In this briefing:
- Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)
- S&P 500 and S&P 600 Testing Resistance
- Korean Stubs Spotlight: Focus on Diverging Share Prices and Changes to Foreign Ownership
- Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA
- PRM: Thai Largest Tanker Fleets Assured of Consistent Growth
1. Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)
Sunpower Group (SPWG SP) has seen an incredible transformation over the past 24 months. Since the entry of two respected PE funds (DCP and CDH) the company has de-emphasized its historical M&S business and pushed full throttle on its GI (Green Investments) portfolio.
The efforts of this shift to GI are now bearing fruit with FY18 revenues increasing by 66% to 3.26 billion RMB, EBITDA rising by 113.5% to 496 million RMB (15.2% EBITDA margin) and underlying NPAT rising by 87% to 268 million RMB. Most importantly, the quality and visibility of its cash flows have improved.
It is rare to find companies that give you 3-year NPAT forecasts but Sunpower did this with the issuance of its second CB late 3Q18. Instead of using stale sell-side consensus forecasts we now focus on these public forecasts to guide investors what Sunpower’s fair value is depending on the PE multiple that investors apply.
My Fair Value estimate of 1 SGD remains unchanged (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).
2. S&P 500 and S&P 600 Testing Resistance
We believe the market is at short-term overbought extremes and is contending with resistance. Resistance levels we are monitoring include 2,810-2,817 on the S&P 500 and the 200-day moving average on the S&P 600 Small Cap index… see charts below. We would welcome some consolidation or a mild pullback which would be a healthy correction of the current extended market conditions.
In today’s report we highlight attractive Groups and stocks within Manufacturing and Technology: Construction Equipment, Industrial Rental Equipment, Data Storage Solutions & Devices, Small-Cap, and Software, Financial Mgmt. Solutions.
3. Korean Stubs Spotlight: Focus on Diverging Share Prices and Changes to Foreign Ownership
In this report, we provide the one year share price comparisons of the holdcos and the opcos in both table and chart formats as well as changes to the foreign ownership stakes of these companies YTD. Significant, rapid changes to the foreign shareholdings of these companies sometimes lead to opportunities in the holdco/opco pair trades.
Among these 30 pair of companies, five pairs in particular are interesting where the difference in their share prices have diverged significantly in the past year (by 30% or more). These five pairs of companies include the following:
- Hyosung Corp vs. Hyosung Advanced Materials
- BGF Retail vs. BGF Co.
- Doosan Corp vs. Doosan Heavy Industries Corp.
- Cuckoo Holdings vs. Cuckoo Homesys
- Orion Holdings vs. Orion Corp
4. Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA
Procurri Corporation (PROC SP) released FY18 results which showed the company growing revenues to 220M SGD (+21% vs FY17), EBITDA to 19.7M SGD (+185% vs FY17), PBT to 10.1M SGD (vs 2.3M loss in 2017) and a small net profit of 5.3M SGD which was artificially low because of an astronomical 47% tax rate. The high tax rate should reverse in 2H19 which would show the reported profitability of Procurri improve substantially.
Procurri remains deep value trading at just 4.4x 2018 EV/EBITDA and 0.4x 2018 EV/Sales. If we adjust the FY18 net profit figure(assume 30% tax rate vs 47%) the shares trade at a P/E multiple of just 13x.
The shareholder register of Procurri has seen a dramatic change YTD with multiple announcements on SGX. The most significant development is the entry of Singapore PE fund Novo Tellus acquiring a 29.6% stake on 19/2/19. Consequently this means that the biggest corporate overhang on Procurri (read: the control by Declout Ltd (DLL SP) ) is now almost over with their stake reduced to 17% from 47% previously.
Novo Tellus paid 0.33 SGD for the 29.6% stake which should now be a floor valuation for Procurri going forward.
Given the well-publicized track record of Novo Tellus at SGX listed Aem Holdings (AEM SP) the question is if Novo Tellus sees another multi-bagger in the making?
While a “10-bagger” type return like AEM is unlikely at Procurri, doubling the market cap from 90M to 180M SGD would not be impossible as Procurri continues to grow in FY19 and the depressed multiple expands modestly.
5. PRM: Thai Largest Tanker Fleets Assured of Consistent Growth
We initiate coverage of PRM with a BUY rating, based on a target price of Bt7.70, derived from a PEG ratio of 0.9x, which is the average for the Asia ex-japan transportation sector, implying 22.0x PE’19E.
The story:
- Secured revenue from domestic trading business
- IMO 2020 implementation to propel floating storage demand
- Recovery in T/C rate should prompt international trading turnaround
Risks: Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations
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