mm2 Asia | BUY
Aug 15 close: 42 cents
Target price: 62 cents
Broker: DBS Group Research, Aug 15
We continue to expect strong earnings compound annual growth rate of 25 per cent for FY2018-20F, underpinned by growth in production, expansion into the China market, and contribution from UnUsUaL.
The stronger cinema arm, with the completion of Cathay cinema acquisition, helps the group build a recurring income base. Having a strong presence in the entire value chain of content creation and distribution further cements mm2's status as the leader in the media/entertainment industry.
We value the production business at 18 times price/earnings ratio, in line with peers listed in Asia, versus consensus' valuation of about 22 times.
For UnUsUaL, we value it at current valuation. For the cinema segment, we use 21 times price/earnings ratio versus consensus' 20 times.
Food Empire | NEUTRAL
Aug 15 close: 55.5 cents
Target price: 60 cents
Broker: RHB Research, Aug 15
We believe the group is heading in the right direction in the long run by diversifying into Asia.
However, with the United States imposing more sanctions on Russia, we expect more downside risks from the depreciation of the rouble and its regional currencies. Hence we see limited reasons to be vested in Food Empire over the near term, given that 60 per cent of its revenue is generated from Russia and other Commonwealth of Independent States (CIS) countries.
Food Empire recorded forex loss of US$2 million (S$2.7 million) in second-quarter FY2018 as the rouble and euro weakened against the US dollar. We note that the group derives 40 per cent of its revenue from Russia and has loans (for the purchase of equipment at its new plant) denominated in euros. The forex loss represented 55 per cent of pretax profit, dragging it down 20 per cent compared to the second quarter of FY2017.
Japan Foods Holding | BUY
Aug 16 close: 49.5 cents
Target price: 64 cents
Broker: KGI Securities, Aug 16
We expect an improvement in the next few quarters as the weakness in the first quarter of FY2019 was partly due to lower performance in June, which coincided with the Fifa World Cup 2018.
The upside from the Singapore operations is expected to be limited and we reiterate our view that growth will have to come from overseas expansion... We are optimistic on its entry into Indonesia but will not factor it into our forecasts until we obtain more clarity on the performance of its first restaurant in the country.
Japan Foods' business model remains resilient and adaptable even in the face of higher costs.
GSS Energy | BUY
Aug 16 close: 13 cents
Target price: 22 cents
Broker: RHB Securities Research, Aug 16
We expect the precision engineering business to be more robust in the second half of the year, while oil exploration results on its second well are expected to be made known soon.
With rising oil prices, especially over the last few months, GSS is expected to benefit directly. With a positive outlook ahead affirmed by its recently implemented dividend policy, we believe the company is at an inflection point, and think that the current weakness represents a good opportunity to accumulate the stock.