Penny Wise

Updated: 2008-09-18 07:41

(HK Edition)

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Lonking Holdings

Stock code: 3339.HK

Last close: HK$6.26

By Arete Shi and Alex Lee

Lonking Holdings, formerly known as China Infrastructure Machinery Holdings, announced better-than-expected results for the first half of 2008.

Thanks to a higher average selling price (ASP) and an extensive sales and distribution network, revenue rose 41 percent year-on-year to 3.9 billion yuan. Gross profits jumped from 692 million yuan in the first half of 2007 to 845 million yuan, while the gross margin dropped from 24.4 percent to 21.2 percent, mainly due to surging raw material prices.

Net profits recorded a significant year-on-year increase of 113 percent to 604 million yuan, of which 87 million yuan were gains generated by the change in fair value of the derivative component of the convertible loan notes, and 47 million yuan was an exchange gain generated from the continuing yuan appreciation.

Excluding the fair value gain/loss, net profits in fact grew 36 percent year-on-year.

We maintain our positive view of Lonking on the back of sustained public infrastructure investment on the mainland while export demand will remain stable. We have built in an improved gross margin in the second half of 2008 and slightly raised our earnings estimates.

We reiterate our target price of HK$12, representing 13.8 times of FY08 price-to-earnings ratio (PE) and 9.9 times of FY09 PE, which are in line with prevailing industry valuation.

An affiliated company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

The author is an analyst with Taifook Securities.

HKEx

Stock code: 0388.HK

Last close: HK$88.50

Sell: Below HK$90

Target: HK$70

By Castor Pang

With the Hong Kong stock market expected to continue displaying high levels of volatility in the short run, the outlook for HKEx appears somewhat bleak.

Although transaction volumes have exceeded the HK$70 billion mark recently, this is not necessarily an indication that its overall profit earning capacity will stabilize. Market observers tip that the daily transaction volumes will drop to HK$40 billion or below, and expectations are increasing that this downward spiral will likely last for a significant period of time.

The share price has dropped below HK$95 and is likely to test a low of HK$70, which was recorded in March 2007.

Investors are advised to sell when it declines to HK$90 to reduce their risk.

The author is a strategist with Sun Hung Kai Financial Group.

Sinofert Holdings

Stock code: 0297.HK

Last close: HK$3.60

By Lawrence Chor

Sinofert recorded a remarkable 59 percent and 136 percent year-on-year jump in first-half turnover and net profits to 22 billion yuan and 1.2 billion yuan, respectively, driven by a 29 percent ASP hike and a 24 percent sales volume growth.

During the first half of 2008, Sinofert acquired a 75 percent stake in Shandong Deqilong (now known as Sinochem Pingyuan Chemical) through its subsidiary Sinochem Fertilizer, and wholly acquired State-owned nitrogen producer Jilin Fertilizer Group.

The moves boosted Sinofert's total annual output by 29 percent (2.3 million tons) to 10.2 million tons, making it one of the largest fertilizer producers on the mainland.

The government's price control measures coupled with the uncertainty surrounding next year's potash negotiations represent a potential risk to Sinofert's earnings from this segment.

While keeping our FY08 profits forecast unchanged, we have slightly tuned down our target price to HK$6.30 at a more moderate PE valuation of 21 times for FY08 to reflect the prevailing uncertainties.

An affiliated company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

The author is an analyst with Taifook Securities.

(HK Edition 09/18/2008 page3)