Hongguo and Prime Success Price/EPS chart
Saturday, May 10th, 2008
Archive for May, 2008
Hongguo - Profitability part 2
Saturday, May 10th, 2008
EPS
Looking at the graph below, we can see that for the trio, earnings are pretty good and is consistently getting higher. I do find it strange that even though Hongguo’s portfolio is behind both Belle’s and Prime’s, its EPS is actually the highest among the three.
If this trend is sustainable, it doesn’t even matter to me if Hongguo is ranked 3rd or ranked 1st, since it’s the earnings that ultimately drive the company, not the market share of their brands, though both are usually correlated.
Hongguo’s EPS historical growth is around 25%. I did some calculations based on different periods of years to derive the CAGR and found that it’s pretty consistent, always hovering around 21 to 29% since inception. The CAGR shown below is actually for 5 year period since 2002 to 2007.
As for Prime’s, EPS historical growth rate is much higher and also less consistent compared to Hongguo. It grows at a 5-year CAGR of 62%, but the fluctuations of the CAGR for different periods vary from 22% to 41%. In other words, Prime’s EPS growth rate is high but less consistent than Hongguo.
Based on my previous post on Hongguo’s valuation, I projected the EPS in 2020 to be $2.04 and I know that the EPS for FY07 is $0.28. That gives us a projected CAGR of 16.5% over 13 years into the future. Comparing my projection with the historical EPS growth rate of 25%, I think it’s quite reasonable, considering that the historical EPS of Belle and Prime is well in excess of 60%. Even Prime’s more recent earnings growth rate of 33% (from 2006 to 2007) is way higher than my projected CAGR of 16.5% for Hongguo.
PE of Prime Success vs Hongguo
Prime’s historical PE ratio is shown below. It goes from a low PE of 1.1 times to a high PE of 42 times. But let’s just look at the more recent PE, it’ll be around 16.2 to 42 times. Last close of Prime Success is HKD 4.55, which gives it a PE (based on FY07 earnings) of 19.2 times. Prime’s FY06 to FY07 earnings is 32%.
On the other hand, Hongguo current PE is 10 times, with FY06 to FY07 earnings growing at 22%. According to Peter Lynch, PE of a fairly valued stock should be the same as the earnings growth rate. Dividing earnings growth rate by PE, a stock having 1.5 is considered good but having above 2 is a possible bargain. Following his line of thought, Hongguo will be quite undervalued at the current price, having a PE of 10x but an earnings growth rate of 22%. It should be more fairly valued around PE of 22 times. (22/10 = 2.2)
Similarly we can do the same for Prime. It is trading at PE of 19 times, but with earnings growth rate of 32%. (32/19 = 1.7).
Looking at the graph below, we can see that for the trio, earnings are pretty good and is consistently getting higher. I do find it strange that even though Hongguo’s portfolio is behind both Belle’s and Prime’s, its EPS is actually the highest among the three.
If this trend is sustainable, it doesn’t even matter to me if Hongguo is ranked 3rd or ranked 1st, since it’s the earnings that ultimately drive the company, not the market share of their brands, though both are usually correlated.
Hongguo’s EPS historical growth is around 25%. I did some calculations based on different periods of years to derive the CAGR and found that it’s pretty consistent, always hovering around 21 to 29% since inception. The CAGR shown below is actually for 5 year period since 2002 to 2007.
As for Prime’s, EPS historical growth rate is much higher and also less consistent compared to Hongguo. It grows at a 5-year CAGR of 62%, but the fluctuations of the CAGR for different periods vary from 22% to 41%. In other words, Prime’s EPS growth rate is high but less consistent than Hongguo.
Based on my previous post on Hongguo’s valuation, I projected the EPS in 2020 to be $2.04 and I know that the EPS for FY07 is $0.28. That gives us a projected CAGR of 16.5% over 13 years into the future. Comparing my projection with the historical EPS growth rate of 25%, I think it’s quite reasonable, considering that the historical EPS of Belle and Prime is well in excess of 60%. Even Prime’s more recent earnings growth rate of 33% (from 2006 to 2007) is way higher than my projected CAGR of 16.5% for Hongguo.
