52-week Hi/Lo

 

Lim & Tan @ S$0.615 (09 Oct 2007)
- Buy (Maintained)
- Techcomp announced that the company has received initial orders for its proprietary brand of laboratory consumables (called capillary columns).
- The capillary columns are used together with gas chromatographs which in turn is used for analysis of chemical components in the food and beverage, environmental industries as well as quality assurance of various industries.
- While Techcomp?s gas chromatograph is their best selling product, these capillary columns can be used in all brands of gas chromatographs. According to management, these capillary columns commands gross margin in the range of 50-80% compared to current group gross margin of 30%. This high margined consumables are currently dominated by foreign imports and Techcomp has the necessary technical expertise to manufacture these consumables at a fraction of their costs.
- Management expects meaningful contributions from this new business segment for year ending Dec ?08 and expects strong recurring income for the group as well as more sticky relationship with their customers. As well, this segment could potentially be the next growth driver for the group going forward.
- As Techcomp?s customer base is made of 50-60% government related organizations in China (such as inspection departments, laboratories, research institutions, industrial, heathcare, agricultural and universities institutes), management expects to benefit from the recent spate of adverse publicity on the safety standards of ?Made in China? products (such as pet foods, toothpaste, tires, seafood, medicine and toys), leading to the increased needs for testing and inspection of these products.
- The recent new share placement which raised $11.5mln in proceeds would come in handy to fund their expanding manufacturing operations, new consumable business , higher working capital requirements from the increased business activities as well as M&A opportunities. At 10x 2007 earnings and 8x 2008 earnings, against its historical as well as management?s growth target of 25-30% and industry average PE of 15-20x, the stock is not expensive.
- We have had a BUY recommendation since May 2007 and see no reason to change our call.

 

 

Westcomb @ S$0.605 (09 Oct 2007)
- Buy (Maintained)
- Target Price: S$1.00
- Secures initial orders for laboratory consumables
- Techcomp Holdings Ltd, a distributor and manufacturer for proprietary high-technology testing equipment, announced that the Group has received initial orders for its proprietary brand of laboratory consumables.
- The recent adverse publicity on the safety standards of ?Made in China? products has actually augmented the demand for the Group?s products and services.  The Group prides itself as a one-stop complete solution provider for the customers. The Group have ventured into the manufacturing of laboratory equipment under ?Techcomp? brands as well as OEM and ODM for the MNCs customers.
- The recent placement exercise has seen our valuation diluted by 4% to US 4.2 cents for FY07F and 12% to US 5.1 cents for FY08F.
- Our house target price for Techcomp stands at $1.00 based on 13x blended FY07/08F EPS.

 

 

Westcomb @ S$0.615 (04 Oct 2007)
- Buy (Maintained)
- Target Price S$1.00
- Company update
- www.techcomp.com.hk
- Sector: Manufacturing/Distribution
- Major Shareholders: Lo Yat Keung 53.4%, Axix Asia Fund 5.0%, Xu Guoping 4.9%
- Free Float 31.8%
- Analyst: Wong Say Tian - (65) 6319 4151 - saytian@westcombfinancial.com
- Building up war chest with proposed share placement

Investment?s highlights:
- Building up war chest with cash injection of S$11.5m (estimated) from proposed share placement of 20m shares at a price of S$0.60. The placement price represents a discount of approximately 3.3% to the volume weighted average price of S$0.6202 based on trades done on 27th and 28th September. We noted that the shares will be placed out to institutional as well as high net worth investors. We believe Techcomp has identified a potential takeover target to expand its market share and/or increase its product range and capabilities, which motivated the Group to raise cash fundings through share placement.

Forecasts and valuation
- Maintain BUY recommendation with target price of S$1.00. Excluding the contributions from the anticipated acquisition, earnings per share will be diluted by 4% to 4.18 US cts in FY07F and 12% to 5.06 US cts in FY08F. However, we are not overly concerned with the earnings dilution resulting from the proposed share placement. We maintain our previous target price of S$1.00 due to the following reasons:
1) Its ?recession-proof? business model
2) Good earnings visibility
3) Assuming the potential additional business from an anticipated acquisition will at least offset the earnings dilution resulting from the share placement.
- We will revisit our valuation when more details are released
- Based on 3rd October closing share price of $0.615, Techcomp is currently trading at 10x FY07F PE and 8x FY08F PE. With an upside potential of 63%, we reiterate BUY.

 

 

Lim & Tan @ S$0.615 (01 Oct 2007)
- Buy (Maintained)
- Target Price: S$
- Gaining Institutional Interest
- Techcomp will be placing out via CIMB-GK 20mln new shares (14.8% of outstanding shares) at 60 cents each, representing a small discount of 2.4% to its last traded price of 61.5 cents each.
- We understand that 3 institutional investors will be taking up a good part of the placement shares with the rest going to high net worth individuals.
- Out of the S$11.5mln placement proceeds expected, management has set aside $6mln for business expansion and M&A opportunities while the rest will be used for general working capital purposes.
- With the placement proceeds, cash holdings will increase from S$4.95mln to S$16.45mln versus debts of S$12.72mln, translating to a net cash position of S$3.73mln.
- Earnings per share (EPS) growth this year would be diluted from 38% to 23.2%, giving a forward PE of 10-11x instead of 9x.
- Management targets to increase business contributions from the higher margined manufacturing business segment (pretax margin is 21% versus 7% for distribution).
- Management will also be using the proceeds to invest in the high margin consumable business segment (gross margin between 50-80% versus current group
average of 30%).
- Earnings accretive acquisitions and higher margin business expansion plans (manufacturing and consumable business segments) could help to offset the EPS dilution.
- With its PE still at a discount to its growth rate and its comparables (average 15-20x), coupled with higher institutional interest, we continue to maintain
a BUY (post placement, market cap would be increased from S$83mln to S$95mln, while outstanding shares from 135mln to 155mln).