By Carmen Lee
Tue, 24 Feb 2009, 08:26:47 SGT

Market Pulse: AusGroup & Gallant Venture (24 Feb 2009)

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AusGroup Ltd: Waiting and watching

Summary: We recently caught up with AusGroup Ltd (AusGroup) management. Its 2Q results exceeded our estimates because of a delayed impact of market shrinkage on ongoing projects and some flow through of conservative variation claims from previous quarters. While we have adjusted our estimates slightly to take 2Q figures into account, we still expect significant contractions in 2H09. We have previously commented on AusGroup’s growing pains since FY08 as it transformed itself into a multinational and multiplatform business. The company is finally showing some signs of “growing up”, in our view. The global economic environment is still very uncertain. We stay cautious on revenue and margin estimates and will track the company closely in the months ahead. We maintain our HOLD rating on AusGroup. Our new fair value estimate is S$0.16 or 4x FY09F earnings (prev: S$0.17). (Meenal Kumar)

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

Gallant Venture Ltd: Loses favour in legal tussle

Summary: Gallant Venture Ltd’s (Gallant) subsidiaries have lost their long drawn legal tussle over the ownership of a portion of land in Bintan Island, Indonesia. The group is appealing against the judgement. The latest verdict by the Supreme Court of Indonesia rules that Gallant’s subsidiaries are not the legal owners of the 863,353 sqm of land under dispute, and have ordered the ownership to be transferred to the claimant PT Raflesia. While Gallant’s appeal could drag the final outcome of the verdict, the group does not expect this case to have any material financial impact as its substantial shareholder Parallax Venture Partners has agreed to indemnify in full any losses or damages as a result of this suit. Furthermore, the area under dispute accounts for less that 0.5% of the group’s total land portfolio and the damages of S$7.4m account for less than 0.6% of the group’s NTA. Nevertheless, we are putting our HOLD rating under review pending the group’s FY08 results due this week. (Lee Wen Ching)

NEWS HEADLINES

- Hi-P International reported a 10.3% rise in revenue to S$1.1b for FY08 and a 72% rise in net profit to S$102.2m.

- Yangzijiang posted a 91% increase in revenue to RMB7.4b and a 82% rise in net attributable profit to RMB1.6b for FY08. Gross profit margin declined, partly due to provision for potential cost variation, increased material cost and foreign currency fluctuations.

- Pan Asian Water Solutions reported a 173.4% rise in revenue to S$122.3m and a 190.6% increase in net profit to S$2.9m for FY08. Revenue rose due to higher contributions from Vietnam and Singapore, as well as the relining and rehabilitation business.

- Kencana Agri reported a 51% rise in revenue to US$104.9m but incurred a 74% drop in net profit to US$10.3m for FY08.

- KLW Holdings warned of losses for FY08 due to keen competition and poor sales. There were also start-up expenses at a new factory in China, and higher provisions or write-offs for doubtful debts and forex losses.

- Soup Restaurant Group reported a 5.7% rise in net profit to S$3.41m on the back of a 17.6% increase in revenue to S$39.95m for FY08, partly due to fresh contributions by three new Dian Xiao Er outlets.

- AnnAik reported a 67% fall in net profit to S$2.85m despite a 18.7% rise in revenue to S$84.14m for FY08, partly due to weaker price of steel raw materials and finished products.

- Federal International expects to report a substantial decrease in its net profit for FY08 due to higher forex losses, operating expenses and finance costs.