SIGN (7246) - Signature International - The signs are here
Target RM4.23 (Stock Rating: ADD)
Signature International was one of the top small-cap gainers in Mar, up 14.7% mom (FBMSC was down 2% mom). Even after the recent rally, the stock’s valuation is still attractive at only 6x 2016 P/E, with a 5-6% dividend yield. We maintain our EPS forecasts and target price, based on an unchanged 30% discount to SOP (to reflect its small cap and tight trading liquidity). Securing major jobs and expanding profit margins are potential re-rating catalysts for the stock. Signature remains an Add.
What Happened
Among our small-cap universe, Signature International was one of the major outperformers in Mar, with its share price up 14.7% mom compared to FBMSC’s 2% decline and KLCI’s 0.4% gain during the month. Other major small-cap gainers in Mar included GHL, HeveaBoard and MyEG.
What We Think
We believe Signature’s strong share performance since the start of the year (share price up 21% YTD) was mainly driven by two factors: i) Rising quarterly net profit (refer to Figure 2). 2QFY15 net profit was RM9.1m (after excluding RM3m in provision write-backs) compared to only RM2.9m in 2QFY14 as its order book continued to grow. Signature’s kitchen system production and installation only start when the main contractor completes its job, usually three years after a property is sold. As such, Signature’s current revenue and order book comes from property sales in 2011/2012. The outstanding order book is consistently above RM200m. As the domestic property market peaked in 2014, we expect Signature’s earnings to only peak in FY2017/18. ii) Higher free float. Signature’s free float has improved by around 11% to around 41% currently as one of its major shareholders, HSC Healthcare S/B, has reduced its stake in the company from 20.9% to 9.1%. We view HSC’s selldown in Signature as positive as it has helped improved the stock’s liquidity. In the past, institutional investors had complained about Signature’s lack of trading liquidity. Average daily trading volume in Signature shares in Feb-Mar was 0.67m compared to only 0.01m in Jan (refer to Figure 7).
What You Should Do
Remain invested in the stock. Not many companies in the domestic stock market have a 3-year EPS CAGR of 39%. The stock is only trading at 6x 2016 P/E, the cheapest among the domestic small-cap construction stocks. In addition, the stock’s 5-6% dividend yield is the highest in its sector.
Source: CIMB Daybreak - 09 April 2015
Target RM4.23 (Stock Rating: ADD)
Signature International was one of the top small-cap gainers in Mar, up 14.7% mom (FBMSC was down 2% mom). Even after the recent rally, the stock’s valuation is still attractive at only 6x 2016 P/E, with a 5-6% dividend yield. We maintain our EPS forecasts and target price, based on an unchanged 30% discount to SOP (to reflect its small cap and tight trading liquidity). Securing major jobs and expanding profit margins are potential re-rating catalysts for the stock. Signature remains an Add.
What Happened
Among our small-cap universe, Signature International was one of the major outperformers in Mar, with its share price up 14.7% mom compared to FBMSC’s 2% decline and KLCI’s 0.4% gain during the month. Other major small-cap gainers in Mar included GHL, HeveaBoard and MyEG.
What We Think
We believe Signature’s strong share performance since the start of the year (share price up 21% YTD) was mainly driven by two factors: i) Rising quarterly net profit (refer to Figure 2). 2QFY15 net profit was RM9.1m (after excluding RM3m in provision write-backs) compared to only RM2.9m in 2QFY14 as its order book continued to grow. Signature’s kitchen system production and installation only start when the main contractor completes its job, usually three years after a property is sold. As such, Signature’s current revenue and order book comes from property sales in 2011/2012. The outstanding order book is consistently above RM200m. As the domestic property market peaked in 2014, we expect Signature’s earnings to only peak in FY2017/18. ii) Higher free float. Signature’s free float has improved by around 11% to around 41% currently as one of its major shareholders, HSC Healthcare S/B, has reduced its stake in the company from 20.9% to 9.1%. We view HSC’s selldown in Signature as positive as it has helped improved the stock’s liquidity. In the past, institutional investors had complained about Signature’s lack of trading liquidity. Average daily trading volume in Signature shares in Feb-Mar was 0.67m compared to only 0.01m in Jan (refer to Figure 7).
What You Should Do
Remain invested in the stock. Not many companies in the domestic stock market have a 3-year EPS CAGR of 39%. The stock is only trading at 6x 2016 P/E, the cheapest among the domestic small-cap construction stocks. In addition, the stock’s 5-6% dividend yield is the highest in its sector.
Source: CIMB Daybreak - 09 April 2015