PE of Prime Success vs Hongguo
Prime’s historical PE ratio is shown below. It goes from a low PE of 1.1 times to a high PE of 42 times. But let’s just look at the more recent PE, it’ll be around 16.2 to 42 times. Last close of Prime Success is HKD 4.55, which gives it a PE (based on FY07 earnings) of 19.2 times. Prime’s FY06 to FY07 earnings is 32%.
On the other hand, Hongguo current PE is 10 times, with FY06 to FY07 earnings growing at 22%. According to Peter Lynch, PE of a fairly valued stock should be the same as the earnings growth rate. Dividing earnings growth rate by PE, a stock having 1.5 is considered good but having above 2 is a possible bargain. Following his line of thought, Hongguo will be quite undervalued at the current price, having a PE of 10x but an earnings growth rate of 22%. It should be more fairly valued around PE of 22 times. (22/10 = 2.2)
Similarly we can do the same for Prime. It is trading at PE of 19 times, but with earnings growth rate of 32%. (32/19 = 1.7).
Singtel chart
Friday, May 9th, 2008
NO dream, I'm not going to back to the dark side! :)
I've quite a free day today, so was talking to stub about some of the companies that is interesting. Singtel crop up in our conversation and I thought it's interesting too. At least it passed my screening, though need to look more into it and compare with the other 2 main competitors before deciding anything.
Charting is fun for me, though not always so lucrative for me, hoho! Anyway, I know that I usually do patterns for my chartings. An important point that I come away from reading Phil Fisher's Common stocks and uncommon profits is that when you have a hammer, the whole world looks like a nail, hence it's important to have a few mental models of things so that we can see a problem with different perspectives.
I've quite a free day today, so was talking to stub about some of the companies that is interesting. Singtel crop up in our conversation and I thought it's interesting too. At least it passed my screening, though need to look more into it and compare with the other 2 main competitors before deciding anything.
Charting is fun for me, though not always so lucrative for me, hoho! Anyway, I know that I usually do patterns for my chartings. An important point that I come away from reading Phil Fisher's Common stocks and uncommon profits is that when you have a hammer, the whole world looks like a nail, hence it's important to have a few mental models of things so that we can see a problem with different perspectives.
Hongguo - Profitability part 1
Thursday, May 8th, 2008
Profitability
Let’s take a closer look on the profitability of Hongguo. To really see how good/bad Hongguo is, it’s inevitably that I’ll have to look through its main competitors – Belle and Prime Success again. Below is my calculated data, after spending days poring hunting down annual reports and compiling them.
Prime Success is the longest listed company out of the trio, while Belle is the youngest, having been listed only in May 2007 (though it had been in business for a far longer time). As such, do take Belle’s data with more skepticism than your normal dosage.
Here, I’ll just focus on ROE, ROA and the margins.
ROE
We can see that for the trio, all ROE is relatively high as it should be, given their market position in PRC. Hongguo has a more consistent and steadily increasing ROE, while Prime success’s ROE peaks at 2004 and is steadily declining ever since. In ascending average ROE, Belle is ranked first, followed by Hongguo then Prime. Since Prime success is touted as Hongguo’s main competitor (see previous posting), we ought to do a closer comparison between the two.
As mentioned earlier, Prime has a spottier ROE compared to Hongguo. On average over the same period of time, Prime has a lower ROE of 24.50% compared to Hongguo’s 25.77%. It seems like Hongguo is better at investing retained earnings than Prime does. It’s not surprising given that Hongguo has the smallest market share among the trio, and the bigger competitors will always find it harder to invest in themselves than when they are much smaller.
I am quite pleased with the stability of Hongguo’s ROE though, it definitely makes valuation much more predictable.
