Kim Eng on 25 Apr 2012
TP cut to SGD1.67, beware the risk to margins. Biosensors is expected to report its FY3/12 results in the last week of May. Excluding the SGD273m remeasurement gain from the full acquisition of JW Medical Systems (JWMS), recurring net profit looks set to grow by 145% YoY to SGD106m. Management has guided for topline growth of 80% and we think that this target could easily be achieved. But our fear is that margins are becoming increasingly vulnerable to ASP pressure, although we believe that the adverse impact would likely be felt from FY3/13F onwards. We cut our target price to SGD1.67 on lower ASP assumptions but maintain our BUY rating.
More cautious stance on ASP. There has been growing concern over where the ASP for drug-eluting stents (DES) in China is headed. Industry sources expect Beijing’s new DES tender process to lead to a 15% price cut. We are lowering our price estimates as our previous assumption of about 5% decline in FY3/13F may have been too conservative. We now assume a 15% price decline in FY3/13F. We estimate China to account for 30% of Biosensors’ total revenue in the same fiscal year. Management has previously said that volume increase would mitigate the impact of a price drop.
Price decline easing outside of China. Outside of China however, ASP pressures have moderated with Abbott and Boston Scientific stating in their recent results update that DES price declines are in the mid-single-digit range. Our assumption is for a 5% decline in FY3/13F.
Management change heralds greater push ahead. The recent promotion of Dr Jack Wang to the position of chief executive officer could indicate a greater push ahead to transform Biosensors into a medical device platform company. From our understanding, this management change had been planned for much earlier.
Sell-down overdone, maintain BUY. Biosensors’ share price has retreated recently. Even after making downward adjustments to our forecasts, we find that valuations are still attractive. Our FY3/13F-14F net profit estimates have been lowered by about 10-11% after our adjustments. Maintain BUY with SOTP-based target price of SGD1.67.
Monday 30 April 2012
Singapore Airlines
Kim Eng 26 Apr 2012
Downgrade to HOLD, expect weak 4Q results. Singapore Airlines (SIA) is expected to report a weak set of 4QFY3/12 results, dragged down by ballooning fuel prices. Earnings are forecast to come in at SGD75m, representing a 56% YoY decline. Concerns over jet fuel prices, together with lingering uncertainties in the global economy, in particular Europe, pose strong headwinds to SIA and the aviation sector as a whole. We downgrade the stock to HOLD with the target price reduced to SGD11.05 based on its historical mean P/BV of 1.0x. While SIA’s strong fundamentals are not in doubt, we think there will be a better entry point in the next 6-12 months.
No let up in the headwinds. High jet fuel prices are not coming down anytime soon and will continue to plague global airlines in the near future. While SIA’s passenger yields seem to be steadying, cargo yields are showing a decline of about 5% YoY and this could be another roadblock to profitability. Also waiting to be resolved is the segregation of routes between Tiger Airways and Scoot to minimise cannibalisation of passengers. It was recently announced that Scoot would be plying the Singapore-Bangkok route, which Tiger is currently already in.
Riding out the storm. SIA’s fortunes are closely tied to the cyclical ups and downs of the economy, whether global or domestic. Given the current developments in Europe, we do not think the global economy is out of the woods yet. We think that SIA will test its historical P/BV trough of 0.8x, which will provide a more attractive entry point for investors looking to ride the recovery.
Little to cheer but watch it close. While there is little to cheer for SIA in the near term, existing investors can take heart that its strong balance sheet and positive earnings will sustain a dividend payout of 5.7% (based on DPS quantum of SG 60cts per share). We will turn buyers at prices below SGD10.00 while keeping an eye out for signs of economic improvement in Europe.
Downgrade to HOLD, expect weak 4Q results. Singapore Airlines (SIA) is expected to report a weak set of 4QFY3/12 results, dragged down by ballooning fuel prices. Earnings are forecast to come in at SGD75m, representing a 56% YoY decline. Concerns over jet fuel prices, together with lingering uncertainties in the global economy, in particular Europe, pose strong headwinds to SIA and the aviation sector as a whole. We downgrade the stock to HOLD with the target price reduced to SGD11.05 based on its historical mean P/BV of 1.0x. While SIA’s strong fundamentals are not in doubt, we think there will be a better entry point in the next 6-12 months.
No let up in the headwinds. High jet fuel prices are not coming down anytime soon and will continue to plague global airlines in the near future. While SIA’s passenger yields seem to be steadying, cargo yields are showing a decline of about 5% YoY and this could be another roadblock to profitability. Also waiting to be resolved is the segregation of routes between Tiger Airways and Scoot to minimise cannibalisation of passengers. It was recently announced that Scoot would be plying the Singapore-Bangkok route, which Tiger is currently already in.
Riding out the storm. SIA’s fortunes are closely tied to the cyclical ups and downs of the economy, whether global or domestic. Given the current developments in Europe, we do not think the global economy is out of the woods yet. We think that SIA will test its historical P/BV trough of 0.8x, which will provide a more attractive entry point for investors looking to ride the recovery.
Little to cheer but watch it close. While there is little to cheer for SIA in the near term, existing investors can take heart that its strong balance sheet and positive earnings will sustain a dividend payout of 5.7% (based on DPS quantum of SG 60cts per share). We will turn buyers at prices below SGD10.00 while keeping an eye out for signs of economic improvement in Europe.
