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Post Info TOPIC: Frontline Technologies
KK


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Frontline Technologies - DBS
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6 Jun 07

Success from presence in key markets

Vietnam entry on the cards in the current quarter. We expect the company to enter the Vietnamese market in a joint venture with a local partner. Besides tapping into Vietnams domestic market potential, the company is also looking at it as an emerging offshore location, as manpower costs are lower than India and China. In the current year, we expect a small earnings contribution of about S$0.2m but we are bullish that earnings contribution can see a steep upward slope in the foreseeable future on the back of fast growth in the IT sector.

The contribution from Indonesia would see a significant jump in FY08. As Indonesian JV was completed in Jan 07, FY07 results include only three-month contribution from the Indonesian firm, PT Metrodata. The Indonesian firm is projected to register S$3m in earnings this year, up 42% annually, mainly driven by outsourcing business. Frontline, which has 49% stake in the company, stands to gain S$1.5m in net earnings compared to $0.4m last year.

India and China should continue to be the two pillars of growth. India and China are the fastest growing IT markets in Asia and as per IDC estimates, are expected to contribute 23% and 32% of total technology spending in Asia-Pacific respectively. The Indian subsidiary registered 40% growth in earnings last year. This year we estimate a conservative 30% growth in earnings, which could go up on the back of inorganic growth within India. The Chinese associate registered 30% growth in earnings last year and we expect them to register 25% in FY08 as gross margins improve with more IT services contribution.

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ahkian


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Frontline Technologies
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Frontline is an outsource partner of HP.
Personally had a few experience with their service guys and was not very impressed.
However, personally believe is the IT industry is growing in South East Asia region.
Many things needs IT be it outsourcing or company has some proprietry product
or service that can sell and sell.
Just like Windows/Office or the software pgm u see at KBox Karaoke or the bookin/bookout
system you see at the reception of some companies, not to mention the datamining system in the banks.


After briefly looking at 3 companies locally, my favourite was system access.
Have been following its news (and queueing a share price at its nav) until it got sold !!
Another case of watching at the sidelines - *sign *sign


Frontline seems to have some potential at the moment and has big expansion plans.
Some analysts report available from their website :
http://www.frontline.com.sg/doc/SIAS/sias-2006-11-14-Frontline.pdf
http://www.frontline.com.sg/doc/others/Westcomb%201H07%20Results.pdf
http://www.frontline.com.sg/doc/others/uobkayhian_29092006.pdf


What  I like about this company :


1. Its expansion plans in Vietnam, China and India ( a subsidiary listing in India).


2. Last financial report, announced dividend policy for  FY2007 to FY2010.
    At least 30% profit to be distributed as div.
     xd in 12Dec with 0.6c, Yield of 4.6% @price of $0.13


3. Three consecutive years of double digit revenue growth.


4. NTA as of end 2006 is 12.66c after share purchase for group.
    NTA for 1HFY2007 is 13c
     4c is cash.(Eq-intangibles=10.14c)
  


5. EPS full year 2006 0.89c   PER = 14.6
                            2005 0.63c
   EPS half year 2007 0.43c
                            2006 0.31c


6. Not much coverage by analysts.


7. Saw in in SGX announcement, they are actually doing a share buyback!
    Recent buyback is at 0.13c on 13 Dec 2006.
    Confirmed in financial reports, with max price of $0.126.
  
     Which company will do this? Management believes its stock is undervalued or making
      the balance sheet look good(ROE) and get sold!


8. Balance sheet looks ok(gearing 0.32, $7m cashflow from ops in '06), may need to look a little deeper.


My  plans :
Good resistance at 12c.
Check my private blog.


 1. Buy at 0.12c/0.125c in small volumes.
 2. Risky stock - cut loss at 30% of buy price.
 3. Target sell at 0.20c



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ah Kian
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