800 Super Holdings Ltd: Delivered bottom line growth August 26, 2016

PSR Recommendation: NEUTRALStatus: DowngradedTarget Price: 0.74
  • FY16 S$156.4mn revenue in line with our expectations of S$159.6mn
  • FY16 S$16.7mn NPAT missed our expectations of S$19.5mn by 14%
  • 5 cents final dividend declared, 26.7% payout (FY15: 2.00 cents, 29.4% payout)

800 Super has delivered 95% capital appreciation since we first gave our “Buy” recommendation in September 2014 when the stock was at 37 cents per share. Investors who have held on to their shares since then would have collected 3.0 cents dividends (FY14: 1.0 cents, FY15: 2.0 cents), reaping a yield of 8.1%.

FY14, FY15 and FY16 saw phenomenal core bottom line growth of 56.0%, 35.6% and 37.6% respectively. The original catalyst of large government contracts being re-awarded at better pricing have played out. We believe that the positive effects have largely materialised and do not expect the same level of phenomenal bottom line growth to persist.

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  • Company has the means to fund ongoing CapEx through internal resources

Company generated S$19.8mn in free cash flow in FY16. We think that cashflow in FY17 will be tighter, with net cash from operating activities just covering capital expenditure (CapEx). As disclosed by the Company, 90% of CapEx for the waste to energy (WTE) plant has been committed, which leaves about S$3.1mn to be spent. We understand that CapEx (c.S$19mn) for the material recovery facility (MRF) has not been spent.

  • Downstream vertical integration with plastic recycling venture in Batam

Company announced the incorporation of a plastic recycling subsidiary earlier this month. Recyclable plastics will be collected in Singapore and shipped to Batam to be processed into plastic resin. The plastic resin will then be sold to customers. We understand that land and manpower costs in Singapore are particularly inhibitive for this business activity, and the lower costs in Batam more than offset the cost of shipping the raw materials over. By adding this downstream business segment, from merely being a collector, the Company can potentially grow to a processor and trader of plastic resin.

Downgrade to “Neutral” rating with new lower target price of S$0.74 (previous: S$0.82)

We trim our previous FY17e revenue/NPAT forecasts by 1.8%/4.3% and introduce our FY18e forecasts. In view of no additional pipeline of projects being announced, we are forecasting a slightly higher dividend payout of 30% for FY17e onward, offering a dividend yield of 4.1%. Our target price is still based on 7.5x P/E multiple, and it is over the rolling next-twelve-months (NTM) EPS of 9.85 cents.

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About the author

Profile photo of Richard Leow

Richard Leow
Investment Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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