Stock Watch by Investor Central

Super Coffeemix

Super Coffeemix is a company with solid fundamentals. But what's worrying is that its management seems willing to sell this business to any big corporation that comes along. Will this stock be around next year, one wonders?

Super's stock has a price/book (P/B) value of 1.51. It gets a cross because it's over 1, making it too expensive for us. It has a price/earnings (P/E) ratio of 11.12, just below our desired ratio of 12. It gets a tick here.

In FY2007, it announced an interim dividend of 0.6 cents and a final dividend of 1 cent. The total dividend of 1.6 cents gives it a dividend yield of 2.54%. For having a yield that's better than putting your money in a bank, Super gets a tick.

It generated S$31.3 mln in cash from operations compared to the S$$33.5 mln the previous year. It has been generating cash from its operations for the past five years. It gets a tick for cash flow.

Super's management has guided the company to rising revenue and profit every year since 2002. This is despite a gross profit margin that has been falling since 2004. Super's profitability has always been affected by high commodity prices, especially for coffee beans.

But it is trying to lift sales and margins by launching new products like coffee mixed with collagen. Super also said its higher-margin coffee brands like Grandeur and Café Nova are doing well.

A few months ago, management was negotiating to sell off the company to an investor. This got the market excited about the counter and Super's stock price went up to as high as S$1.20 in May.

But it announced in June that the deal had fallen through. Its stock price has gone down to around 60 cents nowadays. The sell-down is still continuing.

In an interview with The Edge, executive director Peter Tan said Super is an interesting takeover target for big F&B companies that want to gain a presence in the region. We're not sure if we'd feel comfortable with a management that's looking out for the next opportunity to sell off the company.

Although shareholders might get a higher price for their shares as part of a takeover, this is not part of the long-term vision of value investors. Management gets a question mark here because we're not sure if this stock will still be around next year.

To recap:

• Its P/B of 1.51 gets it a cross.
• Its P/E of 11.12 makes it suitably priced and it gets a tick.
• Its dividend yield of 2.54% is decent and it gets a tick.
• It has a good track record of positive cash flow.

Trump Dragon Distillers

Trump Dragon Distillers is in the consumer products business. It makes and sells distilled Chinese liquor called '白酒' (baijiu), under its own brand ' 四五' (Siwu) in China.

For the benefit of those who are unfamiliar to '白酒', the drink is clear in appearance, exactly like water, but packed with an alcoholic content of between 40% to 60%.

In order to cater to the various spending power and preferences of its consumers, the company offers eight different types of liquor under its Premium series and another 60 in its Regular series, all with varying degrees of alcohol content.

Its Regular series accounted for 54.7% of the group's FY2007 revenue with the remaining coming from its Premium series. Trump Dragon ha not provided any research report or statistics regarding the outlook and growth prospects of the '白酒' industry.

However the company is confident that economic growth, rising affluence and increasing spending power in China is expected to boost sales of higher grade '白酒'.

Trump Dragon is confident that China's positive economic prospects will help boost growing demand for consumer products, including '白酒'. Its H1 2008 revenue jumped 43.6% to RMB 355.1 mln thanks to stronger sales from both its premium and regular series products. Net profit increased 162.8% to RMB 79.9 mln partly thanks to lower office expenses. The business generated RMB100 mln in cash from operations compared to RMB 21.9 mln generated in the previous year.

Trump Dragon offered 156.25 mln shares made up of 125 mln new shares and 31.25 mln vendor shares. Out of the invitation, 3.25 mln shares were offered to the public and the remaining placed. Each share will go for S$0.31.

Trump Dragon gets slapped with 4 demerit points on the Investor Central Capillary Index as it only offering 2% of its entire invitation to the public.

The company expects to raise net proceeds of S$34.1 mln from the sale of new shares of which S$30.8 mln will be used to relocate its production facilities and boost production capacity. Its expansion plans are expected to be completed by 2011.

About S$2 mln to enhance brand awareness and another million to improve its product and packaging design.The balance will be used for general working capital. Vendors selling down their stakes will receive net proceeds of about S$9.3 mln from the sale of their shares.

Trump Dragon listed on the Singapore Exchange on 5 September, Friday and is trading at a price-to-book of 2.64 times, this means that you're paying S$2.64 for every dollar worth of stock. The stock is also relatively cheap at a price-earnings ratio of 9.37 times. Trump Dragon has a market capitalisation of S$193.75 mln.

Currently, the business does not have a formal dividend policy. No dividends had been paid out in the past. The company did not let on as to how much of its net profit it intends to pay out as dividends in future.

Business risks:

• Limited government support.: According to the directors of Trump Dragon, the '白酒' industry is not encouraged by the Chinese government compared to the textile, water or renewable energy industries. Because of the lack of support, there is no assurance that Trump Dragon's expansion plans would be successfully implemented under the current regulations.
  
