Brokers' Take / Analyst Reports

Thakral Corporation, April 27 close : 11.5 cents

Apr 28, 2005
The Business Times

NRA Capital, April 26

IN interviews with the press, Thakral managing director Inderbethal Singh Thakral said the group is moving its headquarters from Hong Kong to Shanghai from July. The immediate objective is to double the group's network of retailers to 8,000 to 10,000 outlets in three to four years time.

An impression was given that the declining margins are here to stay. This was said to be a 'realistic' stance, and some margins may be sacrificed for market share.

Also, we now believe the improvement in the contract manufacturing division may not be as advanced as first expected.

As such, we are finetuning our full-year estimates for FY3/2005 and FY3/2006 to $18.9 million and $23.4 million respectively, to account for further margin pressure.

There should also be some additional costs incurred in the current financial year for the headquarters move.

For the nine months ended December 2004, Thakral posted a 16 per cent decline in net earnings to $13.76 million, on the back of a 3 per cent rise in revenues to $400.4 million.

Otherwise, its strategy to be a brand-building specialist remains on track. Growth in the core trading and distribution segment will benefit from the strong brand names it now represents including Apple's iPod (China, India and Vietnam), Panasonic in China, Creative in Hong Kong and Pentax in India. Since some of the contracts are fairly new, we expect to see the financial impact only in FY3/2006.

On our revised projections, Thakral is trading at PERs of 10.7x and 8.7x. We maintain our 'buy' call, with fair value lowered to 13.5 cents, or a current FY06 PER of 10x, a 17 per cent upside.
We recognise, however, that we have been cautious on expected sales for the current financial year, with potential upside from the new brands being represented. Our forecast also assumes that losses from the home entertainment division will be eradicated in the current financial year.
Current share price is also the level at which Hong Leong Asia's CYI paid for its 15 per cent stake in the group. We believe there is strong support at this current level. - BUY

Compiled by JOYCE KOH