Venture Corporation
Kim Eng on 30 Apr 2012
Focus on the cashflow, not the earnings. We expect Venture’s 1Q12 earnings, out on Thursday, to have declined YoY and QoQ. This is nothing to be alarmed about, as 1Q is a traditional low season. We would encourage investors to look beyond short term earnings volatility and focus on its ability to generate cash. We argue that Venture’s solid cash flow generation puts a strong floor to its dividends, which is what the stock is attractive for. In the long term, Venture’s industry position has been made stronger by natural disasters, and its strategy of working only with the best customers. This can only enhance its longer term growth potential. We maintain our BUY call with a higher target price of SGD9.65, after pegging our target dividend yield to 5.7%, the average of the top 15 dividend-paying stocks in Singapore.
Look beyond the short term earnings. We expect 1Q12 earnings to have been SGD36-37m. Though lower QoQ and YoY, this was mainly due to seasonal weakness and nothing to be alarmed about. Barring further shocks, 2012 should see a turnaround from last year’s macroeconomic-driven shortfall. For now, we expect only single digit growth, but successful execution of its long-term strategies should pave the way for higher growth in the next three years.
Only working with the best customers. Venture is in a good position to choose only the best customers, either market leaders or scrappy second-liners intent on playing catch-up with the leader. While this strategy may take a bit longer than usual to play out and bear fruit, Venture’s target is to achieve double-digit growth rates in the next three years. But by focusing only on high-quality customers, it will be able to sustain its industry-leading net margins of 6-8%.
Great ability to generate cash. Despite occasional earnings shortfalls, Venture has consistently managed its working capital requirements well. Its always low capex has never been at the mercy of customers due to its focus only on high-quality customers. In fact, Venture consistently generates free cashflow that is well in excess of dividend requirements. In this respect, its fixed dividend policy is a strong reflection of management’s belief that cashflow generation will never be compromised.
Focus on the cashflow, not the earnings. We expect Venture’s 1Q12 earnings, out on Thursday, to have declined YoY and QoQ. This is nothing to be alarmed about, as 1Q is a traditional low season. We would encourage investors to look beyond short term earnings volatility and focus on its ability to generate cash. We argue that Venture’s solid cash flow generation puts a strong floor to its dividends, which is what the stock is attractive for. In the long term, Venture’s industry position has been made stronger by natural disasters, and its strategy of working only with the best customers. This can only enhance its longer term growth potential. We maintain our BUY call with a higher target price of SGD9.65, after pegging our target dividend yield to 5.7%, the average of the top 15 dividend-paying stocks in Singapore.
Look beyond the short term earnings. We expect 1Q12 earnings to have been SGD36-37m. Though lower QoQ and YoY, this was mainly due to seasonal weakness and nothing to be alarmed about. Barring further shocks, 2012 should see a turnaround from last year’s macroeconomic-driven shortfall. For now, we expect only single digit growth, but successful execution of its long-term strategies should pave the way for higher growth in the next three years.
Only working with the best customers. Venture is in a good position to choose only the best customers, either market leaders or scrappy second-liners intent on playing catch-up with the leader. While this strategy may take a bit longer than usual to play out and bear fruit, Venture’s target is to achieve double-digit growth rates in the next three years. But by focusing only on high-quality customers, it will be able to sustain its industry-leading net margins of 6-8%.
Great ability to generate cash. Despite occasional earnings shortfalls, Venture has consistently managed its working capital requirements well. Its always low capex has never been at the mercy of customers due to its focus only on high-quality customers. In fact, Venture consistently generates free cashflow that is well in excess of dividend requirements. In this respect, its fixed dividend policy is a strong reflection of management’s belief that cashflow generation will never be compromised.
DBS
Kim Eng on 30 Apr 2012
SELL maintained. Undoubtedly a strong set of 1Q results from DBS, which surprised on the upside against our estimates and consensus. However, with the variance coming from the more volatile treasury operations and low loan loss provisions, which we see rising in the coming quarters, we raise our forecasts by a marginal 5%. Our TP is raised to SGD12.10 on a higher P/BV of 0.97x (from 0.9x) for a higher 2012 ROE of 10.8% (from 10.5%). Earnings risks persist for the three banks, and DBS is the most susceptible to external volatility, particularly since treasury income now makes up 31% of operating income, while uncertainties related to the Bank Danamon acquisition could be a drag.
Strong showing in 1Q. Net profit rose by 16% YoY (28% QoQ), making up 30% of our full-year forecast and consensus. Treasury income came in much stronger than expected while provisions were low during the period, with a credit charge rate of just 30bps vs 38bps in 4Q11. On the flip side, overheads beat expectations, up 16% YoY.
Guidance intact. Management’s guidance for low-teens loan growth this year is maintained, with an expected moderation in China trade financing lines. These loans, nevertheless, are proving quite sticky and as such, trade financing continues to grow. Management also guided for stable NIMs hereon – having improved 4bps QoQ, there is less room to push pricing on corporate loans at this stage.
Approvals pending for Bank Danamon. Management hopes to get MAS and shareholder approval over the next few months and Bank Indonesia’s (BI) approval sometime in 2H. However, BI’s governor said that the acquisition will not be approved until new ownership rules are in place in June and agreed with Singapore on reciprocity. While we believe the deal is still likely to go through, there are risks that the acquisition will drag on and DBS may not get the 80% stake that it wishes (after paring down), which could complicate management’s plans of synergising the operations of the two entities in the future.
SELL maintained. Undoubtedly a strong set of 1Q results from DBS, which surprised on the upside against our estimates and consensus. However, with the variance coming from the more volatile treasury operations and low loan loss provisions, which we see rising in the coming quarters, we raise our forecasts by a marginal 5%. Our TP is raised to SGD12.10 on a higher P/BV of 0.97x (from 0.9x) for a higher 2012 ROE of 10.8% (from 10.5%). Earnings risks persist for the three banks, and DBS is the most susceptible to external volatility, particularly since treasury income now makes up 31% of operating income, while uncertainties related to the Bank Danamon acquisition could be a drag.
