Brokers' Call

THAI BEVERAGE

Broker: CIMB Research

Call: Add

Target Price: 83 cents

Third-quarter beer sales and margins were weak. Third-quarter beer sales were up only 5 per cent year on year, after a strong first half (up 9 per cent year on year).

Thai Beverage culled four sub-brands in mid-August, to consolidate into a common Chang Classic brand. In the two weeks prior, it pulled back sales to clear channel inventory.

We are less worried on beer than spirits. The ill winds in beer seem more like transition effects. Spirits, however, showed signs of weakness.

For a consecutive quarter, spirits sales and earnings before interest, tax, depreciation and amortisation saw year-on-year declines.

Management has changed its prior guidance tone, from highlighting white spirits as a staple that can shelter the group from weak brown spirits sales (weak tourism) to admitting that white spirits sales had declined, as farmers' household income faced pressure after the withdrawal of Thailand's rice subsidies.


CENTURION CORP

Broker: Maybank Kim Eng Research

Call: Buy

Target Price: 57 cents

With its unutilised medium-term notes, management is on the lookout for suitable acquisitions. We expect progress within the next six months.

Occupancy remains high and rising. Westlite Woodlands, expected to break even at 50 per cent occupancy, should be 80 per cent occupied by 2016.

With the worker accommodation industry still healthy, we expect new Singapore/Malaysia bed capacity of 12,900/6,000 in financial year 2016/2017 to continue to drive growth.

Net gearing has increased to 124 per cent from 94 per cent in financial year 2014, but cash flow remains healthy at $13 million after income tax, interest and loan principal repayments.

And despite the higher interest cost, we still expect 16 per cent earnings per share growth in financial year 2015.

The stock is attractive at 10 times price-to-earnings.


DAIRY FARM

Broker: RHB Securities Research

Call: Buy

Target Price: US$7.80

We believe the company's ongoing initiative to drive organisation-wide business synergies will produce gains over the medium term.

This remains on track, including the standardisation of back-end supply chains and IT systems, more private label products and the introduction of new fresh food distribution centres in Singapore and Malaysia.

Its ongoing investment in Yonghui Superstores will provide a platform to grow further into China.

Dairy Farm has consistently paid out a dividend at least equal to the year before, even throughout each financial crisis.

Since 2008, dividend has been at least 23 US cents per share and we do not expect this to decline going forward, even following its biggest investment-to-date in Yonghui.

This dividend payout is only an estimated 40 per cent of annual operating cash flow.


KIM HENG OFFSHORE & MARINE

Broker: OCBC Investment Research

Call: Hold

Target Price: 13 cents

Kim Heng Offshore & Marine reported a 23 per cent year-on-year drop in revenue to $10.6 million and a 42 per cent fall in gross profit to $2.9 million in the third quarter.

This led to a net loss of $1.7 million in the quarter, such that the first nine months of the year saw a net loss of $3.5 million, below expectations.

The offshore rig services and supply chain management segment continued to be affected by low demand for maintenance of rigs and related goods and services, but as more fabrication work was undertaken in the third quarter, gross profit margin was higher on a sequential basis at 26.9 per cent, up from 9.1 per cent in the second quarter when more lower-margin procurement work was carried out.

Looking ahead, the group expects its business to remain challenging in the next 12 months, and will continue to explore diversification opportunities in the maritime and marine infrastructure sector.

For instance, it is building three aluminium pilot boats for an overseas customer, besides its foray into the crane leasing business.

A version of this article appeared in the print edition of The Straits Times on November 16, 2015, with the headline 'Brokers'Call'. Print Edition | Subscribe