Longcheer Holdings (BUY S$1.06); TP: S$ 2.00 (from DBS)

With our Economics? team view of a sustainable strong Chinese consumption growth and the expected release of its results on 10th November, we provide an update that reiterates our conviction of Longcheer and our BUY recommendation. The strong equity markets, rising income and property prices have converged to provide a strong boost for retail sales in China, which has seen a steady rise all year round. Retail sales expanded 20% y-o-y and telecommunication products were noted as a key driver. In turn, these are supportive of our expectations of at least a 35% y-o-y growth for LHL in 1QFY07. With the stronger seasonal sales period in China approaching, we expect earnings to expand q-o-q in 2Q/3QFY07. This would provide support to our expectations of a 50% y-o-y earnings growth for the Group in FY07. We are also hopeful of a special dividend payout to coincide with the Spring Festival.

Market is not entirely convinced about Longcheer?s growth prospects. We believe its 1QFY07 performance should raise investors? confidence that its business model is sound and market potential remains huge. With the seasonally stronger quarters approaching, we are confident that it should expand its sales q-o-q. Its strong operating cash flow gives rise to the possibility of a special interim dividend payout. Reiterate BUY.