Sime Darby HK Recommendation: Buy Brokerage: S. G. Warburg The recently announced 30 per cent growth in interim earnings came as a surprise to the market, as most investors expected profit declines for fiscal 1993. Although Sime Darby is affected by the general lacklustre outlook of the car markets in Hong Kong and China, the company is capable of selling a significant number of Mitsubishi commercial vehicles to China. The construction equipment division looks set to remain a major beneficiary of the infrastructure developments in Hong Kong and China. Following 135 per cent growth in fiscal 1992, the increase in sales is expected to continue to be substantial in the foreseeable future. There is considerable upside potential for the stock, while the downside is limited by its high dividend yield, which is many times that of the Hang Seng Index. Novel Recommendation: Hold Brokerage: Smith New Court An analysts' meeting held by Novel lastFriday revealed an unexciting earnings picture. The American market is picking up but European markets remain depressed. Demand for the group's core product, knitwear, is slow. But the denim business is growing fast and the group is adding more lines in its factory in Mauritius. Management expects earnings for the current fiscal year ending this month to exceed $170 million, better than the forecast of $150 million. The earnings forecast for fiscal year 1995 has been revised up to $190 million, putting the share on a price-earnings multiple (P/E) of 9.3. Hysan Development Recommendation: Buy Brokerage: Smith New Court Hysan's earnings growth of 53 per cent was driven by a higher-than-estimated profit on the disposal of No 2 Garden Terrace and a lower tax charge. However, rental growth appears to be limited, although it reached 24 per cent, largely from the first full year's input from the Caroline Centre. With strong rental appreciation prospects and an expanding investment portfolio providing good longer-term visibility, Hysan should see itself at a strong premium to the market. At an estimated P/E of 16 times 1994 prospective earnings, the company is ata premium of only 14 per cent, versus the 50 to 70 per cent premiums at the top of the last cycle. There is value in Hysan at its current price of $26. Dah Sing Financial Holdings Recommendation: Hold Brokerage: Seapower Research Dah Sing Financial reported a net profit of $303 million, representing a 41.7 per cent growth from fiscal 1992 following the integration of Dah Sing Bank and Wing On Bank. However, Dah Sing Bank, the main contributor to the group, only achieved 14.2 per cent earnings growth for fiscal 1993. This is partly due to lending in the area of hire purchasing which has shown signs of slowing down and cannot be compensated by the increase in non-interest/fee-based income. According to the management, its non-banking business including insurance arm and other investments has improved. However, this divisional profit has been dragged down from $81 million to $12 million by the servicing of debts taken on to fund the acquisition of Wing On Bank. Wing Hang Bank Recommendation: Long-term hold Brokerage: Seapower Research The bank's loan growth will slow, matching the rise in deposits, to sustain a reasonable earnings growth of 18 per cent in fiscal 1994 by leaning towards fee-based or non-interest income. At present, its loan-to-deposit ratio is 69.1 per cent, sitting at the high end of the industry. A long-term buy is suggested based on its impressive earnings growth for fiscal 1993, low operating costs as many of the branches are self-owned, low P/E and high dividend yield compared with the industry.
