FY13 core net profit was below our and consensus expectations, at 94% of our forecast. The slight miss was due to the weaker-than-expected sales and margins. Margin pressures continued to drag earnings but the group’s efforts to increase sales were evident. We cut our FY14-15 EPS by 9-11% to account for lower sales and margins and introduce our FY16 EPS. Our three-stage residual income-based target price drops accordingly, coupled with our lower growth expectations for the first stage (10% instead of 10.5%) and dividend payout (60% instead of 70%).
Maintain Add as we believe that margins have bottomed out and the catalyst of sales growth will underpin earnings growth.
Elek & Eltek (E&E)’s 4QFY13 results came in slightly below expectations, with PATAMI of USD1.5m (-83.3% y-o-y) on the back of USD122.4m in revenue (-9.3% y-o-y), weighed down by poor execution. Going forward, while demand is expected to remain firm, we are cautious over the group’s ability to stem the escalation in production cost.
■ The forward curve suggests freight rates will likely pick up in 2Q14, partly supported by an expected stronger grain season and increased iron ore production by the major miners. We retain our positive view on the sector.
We recently met SMRT’s new CFO, Mr Sam Ong, who officially started his duties at the company earlier this month. Prior to SMRT, Mr Ong was with Hyflux, serving in the capacities of CFO, CIO and most recently, Group Senior EVP and Group Deputy CEO. He had also spent time at Dow Chemical.
We expect further earnings estimate downgrades for GENS in its core business. Despite the promising investment in Jeju and strong likelihood of participating in a Japanese gaming license, we see limited upside to the stock in the near term.
Our estimate cuts reflect weaker mass gaming revenue: Our new price target of S$1.25 implies 9x EV/EBITDA and 26x P/E on 2014 estimates – high relative to growth in the local market.