SIGN (7246) - Signature International - Boost from PR1MA project?
Target RM3.12 (Stock Rating: ADD)
We were positively surprised to read in The Edge weekly that Signature is bidding to install kitchen systems for low-to medium-cost houses under the PR1MA housing programme. We have not assumed any potential earnings from PR1MA. We maintain our EPS forecasts and Add rating. Our target price is unchanged, based on 30% discount to SOP value to reflect Signature’s small market cap and tight trading liquidity. Potential catalysts for the stock include securing more major projects and its strong earnings growth outlook.
What Happened
In The Edge weekly, Signature’s MD KC Tan is hopeful that the company will secure work from the major Chinese developers at Johor’s Iskandar Malaysia project. He also sees opportunities in the Perumahan Rakyat 1 Malaysia (PR1MA) programme. The company is focused on high-end projects but is looking into bundling its work with home loans, as the government currently does not plan to include the cost of kitchen cabinets as part of the loans. However, negotiations are still in the preliminary stages. Its current order book stands at RM200m and it is tendering for RM500m new jobs. On the Battersea project, the company was unsuccessful in its bid for the first phase but it intends to submit a bid for the second phase worth RM20m-30m (expected to be awarded in mid-2016). The company is also bullish on the retail division, which contributed 30% of group revenue in FY14. Signature targets at least 10% topline growth from this division in FY15. It plans to add two new galleries as part of its 5-year plan (started in 2014). On its financials, the company believes that it will sustain double-digit EPS growth for more than three years.
What We Think
Signature’s bidding for jobs in PR1MA is a positive surprise for us. Earlier newspapers reports that PR1ma targets to build 500,000 low-to medium-cost homes by end-2018. Assuming costs of RM4,000 per kitchen, we estimate potential total contract size of around RM200m. We have not assumed any potential earnings from this project yet. As for maintaining double-digit EPS growth for more than three years, we believe that this is possible if there are no construction delays by the main contractors.
What You Should Do
Remain invested in the stock. The overall property market peaked in 2013 but Signature’s earnings are only expected to peak in 3-4 years. The installation of kitchen units is only completed just before the property is delivered to the buyer. We are bullish on its earnings in the next few years and expect them to peak in FY17, if not later.
Source: CIMB Daybreak - 19 January 2015
Target RM3.12 (Stock Rating: ADD)
We were positively surprised to read in The Edge weekly that Signature is bidding to install kitchen systems for low-to medium-cost houses under the PR1MA housing programme. We have not assumed any potential earnings from PR1MA. We maintain our EPS forecasts and Add rating. Our target price is unchanged, based on 30% discount to SOP value to reflect Signature’s small market cap and tight trading liquidity. Potential catalysts for the stock include securing more major projects and its strong earnings growth outlook.
What Happened
In The Edge weekly, Signature’s MD KC Tan is hopeful that the company will secure work from the major Chinese developers at Johor’s Iskandar Malaysia project. He also sees opportunities in the Perumahan Rakyat 1 Malaysia (PR1MA) programme. The company is focused on high-end projects but is looking into bundling its work with home loans, as the government currently does not plan to include the cost of kitchen cabinets as part of the loans. However, negotiations are still in the preliminary stages. Its current order book stands at RM200m and it is tendering for RM500m new jobs. On the Battersea project, the company was unsuccessful in its bid for the first phase but it intends to submit a bid for the second phase worth RM20m-30m (expected to be awarded in mid-2016). The company is also bullish on the retail division, which contributed 30% of group revenue in FY14. Signature targets at least 10% topline growth from this division in FY15. It plans to add two new galleries as part of its 5-year plan (started in 2014). On its financials, the company believes that it will sustain double-digit EPS growth for more than three years.
What We Think
Signature’s bidding for jobs in PR1MA is a positive surprise for us. Earlier newspapers reports that PR1ma targets to build 500,000 low-to medium-cost homes by end-2018. Assuming costs of RM4,000 per kitchen, we estimate potential total contract size of around RM200m. We have not assumed any potential earnings from this project yet. As for maintaining double-digit EPS growth for more than three years, we believe that this is possible if there are no construction delays by the main contractors.
What You Should Do
Remain invested in the stock. The overall property market peaked in 2013 but Signature’s earnings are only expected to peak in 3-4 years. The installation of kitchen units is only completed just before the property is delivered to the buyer. We are bullish on its earnings in the next few years and expect them to peak in FY17, if not later.
Source: CIMB Daybreak - 19 January 2015
