Monday, February 24, 2014

Sin Heng Heavy Machinery -Ex FX hedging, top-line intact (Philip)

Sin Heng Heavy Machinery -
Closing Price (SGD)0.250
Forecast Dividend (SGD)0.007
Closing Price (SGD)0.189
Ex FX hedging, top-line intact

■ Trading Revenue (41.4M) up +48% yoy due to increased regional sales, Rental Revenue (11.7M) down -13% yoy due to expected slowdown in SG due to project completions.

■ Reported net profit (0.27M) decreased 91.1% yoy. However, adjusting for FX hedging, adj. net profit decreased slightly by -5.8% yoy to an estimated 2.86M SGD which is an increase of +4.9% 1H14 vs 1H13.

■ Increased admin and selling costs due to increased revenue, as well as increased regional expansion - a slight downer.

■ However, positive outlook for 2nd half FY14 and FY15 as major infrastructure projects (SG) come on line for bidding 2nd half of the year.

■ Maintain "BUY”, with a revised TP of S$0.25 on Residual Income valuation which implies a PE ratio of 7.0x, FY15F EPS of 2.8 cents.

Sin Heng Heavy Machinery (SHHM) announced its 2Q14 results on 12 Feb 2014.

How we view this
We think the market has overreacted possibility because of FX hedging which management has guided to be reversible. After adjustment, adj. net profit has decreased 5.8% yoy, it’s mainly due to increased admin and selling costs which are expansion related. Also note that 1H14 vs 1H13 net profit is actually +4.9%, in line with single digit growth.

On outlook, trading revenue from regional expansion continues to grow and we expect an improvement in rental top-line due to several big projects being available for bidding in 2nd half of 2014. Trading activity’s growth rate bodes well in terms of regional activity, having positioning themselves in regions with robust government infrastructure spending commitments. However, increasing admin costs may threaten to put a drag on earnings.

Investment Action
We continue to be positive on SHHM due to:
1) Expected Rental pickup in SG
2) regional growth potential and business motilities in SEA
3) Potential upside surprises via opportunities with TTC.

We revise our forecast to reflect 2Q14’s earnings, and derive a TP of S$0.25. This change from previous TP of $0.265 reflects the uncertainty of increasing admin costs while waiting for regional activity to fully realize their top-line potential. Investors must be patient as more bottom line realization of their regional expansion is likely to take at least a year later, hence, we change our rating from “Buy” to “Accumulate”

Source/Extract/Excerpts/来源/转贴/摘录: Phillip-Research,
Publish date: 18/02/14

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