Thursday, February 4, 2010

NRA: China Taisan Integrating Downstream

3rd February 2010
China Taisan Technology Group Holdings Limited’s
Not Rated
Current Price S$0.185
52 week : 0.25 – 0.085
Fair Value N.A.

Integrating Downstream
We recently visited China Taisan Technology Group Holdings Limited’s (“China Taisan”) plant in Jinjiang City, Fujian Province, PRC. China Taisan is a producer of multi-functional knitted fabrics used for sports and leisure apparels in China. Key customers include brands like 361 Degrees, Metersbonwe, Li-Ning, Anta, Umbro, Nike and Adidas. We managed to tour the facilities at Jinjiang Lianjie Textile & Printing Dyeing Industrial Co., Ltd, a key subsidiary of China Taisan. We also spoke at length with the management.

Key takeaways from our visit:
Integrating downstream through acquisition. China Taisan aims to be more vertically integrated by moving downstream towards being an OEM & ODM. Reasons in doing so include 1) being closer to clients, 2) higher margins from going downstream and 3) Brands tend to give more orders to vertically integrated firms.

Organic expansion. China Taisan’s fabrics were traditionally used mainly for sports and leisure apparels. It is intending to expand into the segment of ladies and children’s clothing to capture a bigger pie of the apparel industry.

Competitive edge. When queried on its competitive edge, management highlighted 2 key points: 1) Technology and 2) Size. It prides itself in its technological know-how and innovation. Management also pointed out that leading brands will not give orders unless the company has a certain capacity and meets the minimum quality standard.

Cyclical industry. We note the cyclicality of the industry as revenue and net profit for 9M09 declined 41.1% and 75.5% y-o-y due to the de-stocking cycle after the Beijing Olympics and the global economic downturn. Utilisation rate fell to 50% in 2Q09 and 3Q09 with gross margin at a low of 5.0% and 9.4% respectively compared to an average of 31.9% in FY08. Orders have since picked up. Orderbook stood at Rmb205.0mil as at 15 Oct 09 and is expected to be delivered over 2 months. Further Rmb94.5m worth of orders has been secured till 10 Nov 09 (as reported in its 9M09 financial results).

Our view. We were impressed with the large selection of different fabrics and materials China Taisan could produce as well as the continuous innovation to come up with new products. We were satisfied with its production facilities although we will not necessarily classify all of its facilities as high-tech. We also see risks in the fickleness of the apparel industry where products could be out of favour unexpectedly. However, China Taisan is supported by a strong balance sheet with net cash of Rmb315.4mil and current ratio of 3.74x as at 3Q09. Operating cashflows have also been positive.

We take China Taisan’s plans to move downstream and expand its product range as a reference measure to determine if management is able in executing its growth strategy. We are positive that FY10 results will improve significantly y-o-y from the strong pick-up in orders and the low base in FY09.

We do not have a rating on the stock. However, based on Bloomberg data, China Taisan is currently trading at 6.77x trailing P/E and 9.95x forward P/E. FY08 saw a peak in earnings with EPS of 30.0 Rmb cts while 9M09 EPS was only 4.8 Rmb cts. We expect FY10F EPS to be higher than FY09. It also issued an ADR recently and should see an improvement in liquidity.

Frasers Commercial Trust (FCOT-phillip)

Frasers Commercial Trust – Things Picking Up
Buy (Upgrade)
Closing Price S$0.15
12-month Target Price S$0.18 (+20.0%)

• 1Q10 revenue = $29.6 million, (+19.1% y-y, +15.5% q-q),
• Net property income = $23.5 million, (+26.6% y-y, +17.7% q-q)
• Distributable income = $7.4 million. (-20.2% y-y, +20.3% q-q).
• 1Q10 DPU of 0.24 cents. (-80.9% y-y, +20.0% q-q).
• Total asset value of $1.9 billion.
• Fair value raised slightly from $0.17 to $0.18, upgrade to Buy

Steady showing
Underlying rental income streams were steady, the increase over prior quarters were mostly due to new acquisition and favorable exchange rates. 1Q10 revenue was boosted by the contribution from Alexandra Technopark, which was added to the portfolio in August 2009. The revenue contribution from Australia benefited from the strengthening AUD, while the Japan properties performance were largely flat. Percentage of revenue breakdown is 51% from Singapore, 35% from Australia and 14% from Japan. DPU was 0.24 cents, a big drop from a year ago, due to higher borrowing cost as well as dilution from the rights issue in 2009. However 1Q10 DPU was 20% higher than 3Q09. We believe things are already on the mend as seen from the improving numbers.

FCOT registered a slight decrease of 0.2% in its asset value. Revaluation was carried out on central Park and Cosmo Plaza. The decrease comes from Cosmo Plaza, which is being earmarked for divestment. Total asset value is $1,914.2 million.