Strong showing in 1Q. Net profit rose by 16% YoY (28% QoQ), making up 30% of our full-year forecast and consensus. Treasury income came in much stronger than expected while provisions were low during the period, with a credit charge rate of just 30bps vs 38bps in 4Q11. On the flip side, overheads beat expectations, up 16% YoY.
Guidance intact. Management’s guidance for low-teens loan growth this year is maintained, with an expected moderation in China trade financing lines. These loans, nevertheless, are proving quite sticky and as such, trade financing continues to grow. Management also guided for stable NIMs hereon – having improved 4bps QoQ, there is less room to push pricing on corporate loans at this stage.
Approvals pending for Bank Danamon. Management hopes to get MAS and shareholder approval over the next few months and Bank Indonesia’s (BI) approval sometime in 2H. However, BI’s governor said that the acquisition will not be approved until new ownership rules are in place in June and agreed with Singapore on reciprocity. While we believe the deal is still likely to go through, there are risks that the acquisition will drag on and DBS may not get the 80% stake that it wishes (after paring down), which could complicate management’s plans of synergising the operations of the two entities in the future.
Tuesday 24 April 2012
United Envirotech Limited
OCBC on 24 Apr 2012
United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. UEL also won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. Based on the usual 40% equity funding ratio, we estimate that the remaining S$100m proceeds from its CB issue can finance up to another S$250m worth of projects. With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.
Secures RMB216m EPC project
United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. The project will commence immediately and when completed by end-2013, it will be one of the largest drinking water plants using a dual membrane technology in China. However, UEL expects to only recognise the bulk of this project’s revenue in FY13.
Another TOT project worth RMB70m
Earlier, UEL won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. The plant is one of the environmental protection projects initiated by China’s State Council to protect the water quality along the famous Song Hua River. The plant is expected to operate at full capacity in Jul 2012, up from the current 75% utilisation. UEL plans to fund 40% of the investment with proceeds from its KKR convertible bond (CB) issue, and the remaining 60% with project financing.
More opportunities in Song Hua River region
Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. We understand that UEL has already identified several potential acquisitions which require very high Grade 1A discharge limits. Based on the usual 40% equity funding ratio, we estimate that UEL’s remaining S$100m of CB proceeds can finance up to another S$250m worth of projects.
Maintain BUY with S$0.52 fair value
With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.
United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. UEL also won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. Based on the usual 40% equity funding ratio, we estimate that the remaining S$100m proceeds from its CB issue can finance up to another S$250m worth of projects. With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.
Secures RMB216m EPC project
United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. The project will commence immediately and when completed by end-2013, it will be one of the largest drinking water plants using a dual membrane technology in China. However, UEL expects to only recognise the bulk of this project’s revenue in FY13.
Another TOT project worth RMB70m
Earlier, UEL won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. The plant is one of the environmental protection projects initiated by China’s State Council to protect the water quality along the famous Song Hua River. The plant is expected to operate at full capacity in Jul 2012, up from the current 75% utilisation. UEL plans to fund 40% of the investment with proceeds from its KKR convertible bond (CB) issue, and the remaining 60% with project financing.
More opportunities in Song Hua River region
Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. We understand that UEL has already identified several potential acquisitions which require very high Grade 1A discharge limits. Based on the usual 40% equity funding ratio, we estimate that UEL’s remaining S$100m of CB proceeds can finance up to another S$250m worth of projects.
Maintain BUY with S$0.52 fair value
With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.
CapitaCommercial Trust
OCBC on 23 Apr 2012
CapitaCommercial Trust (CCT) reported a 1Q12 distributable income of S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our S$362.9m FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6 Battery Rd (6BR). Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses. Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.
1Q12 results in line
1Q12 distributable income was S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6BR. Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses.
Inflection point in rental reversions ahead
Overall portfolio occupancy remained stable at 96% in 1Q12, marginally higher than 95.8% in the previous quarter mostly due to the uplift from 20 Anson which is 100% occupied. CCT’s Grade A office occupancy was at 94.4%, again higher than 93.9% last quarter. Rental reversions remained negative in 1Q12, though we expect an inflection point ahead as we approach the trough in expiring rents signed over the last crisis.
CapitaGreen remains on track
Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. CCT targets to enhance 40% (200k sq ft) of total net lettable area in FY12, of which a quarter has been completed in the 1Q12.
S$570m term loan refinanced
In 1Q12, CCT also refinanced the S$570m term loan due Mar 12, secured on Capital Tower, with unsecured facilities from banks and extended the average term to maturity to 3.3 years from 2.8 years. The gearing ratio increased marginally to 30.5% from 30.2% QoQ with the interest coverage stable at 4.1 times.
Maintain HOLD
We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.
CapitaCommercial Trust (CCT) reported a 1Q12 distributable income of S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our S$362.9m FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6 Battery Rd (6BR). Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses. Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.
1Q12 results in line
1Q12 distributable income was S$53.9m, up 3.4% YoY. This is mostly in line with consensus and our expectations, making up 27% of our full year forecast. DPU for the quarter is 1.90 S-cents. Top-line came in at S$87.4m - 3.9% lower YoY and tracking well to our FY12 forecast. The top-line dip was mainly due to negative rental reversions and lower portfolio occupancy, particularly at 6BR. Despite this, we saw a lift in distributable income due to lower property expenses, higher interest income and a decline in trust/interest expenses.
