Q&M DENTAL GROUP
Broker: CIMB Research
Target price: 64 cents
Fourth-quarter core net profit of $2.1 million (down 43 per cent year on year) was far below our $4.3 million expectation.
The miss came largely from Aidite, which is supposed to be a stable and high-margin business, but disappointed as sales failed to materialise and its cost of sales spiked. Higher staff costs made things worse.
If we exclude non-core gains, full-year core net profit would be flat at $8.6 million. Overall, this was very disappointing given expectations of new acquisitions kicking in and full-year contributions from China.
Broker: OCBC Investment Research
Target price: 29.5 cents
Post 2015 results announcement, we had a call with the management of Midas Holdings and noted that its 14.7 per cent growth in 2015 revenue to 1.51 billion yuan (S$320 million) was the result of an increase in deliveries of orders from both overseas and domestic (China) markets.
This growth was driven mainly by its aluminium alloy extruded products (AEP) segment, and Midas saw its new AEP plant in Luoyang, which started commercial production in the second quarter of 2015, turn a profit from the third quarter of 2015.
Last year's gross margin also improved 0.3 percentage point to 26.9 per cent on higher AEP gross margin.
It was a year of transition as Midas focused on building two new plants and start-up costs eroded part of its revenue growth.
Its new Jilin plant for Jilin Midas Light Alloy (JMLA) is still in the trial production phase.
Management expects JMLA to commence trial production this year with the costs incurred for trial production capitalised. JMLA is also incurring staff costs with no revenue generated during this start-up phase.
Even when JMLA starts commercial production, we expect gross margin to be thin, producing aluminium plates and sheets that are raw material inputs for other industries.
Also, with depreciation expenses kicking in, we do not expect JMLA to turn profitable soon.
We have also yet to factor in the potential impact from the proposed acquisition of Huicheng Capital as it is still pending approvals.
Broker: Maybank Kim Eng
Target price: 80 cents
Ezion has outlined several strategies:
•Joint venture with Chinese state-owned enterprises (SOEs) to deploy its units for offshore wind farm installation.
•Convert some units into mobile offshore production units to service marginal oil fields.
•Work with Chinese SOE shipyards to jointly market and operate liftboats - this could help Ezion secure contracts without incurring capital expenditure, or capex.
•Defer capex for six units for up to 12 months, significantly reducing 2016 capex by more than half. Consequently, it expects only 24 or 25 units to be operating by 2016, 35 by 2017 and all 37 by 2018.
Net gearing of 1.1 times at end-2015 was our key concern, but Ezion said that banks have pledged their support as rigs' income are assigned to them.
The capex deferment will also help to ease balance-sheet stress and boost free cash flow. We continue to believe that Ezion's relative resilience makes it well-placed to survive the downturn.