Sunday, April 29, 2007

In the Pink of Health

Recently, one of MOS' friends revealed that she was expecting her first bundle of joy in the latter half of the year. After a judicious selection process, the medical centre of choice for her gynecology care was Thomson Medical Centre (Public, SIN:5FV) ("TMC"). Followers of MOS will recall it was our top performer last year. TMC has continued on its soaring path to bridge the valuation gap between itself and other locally listed healthcare counters. Compared to the price of 29 cents when it appeared on MOS' radar screens in February 2006, TMC has since gained 129% (based on Friday's close of 66.5 cents)!

One of the reasons for the robust showing was the stellar report card which the obstetrics, gynecology and pediatric specialist turned in recently. For 1H results ending Feb 2007, its revenue and net profit grew by 8% and 35% respectively. In addition, TMC is expected to benefit from the local government's pro-creation policies. With a growing middle class in the country, the group is well poised to capture their fair share as the locals seek higher end medical care and facilities to take care of their first child.

Despite the above, TMC's moves suggest that their management acknowledges the saturating and competitive Singapore market dynamics. Hence, TMC has been making good inroads into overseas markets. The group's management contracts for three women and pediatric hospitals in Vietnam are expected to kick in over the next 2 to 3 years.

The progress of the above initiatives clearly indicates that MOS' top performer in 2006 remains very much in the pink of health.


Wednesday, April 18, 2007

Bring Frontline to Life

"Wake me up inside, wake me up inside, call my name and save me from the dark", that's how the chorus of Evanescence hit single "Bring Me to Life" goes. The analogy to this song cannot be more apt for Frontline Technologies Corporation Ltd. (FT SP) (SIN:F02) ("Frontline"). This company was abruptly resurrected when it hogged the top volume charts of SGX today.

Frontline is a pan-Asian IT solutions company with operations in several Asian countries. It was featured on MOS in October 2006 when it traded at S$0.135. Then, MOS made a mockery of the closing price, suggesting that the market had been "distracted by the boom of the North Korean nuclear test". MOS was then attracted to Frontline as it received substantial cash proceeds from the listing of its Indian subsidiary, thereby swelling its NTA above its market price.

Six months down the road, the market are now excited by its undemanding valuations (relative to its peers), the possibility of a dividend payout which would exhaust its unused section 44 credits and its growth prospects.

Frontline closed at S$0.17 today. At this juncture, the price represents a handsome 26% gain for a half year holding period.


Wednesday, April 11, 2007

PER of less than 1x?

Last month, Mr Market offered a "free" stake in Lane Crawford through Wheelock & Co. As we write today, Mr Market remains in generous mood. What's available for "free" today are ships, specifically three "ro-ro" vessels.

Singapore Shipping Corporation Ltd ("SSC") owns these three "ro-ro" vessels which are used to transport cars around Asia. They represent the only significant assets remaining after the firm made a series of divestments. Besides the vessels, the book of SSC comprises of cash and cash equivalents, with little liabilities. The net cash position of SSC is S$0.37. So purchasing SSC at a market price of S$0.40 suggests that one obtains the three vessels for "free" as its book value is marginally higher. On a PER basis, it is about 12.5x but if one were to strip out the cash, the real adjusted PER is actually less than 1!

The founder of SSC, Ow Chio Kiat continues to hold 37% of the shares. Hence, his interests will be aligned with that of minority shareholders. What is more impressive is that Ow has a track record of rewarding shareholders. Besides spinning off assets such as Cougar Logistics, Ow has also dished out sizable dividends in the last two financial years.

In FY05, SSC declared a total dividend payout of $0.04; comprising of a final dividend of $0.024 and a special dividend of $0.016. The cash windfall was repeated in FY06. Then, SSC declared a total dividend payout of $0.17; comprising of a final dividend of $0.03 and a special dividend of $0.14.

For our base case scenario, SSC is assumed to declare a dividend payout of 3 cents for FY07, the counter would have a net yield of 6.6%. This leaves room for yield compression to occur. If the yield compresses to 6%, the price of SSC would increase to 45 cents. A more generous payout of 4 cents would obviously lead to higher potential capital gains.

At the current price, we view the pay-off profile of SSC to be similar to a call option. Even in the unlikely scenario where SSC does not declare any dividends, it may potentially mean that the firm is close to making vessel or real estate acquisitions. The market is likely to welcome such purchases as it signifies that SSC has growth potential. Such a development is likely to lead to analyst upgrades, spurring price increase.


Friday, April 06, 2007

Tiger Roars on Good Friday

The stock market in Singapore is closed today for the Good Friday holiday. Many have taken the chance to go overseas for a long weekend. The MOS crew was also anticipating a slow end to the hectic week which saw Asian markets claw back to match or surge past their mid February highs.

Bursa Malaysia was, however, open for trading. Hence, we were pleasantly surprised when KLSE listed Keck Seng (KS) took a big pop today. KS was last featured on our blog in 9 January 2007 in a post titled "Crouching Tiger, Hidden Assets". It was trading at RM3.50 then. Following the post, the counter took off on a steady run up but fizzled out subsequently. But KS jumped to RM5.60 on early trading today, chalking up a 60% gain over the holding period. The spike up today can largely be attributed to a local newspaper report which hyped up the revaluation of KS' assets. In particular, a lofty valuation was placed on its huge land bank in south Johor. In our post then, we had alluded to the positive sentiment that KS could benefit from following Malaysia's massive IDR plans. The market is similarly excited as other property counters with exposure to south Johor have soared to highs of late.