ROA
Actually, whatever had been mentioned for ROE can be copied directly to this part. In ascending average ROA, again we have Belle ranked as the top, followed by Hongguo and finally Prime.
Hongguo showed steadily improving ROA, while Prime shows a spottier ROA record, like what we’ve seen earlier on its ROE. Again, I’ll attribute this partly to the smaller size of Hongguo. The management must also play a certain part in creating these figures, since not all can be explained by just the size of the company. In this aspect, Hongguo is once again ranked highly by being consistent.
Gross and net margins
Net margin for Hongguo is showing a decline, though its gross margins increases. Since gross margins didn’t decline along with net margins, I believe that it is the increasing expenses of maintaining a greater sales force and expansion plans that causes the decline in net margins. I would start to worry if after the expansion plans slows down, the net margins still didn’t improve, or if the gross margins start to drop. If this scenario actually plays out, I’ll have reasons to believe that somehow, the brand of Hongguo is no longer as attractive as it is now, so they can’t pass the rising costs down to consumers. As it is now, it’s more reasonable to adopt a wait-and-see attitude to see if the net margins can improve in the future.
Prime is also expanding rapidly, yet their net margins didn’t drop. In fact, for Prime, gross margins increases while net margins remain more or less constant. Strange isn’t it? I’ll keep a lookout on this point for Hongguo.
Thoughts
Earnings come from two parts – volume of sales and price of sales. A company with low net margins, selling huge volume can rival that of another company with high margins but with lesser volume.
Prime seems to be the low net margins, high turnover kind, judging from its asset turnover of 1.69 (highest among the three) and net margins of 8.06% (lowest among the three). Prime gives me a mental image of them selling lower priced items to mass consumer. The higher volume because of the lower price compensates for the lower net margins, giving Prime their earnings.
Hongguo, on the other hand, has a higher net margins but with lower asset turnover. Is is interesting to take note that while net margins drop over the years, the asset turnover increases more. This gives me a mental image of Hongguo selling higher priced items but with lower volume. The Average selling price of Hongguo shoes compared to Prime seems more or less to confirm this observation. If that indeed is the case, then Hongguo’s management is right; they do not have to worry much about Prime’s Daphne brand as it caters to a different crowd and have lower selling price.
Belle’s net margin is the highest, based on 2007, yet their asset turnover is also the lowest in the same year. It is stated that Hongguo will follow this model of going for the higher end consumer where there is more emphasis on brands than the more cutthroat mass market. If that is the case, we only have to see the margins of Belle to have a rough guide on where the net margins of Hongguo will go in the near future – around 16% and above. Since Belle and Prime (except Hongguo) indicated interest in growing their sportswear brands, it will be crucial to see what the margins for sportswear and the ladies fashion shoes are. That should shed more light on what the margins for Hongguo will be like.
Points of sales (POS) analysis
I thought this could be a good way to analyse retail business – by analyzing the revenue, expense and earnings stream of each company with reference to their POS. I came out with this table.
A few trends I noticed:
1. Belle is getting the most bang for its buck. Revenue per POS of 1.90 RMB million beats Prime and Hongguo hands down. Revenue per POS for Prime is coming down steadily while Hongguo is climbing up. It’s important that revenue per POS is at least constant or improving because it shows us how each dollar of revenue is generated from each point of sales being set up, even as the company expands. We certainly do not want to see more stores but less revenue generated – could be a sign of expanding too fast or too aggressively into regions outside their target market.
2. Belle again wins hands down for the net profit generated per POS. Here, we see an increasing trend of net profit per POS for Hongguo and a decreasing trend for Prime. Can you imagine it – in 2007, an average POS for Hongguo earns the same net profit as an average POS for Prime?
