Money Talk: Midas Holdings, semiconductor sector, Golden Agri-Resources

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. Midas Holdings

Broker: Maybank Kim Eng

Midas has proposed to acquire the remaining 45 per cent stake that it does not already own in Jilin Midas Light Alloy (JMLA) from its JV partner - Jilin Kaitong Engineering Co - for a consideration of 306 million yuan. The purchase price is 9 per cent higher than the vendor's initial investment of US$45 million (280 million yuan).

Currently under construction, JMLA is expected to commence production by H2 2015. With an annual capacity of 200,000 ton, this US$300 million plant will mainly manufacture aluminium alloy plates for the automobile, shipbuilding and aviation industries.

With a cash pile of over 1 billion yuan, funding is not an issue. However, it would raise Midas's net gearing to 0.7 times from 0.6 times in Q1. JMLA is expected to be an important growth driver for Midas from FY2016 onwards. This transaction demonstrates management's confidence in the new plant.

Separately, China Railway Corp is reported by some local Chinese media to be looking at another round of high-speed train tender worth 55 billion yuan. If materialised, this would be positive and reinforce our Buy rating on Midas.

Maintain Buy with $0.75 target price.

2. Semiconductor assembly and test services sector

Broker: OSK-DMG

We initiate coverage on Taiwan and Singapore's semiconductor assembly and test services sector with an Overweight call and Buys on ASE, KYEC and Global Testing.

Key points: 1) Wearable electronics and Internet of Things will power future industry growth; 2) We believe that wire bonding may take centre stage for now, while System-in-Package and Wafer Level Packaging represent the future; 3) Test houses will likely emerge in their own right, given their potential to help Integrated Device Manufacturers save costs.

In Singapore, we like Global Testing and issue a Not-Rated note on STATS ChipPAC (SCP). We see a massive turnaround ahead for Global Testing with its FY2014 profit set to jump 250 per cent. The stock trades at 7 times ex-net cash FY2014 price/earnings and 16 per cent free cash flow yield.

SCP has a formidable technology bank but its recent share price jump may cap near-term upside.

3. Golden-Agri Resources (GAR)

Broker: OCBC

GAR has fallen quite a bit since reporting its Q1 results on May 14, dropping some 10 per cent to our $0.55 fair value.

While we are upgrading our call from Sell to Hold on valuation grounds, we note that there are no near-term catalysts for now. For one, we note that soybean futures have continued to tumble on expectations of higher-than-expected crop harvest.

While the region may suffer some impact from the El Nino phenomenon, experts remain divided on the severity of the drought.

Hence we are only building in a modest impact with our unchanged $830/ton estimate for crude palm oil this year.