
We note demand in the territory was supported by a stable domestic market that benefited from increasing Chinese tourist arrivals, as well as satisfactory performance from its first retail store on board a cruise ship under the Star Cruises line
Growth in Hong Kong was partially offset by a 4% dip in Singapore contribution to
SGD17.6m on cautious consumer spending
Sales in Australia rose 15% to SGD9.0m, or 22% growth in local currency terms
This suggests that EYSAN's core markets' GPMs rose to 52%-54%, sufficient to
compensate for Australia's lower profitability at ~40% GPM
Operating margins widened ~0.7ppt on better cost control
Its reported operating profit dipped 1% to SGD24.1m, and would have improved by 18% if Australia and China are excluded
We note that the Australia unit saw a loss of SGD2.8m in 4Q13, or SGD9.0m for the full year, on the opening of seven new self-operated stores in 2H13, and inventory write-offs
We keep our FY14F profit estimates largely intact at SGD20.2m, or +37% y-o-y, and expect earnings to surge 34% to SGD27.0m in FY15
We are also projecting for earnings to recover from a low base a year ago to SGD2.3m in 1Q14, and grow by 21% y-o-y to SGD5.7m in 2Q14
We switch to DCF valuation to better reflect the group's long operating history and 10% profit CAGR since 2001
We assume a 9.1% WACC and terminal growth rate of 3%
This lifts our TP to SGD0.92 (previously SGD0.88)
Maintain BUY |
