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Wednesday, February 26, 2014

Signature International - Record order book, and still growing


Target RM2.63 (Stock Rating: ADD)

At 88% of our annualised FY14 estimate, 1HFY06/14 net profit was in line with our expectations as we project a stronger performance in 2HFY14. The current order book is already at a record RM240m, and there are abundant jobs in the pipeline. We maintain our EPS forecasts and target price, still based on a 30% discount to our SOP valuation. The discount is to factor in Signature's small market cap and tight liquidity. The stock remains an Add. Completion of the Kota Damansara industrial land sale and more job flows in the next few quarters could catalyse the stock.

1HFY14 net profit up 206% yoy
Signature's earnings continue to recover. 1HFY14 revenue rose 34% and net profit increased by 206% yoy. The higher profit growth reflects the greater economies of scale as production volume picks up for both the retail and project businesses. No interim dividend was declared, in line with our expectations.

Order book at record RM240m
Signature's outstanding order book is currently at a record RM240m, which would keep the company busy over the next 1-2 years. Almost all the mid- and high-end condominium developers include built-in kitchens to attract buyers. Today, a built-in kitchen is the industry norm. The company is tendering for more than RM600m worth of jobs. This does not include the new jobs that would be open to bid over the next few quarters. The management expects the job flow to continue over the next three years. If all goes well, Signature's order book could increase by RM150-200m over the next year.

Net cash balance sheet
As at end-Dec 13, the company had a net cash of RM28.8m or RM0.24/per share. This could rise to RM79m or RM0.66 net cash/share if the proposed sale of its Kota Damansara factory land to property developer Meda Inc (MEDA MK, Non Rated) is finalised. This would be more than sufficient to fund the proposed capex for its new factory in Klang, estimated at around RM80m.

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