Singapore Small & Mid Cap Picks August 2016 - Nicholas Leow +65 6535 6616 - UOB Kay Hian
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Singapore Small & Mid Cap
Picks August 2016
Nicholas Leow
nicholasleow@uobkayhian.com
+65 6535 6616
The Uniquity Approach
Unique
•Niche business model
•Strong competitive moat
1 •Special situation
Upstanding Management
2 •Capable management team
•Good corporate governance
•Corporate access
“Uniquity”
Idea
Discovery Undervalued
3 •Sound financial metrics (eg strong balance sheet)
•Underappreciated by the market (eg low valuation multiples)
•Margin of safety (eg discounts to intrinsic value)
4 Upcoming Catalyst
•Incoming catalysts that will wake up the market, unlocking value
(eg strong profits growth, profit turnaround, dividends hike)
Source: Google Images
2
The Uniquity Approach
• Bottom-up approach and visit as many small & mid cap companies as
possible
• Channel checks with competitors, suppliers and customers
Our Stock Picks
Market Cap Current Share Target Price
Ranking Company Name Ticker Rating
(S$m) Price (S$) (S$)
1 China Aviation Oil CAO SP 1,300 1.51 BUY 1.85
2 Nera Telecommunications NERT SP 255 0.705 BUY 0.835
3 Cityneon CITN SP 250 1.015 BUY 1.02
4 Katrina Group KTG SP 74 0.31 BUY 0.39
Source: Bloomberg, UOB Kay Hian
3
Did you know…?
Only one in twenty-five Chinese citizens have a passport.
China is expected to overtake the United States as the
world’s largest passenger market (defined by traffic to, from
and within) by 2029.
In 2034 China will account for some 1.19 billion passengers,
758 million more than 2014 with an average annual growth
rate of 5.2%.
Source: Bloomberg, Google Images, IATA
Monopolistic Fuel Distribution Source: CAO, UOB Kay Hian
Exclusive refueller - SPIA
Oil storage facilities
Into-plane refuelling operations at Shanghai Pudong International Airport
Source: BAFS, CAO
China Aviation Oil Singapore Corp
(CAO SP/BUY/Target: S$1.85/Market Cap: S$1,300m*)
(lcy)
2.00
CHINA AVIATION OIL SINGAPORE Proxy To China’s Global Aviation Traffic Boom
China Aviation Oil Singapore/FSSTI Index (%) 250
220
1.50
190 Rare monopoly on China’s jet fuel imports is
160 growing source of recurring income (cost-plus
1.00 130
business model) (18.3% of profits).
100
0.50 70
10
Volume (m)
Second solid recurring income is from immensely
5 profitable SPIA refueller (50% of profits).
0
Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16
Catalysts: Shanghai Disneyland, China’s push on
general aviation.
Five-year plan to double profits with organic growth
and M&As (US$230m net cash war chest).
TP based on 14.4x 2017F PE, a 20% discount to
peers’ average of 18x PE
Data as at 20 July 16
6
For Dividend Investors Source: NeraTel, UOB Kayhian
NeraTel’s Business
Payment Solutions Remaining Business
NeraTel provide end-to-end electronic payment solutions for NeraTel provide wireless infrastructure networks, end-to-end
brick and mortar, internet and mobile commerce to the solutions and services in the wireless space. NeraTel also provide
Banking, Financial Services and Retail industries. high-performance IP Network Infrastructure to enable Service
S$88m Providers to deploy differentiated cost effective services and new
Expected Gains S$71.5m revenue streams, it address various market sectors such as Service
Providers, ISPs, Broadcasters, Enterprises, Government
Valued at P/E 31.3x Organisations.
2015 Profit Generated S$2.8m 2015 Profit Generated S$10.6m
(21% of total) (79% of total)
Estimated Special Dividend 16 SG cents Expected Growth 10%
Estimated Total Dividend for 2016 19 SG cents Dividend 4 SG cents a
year
Dividend Yield for 2016 27%
Dividend Yield 5.8%
Source: NeraTel, UOB Kayhian
Nera Telecommunications
(NERT SP/BUY/Target: S$0.835/Market Cap: S$261m*)
(lcy) (%)
1.00 NERA TELECOMMUNICATIONS LTD
Nera Telecommunications Ltd/FSSTI Index
150
Get Paid While Waiting
140
0.90
130
0.80 120
0.70
110 Hefty 2016 dividend of around S$0.19/share likely.
100
0.60 90
0.50
80
70
Record-high order backlog for the remaining
0.40 60 business.
10
Volume (m)
5
0
Growth to continue as CSP capex grows.
Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16
S$0.04/share dividends sustainable going forward.
