9999 ren

6 Aug 22 September 2012 2009

billion&below
Small/Mid Cap Weekly

STRATEGY
Terence Wong, CFA +65 6232 3896 terence.wong@dmgaps.com.sg

my 2
In Focus: Consumer Staples One of the best performing sectors Who looks interesting? Index Performance
% Chg STI Mid Small 1 wk 1.76 1.04 1.36 1mth 3.48 2.48 1.33 3mth 2.03 3.35 1.40 52 wk -1.79 -1.94 -8.78

It has been quite a year for consumer staples, with stock prices strongly outperforming the general market as uncertainties loom. More recently, they have also received a kicker from a flurry of M&As in the sector. (CONTINUED ON PAGE 2)

Weekly Best/Worst Performers

(DMG Universe) Top 5 China MinZhong Hi-P International China Farm Equipment Ezra Ezion Holdings Bottom 5 Yamada Green Resources KSH Holdings Leader Environmental Stamford Land Sino Grandness % 17.54 14.38 12.50 5.21 4.84 % -18.24 -14.00 -13.33 -8.47 -7.14

Model Portfolio Weekly Wrap

Portfolio performance: 1.4% WoW, 29.3% YTD, +50.8% PTD Best performers: Ezion (+5.4%), Osim (+3.3%) Worst performers: None (four stocks were flat) Changes to portfolio: Nil
Price (S$) Previous 0.275 0.925 1.220 0.390 0.210 0.495 Market Value (S$) Last 226875 268125 201600 253500 136500 198000 223588 1508188 % Chg Cost 3.5% 42.4% 4.6% 21.9% -8.7% 19.3% 50.8% STI FSTS

Portfolio Cost China Animal 0.266 Ezion 0.685 Osim 1.205 Lian Beng 0.320 SBI 0.230 Elite KSB 0.415 Cash Total (With Realized Gain)

Last 0.275 0.975 1.260 0.390 0.210 0.495 -

WoW 0.0% 5.4% 3.3% 0.0% 0.0% 0.0% 1.4% 1.8% 1.4%

Whats Inside?

Model Portfolio - Weekly Wrap Reports Recap Broadway; Hi-P; Elec & Eltek; Ezion Analysts Diaries

Source: Bloomberg data

(CONTINUED ON PAGE 4)

Disclaimer: DMG & Partners Securities Pte Ltd may have received compensation from the companies covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication.
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my 2 One of the best performing sectors. Consumer stable counters in Singapore were up 33% YTD, outperforming STI's +15%, mainly driven up recent privatisation activities as well as investors preference for the defensive sector in current uncertain times. Privatisation targets APB Breweries and Cerebos Pacific were up +73% and 37% to close at S$49.50 and S$6.55 respectively on 3Aug12, or close to the offer price of S$50.00 and S$6.60 from their respective substantial shareholders. On the other, Viz Branz has jumped 115% YTD on speculation of a possible sale of stake by a key shareholder. Other consumption plays have also performed well, with Super Group at +56%, Thai Beverage at +39% and Food Empire at +38%. The sector currently trades at FY12F 15x PER and 3.1x PBR, with projected dividend yield of 3.6%. Figure 1: Peer Comparison

