(Nov 20): This past week of the earnings season has brought positive news for some of the property and tech companies in our Singapore Market Portfolio. One of our holdings in the mining space continues to face headwinds, but is building new capabilities.

On the positive side, components manufacturer Memtech International saw a 26.5% y-o-y increase in earnings for 3QFY2017 ended Sept 30 to US$3.9 million ($5.3 million). Revenue dipped 0.5% to US$46.2 million as the telecommunications segment shrank 24.9%. However, this was offset by a 17.3% rise in revenue from the automotive segment and an 11.8% increase from the industrial and medical segment. Higher-margin products as well as greater operational efficiencies from automation boosted Memtech’s earnings margin. The stock was added to our portfolio on May 30 and has generated a 14% return so far.

UOB Kay Hian analyst Nicholas Leow expects Memtech to benefit from Tesla’s continued growth. Tesla is Memtech’s eighth-largest customer, according to Leow. The electric carmaker is planning to build a factory in China, which will be positive for Memtech. Leow has a “buy” call on Memtech, with a price target of $1.33.

CIMB Research analysts Ngoh Yi Sin and William Tng are expecting Memtech to pay out an increased dividend at end-FY2017. “With no major capex needs in the near term and recent proceeds from the sale of land completed in 2Q2017, we expect Memtech to pay out 40% of its net profit for FY2017 [above its dividend policy of at least 30%], translating into a 4% dividend yield,” they say. CIMB has an “add” call on the stock, with a price target of $1.33.

Property players record growth Real estate giant CapitaLand reported a 28.1% y-o-y rise in earnings to $317 million for 3QFY2017 ended Sept 30, boosted by asset reconstitution activities. This came amid a 9.7% increase in revenue to $1.5 billion, higher than the Bloomberg consensus of $932 million. The higher revenue was attributable to development projects in Singapore and the shopping mall and serviced residence businesses. The consolidation of CapitaLand Mall Trust, CapitaLand Retail China Trust and RCS Trust into the group results from August also added to CapitaLand’s top line. CapitaLand was among the stocks with which we kick-started our portfolio on Jan 4, and has generated 19.3% in returns so far.

DBS Group Research analysts Derek Tan and Rachel Tan are maintaining their “buy” call on the stock as they believe “CapitaLand will see higher valuations on the back of improved property market sentiment, leading to strong sales”. Continued asset recycling activities could also lead to higher gains and boost returns on equity, they say. They have a price target of $4.35 for the stock.

On Nov 13, CapitaLand opened its largest mall to date — the 300,000 sq m Suzhou Center Mall in China. In a press release, CEO Lim Ming Yan says that 2017 has been a “record” year for the company. “Close to one million sq m of retail gross floor area across eight developments turned operational in 2017, marking our largest ever retail GFA offering in a single year,” he says.

Meanwhile, UOL Group reported on Nov 9 that its earnings for 3QFY2017 ended Sept 30 increased over sevenfold to $618.1 million. UOL attributed the earnings spike to accounting for United Industrial Corp as a subsidiary, resulting in a gain on acquisition and consolidation of $542.1 million. In August, UOL acquired 60 million UIC shares. Excluding other gains, UOL’s earnings increased 8% y-o-y to $90.9 million. The stock, added to our portfolio on March 28, has generated 27.5% in returns.

UOL’s management is positive about the company’s prospects. In a press release accompanying the results, UOL noted that it had seen its first q-o-q rise in private residential property prices “after almost four years of decline, reflecting a turnaround in the residential market”. The company expects office rents to stabilise, although the retail sector is likely to remain under pressure. “[The] hospitality sector in Asia-Pacific, particularly in China and Myanmar, continues to face competitive pressures and oversupply of rooms,” UOL added.

In a Nov 10 report, Maybank Kim Eng Research analyst Derrick Heng says he continues to like UOL as “a key beneficiary of the impending rebound in Singapore’s property market”. He is also optimistic about UOL continually raising its stake in UIC: “We believe buying UIC shares allows UOL to access the underlying real estate at a discount and is a less-risky avenue for value creation in times of escalating land prices.” Heng has a “buy” call on UOL, with a 12-month price target of $9.85.

CNMC tests new facility CNMC Goldmine Holdings, which is developing the Sokor gold field project in Kelantan, Malaysia, has seen its production numbers depressed by poor ore grades in the last four quarters. This continued into the latest earnings results. For 3QFY2017 ended Sept 30, CNMC’s earnings fell 45.8% y-o-y to US$957,300 on a 44.3% drop in revenue to US$4.7 million.

In an earnings briefing on Nov 10, CNMC CEO Chris Lim expressed optimism that a new carbon-in-leach plant will lift the company’s fortunes. The facility is set to extract and process at least 500 tonnes of higher-grade ore daily at the Sokor gold field. Lim says the CIL technology is more efficient at extracting gold from ground ores, with recovery rates of up to 95%. CNMC has stockpiled 18,000 tonnes of ore for processing at the new facility.

The plant was completed below the budget of RM25 million and fully funded through internal resources. It commenced trial operations on Nov 6. Lim declined to specify how long the trial will last, but says that the plant will “definitely go into full operations” sometime next year.

Lim says the quick construction of the plant shows the company’s commitment to raising production levels. “We know that we need to catch up on falling gold production. With this facility, we at least give investors and shareholders a baseline that says, for CNMC, this facility is in place, constructed and fully funded. And, once it comes into operation... hopefully everything goes to plan and production will go back up like in previous years.”

Meanwhile, CNMC is continuing exploration on a greenfield asset held by wholly- owned subsidiary KelGold Mining. At its brownfield asset held by CNMC Pulai Mining, exploration activities are on hold for the rest of the year as the company awaits results on some samples sent to Australia for analysis. On Feb 24, CNMC acquired a 51% stake in CNMC Pulai.

In a Nov 13 report, Phillip Capital investment analyst Chen Guangzhi maintained a “neutral” call on CNMC while raising his price target to 30 cents. He believes the 18,000-tonne stockpile could boost the company’s performance temporarily. “However, solutions to improve the production volumes rely on either the ability to find high-grade ore beyond the existing fields that are being mined or monetisation of other minerals such as silver, zinc, lead and iron ore… Acquiring other gold mines that are generating relatively stable income flows is another alternative. CNMC has been [pursuing] various strategies so far, and we expect some of which will pay off in FY2018,” Chen says.

We added CNMC to our portfolio on Feb 21. It has incurred a loss of 24.1% so far. Overall, our portfolio has generated 15.6% in returns since Jan 4. The Straits Times Index returned 19.9% in the same period.

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