Maintained BUY with S$0.835 TP based on SOTP,
valuing remaining business at historical PE of 14.6x.
Data as at 20 July 16
4The Marvel Success
Transformers: Dark of the Moon (2011) Transformers: Age of Extinction (2014)
Worldwide Gross: US$1.1b Worldwide Gross: US$1.1b
Avengers: Age of Ultron (2015)
The Avengers (2012) Worldwide Gross: US$1.4b
Worldwide Gross: US$1.5b
Source: Google Images, Box Office MojoThe Disney Success Source: Yahoo Finance
The Avengers S.T.A.T.I.O.N
The Avengers S.T.A.T.I.O.N. Las Vegas
Different Rooms To Learn More About Avengers
Lore
Source: Victory Hill Exhibitions, UOB Kay HianThe CityNeon Success?
Las Vegas (Full execution risk)
Revenue streams:
Sets - Ticket sales
- Merchandise
- Ticket service charge
Permanent fixtures at Treasure Island
- Naming rights to building
Set up cost borne by Cityneon
Assembled Set Other expenses
-10% of royalties go to Marvel
-Rental paid for building
-Labor
Outside of Las Vegas (Low execution risk)
Licensing Fee:
Depends on length of contract.
Sets
Rented out
Fixed royalty portion:
Customer minimum guarantee (MG) upfront fee to use set.
Anywhere from S$1-3m.
Customer bears cost of setting up the
set at the location Variable royalty portion:
20% of total ticket sales, merchandise sales net of MG
Sets are insured by
customer for US$7m each Assembled Set
Other expenses
10% of royalties go to Marvel
Source: Cityneon, UOB Kay HianCityneon Holdings
(CITN SP/BUY/Target: S$1.02/Market Cap: S$216m*)
(lcy)
CITYNEON HOLDINGS LTD
(%) Immersing In Marvel’s Victory
1.20
Cityneon Holdings Ltd/FSSTI Index
480
1.00
0.80
400
Explosive EPS 3-yr CAGR growth forecasted at
320
0.60 180%.
240
0.40
160
Sustainable growth momentum supported by
0.20
80
0.00 0
40
Volume (m)
Marvel and Transformers movie sequels all the way
20 to 2020.
0
Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16
Scalable: Potential new Intellectual Property rights
with other franchises provide exciting growth
opportunities. (e.g. DC Comics, Star Wars)
SOTP-based TP of S$1.02, implying FY17F PE of
14.9x which is a 42% premium to peers’ average
(10.5x).
Data as at 20 July 16
11A Buffet Of Brands – Katrina Group Source: Katrina Group
Peer Group
Company Ticker Trading Price @ Mkt Cap PE (x) Yield (%) ROE (%)
Curr 1-Aug-16 (US$m) 2015 2016 2017 2016 2016
Peer Comp
Cafe De Coral Holdings Ltd 341 HK HKD 26.15 1,967 29.1 26.3 22.5 3.1 18.3
Jumbo Group Ltd JUMBO SP SGD 0.64 306 38.7 24.6 21.3 2.0 27.5
Oldtown Bhd OTB MK MYR 1.94 216 16.2 15.8 14.5 3.3 14.7
Mk Restaurants Group Pcl M TB THB 52.25 1,368 25.6 23.8 21.7 3.6 15.3
Breadtalk Group Ltd BREAD SP SGD 1.105 232 40.9 22.6 17.8 1.6 10.6
Oishi Group Pcl OISHI TB THB 97.75 527 25.7 21.3 18.3 2.5 19.5
Average 29.4 22.4 19.4 2.7 17.6
Katrina Group KTG SP SGD 0.315 54.4 - 17.0 14.2 4.0 31.5
Source: Yahoo FinanceKatrina Group
(KTG SP/BUY/Target: S$0.39/Market Cap: S$73m*)
(lcy) KATRINA GROUP LTD Katrina Group Ltd/FSSTI Index (%)
0.40 190 A Buffet Of Brands
170
0.35
0.30
150
34 restaurants, 9 brands cater to a variety of
130 different palates. Clustering of different brands allow
0.25
110 for better terms with landlords.
0.20
90
Halal certification for 4 our of 9 brands allows
0.15 70
60
Volume (m)
40 catering to the growing Muslim population. Halal
20
0
certification for restaurants provides a barrier to entry
Jul 16
as Muis conducts audits and requires an in-house
Halal team
Strong cash flow generation. Free cash flow for
FY13-15 was S$2.1m to S$3.9m with minimal debt.
Aiming to open 4 outlets per annum.
Online and regional expansion to spur growth.
PE-based target price of S$0.39 based on a 10%
discount to peers average PE ratio.
Data as at 20 July 16
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