Japanese firm gives investors food for thought

Joseph Lo

Market: Singapore Cosco Investment Recommendation: Hold Brokerage: Smith New Court Formerly known as Sun Corporation, the company was renamed Cosco Investment after being acquired by China Ocean Shipping (Cosco Group) in October 1993.

Cosco is now a shipping company, focusing on medium-sized bulk carriers. However, it is still not clear how the company's shipping activities can significantly tap China's growth.

The brokerage estimates gearing will rise to 1.2 times in 1995. More money will need to be raised to fund expansion and the possibility of another rights issue cannot be ruled out.

Market: Japan Toho Recommendation: Buy Brokerage: Smith New Court A regional food wholesaler and retailer, Toho has started a booming warehouse-style discount-store operation.

Sales from this operation, which totalled only three billion yen in the 1993 financial year, are expected to reach 13,300 million yen ($1,024 million), or 15 per cent of sales in 1995.

Earnings per share is expected to rise 26 per cent annually over the next few years. Market: Malaysia Hock Hua Bank Berhad Recommendation: Buy Brokerage: S. G. Warburg Principally involved in the provision of commercial banking activities, Hock Hua has a heavy exposure to the rapid economic development of East Malaysia. Its niche with small business enterprises will ensure loan and deposit growth of 20 per cent and 29 per cent respectively, outpacing industry growth.

Hock Hua's Return on Asset and Return on Equity of respectively 1.6 per cent and 16.2 per cent compares favourably with the industry average of 1.1 per cent and 14.7 per cent respectively.

Market: Taiwan CMC Magnetics Recommendation: Sell Brokerage: S. G. Warburg CMC is Taiwan's second largest floppy diskette manufacturer. Floppy diskettes represent 72 per cent of sales while video tapes account for the remaining 28 per cent.

The company has discontinued sales to the European market (40 per cent of revenues in 1992, 12 per cent in 1993) due to a 31.8 per cent anti-dumping tax levied by the EC last year on all diskettes from Taiwan, Japan and China. North America is now CMC's only export market.

CMC reported poor 1994 interim results of NT$1.2 billion ($350 million and unchanged year-on-year) in sales and NT$153 million in net income, down 35 per cent year-on-year. Recognising the stock's speculative performance, the brokerage has downgraded its recommendation to sell given its high price earnings ratio of 34 times and low growth potential.

Market: China Yizheng Chemical Fibre Company Recommendation: Buy Brokerage: Crosby Yizheng's 1994 interim results showed showed significant earnings growth with pre-tax profit up 261 per cent, largely due to a combination of a reduction in finance charges and foreign exchange effect. Net interest charge was negligible with interest savings totalling 207 million yuan ($187 million) as a result of initial public offering (IPO) proceeds. Foreign exchange losses stood at 27 million yuan for the first half of 1994 compared to 160 million yuan for the same period last year.

The outlook for pricing of polyester products remains positive within the scenario of government control. The company is well-positioned to benefit through increased capacity from its development project, expected to come on stream by October 1996, ahead of the original schedule.