Inflection point in rental reversions ahead
Overall portfolio occupancy remained stable at 96% in 1Q12, marginally higher than 95.8% in the previous quarter mostly due to the uplift from 20 Anson which is 100% occupied. CCT’s Grade A office occupancy was at 94.4%, again higher than 93.9% last quarter. Rental reversions remained negative in 1Q12, though we expect an inflection point ahead as we approach the trough in expiring rents signed over the last crisis.
CapitaGreen remains on track
Management reports that CapitaGreen remains on track for completion in 4Q14, and extensive enhancement works at 6BR would be carried out in phases till end-2013. CCT targets to enhance 40% (200k sq ft) of total net lettable area in FY12, of which a quarter has been completed in the 1Q12.
S$570m term loan refinanced
In 1Q12, CCT also refinanced the S$570m term loan due Mar 12, secured on Capital Tower, with unsecured facilities from banks and extended the average term to maturity to 3.3 years from 2.8 years. The gearing ratio increased marginally to 30.5% from 30.2% QoQ with the interest coverage stable at 4.1 times.
Maintain HOLD
We currently see key risks for the share price stemming from further softening of the domestic office sector, though any downside is likely capped by a currently undemanding valuation (0.8x PB) and a fairly attractive yield (5.6%) for high quality Grade A office exposure. Maintain HOLD with an unchanged fair value estimate of S$1.14.
First REIT
OCBC on 23 Apr 2012
First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3% YoY to S$14.0m, meeting 24.6% of our FY12 forecast. Distributable income and DPU jumped 22.7% and 22.2% YoY to S$12.1m and 1.93 S cents, respectively. This constituted 24.5% and 24.8% of our full-year forecasts, respectively, if we exclude a special distribution of S$2.2m. We see both organic and inorganic growth as drivers for FREIT in FY12. Although conditions in the healthcare sector remain buoyant, we ease our revenue growth assumptions for some of FREIT’s hospitals. But as we also update our WACC assumptions by incorporating a lower equity risk premium, our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935. Given the 21.7% YTD appreciation in FREIT’s share price, we downgrade the stock from Buy to HOLD on valuation grounds.
1Q12 results within expectations
First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3% YoY to S$14.0m, meeting 24.6% of our FY12 forecast. Distributable income and DPU jumped 22.7% and 22.2% YoY to S$12.1m and 1.93 S cents, respectively. Excluding a special distribution of S$2.2m arising from a gain from the sale of a property, distributable income and DPU constituted 24.5% and 24.8% of our full-year forecasts, respectively. This distribution is payable on 30 May 2012 (ex-dividend: 26 Apr 2012).
Growth drivers in FY12
Organic growth for FREIT would likely be relatively stable in FY12. We expect positive base rental reversion of 2% for its Indonesian assets. FY12 will also see positive impact from: 1) a full year contribution from its Sarang Hospital (acquired in Aug 2011), 2) kick in of variable rental from its Siloam Hospitals Lippo Cikarang, 3) additional rental income from the completion of its Lentor Residence asset enhancement initiative (AEI) in 2H12, and 4) possible new acquisitions in the coming months.
Downgrade to HOLD on valuation grounds
Lippo Karawaci (Lippo), FREIT’s sponsor, has high aspirations for its Hospitals division given the bright growth prospects in the healthcare sector. While the hospitals owned by FREIT and operated by Lippo continued to exhibit growth with higher revenue reported in FY11 as compared to the preceding year, we note that the growth rates of some of these hospitals have eased (partly due to higher base effect). This would translate into lower variable rental for FREIT should this trend persist, given that the variable rental component is a function of the hospital’s preceding year revenue growth rate. We lower our estimates for some of FREIT’s hospital revenue growth, but our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935 as we also update our WACC assumptions by incorporating a lower equity risk premium. Given FREIT’s strong share price performance this year (+21.7% YTD), we downgrade the stock from Buy to HOLD on valuation grounds.
First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3% YoY to S$14.0m, meeting 24.6% of our FY12 forecast. Distributable income and DPU jumped 22.7% and 22.2% YoY to S$12.1m and 1.93 S cents, respectively. This constituted 24.5% and 24.8% of our full-year forecasts, respectively, if we exclude a special distribution of S$2.2m. We see both organic and inorganic growth as drivers for FREIT in FY12. Although conditions in the healthcare sector remain buoyant, we ease our revenue growth assumptions for some of FREIT’s hospitals. But as we also update our WACC assumptions by incorporating a lower equity risk premium, our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935. Given the 21.7% YTD appreciation in FREIT’s share price, we downgrade the stock from Buy to HOLD on valuation grounds.
1Q12 results within expectations
First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3% YoY to S$14.0m, meeting 24.6% of our FY12 forecast. Distributable income and DPU jumped 22.7% and 22.2% YoY to S$12.1m and 1.93 S cents, respectively. Excluding a special distribution of S$2.2m arising from a gain from the sale of a property, distributable income and DPU constituted 24.5% and 24.8% of our full-year forecasts, respectively. This distribution is payable on 30 May 2012 (ex-dividend: 26 Apr 2012).
Growth drivers in FY12
Organic growth for FREIT would likely be relatively stable in FY12. We expect positive base rental reversion of 2% for its Indonesian assets. FY12 will also see positive impact from: 1) a full year contribution from its Sarang Hospital (acquired in Aug 2011), 2) kick in of variable rental from its Siloam Hospitals Lippo Cikarang, 3) additional rental income from the completion of its Lentor Residence asset enhancement initiative (AEI) in 2H12, and 4) possible new acquisitions in the coming months.