Figure 2: Stock Performance

Figure: YTD returns

Source: OSK|DMG estimates; Bloomberg

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my 2 Kicking off the M&A ball. The M&A scene first kicked into high gear when ThaiBev, controlled by Thailands second richest man, Charoen Sirivadhanabhakdi, purchased a combined stake of 22% in Fraser and Neave from OCBC, GE and the Lee family of OCBC, for S$2.8b. Separately, Kindest Place, owned by the son-in-law of the ThaiBev founder Charoen acquired an 8.6% stake in Asia Pacific Breweries for about S$1b. Perceiving a potential threat to its position as the largest shareholder in APB, Heineken responded with a S$5.1b offer to buy over F&Ns 40% stake in APB. Excitement mounted during the week as ThaiBev continued to build up its stake in F&N to 24.1% through open market purchases while F&Ns board deliberated on whether to accept Heinekens offer. While Heinekens offer represents an opportunity for F&N to realise significant value from its brewery operations, APB accounts for over 30% of its operating profit and a sale would mean the loss of a significant earnings driver. By last Friday, the end of the two week deadline given by Heineken, F&Ns board announced that it is accepting Heinekens offer. The deal will now be brought to F&N shareholders for approval in an EGM. During the week, another M&A which occurred involved the privatisation of Cerebos, the health supplement company best known for its Brands Essence of Chicken, by its major shareholder Suntory. Suntory, which currently holds a 82.5% stake in Cerebos, offered S$6.60/share for the rest of the outstanding shares in Cerebos, representing a 23% premium to the last traded price and an EV/EBITDA of 10.6x (FY11). Given the keen interest in the F&B sector, all eyes are now on other potential acquisition targets. Who looks interesting? I think companies like Eu Yan Sang, a Traditional Chinese Medicine (TCM), will have its fair share of suitors (DISCLAIMER: This is pure speculation on my part). The company may have been hit over the past few quarters due to its Aussie associate, but core business remains steady. Since Eu Kong founded the company some 130 years ago, it has grown to become the largest player in Singapore, Malaysia and even Hong Kong with over 150 stores. It is also in the process of expanding its footprint in China. CEO Richard Eu, the great-grandson of the founder and man of multiple hyphenates (lawyer-banker-stockbroker-venture capitalist-water ski champion), has been at the helm since 1989 and is credited for transforming a company that almost fell into the hands of construction firm Lum Chang back in 1990. He has since grown the brand equity and modernised the company by injecting scientific approach to quality control, which was unheard of back then. With regards to a buy-out, much still depends on the Eu family, which holds 60% of the listco. I also like OSIM International, which is my top pick within the consumer sector. It is focused on building good consumer brands, which I believe will catch the eyes of global brand specialists. However, it is unlikely that founder Ron Sim, who holds close to 70% of the company, will let go of his grip anytime soon. In fact, having built up an enviable war chest of close to S$200m, OSIM is more likely to be on the prowl for acquisition targets.

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Model Portfolio Weekly Wrap My Small cap model portfolio was up by 1.4% last week, matching the FSTS but behind STI's 1.8%. The portfolio was driven by Ezion Holdings and OSIM International, while the remaining four stocks remained flat. Ezion outperformed on the back of yet another new deal. This time, it is a US$71m deal to provide logistics and support services for the Australia Pacific LNG (APLNG) project. This is the fourth LNG related contract secured since 2009. Analyst Jason Saw upped both his estimates and TP (See Reports Recap). Figure 1: Portfolio Return
Portfolio Cost China Animal 0.266 Ezion 0.685 Osim 1.205 Lian Beng 0.320 SBI 0.230 Elite KSB 0.415 Cash Total (With Realized Gain) Price (S$) Previous 0.275 0.925 1.220 0.390 0.210 0.495 Last 0.275 0.975 1.260 0.390 0.210 0.495 Qty 825000 275000 160000 650000 650000 400000 Market Value (S$) Cost Previous 219125 226875 188250 254375 192800 195200 208000 253500 149500 136500 166000 198000 Last 226875 268125 201600 253500 136500 198000 223588 1508188 % Chg Cost 3.5% 42.4% 4.6% 21.9% -8.7% 19.3% 50.8% WoW 0.0% 5.4% 3.3% 0.0% 0.0% 0.0% 1.4%

Source: Bloomberg data and OSK|DMG estimates

Figure 2: Portfolio vs STI & FSTS

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2/3 -10.0% -20.0% -30.0% 2916- 23- 3013- 20- 27411- 18- 2515- 22- 2913- 20- 2736-Apr 1-Jun8-Jun 6-Jul Mar Mar Mar Mar Mar Apr Apr Apr May May May May Jun Jun Jun Jul Jul Jul Aug Portf olio 36.2 36.6 41.0 42.5 44.7 45.7 44.2 41.8 40.7 40.4 37.5 33.5 36.6 38.4 36.4 40.3 40.6 47.2 50.4 49.6 50.5 48.8 50.8 STI FSTS 1.2% 0.2% 1.8% 1.1% 1.8% 1.0% 1.0% 1.2% 0.8% 1.1% -2.5 -6.0 -6.3 -7.2 -7.4 -5.0 -4.4 -2.7 0.7% 1.3% 2.0% 1.4% 3.2% -14. -14. -12. -13. -12. -12. -13. -13. -15. -15. -19. -23. -22. -21. -22. -20. -19. -17. -14. -14. -14. -15. -14. 9/3 16/3 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 1/6 8/6 15/6 22/6 29/6 6/7 13/7 20/7 27/7 3/8

