Sifting Through The Mid-Cap Debris
The broad-based selldown in mid-caps seems overdone. We highlight opportunities in Halcyon, Courts Asia, Triyards, Yong Nam and Ying Li, which have all fallen more than 20% from their 52-week highs.
• Opportunity amid selldown. Mid-cap stocks in Singapore have been heavily sold down in the last few trading days largely due to heightened fears over the collapse in the share prices of heavily-traded stocks, such as Blumont, Asiasons and Liongold. We believe the broad selldown in other non-related mid-cap stocks could present opportunities.
• Throwing the baby out with the bathwater. Mid-cap stocks in Singapore have been hit by indiscriminate selling after the recent plunge in share prices of Blumont, Asiasons and Liongold. The selldown of just these three stocks has resulted in a combined market capitalisation loss of some S$10b from their 52-week highs. As for the other mid-cap stocks, we use the FTSE ST Small Cap Index as an indicator. The index is down more than 7% since 1 October, significantly more than the FSSTI’s 1% retracement.
• Meaningful correction + unchanged fundamentals = BUY. Within our mid-cap universe, we highlight some of our top picks that have consolidated 25% or more from their 52-week highs. In our view, there has been no change in the fundamentals of these companies, including Halcyon, Courts Asia, Triyards, Yong Nam and Ying Li. Although sentiment could be lacklustre for mid-cap stocks, we think the indiscriminate selldown is a buying opportunity for investors with a medium-term investment horizon.
• Halcyon (BUY/Target: S$1.00) – Capacity and M&A-driven growth. Through a combination of asset enhancement and strategic M&A, the group will triple its mid-stream rubber processing capacity by 2015. With a robust risk model, management has maintained a healthy gross material profit (GMP) despite volatile rubber prices. The group has also taken the first step in moving upstream by acquiring a 99-year leasehold rubber plantation in Kelantan, Malaysia, for RM131m (US$40m). While long-term in nature, we see this as a positive move as it would allow Halcyon to gain control of its raw materials and venture into the premium/specialty grades of rubber.
• Triyards (BUY/Target: S$1.11) - Cheap leading liftboat builder. The group had commissioned a floating dock, which will ramp up its ship repair capacity and contribute incremental earnings of US$2m-3m a year. Management also indicated seeing strong enquiries for its proprietary third-generation self elevating units (SEU), which will drive orders growth going forward. Maintain BUY and target price of S$1.11, pegged at 7.9x FY14F PE, a 10% discount to peers’ average of 8.8x FY14F PE.
• Courts Asia (BUY/Target: S$1.14) – Retailer on discount. Courts’ expansion is on track with the group completing its nationwide retail coverage in Malaysia after securing four new sites ytd in FY14 (two bigbox, two small-format stores). It targets an additional four small-format stores for the rest of FY14 to maximise supply chain efficiency. In Indonesia, Courts’ strategic partnership with Sinar Mas Land will drive its immediate presence in the new market. Already confirmed are two bigbox
stores in Jakarta to open within six months of each other. The first store will have its groundbreaking ceremony in Sep 13 and will operate next year. Maintain BUY and target price of S$1.14, based on peers’ average PE of 13.5x on our FY14F EPS of 8.5 S cents.
• Ying Li (BUY/Target: S$0.64) – Deep in value + new management growth initiatives. Maintain BUY and target price of S$0.64, pegged at a 23.5% discount to our RNAV of S$0.83/share. The group remains sanguine on the outlook for Chongqing as the central government remains committed to develop the city into an important economic zone in inner China. We are also bullish on management’s new initiatives to drive growth with potential township developments in new cities as well as thematic developments that focus on a specific theme or industry cluster like IT, media, education and health care services.
• Yong Nam (BUY/Target: S$0.41) – Looking for a better FY14. Maintain BUY and target price of S$0.41, based on peers’ average PE of 9.7x on our 2014F EPS of 4.3 S cents. We believe the construction pipeline should remain healthy as the LTA has started to award main contractors for the construction of the MRT Thomson Line, with Samsung C&T Corporation winning the contract for S$285m and Shanghai Tunnel Engineering Co Ltd for a contract worth S$421m. We expect auxiliary services providers like Yongnam will receive the sub-contracts from main contractors in the next 3-6 months.
Publish date: 08/10/13