Downgrade to HOLD on valuation grounds
Lippo Karawaci (Lippo), FREIT’s sponsor, has high aspirations for its Hospitals division given the bright growth prospects in the healthcare sector. While the hospitals owned by FREIT and operated by Lippo continued to exhibit growth with higher revenue reported in FY11 as compared to the preceding year, we note that the growth rates of some of these hospitals have eased (partly due to higher base effect). This would translate into lower variable rental for FREIT should this trend persist, given that the variable rental component is a function of the hospital’s preceding year revenue growth rate. We lower our estimates for some of FREIT’s hospital revenue growth, but our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935 as we also update our WACC assumptions by incorporating a lower equity risk premium. Given FREIT’s strong share price performance this year (+21.7% YTD), we downgrade the stock from Buy to HOLD on valuation grounds.
Mapletree Logistics Trust
OCBC on 23 Apr 2012
Mapletree Logistics Trust (MLT) posted a 12.3% YoY increase in NPI to S$61.4m and a 10.1% YoY increase in distributable amount to S$41.3m for the financial quarter ended 31 Mar 2012, in line with our projections. The strong performance, we note, came on the back of contribution from acquisitions and a 5.6% organic growth from its existing portfolio. In the coming year, we understand that about 15% of MLT’s leases will be up for renewal, of which ~19% has been renewed ahead of expiry. Amidst the ongoing economic uncertainties, management guided that the organic growth and positive rental reversions are likely to moderate going forward. However, MLT added that attractive investment opportunities have resurfaced, and that acquisitions in overseas markets like Korea, China and Australia may materialize in the coming months. MLT’s financial position is now fortified, following the recent issuance of perpetual securities and an asset revaluation gain. This provides MLT with ample financial flexibility to pursue its investment opportunities. Maintain BUY with unchanged fair value of S$1.20.
Consistent set of results
Mapletree Logistics Trust (MLT) posted a 12.3% YoY increase in NPI to S$61.4m and a 10.1% YoY increase in distributable amount to S$41.3m for the financial quarter ended 31 Mar 2012. This is in line with our projections of S$63.0m and S$42.0m respectively. DPU similarly grew by 9.7% YoY to 1.70 S cents and is also consistent with our estimate of 1.73 S cents. Together with the DPU of 4.99 S cents in the last three quarters, DPU for the trailing four quarters ending 31 Mar amounted to 6.69 S cents. This translates to a respectable DPU yield of 6.9%.
Performance driven by acquisitions and organic growth
The strong performance, we note, came on the back of contribution from acquisitions and a 5.6% organic growth from its existing portfolio. Positive rental reversions of 12% were achieved during the quarter, mainly from leases in Singapore and Hong Kong. The portfolio occupancy also improved from 98.3% a year ago to 98.7%. While there was a slight dip from 98.8% in preceding quarter, it was merely due to a transition from single-user asset to multi-tenanted buildings for two properties in Singapore.
Maintain BUY
In the coming year, we understand that about 15% of MLT’s leases (by revenue contribution) will be up for renewal, of which ~19% has been renewed ahead of expiry. Amidst the ongoing economic uncertainties, management guided that the organic growth and positive rental reversions (anticipating 5-10% range) are likely to moderate going forward, although occupancy is expected to remain stable. However, MLT added that attractive investment opportunities have resurfaced, and that acquisitions in overseas markets like Korea, China and Australia may materialize in the coming months. In addition, it may divest non-core assets and deploy the proceeds on investments in better yield-accretive properties. We keep our FY12-13 forecasts largely intact as the results were in line with our expectations. Maintain BUY with unchanged fair value of S$1.20.
Mapletree Logistics Trust (MLT) posted a 12.3% YoY increase in NPI to S$61.4m and a 10.1% YoY increase in distributable amount to S$41.3m for the financial quarter ended 31 Mar 2012, in line with our projections. The strong performance, we note, came on the back of contribution from acquisitions and a 5.6% organic growth from its existing portfolio. In the coming year, we understand that about 15% of MLT’s leases will be up for renewal, of which ~19% has been renewed ahead of expiry. Amidst the ongoing economic uncertainties, management guided that the organic growth and positive rental reversions are likely to moderate going forward. However, MLT added that attractive investment opportunities have resurfaced, and that acquisitions in overseas markets like Korea, China and Australia may materialize in the coming months. MLT’s financial position is now fortified, following the recent issuance of perpetual securities and an asset revaluation gain. This provides MLT with ample financial flexibility to pursue its investment opportunities. Maintain BUY with unchanged fair value of S$1.20.
Consistent set of results
Mapletree Logistics Trust (MLT) posted a 12.3% YoY increase in NPI to S$61.4m and a 10.1% YoY increase in distributable amount to S$41.3m for the financial quarter ended 31 Mar 2012. This is in line with our projections of S$63.0m and S$42.0m respectively. DPU similarly grew by 9.7% YoY to 1.70 S cents and is also consistent with our estimate of 1.73 S cents. Together with the DPU of 4.99 S cents in the last three quarters, DPU for the trailing four quarters ending 31 Mar amounted to 6.69 S cents. This translates to a respectable DPU yield of 6.9%.
Performance driven by acquisitions and organic growth
The strong performance, we note, came on the back of contribution from acquisitions and a 5.6% organic growth from its existing portfolio. Positive rental reversions of 12% were achieved during the quarter, mainly from leases in Singapore and Hong Kong. The portfolio occupancy also improved from 98.3% a year ago to 98.7%. While there was a slight dip from 98.8% in preceding quarter, it was merely due to a transition from single-user asset to multi-tenanted buildings for two properties in Singapore.
Maintain BUY
In the coming year, we understand that about 15% of MLT’s leases (by revenue contribution) will be up for renewal, of which ~19% has been renewed ahead of expiry. Amidst the ongoing economic uncertainties, management guided that the organic growth and positive rental reversions (anticipating 5-10% range) are likely to moderate going forward, although occupancy is expected to remain stable. However, MLT added that attractive investment opportunities have resurfaced, and that acquisitions in overseas markets like Korea, China and Australia may materialize in the coming months. In addition, it may divest non-core assets and deploy the proceeds on investments in better yield-accretive properties. We keep our FY12-13 forecasts largely intact as the results were in line with our expectations. Maintain BUY with unchanged fair value of S$1.20.
Frasers Commercial Trust
OCBC on 20 Apr 2012
Frasers Commercial Trust’s (FCOT) 1HFY12 DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering that FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL). While average portfolio occupancy eased marginally to 96.1% due partially to a 1.3ppt QoQ decline in CSC’s occupancy, management revealed that it is mainly due to timing of the tenancy leases, and that fundamentals are still healthy. In the coming quarters, FCOT expects positive income growth to its portfolio, supported by the acquisition and positive rental reversions/ escalations. We maintain our BUY rating on FCOT with a revised fair value of S$0.97, as we incorporate the results into our forecasts.
Good set of results
Frasers Commercial Trust (FCOT) announced its 2QFY12 results last evening. NPI came in within our estimates at S$24.8m (+3.8% YoY), driven primarily by positive rental reversions from Central Park in Perth (+12.0%) and higher share of profits from the master lessee of China Square Central (CSC) in Singapore (+7.9%). Distributable income, on the other hand, increased at a faster-than-expected pace of 7.7% YoY to S$15.9m as a result of lower interest expenses. Consequently, DPU for the quarter stood at 1.74 S cents, up 8.1% YoY. For 1HFY12, NPI rose by 5.6% YoY to S$49.4m, while distributable income climbed 10.4% to S$30.2m. In addition, DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL).
Healthy occupancy and lease profile
On its operational front, we note that FCOT’s performance was largely stable. Average portfolio occupancy eased marginally to 96.1% from 97.6% seen in 1Q, due partially to a 1.3ppt decline in CSC’s occupancy to 91.2%. However, management revealed that it is mainly due to timing of the tenancy leases (expected to commence in Apr), and that fundamentals are still healthy. Weighted average lease to expiry as at 31 Mar was maintained at 3.4 years, with a comfortable 17.0% of its leases due to expire in FY12.
Maintain BUY
FCOT also provided a relatively upbeat outlook for the coming quarters. While management may likely be more prudent on its investment decisions given that FCOT’s aggregate leverage may trend towards 40% post acquisition of CTL, it expects positive income growth to its portfolio, supported by acquisition and positive rental reversions/escalations. We also understand that FCOT had taken over the management of CSC on 30 Mar and is currently exploring options to rejuvenate the asset. Maintain BUY with a revised fair value of S$0.97, as we incorporate the results into our forecasts.
Frasers Commercial Trust’s (FCOT) 1HFY12 DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering that FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL). While average portfolio occupancy eased marginally to 96.1% due partially to a 1.3ppt QoQ decline in CSC’s occupancy, management revealed that it is mainly due to timing of the tenancy leases, and that fundamentals are still healthy. In the coming quarters, FCOT expects positive income growth to its portfolio, supported by the acquisition and positive rental reversions/ escalations. We maintain our BUY rating on FCOT with a revised fair value of S$0.97, as we incorporate the results into our forecasts.
Good set of results
Frasers Commercial Trust (FCOT) announced its 2QFY12 results last evening. NPI came in within our estimates at S$24.8m (+3.8% YoY), driven primarily by positive rental reversions from Central Park in Perth (+12.0%) and higher share of profits from the master lessee of China Square Central (CSC) in Singapore (+7.9%). Distributable income, on the other hand, increased at a faster-than-expected pace of 7.7% YoY to S$15.9m as a result of lower interest expenses. Consequently, DPU for the quarter stood at 1.74 S cents, up 8.1% YoY. For 1HFY12, NPI rose by 5.6% YoY to S$49.4m, while distributable income climbed 10.4% to S$30.2m. In addition, DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL).
Healthy occupancy and lease profile
On its operational front, we note that FCOT’s performance was largely stable. Average portfolio occupancy eased marginally to 96.1% from 97.6% seen in 1Q, due partially to a 1.3ppt decline in CSC’s occupancy to 91.2%. However, management revealed that it is mainly due to timing of the tenancy leases (expected to commence in Apr), and that fundamentals are still healthy. Weighted average lease to expiry as at 31 Mar was maintained at 3.4 years, with a comfortable 17.0% of its leases due to expire in FY12.
Maintain BUY
FCOT also provided a relatively upbeat outlook for the coming quarters. While management may likely be more prudent on its investment decisions given that FCOT’s aggregate leverage may trend towards 40% post acquisition of CTL, it expects positive income growth to its portfolio, supported by acquisition and positive rental reversions/escalations. We also understand that FCOT had taken over the management of CSC on 30 Mar and is currently exploring options to rejuvenate the asset. Maintain BUY with a revised fair value of S$0.97, as we incorporate the results into our forecasts.
Keppel Corporation
OCBC on 20 Apr 2012
Keppel Corporation (KEP) reported a 86.4% YoY rise in revenue to S$4.3b and a 141.0% increase in net profit to S$750.8m in 1Q12, such that net profit accounted for 48% and 49% of ours and the street’s full year estimates, respectively. Excluding lumpy contributions from the property arm, 1Q12 net profit was still above our expectations. KEP’s operating margin in the quarter was 22.2%, with O&M turning in EBIT margin of 15.1% vs our expectation of 14%. Meanwhile, enquiries for rigs remain healthy and we expect more newbuilds and upgrading work ahead. Maintain BUY with unchanged S$13.38 fair value estimate.
1Q12 results above expectations
Keppel Corporation (KEP) reported a 86.4% YoY rise in revenue to S$4.3b and a 141.0% increase in net profit to S$750.8m in 1Q12, such that net profit accounted for 48% and 49% of ours and the street’s full year estimates, respectively. The sharp increase in earnings was mainly due to revenue and profit recognition for sales at Reflections under the deferred payment scheme. Should this be excluded, 1Q12 net profit would have accounted for about 32% of our full year estimates, still above our expectations.
O&M margins will depend on amount of repair and upgrade work
KEP’s operating margin in the quarter was 22.2%, with O&M turning in EBIT margin of 15.1% vs our expectation of 14%. Management guided that “normal margins” going forward would be in the 10-12% range as the previous two years were mainly boosted by productivity gains from repeat orders. Still, we believe there is the possibility of the O&M arm delivering 14-15% margins should there be more repair and upgrading work (generally commands higher margins than newbuilds).
Rig market remains buoyant
Management revealed that enquiries for newbuild rigs remain healthy. In Brazil, the group has plans to expand its yard capacity and is looking for more land. Though KEP has been securing orders (including Floatel and Sete LOI, new orders YTD total to S$6.2b), there is still available yard capacity for jack-up and semi-sub deliveries in 2014 and 2015, respectively. We understand that there is still additional room at its Philippines, Indonesia and China yards.
Maintain BUY
We have tweaked our estimates to incorporate a higher operating margin assumption of 20.2% and updated our SOTP valuation to account for revenue recognition of the Keppel Bay project. Although KEP has appreciated by about 6.3% vs Sembcorp Marine’s 1.1% rise since we switched our preference from the latter to the former in end Feb, we still see an upside potential of about 15.8% for KEP (excl. div) to our unchanged fair value estimate of S$13.38. Maintain BUY.
Keppel Corporation (KEP) reported a 86.4% YoY rise in revenue to S$4.3b and a 141.0% increase in net profit to S$750.8m in 1Q12, such that net profit accounted for 48% and 49% of ours and the street’s full year estimates, respectively. Excluding lumpy contributions from the property arm, 1Q12 net profit was still above our expectations. KEP’s operating margin in the quarter was 22.2%, with O&M turning in EBIT margin of 15.1% vs our expectation of 14%. Meanwhile, enquiries for rigs remain healthy and we expect more newbuilds and upgrading work ahead. Maintain BUY with unchanged S$13.38 fair value estimate.
1Q12 results above expectations
Keppel Corporation (KEP) reported a 86.4% YoY rise in revenue to S$4.3b and a 141.0% increase in net profit to S$750.8m in 1Q12, such that net profit accounted for 48% and 49% of ours and the street’s full year estimates, respectively. The sharp increase in earnings was mainly due to revenue and profit recognition for sales at Reflections under the deferred payment scheme. Should this be excluded, 1Q12 net profit would have accounted for about 32% of our full year estimates, still above our expectations.
O&M margins will depend on amount of repair and upgrade work
KEP’s operating margin in the quarter was 22.2%, with O&M turning in EBIT margin of 15.1% vs our expectation of 14%. Management guided that “normal margins” going forward would be in the 10-12% range as the previous two years were mainly boosted by productivity gains from repeat orders. Still, we believe there is the possibility of the O&M arm delivering 14-15% margins should there be more repair and upgrading work (generally commands higher margins than newbuilds).
Rig market remains buoyant
Management revealed that enquiries for newbuild rigs remain healthy. In Brazil, the group has plans to expand its yard capacity and is looking for more land. Though KEP has been securing orders (including Floatel and Sete LOI, new orders YTD total to S$6.2b), there is still available yard capacity for jack-up and semi-sub deliveries in 2014 and 2015, respectively. We understand that there is still additional room at its Philippines, Indonesia and China yards.
Maintain BUY
We have tweaked our estimates to incorporate a higher operating margin assumption of 20.2% and updated our SOTP valuation to account for revenue recognition of the Keppel Bay project. Although KEP has appreciated by about 6.3% vs Sembcorp Marine’s 1.1% rise since we switched our preference from the latter to the former in end Feb, we still see an upside potential of about 15.8% for KEP (excl. div) to our unchanged fair value estimate of S$13.38. Maintain BUY.
Dyna-Mac Holdings
Kim Eng on 24 Apr 2012
Background: Dyna-Mac is a specialist provider of engineering, procurement and construction (EPC) services to the offshore oil and gas, marine construction and other industries. Its principal business is in fabrication and assembly of topside modules for FPSOs and FSOs in Singapore. Other businesses include ad hoc general engineering and fabrication projects for specialised structures for semi-submersibles and subsea products.
Recent developments: Dyna-Mac recently announced contract wins worth about USD31.6m from SBM Offshore and Bumi Armada. This came after Keppel Corp’s contract win to refurbish and upgrade an FPSO for the same two customers. However, Dyna-Mac’s 1Q12 results were disappointing with net profit registering a 51% YoY fall. Note that its fiscal year-end has been changed from May to December.
