Brokers' Call: CEI Limited

CEI Limited

Broker: CIMB

Call: Buy

Target price: $1.08

CEI reported its first-half results on Aug 4, which showed revenue fell 2.1 per cent year on year to $67.5 million, and gross profit was down 1.6 per cent to $16.1 million.

Operating expenses grew 10 per cent in the corresponding period, leading to a 24 per cent decline in operating profit to $4.2 million.

The balance sheet remains strong, with a net cash position at end-June of $5.8 million versus $9.2 million at end-December.

CEI pared down its debt position to $2 million at end-June from $2.5 million at end-December.

CEI expects to remain profitable in financial year 2017.

As at end-June, it had an order book of $53.1 million, which was expected to be fulfilled by end-December.

CEI has minimal capital expenditure as its utilisation rate hovered in the 60-65 per cent range, management estimates show. The first-half capex was a negligible $275,000. Management does not see full-year capex exceeding $1 million.

Potential catalysts are new order wins and a stronger US dollar, while downside risks are a further slowdown in customer orders and a weaker greenback.


MAPLETREE LOGISTICS TRUST

Broker: Maybank Kim Eng

Call: Hold

Target price: $1.20

MLT announced it has agreed to acquire Mapletree Logistics Hub Tsing Yi in Hong Kong for HK$4.8 billion (S$834.8 million) from its sponsor. It is an 11 storey ramp-up facility with a gross floor area of 85,000 sq m.

It was completed in March last year, and is the newest among 14 such modern warehouses in Hong Kong, where 79 per cent of its warehouses are more than 20 years old.

The property has a remaining leasehold of 46 years and will be 100 per cent occupied by Oct 1. The agreed valuation implies 5.7 per cent net property income yield, above both MLT's 4.5 per cent HK valuation cap rate and the 4 per cent market cap rate.

Key tenants include Ever Gain, Adidas, Angliss, HKTV and Aramex.

The proposed acquisition, MLT's largest to date, increases assets under management by 15 per cent (Hong Kong's largest) and net property income by 14 per cent (second behind Singapore).

The acquisition will be funded by a combination of debt and equity. Fundamentals are well supported by strong demand and limited supply, and should help lift distribution per unit further in the longer term.


YANGZIJIANG SHIPBUILDING

Broker: DBS Group Research

Call: Buy

Target price: $1.70

Yangzijiang is placing 137 million new shares to institutional investors at $1.53 per share.

The placement price seems reasonable, representing a 4.07 per cent discount to the weighted average trading price on Aug 29 of $1.5949 per share and 1.18x book in financial year 2017 (based on $1.30 per share).

Yangzijiang will raise net proceeds of approximately $209 million, of which up to 50 per cent will be used to fund future mergers and acquisitions while the rest will be utilised for general working capital and debt repayment.

The M&As could include the purchase of the remaining 20 per cent stake in Xinfu shipyard, which is estimated to contribute an incremental $20 million to $25 million to the bottom line.

It could also include acquisition of technology that could strengthen Yangzijiang's capability and franchise in clean energy vessels, while the partnership with a state-owned enterprise yard will pave the way for high-margin military vessel contracts, tapping on Chinese yards' consolidation and the government's mixed-ownership policy. Also, the possibility of a dual-listing in Hong Kong should not be ruled out.

A version of this article appeared in the print edition of The Straits Times on September 04, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe