We are still upbeat about Signature International’s (Signature) fundamentals despite its relatively weak 1QFY16 results, which contracted by 17.7% YoY. In our recent meeting, the management believes 2016 will be challenging for the company but it expects a strong comeback in 2017. Valuation wise, we believe the downside risk to Signature’s shares is limited as the cash-rich company may be aggressive in share buyback in 2016. Maintain Buy on Signature with a revised target price of RM2.55
Management has a complete change of view about the job market outlook for kitchen manufacturers for 2016. Instead of a steady 2016 growth and possible slowdown in 2017 as previously guided, management foresees more challenges in 2016 and expects a strong recovery in 2017 now. Note that Signature has predicted earlier that the slowdown in property market in 2015 will affect its 2017 revenue, assuming a 2-year time lag between project launch and award of kitchen contracts.
The change in predictions can be partly attributed to change in developers’ behaviour. Given the uncertain property market outlook, management indicated that developers are cautious in managing their profit growth trends. Instead of following the original work schedules, which may see a sharp contraction in 2017 profits, developers intends to smooth out the impact by recognizing their current unbilled sales evenly between 2016 and 2017. This will lead to job delays, which include kitchen works. However, we agree with management that the job delays could not persist or developers would fail to complete projects on time.
Signature is expected to receive letters of awards of 5 new projects worth RM30mn in the next few months. This will prop up its order book from RM138mn back to RM168mn. For Danga Bay Country Garden, we expect the decision making for the project award to come in 1Q16 and this 3 to 6-month delay would potentially push some of the earnings to FY17. As far as Battersea Phase 2 development is concerned, Signature has a good head start in clinching the kitchen works after submitting its proposal to the developer. The company has proposed the imported German-brand kitchen system for Battersea. According to our property analyst, there are 255 luxury apartments within Battersea Phase 2 development. Assuming each kitchen system would cost RM100k, we estimate Battersea’s kitchen contract could worth RM25.5mn.
We downgrade our FY16/17/18 earnings by 35.2%/4.1%/2.5% after reducing FY16/17/18 total job wins by 23.8%/0.3%/6.5%. We now assume Signature to secure new jobs worth RM108mn, RM206mn and RM205mn for FY16, FY17 and FY18 respectively.
today cut loss of sign..really worry about th qtr release soon may be good or can be bad......base on the previous is bad expect cant break high on tomorrow qtr
Yesterday 47 counters hit 52w new high. 7 counters new low. Sign towards the new low group. When nearly all counters make profit, I wonder how u people feel..Shift to other counter is never too late..I believe some strong supporters of this counter oredi do that.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
William Tan
850 posts
Posted by William Tan > 2015-12-29 12:18 | Report Abuse
qtr announce...lagi no eye to see...drop drop