Source: Bloomberg data

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Figure 3: Portfolio historical performance

60.0%

50.0%
WoW Ptd

40.0%

30.0%

20.0%

10.0%

0.0% 2/3 -10.0% 2-Mar 9-Mar 16-Mar 23-Mar 30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul WoW -2.2% 0.3% 3.2% 1.1% 1.5% 0.6% -1.0% -1.6% -0.8% -0.2% -2.1% -2.9% 2.3% 1.3% -1.4% 2.9% 0.2% 4.7% 2.2% Ptd 13-Jul 20-Jul 27-Jul 3-Aug -0.5% 0.6% -1.1% 1.4% 9/3 16/3 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 1/6 8/6 15/6 22/6 29/6 6/7 13/7 20/7 27/7 3/8

36.2% 36.6% 41.0% 42.5% 44.7% 45.7% 44.2% 41.8% 40.7% 40.4% 37.5% 33.5% 36.6% 38.4% 36.4% 40.3% 40.6% 47.2% 50.4% 49.6% 50.5% 48.8% 50.8%

Source: Bloomberg data

Figure 4: Portfolio vs STI & FSTS (YTD)

Portfolio

STI

FSTS

35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2/3 9/3 16/3 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 1/6 8/6 15/6 22/6 29/6 6/7 13/7 20/7 27/7 3/8 2-Mar 9-Mar 16-Mar 23-Mar 30-Mar 6-Apr Portfolio 16.8% 17.1% 20.8% 22.2% 24.1% 24.8% STI 13.1% 12.0% 13.8% 13.0% 13.8% 12.8% FSTS 15.6% 15.2% 18.1% 16.9% 17.7% 17.7% 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul 13-Jul 20-Jul 27-Jul 3-Aug 23.6% 21.6% 20.6% 20.4% 17.9% 14.5% 17.1% 18.6% 16.9% 20.2% 20.5% 26.2% 28.9% 28.3% 29.0% 27.5% 29.3% 12.9% 13.2% 12.7% 13.0% 17.1% 16.7% 14.6% 13.8% 9.0% 9.0% 5.0% 3.5% 4.8% 5.4% 3.8% 6.1% 3.5% 5.1% 6.2% 8.1% 6.9% 9.2% 8.8% 12.6% 13.2% 14.0% 13.3% 15.3% 11.8% 15.2% 16.0% 15.0% 13.8% 15.4%

Source: Bloomberg data

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REPORT RECAP Broadway Industrial (NEUTRAL, TP: S$0.35)

Edison Chen (+65 6232 3892, edison.chen@sg.oskgroup.com) Terence Wong, CFA (+65 6232 3896, terence.wong@sg.oskgroup.com)
Broadway is the No. 2 manufacturer of actuator arms for the HDD industry, with a market share of around 20%...

31 Jul 12

Reason for report: 2QFY12 Results Review Key points: Broadway reported 2Q12 earnings of S$5.7m (+49.1% YoY) on the back of sales of S$173.5m (+20.6% YoY, +10.0% QoQ). Taking off the exceptional items, 1H core earnings of S$6.6m came in within our expectation. Despite the strong sales, costs escalated as the production facilities were running at 20% more than the optimised 100% utilisation level. Moving on, the group plans to increase its capex spending further in preparation for another ramp up next year. We expect 2H results to be better than 1H as the group is expecting to manufacture for new customers. While management appears optimistic, we remain cautious in view of Seagates disappointing results and weak outlook guidance. Valuation/Recommendation: Maintain NEUTRAL, with an unchanged TP of S$0.35 based on 8.7x (5-yr historical average) blended FY12/13 earnings.

