SARINE TECHNOLOGIES
Broker: CIMB
Call: Hold
Target Price: $1.41
Sarine Technologies has warned that it will report an operating loss of US$1.5 million
(S$2 million) for the third quarter, the gemstone firm's second profit warning for this year. Third-quarter revenue is expected to be down 50 per cent year on year and 33 per cent quarter on quarter.
In July, sightholders refused an unprecedented 70 per cent of the offered rough diamonds at DeBeers' already substantially trimmed sight, buying only US$150 million to US$200 million worth of diamonds - the lowest for July since the global financial crisis in 2008-2009.
Polishing output dropped to approximately 40 to 50 per cent, negating the need for capital equipment investment and further impairing Sarine's ongoing processing fees.
With the operating loss in the third quarter and a traditionally weak fourth quarter, management may need to reassess if it will pay dividend in the second half. Sarine expects a subdued fourth quarter given the Diwali holiday in India.
The 2016 financial year will be a key year to regain investor confidence as its smaller rough diamond system, Sarine Meteor, has already been launched and the Allegro gemstone (non-diamonds) processing service centre in Jaipur, India, is slated to open.
ASCENDAS REIT
Broker: OCBC Investment Research
Call: Buy
Target Price: $2.58
Ascendas Reit (A-Reit) recently announced its proposal to acquire a portfolio of 26 logistics properties in Australia for about $1.01 billion.
Nine of the properties are in Melbourne, the largest industrial property market in Australia in terms of land stock, another nine are in Sydney, seven in Brisbane and one in Perth. All the properties are on freehold land.
With an expected first-year pre-transaction cost net profit interest yield of 6.4 per cent, the acquisition does not come cheap. The portfolio's long weighted average lease expiry of 6.1 years would add stability to A-Reit, while also diversifying its income streams and tenant base.
A-Reit will also adopt the appropriate risk management strategies. The acquisition is expected to propel A-Reit to be the eighth largest industrial landlord in Australia, giving it the scale to benefit from the long-term growth prospects of the e-commerce industry.
Thus, revenue forecast is raised by 3.1 per cent for the 2016 financial year and by a more significant 9.7 per cent for 2017.
STARBURST HOLDINGS
Broker: OCBC Investment Research
Call: Buy
Target Price: 39 cents
Starburst Holdings is an engineering solution provider of firearms training facilities. It has established its track record in South-east Asia since 1999 and, more recently, in the Middle East after listing on the Singapore Exchange.
With 61 per cent of revenue for the 2014 financial year generated from South-east Asia, its exposure is believed to include Singapore, Malaysia, Indonesia and Brunei. Typically, established track records are needed before these government bodies engage any contractor for defence-related works.
In this case, Starburst has accumulated more than 15 years of experience in this niche industry and engages in three business segments: firearm shooting ranges, tactical training mock-ups and maintenance services.
With threats of terrorism increasing in the world, data from BMI Research indicate that governments in the Middle East and South-east Asia are expected to step up defence spending over the next few years to better train and equip their military.
Q&M DENTAL GROUP
Broker: Maybank Kim Eng
Call: Buy
Target Price: 97 cents
Q&M's 60 per cent subsidiary Shenyang Quanxin is acquiring a 60 per cent stake in dental supply distributor Shenyang Lan Hai, which mainly operates in Shenyang, China, for 7.6 million yuan (S$1.7 million).
Funded entirely by cash, this translates into a 36 per cent effective stake for Q&M.
This is vertical expansion should help Q&M capture greater value in China's dental industry. Recall that Q&M had ventured into the distribution business in Singapore in 2010 with its acquisition of Dentmedix. It then acquired Quantumleap in 2011 and Malaysia-based AR Dental in 2013.
The acquisition should add to earnings and profit guarantee is $100,000 a year. However, the earnings per share is lowered to 1 to 3 per cent for the 2015 to 2017 financial years.
Q&M's Singapore and Malaysia distributors have strong expertise in European products and are now complemented by Shenyang's capability in China.
Q&M allowed TP Dental, acquired last month, to reduce its profit guarantee from $2 million to $1.6 million due to a change in the acquisition terms. This will benefit Q&M more in the long term.
