S-Chips Picks - UOB Kay Hian

Beauty China: BUY – Target: S$1.41
Beauty China’s major products are colour cosmetics/skincare products under the Colour Zone and Charming Lady brands, both of which target Chinas mass market. The stock is trading at 7 x 2008 PE, low for a growing company with a good track record, a strong position in a niche market, steady network expansion and improving brand reputation.

China Milk Products Group: BUY – Target: S$1.32
China Milk is exposed to both growing domestic dairy consumption and government policies that are supportive of the agriculture industry. It is very attractive to investors, especially in view of its low valuation of 5.9 x FY08 PE.

Sino Techfibre: BUY – Target: S$1.85
This leading synthetic leather manufacturer posted decent growth of around 45% for gross margin and 35% for net margin in 2007. The company has a solid customer network, with 14% of its revenue in 2007 coming from the People's Liberation Army. The stock is trading at 5.4x 2008 PE. This is a good opportunity to accumulate the stock.

Sinotel Technologies: BUY – Target: S$0.43
Sinotel is a wireless connectivity innovator that provides customised wireless telecommunications applications and solutions across the telecommunications value chain in China. Its high-margin wireless network solutions business grew 73% in 2007. With the rollout of 3G networks across China, Sinotel will increase its focus on providing multimedia streaming-related solutions via its proprietary Wisestreamer platform, along with revenue-sharing agreements with China Unicorn. Sinotel is trading at 3.3x 2008 PE. The stock is trading at very low valuations given its high net margin and strong growth prospects.

FerroChina: BUY – Target: S$2.35
Domestic demand for galvanised steel will remain robust, especially in view of the urgent need to reconstruct areas destroyed by the snowstorms earlier this year. Prices of galvanised coils saw a surprising US$230/tonne rise in 1Q08 on the back of strong demand. The stock is trading at an undemanding 5.1x 2008 PE.

Fibrechem Technologies: BUY – Target S$1.78
The company has been able to continuously deliver sterling results by upgrading its products regularly. It started out as an ordinary chemical Fibre producer but has moved into the production of differentiated by-component chemical fibres. Product improvement and diversification enable Fibrechem to differentiate itself as a unique product supplier and niche market leader. Fibrechem is trading at 5.2x 2008 PE.

Full Apex Holdings: BUY – Target: S$0.44
Full Apex is one of the top three PET plastic bottle manufacturers in China. As part of its strategy to expand its customer base and increase its revenue streams, the company has moved upstream into the production of bottle-grade PET chips. We like its vertically-integrated business model because the risk from exposure to oil price fluctuations will be partly allayed. In the short term, margin will remain under pressure due to soaring raw material and labour expenses. Full Apex is trading at 6.7x 2008 PE and 5.1x for 2009 PE.

Hongguo International Holdings: BUY – Target: S$1.24
A leading designer and manufacturer of ladies' shoes in China, Hongguo markets its own brands. It also leverages on world-class brands, such as Brown Shoe, to achieve greater exposure in department stores, expand the price range of its brand portfolio and secure good positioning in stores. As a quality consumer play, the stock is trading at 7.7 x 2008 PE, which is very attractive.

Synear Food Holdings: BUY – Target: S$1.01
Synear is one of the top three producers of frozen dumplings and other frozen staple foods in China. Being the exclusive supplier of quick-freezing food products for the 2008 Olympic Games has enhanced the Group's brand name. The share price fell 46.1 % after the announcement of Synear's disappointing 4Q07 results, reflecting market concerns over its expansion capabilities and margin pressure. Maintain BUY in view of Synear's leadership in the Chinese frozen food segment, expansion of its distribution channels, expected financial improvement at least in 2Q08 and current cheap valuations, as well as rosy industry prospects.

Sunshine Holdings: HOLD – Fair Price S$0.24
Sunshine is a Henan-based property developer with a focus on mid-end residential properties. It reported poorer-than-expected 2007 results due to a few delayed projects. Sunshine is a beneficiary of strong end-user demand and better housing affordability in Henan's residential market. The stock is trading at only 3.9x 2008 PE and a 62% discount to its current NAV of S$0.46, the low end of the sector range. The deep discount should provide a cushion on downside risk.