Money Talk: Dairy Farm, Cosco Corp, Mencast

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Dairy Farm International

Broker: CIMB

Dairy Farm's first-half core net profit of US$223.3m was 11 per cent below our and consensus expectations due to continued margin pressure, especially in Singapore and Indonesia.

An interim dividend per share of 6.5 US cents was declared. H1 2014 marked the slowest year-on-year sales growth since 2009, while the group experienced its first earnings contraction in eight years (barring 2013 due to comparability issues).

We trim our FY2014-FY2015 core earnings per share by 1 to 3 per cent on lower margins, though our residual income-based target price is left intact. With the recent climb in share price, we believe the market has similarly priced in a modest growth trajectory.

Hence, we downgrade the stock to Hold from Add. We would re-visit the stock upon stronger-than-expected earnings.

2. Cosco Corp

Broker: OCBC

Cosco Corp reported a 29 per cent year-on-year rise in revenue to $1.15 billion and a 19 per cent increase in net profit to $14.3 million in Q2 2014, such that H1 2014 net profit accounted for 58 per cent and 52 per cent of ours and the street's estimates, respectively.

We would not read too much into quarterly earnings, though, given the potential for huge swings in earnings due to the group's current stage in the offshore learning curve.

A $12.9 million allowance was made in Q2 2014 for inventory write-downs, but on a more positive note, there were no provisions made for construction contracts in the quarter. Management continues to expect "difficult and challenging" business and operating conditions this year, which does not augur well for a company with a net gearing of 1.2 times and is still scaling the offshore learning curve.

Maintain Sell with $0.61 fair value estimate.

3. Mencast

Broker: OSK-DMG

Mencast delivered a strong Q2 2014 core net profit of $5.2 million as revenue jumped 43 per cent quarter-on-quarter.

Management achieved its aim of increasing capacity utilisation and has secured long-term contracts from oil majors in its energy services segment.

At this rate of improvement, Mencast is on track to meet or even exceed our FY2014 forecast of 80 per cent core earnings growth.

Maintain Buy with $0.62 target price.