  
• The company is highly dependent on natural ground water as '白酒' contains about 50% of water by volume. Trump Dragon's product quality is at risk if its water supply from its own wells were contaminated. On 26 August 2006, a local newspaper carried a story revealing that the subcontractor managing Trump Dragon's subsidiary Siwu Spirits had disregarded minimum quality standards during the water production process. In June 2007, Siwu Spirits received a claim from that subcontractor for losses incurred when the business terminated the contract three months after the report was released. However, Siwu Spirit came out the victor as it was awarded damages worth RMB 307.5 mln. While we must commend the company for taking such swift action regarding that matter, we're not forgetting that the news coverage did place added pressure on the business. After all its entire business was put at risk.
  
  
• As the business plans to shift its operations to Zhoukou city, Henan province, in future, there is no guarantee that the business will be able to get a supply of natural underground water. Trump Dragon is not assured a stable revenue stream as it does not receive any long-term contract.
  
  
• Its customers are its distributors who place orders either on a monthly or yearly basis. And none of them account for more than 5% of its revenue for since FY 2006. In H1 2008, its top 10 customers contributed to only 8.5% of its earnings.

Company's management

Trump Dragon's 39-year-old Executive Chairman, Gao Feng has had years of working in various industries such as trading, glass products and property development before he founded the company. He holds a 56% stake in the business compared to the 70% before the IPO.

His brother's father-in-law, Zhang Wenzhe, is Trump Dragon's Independent Director and his brother-in-law, Liu Wei, is the General Manager of Siwu Marketing, one of the business's subsidiaries.

Deputy Executive Chairman and Joint Chief Executive Officer, Zhou Tao, 38 is responsible for sales and marketing with past marketing experience in a dairy producer and a '白酒' company.

Cambridge Industrial Trust

Listed on the SGX since July 2006, Cambridge Industrial is a real estate investment company that invests in warehouses and industrial properties.

The most its stock ever peaked was in January with 2.13 mln shares traded. The highest it ever traded was also last year's May 30 at $0.975, when the markets were bullish. Since then, its stock price has been on a slow but steady decline. It last traded at S$0.565 on Friday, September 12 noon.

It reported its Q2 2008 earnings on July 29, with revenue up 43.3% to S$17.9 mln. This is mainly thanks to higher rental income from its newly bought properties and the completion of asset enhancements at YCH Distripark and C&P Asian Warehousing.

Its business generated S$14.2 mln in cash from operations, compared to the S$10.5 mln it also generated the same time last year. It paid an interim dividend of 1.56 cents per unit, same as last year.

In a report on 2 July, DBS Vickers initiated coverage on CIT with a BUY call at a target price of S$0.88. CIT announced later in the same month that it will buy another building, Natural Cool Lifestyle Hub at Tai Seng Avenue, for S$55.2 mln – and no, it does not have anything to do with the air-con supplier, Natural Cool!

Separately, CIT was also asking permission from unitholders to convert into a Shariah-compliant REIT.

Benefits of doing so:

1. CIT believes that there is demand for being a Shariah-compliant REIT
2. Creates a new circle of investors (mostly Muslims)

DBS-Vickers highlighted that being under the Shariah law, CIT will not be able to pay or receive interests. This is a problem for CIT since it has S$369 mln worth of interest-related loans. It is looking at advice on arranging a Shariah-compliant financing solution for it.

Following in DBS-Vicker's footsteps, CIMB initiated coverage on CIT on 12 September. It has an OUTPERFORM call and a price target of S$0.90. In its report in September 12 where it highlighted CIT as a 'steady income generator', CIMB mentioned that its assets have almost doubled since its listing from 27 to 43. All of its 43 assets are in Singapore, but its management is planning to buy properties in Asia.

CIMB added that with CIT converting to be Shariah-compliant would attract a new pool of investors and potentially, new funding. If everything pulls through and CIT becomes a Shariah-compliant industrial REIT, it will be the first of its kind in Singapore and the world.

Management changes

On 7 August, its Chairman Dr Finian Tan Seng Chin will no longer serve the company anymore. But, that's not all. CEO Ang Poh Seong has also resigned from being a director in Cambridge Industrial Trust Management, CIT's manager, after disposing all of his shares in Cambridge Real Estate Investment Management.

Cambridge Real Estate Investment Management is 1/3 of Cambridge Industrial Trust Management – which is a joint-venture between three companies. But Ang will still remain as CEO of Cambridge Industrial Trust Management.

Also on that same day, non-executive director Liao Chung Lik resigned. Reason was that he transferred shares by CWT Ltd in Cambridge Industrial Trust Management.

Dr Jeffrey Chi Chien Chuen, the board member/ EXCO member/ Audit Committee Member would also no longer serve the board. He sold his shareholding interest in Cambridge Real Estate Investment Management.

Also on that same day, Michael Patrick Dwyer, Chairman of Oxley Capital, was appointed as one of CIT's directors. Oxley had in June upped its stake in CIT's manager by 20% to 40%.

With so many directors stripped of their duties, the management reshuffle is likely due to Oxley's higher stake in CIT's manager, however no explanation was being offered to shareholders.

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