Hi-P International (BUY, TP: S$1.15)

Edison Chen (+65 6232 3892, edison.chen@sg.oskgroup.com) Terence Wong, CFA (+65 6232 3896, terence.wong@sg.oskgroup.com)

3 Aug 12

Hi-P International is an integrated contract manufacturing services provider specialising in precision plastic injection moulding, mould design and fabrication, assembly, ancillary value-added services and precision metal stamping

Reason for report: 2QFY12 Results Review Key points: Hi-Ps 2Q results came in within our expectation. It reported a net loss of S$2.1m on the back of S$251.8m revenue (+9.5% YoY). Taking off the one-off charges of closing down its non-core production facility in Mexico, it would have achieved breakeven. Gross margin remain at a low of 7.1% similar to that of the 1Qs mainly attributable to 1) performing low-margin assembly work that bundled with the lucrative component orders coming in the 2H, 2) increased labour costs and 3) overheads expenses in preparation for the 2H ramp up. Valuation/Recommendation: Going forward, as 1) equipments necessary for the 2H ramp up are in place, 2) production yield for the new products are at satisfactory level and 3) managements upbeat confidence in delivering strong profitability in 2H, while taking Research in Motion (RIM)s further decline of contribution into consideration, we believe that the stock is currently undervalued. Reiterate BUY with an unchanged TP of S$1.15, pegging blended FY12/13 earnings to 11x peers average P/E.

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Elec & Eltek (NEUTRAL, TP: US$2.77)

Edison Chen (+65 6232 3892, edison.chen@sg.oskgroup.com) Terence Wong, CFA (+65 6232 3896, terence.wong@sg.oskgroup.com)

3 Aug 12

Elec and Eltek is one of the largest manufacturers of printed circuit boards (PCB) and PCB materials in the world.

Reason for report: 2QFY12 Results Review Key points: Elec and Eltek (E&E)s 2Q12 results came in below our expectations once again with PATMI of US$11.8m (-4.1% YoY) on the back of sales of US$135.8m (-19.1% YoY). Revenue continued to disappoint as the strong performance from the groups High Density Interconnect (HDI) business has not done enough to offset the woes of its traditional PCB business. Gross margin remained soft at 15.4% (-2 ppt YoY) largely due to higher minimum labour costs in China and Thailand as well as weakening pricing power. Moving on, we are concerned over the groups ability in keeping up their margins on the back of intense pricing competition and escalating wages and utility costs. Valuation/recommendation: We cut our FY12 and FY13 earnings estimates by 22.9% and 25% to US$42.6m and US$53m respectively and downgrade our recommendation to NEUTRAL. Our new TP of US$2.77 (previously US$3.37) is derived by pegging blended FY12/13 PATMI to 11x industry peers average.

Ezion Holdings (BUY), TP: S$1.32)

Jason Saw (+65 6232 3871, jason.saw@sg.oskgroup.com)

2 Aug 12

Ezion is involved in the provision of offshore and marine logistics and is owner of one of the largest liftboats in the world.

Reason for report: Company Update Key points: Ezions US$71m contract win to provide logistics and support services for the Australia Pacific LNG (APLNG) project is a strong testament to its project execution capabilities. This is the fourth LNG related contract secured since 2009 (including one by the OMSA JV). The initial contract value of US$71m covers the haulage of equipment and modules for the first two LNG trains on Curtis Island. We understand that the project owner could develop up to four trains and the value of the logistics contract could go up to US$140m. The initial contract is expected to commence in 2Q13 for a period of 20 months. Following the win, we raise FY13-14F net profit estimates by 1-2% and TP to S$1.32 (old: S$1.31). Valuation/recommendation: Maintain BUY with a revised TP of S$1.32 based on 10x blended FY12/13 FD EPS We tweak our TP upwards to reflect the new contract. Our TP implies 40% upside from its last closing price.

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ANALYSTS DIARIES

Event Results

Company United Overseas Bank Neptune Orient Lines Ltd Starhub Ltd Genting Singapore Fraser & Neave Ltd Noble Group Ltd Wilmar International Ltd Singapore Telecom City Developments Olam International

Date 7 Aug 8 Aug 8 Aug 10 Aug 10 Aug 13 Aug 14 Aug 14 Aug 14 Aug 28 Aug

DMG & Partners Research Guide to Investment Ratings

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Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. As of the day before 6 August 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 23 July 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: Analyst Company a) Nil b) Nil DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur Hong Kong
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