When firms underperform, instead of scrambling to sell the shares that we have in hand, we should be asking if there was a fundamental problem that resulted in the poor performance or was it due to unfavorable circumstances. The key is to identify how long will the weakness in company’s performance last. In this article, we have compiled three stocks that may not have stellar performances in the past, but have the chance to turnaround in FY18.
1. Wheelock Properties Singapore
In FY17, Wheelock Properties Singapore (Wheelock) reported a 30.7 percent decrease in revenue year on year to $533.7 million. This significant decrease was largely attributed to “lower sales at The panorama and Ardmore Three”, both of which have been completely sold in 2017.
Thankfully, gross profit for the year increased by 12.6 percent, totaling $127.7 million due to improving margins. Net profit also rose significantly to $115.2 million, meeting 95 percent of OCBC’s forecast for the year. However, much of the year on year increase in net profit was due absence of a $55.7 million fair value loss on investment properties in FY16.
Stripping off the effects of fair value changes for the investment properties, core net profit would only have risen by 2 percent year on year to $116.1 million. For the year, the management declared a total dividend of 6 Singapore cents, equating to a yield of 3.3 percent based on share price of $1.80.
The projects in the pipeline are mostly near completion. They include Scotts Square which is already 89 percent sold. It’s Chinese developments are also falling in place with 99 percent of units launched in Fuyang project’s Phase 1 and 2A being sold. The remaining apartments in the project should be completed by this year. Occupancy for Wheelock Place and Scotts Square retail are at 95 percent and 98 percent, according to OCBC.
However, the project pipeline seems to be diminishing, though there is still hope of a turnaround thanks to its “strong capacity to pursue new projects”. This is in part due to stable contributions streaming in from investment properties. Further, with its cash-rich balance sheet, Wheelock is poised to be able to seize other opportunities that will bring in more revenue streams.
Overall, OCBC maintains its Buy call on the stock, raising its fair value to $2.34 from $2.27. Wheelock is currently trading at $1.80 per share.
2. Banyan Tree Holdings
Banyan Tree Holdings (BTH) met analysts’ expectations for its fourth quarter results, bringing in a full-year net profit of $12.9 million. Revenue growth was steady in 4Q17, rising by 9.4 percent year on year with higher revenue recognition from property sales, coupled with strong demand coming from Thailand and Seychelles that fueled growth in hotel revenue.
Overall, the outlook for the firm is great owing to healthy growth of tourism in its key markets. Meanwhile, property sales increased by 38.3 percent year on year and hotel investments’ sales also rose by 5.1 percent.
Included in BTH’s books are landbank and property assets in Phuket, Thailand which have been recorded at cost value. Given the rise in economic value of these properties, with the management’s aim to increase speed of developments in this area, analysts expect that this will translate into significant value enhancement, with management estimating that it can yield up to $1.8 billion in revenue.
Tourism in Thailand has been growing by 7 percent in 2017 to record high of 1322 million travellers. The rising trend is expected to continue this year which is positive for BTH’s hotel business in Thailand, evident in the 15 percent rise in hotel forward bookings in Phuket this Chinese New Year holiday.
Overall, UOB Kay Hian maintains a Buy on the stock with a target price of $0.92. BTH is currently trading at $0.595.
3. CNMC Goldmine Holdings
CNMC Goldmine Holdings’ (CNMC) net profit was beyond analysts’ expectations largely due to decrease in compensation for employees and key management. The group has been running a trial run of its Carbon-in-leach plant that is expected to start in the second quarter of 2018. The results from the trial has been satisfactory up till now, which means that “gold recovery rate from CIL improves and surpasses from heap leach”, according to Phillip Securities.
In this year, analysts are looking out for “significant turnaround of gold output” that is expected to come from higher-grade ore and higher gold recovery. The firm’s outlook is improving with the rising trend in gold prices.
However, as its CIL plant is only expected to start operations in the 2Q18, earnings per share have been revised down to 1.5 US cents instead of 2 US cents.
With its recent price correction, the stock’s valuation is now more attractive. Phillip Securities has an accumulate call on the stock with a target price of $0.30 CNMC is currently trading at $0.27.