By Carey Wong
Fri, 13 Feb 2009, 08:59:39 SGT

Market Pulse: DBS, Karin, Silverlake, Avi-Tech and Eu Yang San (13 Feb 2009)

FOCUS

DBS: Earnings came in below expectation

Summary: DBS posted 4Q08 net earnings of S$295m, down 40% YoY and 22% QoQ, and below market expectation of S$326m as polled by Dow Jones. This included one-time charge of S$88m for restructuring and impairment costs. For FY08, net earnings came in at S$1929m, down 15% YoY and slightly below our expectation of S$2008m. While Net Interest Income showed some improvement, up 5% YoY and 4% QoQ in 4Q08, non interest income fell 24% YoY although it was up 10% QoQ. Overall, net total income amounted to S$1475m in 4Q08, or S$6053m in FY08. Loans grew 17% YoY to S$126.5b in 4Q08. Net interest margin declined to 2.04%, down from 2.11% in 4Q07; for the full year, net interest margin dropped from 2.17% in FY07 to 2.04%. Allowances for credit and other losses, a closely watched number, surged 27% YoY but was down 8% QoQ to S$316m; for the whole year, it rose 44% to S$888m. Fee & Commission Income fell 31% YoY in 4Q08. Not surprisingly, the biggest declines came from Wealth Management (-76% YoY), Investment Banking (-56%), Fund Management (-55%) and Stockbroking (-52%). Management has declared a one-tier tax-exempt dividend of 14 S cents per share for 4Q08. This will be payable on 29 Apr 2009.; shares will quote ex-dividend on 14 April. We currently have a HOLD rating on the stock. We will re-look our numbers after the analysts’ briefing later this evening. Earlier on, we stated that we will turn buyers when the stock approaches $7.80 or lower. Currently, the stock is already trading close to this level based on yesterday’s close of S$8.13. (Carmen Lee)


Karin Technology: Extending coverage in China for growth

Summary: Despite the deteriorating global economy, Karin Technology had managed to produce a modest set of 1HFY09 results. To boost its financial position for strategic business opportunities and greater efficiencies to tide through the global recession, the group had, over the period, also reduced its bank borrowings substantially, while keeping its cash position steady at HK$55.5m (HK$52.6m in June 2008). Looking ahead, Karin has voiced concerns about the possible negative impacts on its profit margins, but believes that the China market continues to present a lot of business opportunities for group. While the 1HFY09 performance is within our expectations, we note that the second-half fiscal year has typically been the slower half. Together with the likelihood that the steep slowdown in global manufacturing activity seen in end-2008 may extend into 1QCY09, we have conservatively pared our FY09 forecasts by 4.1-9.2%. However, as our fair value remains unchanged at S$0.18 (5x FY09F EPS), we maintain our BUY rating on Karin. (Kevin Tan)


Silverlake Axis: 2Q09 results show QoQ improvement

Summary: Silverlake Axis Limited (SAL) reported its 2Q09 results last night; while they were pretty dismal YoY, they showed a great improvement QoQ. Revenue, though down 67.5% YoY at MYR16.3m, it was up 32.7% QoQ; net profit was fell 73.4% YoY to MYR11.8m but was up 224.3% QoQ. As expected, the twin blow of the financial crisis and economic slowdown has led to a drastic cutback in financial institutions’ IT spending. Although there was QoQ improvement, it may be too early to say if the worst is over; management continues to expect the trend of temporary delays in finalizing IT agreements to persist for the rest of FY09, given that economic sentiment is still expected to remain cautious. However, SAL remains optimistic about the long-term business outlook for the industry in Asia. We will be speaking with management later for a clearer picture of its order book and its project pipeline. But we will be adjusting our numbers later; 1H09 revenue (down 73.4% YoY at MYR28.6m) met only 28.6% of our FY09 forecast, while net profit (down 79.9% at MYR15.4m) was just 24.6% of full-year estimate. Until we clarify with management, we put our HOLD rating and S$0.19 fair value under review. (Carey Wong)


Avi-Tech Electronics Limited: 2QFY09 earnings within expectations

Summary: Avi-Tech posted its 2QFY09 results yesterday, with revenue down 53.4% YoY (+11.6% QoQ) to S$10.2m and net profit down 49.8% YoY (-0.8% QoQ) to S$1.9m. For 1HFY09, revenue came in at S$19.4m (-55.6% YoY, -36.8% HoH), meeting 50.4% of our FY09 sales forecast, while net profit stood at S$3.7m (-51.2% YoY, -11.3% HoH), or 61.6% of our full-year estimate figure. The soft performance was due to continued difficult business environment in the semicon industry which consequently led to a substantial reduction of orders within its core business segments. Despite the downturn, Avi-Tech had managed to improve its net cash position slightly from S$44.3m in 1QFY09 to S$46.6m. Going forward, management expects the global economic downturn to worsen and further impact its businesses. To meet these challenges, the group said it will continue to manage its costs to increase its productivity and explore new business opportunities. We will have more details after we attend the analyst briefing scheduled early next week. For now, we place our SELL rating and S$0.07 fair value under review. (Kevin Tan)


Eu Yan Sang International Ltd: Found its footing in 2Q09

Summary: Eu Yan Sang International Ltd (EYS) posted a credible set of 2Q09 results which were in line with our estimates. Revenue improved by 6% YoY to S$53.4m, while operating profit edged up by 2% to S$5.2m. PAT rose 39% to S$4.7m, but after taking into account losses from discontinued operations, net profit grew by a smaller 11% to S$3.5m. Profit margins held steady at both gross and operating levels. Malaysia was once again its key growth driver, turning in a 22% improvement in sales, while Singapore did not disappoint either with an 8% growth in sales. No dividend was declared for the quarter. Moving forward, the challenging economic outlook and weakening consumer spending could weigh on its sales. Its 3Q09 performance, traditionally its strongest with the Lunar New Year season, will be crucial in determining whether the group was able to leverage on its strongest quarter to boost sales in the face of recessionary pressure. We will have more updates after meeting management today. For now, we are putting our SELL rating and S$0.29 fair value estimate under review since the stock has already reached our fair value. (Lee Wen Ching)


For more information on the above, visit www.ocbcresearch.com for the detailed report.


NEWS HEADLINES

- Singapore Land posted a S$117.4m net loss for FY08, taking into account a S$319.7m fair value loss based on valuations of investment properties held by subsidiaries. Its parent, UIC, posted a S$74.6m net loss for FY08.

- ComfortDelgro’s FY08 revenue rose 3.6% to S$3.1b but its net profit fell 10.3% to S$200.1m, partly due to higher cost of fuel in the first three quarters of the year.

- FJ Benjamin reported a 93% YoY fall in 2QFY09 net profit to S$611k, partly due to S$2.3m of unrealised foreign exchange loss.

- WBL Corporation reported a 93.3% fall in 1QFY09 net income to S$2.7m, although sales eased 2.4% to S$533.7m.

- Informatics Education reported a net loss of S$0.42m in 3QFY09, versus a net profit of S$0.03m in 3QFY08; operating revenue fell 14% to S$9.9m.

- Sim Lian Group posted a 30% YoY drop in 2QFY09 earnings to S$9.5m, partly due to sharply higher contract costs, despite revenue doubling to S$161m.

- Beauty China said it may make additional impairment provision for trade receivables in 4Q08, and that its 4Q08 results may be worse than 4Q07’s.