Goldman Sachs says FJ is cleared to trade

Goldmen Sachs maintains its Buy call on FJ Ben. Here is the details:

Goldman Sachs remains a BUY with target price $1.10
- FY2007 net profit of S$21.5mn was 9% ahead of our forecast, 2% ahead of Bloomberg consensus. The company also announced a proposed capital repayment of S$0.13/share and a cash dividend of S$0.02/share (less 18% tax). We estimate that the proposed capital repayment will enhance 2008E ROE to 22% (from current 14.8%). We see the recent sell-down as a buying opportunity and reiterate our Buy rating on the stock.

1) Capital repayment: This exercise is subject to EGM and High Court approval, and the company expects the repayment to be completed by 31 Dec 2007. Combined with the cash dividend of S$0.02/share (S$0.016 net of tax) targeted for payment on 30 Nov 2007, this offers a total yield of 19% for a 3-4 month holding period.

2) Strong earnings growth: FJB's earnings turnaround is on track, and our forecasts indicate 2 year FY2007-2009E core net profit CAGR of 47% driven by store expansions and also better operating margins as new stores mature.
- Our 12 month SOTP-based target price of S$1.10 is unchanged. We have made minor adjustments to our earnings forecasts post the results.

1) Earnings risk from an Asian economic slowdown, given the discretionary nature of FJB's fashion and timepiece products; 2) Franchise agreements could potentially be re-called by brand owners, but this is unlikely as brand owners focus on larger Asian markets like China.

The market appears to be at a recovery stage now. A bit cloudy, a bit unsure. This is the time to sort out value stocks at discount price. If I found anything great, I'll let you know in real time.
Have a good weekend.

Disclaimer: All shares recommendations in this Blog are my personal opinion. Readers are encouraged to do their own research before investing. Remember, it’s your own money! I will not be liable for any losses incurred.