3. Selling & Distribution (S&D) expense per POS for Belle is the highest, so here we see that the higher net margins comes at a higher cost. The high selling and distribution cost per POS for Belle seems to confirm the earlier image of Belle as the high end seller. To create a perceived difference in their shoes, Belle must necessary spend more on advertising, which chalks up their S&D expenses. Surprisingly, Hongguo has the lowest cost per POS. Why surprising? Because given their decreasing net margins, I would expect the cost to run up faster than the earnings they get from opening new POS. Hmm, this is indeed an interesting point to investigate further – why did net margins of Hongguo drop over the years?
I do hope that Hongguo can increase their advertising further, yet this will cause the S&D to increase higher too. The only way around this is that the advertising will eventually generate enough consumer goodwill which will make the consumers pay more for the branding, thus improving margins in the long run.
Thoughts
I think Prime Success is in some sort of a trouble. Something isn’t just quite right when we look at its numbers – the story seems a bit bleak for Prime. As for Hongguo, I think they do have the potential to maintain or even improve its market position. It’s good that while Hongguo seeks to expand over as many POS as possible, they did it from their own cash flows and didn’t borrow excessively to achieve this. When times are bad, this kind of cautionary and prudent expansion plans will bode well for the company’s long term future.
Let’s take a closer look on the profitability of Hongguo. To really see how good/bad Hongguo is, it’s inevitably that I’ll have to look through its main competitors – Belle and Prime Success again. Below is my calculated data, after spending days poring hunting down annual reports and compiling them.
Prime Success is the longest listed company out of the trio, while Belle is the youngest, having been listed only in May 2007 (though it had been in business for a far longer time). As such, do take Belle’s data with more skepticism than your normal dosage.
Here, I’ll just focus on ROE, ROA and the margins.
ROE
We can see that for the trio, all ROE is relatively high as it should be, given their market position in PRC. Hongguo has a more consistent and steadily increasing ROE, while Prime success’s ROE peaks at 2004 and is steadily declining ever since. In ascending average ROE, Belle is ranked first, followed by Hongguo then Prime. Since Prime success is touted as Hongguo’s main competitor (see previous posting), we ought to do a closer comparison between the two.
As mentioned earlier, Prime has a spottier ROE compared to Hongguo. On average over the same period of time, Prime has a lower ROE of 24.50% compared to Hongguo’s 25.77%. It seems like Hongguo is better at investing retained earnings than Prime does. It’s not surprising given that Hongguo has the smallest market share among the trio, and the bigger competitors will always find it harder to invest in themselves than when they are much smaller.
I am quite pleased with the stability of Hongguo’s ROE though, it definitely makes valuation much more predictable.
ROA
Actually, whatever had been mentioned for ROE can be copied directly to this part. In ascending average ROA, again we have Belle ranked as the top, followed by Hongguo and finally Prime.
Hongguo showed steadily improving ROA, while Prime shows a spottier ROA record, like what we’ve seen earlier on its ROE. Again, I’ll attribute this partly to the smaller size of Hongguo. The management must also play a certain part in creating these figures, since not all can be explained by just the size of the company. In this aspect, Hongguo is once again ranked highly by being consistent.
Gross and net margins
Net margin for Hongguo is showing a decline, though its gross margins increases. Since gross margins didn’t decline along with net margins, I believe that it is the increasing expenses of maintaining a greater sales force and expansion plans that causes the decline in net margins. I would start to worry if after the expansion plans slows down, the net margins still didn’t improve, or if the gross margins start to drop. If this scenario actually plays out, I’ll have reasons to believe that somehow, the brand of Hongguo is no longer as attractive as it is now, so they can’t pass the rising costs down to consumers. As it is now, it’s more reasonable to adopt a wait-and-see attitude to see if the net margins can improve in the future.
Prime is also expanding rapidly, yet their net margins didn’t drop. In fact, for Prime, gross margins increases while net margins remain more or less constant. Strange isn’t it? I’ll keep a lookout on this point for Hongguo.
Thoughts
Earnings come from two parts – volume of sales and price of sales. A company with low net margins, selling huge volume can rival that of another company with high margins but with lesser volume.
