GRP Limited (GRP) engages in several diverse autonomous business units, namely 1) Hose and Marine, 2) Measuring Instruments/Metrology, 3) uPVC Pipes and Fittings and 4) Industrial Property Management.
Cash-loaded, no debt financial position. As of Jun 08, GRP holds cash of S$12.3m, and has neither short-term nor long-term debt in its balance sheet. While we acknowledge GRP’s healthy balance sheet position to a prudent management team who is mindful of the tight credit situation and high refinancing costs, we believe GRP’s strong financial position is attributed largely to GRP’s lacklustre growth strategies, even in boom years. Undoubtedly, GRP has no immediate plans for M&A activities or extensive capital spending. We believe GRP is likely to return capital to its shareholders through dividends. We have assumed dividend payout of 60% for both FY09 and FY10, translating to dividend yields of 13.1% and 10.6% respectively.
Nonetheless, business would be hit by both offshore marine and global economy outlook. GRP’s core business drivers stem from Hose and Marine as well as Measuring Instruments/Metrology. GRP liaises directly with the shipyards to provide customized hoses and fittings. Its measuring instruments division is dependent on the global economy. In the face of a looming outlook for both offshore marine and the global economy, we are expecting declining net profit for both FY09 and FY10.
Initiating coverage with a NEUTRAL rating. GRP is currently trading at 4.6x FY09 and 5.6x FY10 P/E. We value GRP based on 0.7x FY09 P/B (pegging to post-crisis levels) to derive a target price of S$0.13. We initiate coverage of GRP with a NEUTRAL rating
source:DMG
The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned
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