Capital management
FCOT completed all recapitalization and refinancing activities in 2009. As at 31 Dec 2009, it has total debt of $823.8 million, of which 60% is SGD loan, 19% is AUD loan and the rest is JPY loan. The constitution of the loan is a deliberate effort by management so as to form a natural hedge on the foreign cash flows. Gearing is 40.4% and the loans are due only in 2012. We believe in the event that FCOT managed to divest Cosmo Plaza and the AWPF wholesale fund, proceeds will be used to pare down debt.

We are slowly gaining confidence in management execution to turn FCOT around from the time when the new management team took over in late 2008. We have seen strong support from the sponsor, Frasers Centrepoint Limited, through the injection of Alexandra Technopark. We also believed that the relationship enabled FCOT to secure credit facilities from the lenders. We did mention in previous reports that repositioning the REIT takes time and management has shown that they are delivering what they have promised. Again we like to echo our view that the transformation is not yet complete and investors have to take a long-term view. We are forecasting a FY10E DPU of 1.26 cents on the back of improving market fundamentals. We are raising our fair value from $0.17 to 0.18 derived from our DCF valuation on a WACC of 7.04%. Upgrade to Buy.

Tuesday, February 2, 2010


Monday, February 1, 2010
Portfolio still a work-in-progress

• FY09 results in line.
FY09 DPU = S$0.0814/unit
2H09 DPU of S$0.0406/unit

• Shift in leasing strategy. Management indicated that the negative rental reversion for 2H09 is partly due to the trust's strategic move towards a lower base rent but a higher turnover component lease structure. Total gross revenue did increase 2.9% Y/Y on a SSS basis. The new lease structure, in our view, would allow the trust to be more competitive in rent negotiations, but introduced a lot more volatility in earnings. We also estimate that overall rental will increase only if the revise GTO rent component equals to previous base rent.

• Still a work-in-progress portfolio. With management still trying out different lease structures and also different tenant mix, we see CRCT's portfolio still a work in progress. The operating performance is likely to be unexciting for the next 2 quarters in our view. Therefore, we have revised our FY10E - FY12E DPU estimates down by 3-5%. In addition, given management is unlikely to acquire assets from CMA, we have retained our long-term growth rate at a lower level of 3%.

• We retain our Neutral rating, but reduce our Dec-10 DDM based price target to S$1.25/unit as we lower our earnings estimates. Key risks to our rating and price target include surprises on operating fundamentals both on the upside or downside; and the uncertain timing of the introduction of China REIT code, which is likely to support or even lift up the valuation of the trust.

CRCT - Macquarie

CRCT - Macquarie
Negative rent reversions to continue

ƒ 4Q09 Distribution income = S$12.7m,
ƒ DPU = 2.04 S cents (-10.1%YoY).

ƒ Negative rental reversions due to challenging leasing conditions. Though occupancy was stable QoQ at 95%, rental reversions were -2.9% versus preceding rates for FY09, given significant lease expiries (20% of gross income). However, pressure on rates is easing, as 4Q09 reversions were less negative (-1.8%).

ƒ In 2010, 23.5% of leases are up for renewal. We continue to expect some negative reversions as a result of continued tenant remixing, so as to improve mall-positioning and to keep up with fast-evolving consumer preferences. To this end, management has adopted a more flexible lease structure where a lower base rent is offset by a higher gross turnover rent component. This will be offset somewhat by the positive contribution from Saihan Mall asset enhancements, which were largely completed as at 4Q09.

ƒ Gearing is comfortable at 33.6% on a healthy
ƒ Interest cover of 8x.

Management has already refinanced S$88m of borrowings due in February, and is already in talks with banks to refinance the S$200m due in November.

ƒ Update of valuation assumptions. We lower our WACC to 9.2% from 10.4% previously, on a lower risk-free rate of 4.0%, which is in line with our HK/China team assumptions. We also raise our long-term growth and terminal growth assumptions to 3.5% from 3%. As a result we raised our target price to S$0.90 (S$0.49 previously).

Earnings and target price revision

ƒ We raise FY10-12 DPU estimates marginally, finetuning for update of forex assumptions. Target price raised to S$0.90 (from S$0.49) on lower WACC.

Price catalyst
ƒ 12-month price target: S$0.90 based on a DCF methodology.

ƒ Catalyst: Yield-accretive acquisitions from sponsor CMA or otherwise would be a potential positive catalyst.

Action and recommendation
ƒ Maintain Underperform. In the retail space, we prefer CapitaMall Trust (CT SP, S$1.69, OP, TP: S$1.92) for its proven track record in driving DPU growth from a combination of active leasing, asset enhancements and acquisitions. CT offers an attractive 8%-9% DPU growth over the next two years, backed by a stable yield of about 6%.
Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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