Prime seems to be the low net margins, high turnover kind, judging from its asset turnover of 1.69 (highest among the three) and net margins of 8.06% (lowest among the three). Prime gives me a mental image of them selling lower priced items to mass consumer. The higher volume because of the lower price compensates for the lower net margins, giving Prime their earnings.
Hongguo, on the other hand, has a higher net margins but with lower asset turnover. Is is interesting to take note that while net margins drop over the years, the asset turnover increases more. This gives me a mental image of Hongguo selling higher priced items but with lower volume. The Average selling price of Hongguo shoes compared to Prime seems more or less to confirm this observation. If that indeed is the case, then Hongguo’s management is right; they do not have to worry much about Prime’s Daphne brand as it caters to a different crowd and have lower selling price.
Belle’s net margin is the highest, based on 2007, yet their asset turnover is also the lowest in the same year. It is stated that Hongguo will follow this model of going for the higher end consumer where there is more emphasis on brands than the more cutthroat mass market. If that is the case, we only have to see the margins of Belle to have a rough guide on where the net margins of Hongguo will go in the near future – around 16% and above. Since Belle and Prime (except Hongguo) indicated interest in growing their sportswear brands, it will be crucial to see what the margins for sportswear and the ladies fashion shoes are. That should shed more light on what the margins for Hongguo will be like.
Points of sales (POS) analysis
I thought this could be a good way to analyse retail business – by analyzing the revenue, expense and earnings stream of each company with reference to their POS. I came out with this table.
A few trends I noticed:
1. Belle is getting the most bang for its buck. Revenue per POS of 1.90 RMB million beats Prime and Hongguo hands down. Revenue per POS for Prime is coming down steadily while Hongguo is climbing up. It’s important that revenue per POS is at least constant or improving because it shows us how each dollar of revenue is generated from each point of sales being set up, even as the company expands. We certainly do not want to see more stores but less revenue generated – could be a sign of expanding too fast or too aggressively into regions outside their target market.
2. Belle again wins hands down for the net profit generated per POS. Here, we see an increasing trend of net profit per POS for Hongguo and a decreasing trend for Prime. Can you imagine it – in 2007, an average POS for Hongguo earns the same net profit as an average POS for Prime?
3. Selling & Distribution (S&D) expense per POS for Belle is the highest, so here we see that the higher net margins comes at a higher cost. The high selling and distribution cost per POS for Belle seems to confirm the earlier image of Belle as the high end seller. To create a perceived difference in their shoes, Belle must necessary spend more on advertising, which chalks up their S&D expenses. Surprisingly, Hongguo has the lowest cost per POS. Why surprising? Because given their decreasing net margins, I would expect the cost to run up faster than the earnings they get from opening new POS. Hmm, this is indeed an interesting point to investigate further – why did net margins of Hongguo drop over the years?
I do hope that Hongguo can increase their advertising further, yet this will cause the S&D to increase higher too. The only way around this is that the advertising will eventually generate enough consumer goodwill which will make the consumers pay more for the branding, thus improving margins in the long run.
Thoughts
I think Prime Success is in some sort of a trouble. Something isn’t just quite right when we look at its numbers – the story seems a bit bleak for Prime. As for Hongguo, I think they do have the potential to maintain or even improve its market position. It’s good that while Hongguo seeks to expand over as many POS as possible, they did it from their own cash flows and didn’t borrow excessively to achieve this. When times are bad, this kind of cautionary and prudent expansion plans will bode well for the company’s long term future.
Corporate Results Update.
Wednesday, May 7th, 2008
Compiled by DBS Vickers:
UOB’s 1Q08 results were in line with our expectations.
Annualised 1Q08 numbers were 6% lower than our full year estimates and 5% below consensus due to higher provisions set aside for its ABS CDOs. UOB further provided for another $43m against its profit and loss account.
