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Frontline: Riding on IT outsourcing wave in Asia
BUY S$0.14  (Initiating Coverage) FT SP Price Target : 12-Month S$ 0.23

Story: Frontline is a pan-Asian IT solutions company with presence in
nine
Asian countries, especially in India and China . It is one of the seven
companies in the world and the only one in Singapore that is certified
with
e-Sourcing Capability Model (eSCM), which is very valuable in the world
of
IT outsourcing.

Point: Recently, the performance of IT outsourcing has picked up in Asia
and Frontline is poised to benefit; due to its strong focus on
outsourcing.
For the next 3-5 years, we expect Frontline to grow its outsourcing
business by over c.40% with some improvement in overall gross margins,
thanks to increased contribution from higher margin services. We
forecast
Frontline to deliver c.25% annual growth in profits on c.20% average
growth
in revenues in next three years.

Relevance: We initiate coverage on the counter with BUY recommendation
and
12-month target price of S$0.23, based on FY09 (March year-end) PE of
12x
which stands at a 10% discount to sector average of 13.4x. The Group has
a
30% minimum dividend payout policy, but due to unused section 44 tax
credits, we project FY08 dividend yield of 5%. Although Frontline offers
strong growth prospects, it is trading at a deep discount to peers.

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