SMB United was established as a sheet metal fabricator in 1973 and has grown
into a regional player in electrical switchgears and electronic meters. It has a
dominant share of more than 40% for the switchgear market in Singapore.
Switchgear plays an important role in the distribution and protection of electrical
supplies in commercial, industrial and residential buildings and industrial process
plants. SMB United has a 57.3% stake in EDMI. EDMI manufactures electronic
meters for the electricity generating and distribution industries.
Well positioned in mission critical switchgears. SMB United benefits from
increased demand for high-end switchgears used in data centres and industrial
process plants such as semiconductor wafer fabs. Many financial institutions
have centralised administrative and backroom functions in Singapore. This has
led to contracts from Barclays Bank, Citibank, Deutsche Bank, DBS (Tower 2)
and UOB (396 Alexandra Road). It also supplies switchgears to data centre
providers such as Equinix.
SMB United also benefits from the resurgence in foreign investment for hightech
manufacturing in Singapore. It has secured contracts from Seagate
(recording media plant at Woodlands), Siltronic Samsung Wafer (12-inch wafer
plant at Tampines) and Soitec (12-inch wafer plant at Pasir Ris) in FY07.
Contracts from IRs provide catalyst. SMB United is a strong contender for
contracts from the two integrated resorts (IRs) at Marina Bay and Sentosa.
Management expects tender for the IRs to be called in 2H07. SMB United will
also be bidding for contracts from IM Flash Technologies (JV between Intel and
Micron) and Qimonda as both companies will commence construction of 12-inch
wafer fabs in Woodlands and Pasir Ris in 2H07.
Benefitting from industry-wide shortage in capacity. SMB United’s order
book for switchgear is strong and growing due to the booming construction and
property industries. The amount of construction contracts awarded in Singapore
was S$16.1b in 2006, an increase of more than 40%. It is well positioned to
select projects offering better margins due to industry-wide shortage in capacity.
Many switchgear makers downsized during 2001 to 2004 when the construction
industry recorded negative growth for four consecutive years.
Bumper dividend. SMB United has net cash of S$20.1m at Dec 06. It disposed
22.5m Oculus shares in the open market at an average price of $0.37. The sale
proceed from the divestment of S$8.4m will further boost its cash coffer. The
profits from divestment of S$6.4m will be distributed to shareholders in the form
of a special dividend estimated at 1.3 cents/share. We expect final dividend of
1.9 cents/share for FY07 assuming dividend payout of 70%. SMB United will
thus pay total dividend of 3.2 cents/share, which translate to yield of 7.4%.
SMB United is a proxy to the recovery in the construction industry. We forecast
earnings growth of 64.9% in FY07 driven by volume and margin expansion for
switchgear business. We expect earnings growth of 34.6% in FY08 driven by
contribution from contracts related to the IRs. Our target price is S$0.54 based
on FY08 PE of 15x (Tai Sin Electric Cables: 15.8x and ITE Electric: 23.8x).
No comments:
Post a Comment