Supporting the results were strong loan growth (18% y-o-y and 2% q-o-q) and higher NIMs of 2.20% (4Q07: 1.94%, 1Q07: 2.18%). Non-interest income was lower by 4% y-o-y and 22% q-o-q as expected due to mark-to-market losses coupled with lower fee income from fund management and investment-related activities, in line with the softer capital market conditions.
During 1Q08 UOB’s regional outfits performed well with the exception of Greater China due to a revaluation loss on the US$ capital injection. Excluding the revaluation loss, Greater China would have recorded a profit of S$26m rather than a loss of S$4m.
OCBC’s 1Q08 net profit came in at S$626m.
+12% y-o-y and 45% q-o-q. The disappointment is in GEH, which surprised on the downside with only a S$7m income contribution. Loan syndication fees were strong; no further provisions were made on CDOs. Maintain Buy, TP revised to S$9.80 (from S$9.00).
Net profit for StarHub came in below expectations.
Grew 15% y-o-y but fell 19% q-o-q to S$80.1m, mainly due to lower margins. Ahead of full mobile number portability, we do not expect competition to ease. Maintain Hold; target price of S$3.10. Management has guided for 10% revenue growth and 33% EBITDA margin in 2008.
1Q08 net profit for SembCorp Marine rose 24% to S$91.3m.
Turnover was down 4% yoy to S$916.1m. Sequential revenue and earnings should be higher in 2Q08 as we expect one semi-submersible and at least three jackups to hit the 20% milestone stage compared to only jackup in 1Q08. Maintain Buy with an unchanged TP of S$4.50.
Raffles Ed 3Q/9M results were in line with our expectations.
Revenue for 3Q grew 73% to S$49.2m, from S$28.4m arising from increased student enrollment, increased course fees and contributions from Zhongfa, Oriental University City (OUC) and Hefei Wanbo College (Wanbo). Contribution from OUC and Wanbo started in Jan 08.
Operating expenses grew 73%, which was in tandem with sales growth. This was due to staff costs and higher operating expenses as a result of its increased scale of operations. Gross margin for the quarter remained steady at 41.1%. Total student enrollment now stands at an estimated 26,900 students (excluding an estimated 23,000 students in Langfang Vocational Technical Institute and Langfang Health School).
1Q08 results for ARA were in line with our expectations.
Operational performance continued to grow strong from an increased AUM base. Gross revenues increasing 107% yoy to S$17.5m and net profit by 142% yoy to S$9.2m. We continue to like ARA for its asset light - fee income base model backed by stable real estate assets. Maintain Buy on ARA, TP S$1.13.
Compiled by OCBC Research:
DBS 1Q08 was ahead of market expectations.
DBS posted 1Q net earnings of S$603m, -2.3% YoY and +22.8% QoQ, and slightly ahead of market estimate of S$562m based on a Dow Jones Newswires poll. Interest Income rose 8.5% YoY (flat QoQ) to S$1,057m, while Non-interest Income fell 10.9% YoY (+6.8% QoQ) to S$506m, resulting in fairly flat total income of S$1,563m.
The gain in Interest Income came from the strong increase in loans growth, +5% QoQ and +21% YoY to S$114.2 billion (versus +19% YoY and +1.8% QoQ to S$94.4 billion for UOB). On the margin front, Net Interest Margin (NIM) slipped from 2.21% in 1Q07 and 2.11% in 4Q07 to 2.09% by 1Q08.
On the fee income side, the obvious declines came from stockbroking and wealth management. Net trading income sustained a net loss of S$161m, partly due to a charge of S$86m for Rosa. Costincome ratio improved slightly from 43% in 1Q07 to 42% in 1Q08. Nonperforming loan (NPL) rate also showed improvement from 1.5% to 1.0%. The group has declared a one-tier tax-exempt 1Q dividend of 20 cents per share.
UOB’s 1Q08 results were in line with our expectations.
Annualised 1Q08 numbers were 6% lower than our full year estimates and 5% below consensus due to higher provisions set aside for its ABS CDOs. UOB further provided for another $43m against its profit and loss account.
Supporting the results were strong loan growth (18% y-o-y and 2% q-o-q) and higher NIMs of 2.20% (4Q07: 1.94%, 1Q07: 2.18%). Non-interest income was lower by 4% y-o-y and 22% q-o-q as expected due to mark-to-market losses coupled with lower fee income from fund management and investment-related activities, in line with the softer capital market conditions.
During 1Q08 UOB’s regional outfits performed well with the exception of Greater China due to a revaluation loss on the US$ capital injection. Excluding the revaluation loss, Greater China would have recorded a profit of S$26m rather than a loss of S$4m.
OCBC’s 1Q08 net profit came in at S$626m.
+12% y-o-y and 45% q-o-q. The disappointment is in GEH, which surprised on the downside with only a S$7m income contribution. Loan syndication fees were strong; no further provisions were made on CDOs. Maintain Buy, TP revised to S$9.80 (from S$9.00).
Net profit for StarHub came in below expectations.
Grew 15% y-o-y but fell 19% q-o-q to S$80.1m, mainly due to lower margins. Ahead of full mobile number portability, we do not expect competition to ease. Maintain Hold; target price of S$3.10. Management has guided for 10% revenue growth and 33% EBITDA margin in 2008.
1Q08 net profit for SembCorp Marine rose 24% to S$91.3m.
Turnover was down 4% yoy to S$916.1m. Sequential revenue and earnings should be higher in 2Q08 as we expect one semi-submersible and at least three jackups to hit the 20% milestone stage compared to only jackup in 1Q08. Maintain Buy with an unchanged TP of S$4.50.
Raffles Ed 3Q/9M results were in line with our expectations.
Revenue for 3Q grew 73% to S$49.2m, from S$28.4m arising from increased student enrollment, increased course fees and contributions from Zhongfa, Oriental University City (OUC) and Hefei Wanbo College (Wanbo). Contribution from OUC and Wanbo started in Jan 08.
Operating expenses grew 73%, which was in tandem with sales growth. This was due to staff costs and higher operating expenses as a result of its increased scale of operations. Gross margin for the quarter remained steady at 41.1%. Total student enrollment now stands at an estimated 26,900 students (excluding an estimated 23,000 students in Langfang Vocational Technical Institute and Langfang Health School).
1Q08 results for ARA were in line with our expectations.
Operational performance continued to grow strong from an increased AUM base. Gross revenues increasing 107% yoy to S$17.5m and net profit by 142% yoy to S$9.2m. We continue to like ARA for its asset light - fee income base model backed by stable real estate assets. Maintain Buy on ARA, TP S$1.13.
Compiled by OCBC Research:
DBS 1Q08 was ahead of market expectations.
DBS posted 1Q net earnings of S$603m, -2.3% YoY and +22.8% QoQ, and slightly ahead of market estimate of S$562m based on a Dow Jones Newswires poll. Interest Income rose 8.5% YoY (flat QoQ) to S$1,057m, while Non-interest Income fell 10.9% YoY (+6.8% QoQ) to S$506m, resulting in fairly flat total income of S$1,563m.
The gain in Interest Income came from the strong increase in loans growth, +5% QoQ and +21% YoY to S$114.2 billion (versus +19% YoY and +1.8% QoQ to S$94.4 billion for UOB). On the margin front, Net Interest Margin (NIM) slipped from 2.21% in 1Q07 and 2.11% in 4Q07 to 2.09% by 1Q08.
On the fee income side, the obvious declines came from stockbroking and wealth management. Net trading income sustained a net loss of S$161m, partly due to a charge of S$86m for Rosa. Costincome ratio improved slightly from 43% in 1Q07 to 42% in 1Q08. Nonperforming loan (NPL) rate also showed improvement from 1.5% to 1.0%. The group has declared a one-tier tax-exempt 1Q dividend of 20 cents per share.