Slow recognition of contracts in early stages. Dyna-Mac’s 1Q12 results again fell below consensus expectations. The weak performance was due to slower revenue recognition as most contracts are in the early stages. This was the second quarterly results that disappointed. In the previous quarter, after the release of the results, share price tumbled from SGD0.55 to the current level over two days.
Signs of better performance ahead. However, we see several positive signs ahead. Dyna-Mac’s orderbook stood at a record SGD201m as at 1Q12, with the bulk expected to be recognised in FY12. The company has also rented additional yard space of 100,000 sq ft to cope with its orderbook.
Optimistic macro outlook. On the macro front, there are reasons to be optimistic given the positive outlook for deepwater oil exploration and production, which would increase the demand for FPSOs and FSOs. This trend could be confirmed by more FPSO and FSO orders for Keppel and Sembcorp Marine in the months ahead.
Sustained rich valuation. Compared to Technics Oil & Gas and Hiap Seng, Dyna-Mac’s valuation looks rich but it has been able to command a premium over these peers. Perhaps its association with Keppel helps or could there be some corporate actions of which we are unaware?
Background: Dyna-Mac is a specialist provider of engineering, procurement and construction (EPC) services to the offshore oil and gas, marine construction and other industries. Its principal business is in fabrication and assembly of topside modules for FPSOs and FSOs in Singapore. Other businesses include ad hoc general engineering and fabrication projects for specialised structures for semi-submersibles and subsea products.
Recent developments: Dyna-Mac recently announced contract wins worth about USD31.6m from SBM Offshore and Bumi Armada. This came after Keppel Corp’s contract win to refurbish and upgrade an FPSO for the same two customers. However, Dyna-Mac’s 1Q12 results were disappointing with net profit registering a 51% YoY fall. Note that its fiscal year-end has been changed from May to December.
Slow recognition of contracts in early stages. Dyna-Mac’s 1Q12 results again fell below consensus expectations. The weak performance was due to slower revenue recognition as most contracts are in the early stages. This was the second quarterly results that disappointed. In the previous quarter, after the release of the results, share price tumbled from SGD0.55 to the current level over two days.
Signs of better performance ahead. However, we see several positive signs ahead. Dyna-Mac’s orderbook stood at a record SGD201m as at 1Q12, with the bulk expected to be recognised in FY12. The company has also rented additional yard space of 100,000 sq ft to cope with its orderbook.
Optimistic macro outlook. On the macro front, there are reasons to be optimistic given the positive outlook for deepwater oil exploration and production, which would increase the demand for FPSOs and FSOs. This trend could be confirmed by more FPSO and FSO orders for Keppel and Sembcorp Marine in the months ahead.
Sustained rich valuation. Compared to Technics Oil & Gas and Hiap Seng, Dyna-Mac’s valuation looks rich but it has been able to command a premium over these peers. Perhaps its association with Keppel helps or could there be some corporate actions of which we are unaware?
DBS
Kim Eng on 24 Apr 2012
SELL ahead of weak 1Q12 results. DBS will be announcing its 1Q12 results on the morning of 27 April. We expect no major surprises, unless net interest margins (NIM)/treasury income prove to be more robust than expected. Our Sell call is maintained as is our SGD11.50 TP (2012 ROE: 10.3%).
Expect YoY dip in net profit. Our 1Q12 net profit estimate of SGD776m implies a 4% YoY dip in earnings (+6% QoQ). The YoY dip is largely premised on:
Lower trading income, which was exceptionally buoyant in 1Q11, supported by stronger income from customer flows respectively. Trading income in 1Q11 alone made up 39% of the full-year's income.
Lower YoY margins. NIM in 1Q11 was 1.80% versus 1.73% in 4Q11. We expect NIMs to have bottomed but do not expect a significant recovery at this stage.
The QoQ improvement in earnings is expected to largely emanate from seasonally lower overheads. Earnings could surprise on the upside if:
NIM recovers at a faster pace. Our forecasts assume an average NIM of 1.74% for the year which implies a stable outlook for now. Better-than-expected NIM recovery, particularly in Hong Kong, could provide the impetus for improved prospects.
Credit costs come in lower than expected. 4Q11 saw a blip up in NPLs but this has been attributed to a specific shipping loan. We do nevertheless expect a pick-up in credit charge this year to about 43 bps from 39 bps in 2011 and lower rates here would be positive to earnings.
Loan growth still buoyant. Latest industry stats point to moderating but still buoyant momentum. DBS has guided for loan growth in the low teens in 2012 as it scales back on its USD trade financing lines, but we would expect momentum to only trail off towards 2H. Our forecast builds in an 11.5% growth expectation this year.
2% net profit growth for 2012. Our 2012 net profit forecast of SGD3.08b is broadly in line with consensus expectations and this translates to relatively flat earnings for the year. One of the key growth drivers for DBS in 2011 was the ramp-up in asset utilisation, with its loan/deposit ratio rising to 89% from 81% end-2010 – further improvements here are likely capped. Nevertheless, with more stable margins, we do expect net interest income to expand by about 14% YoY this year. Moreover, we expect overheads to expand at
a slower pace. The dampener to our growth expectations as such emanates from lower non-interest income amid capital market volatility and higher credit charge rates.
Still wary of earnings risks. Our SELL call continues to be premised on the greater susceptibility of DBS’s earnings to exogenous factors, which thus warrants a discount to peers in this environment. Separately, we expect the potential acquisition of Bank Danamon and Alliance Financial Group to be slightly dilutive to 2013 earnings (-5%) and ROE (from 10.5% to 9.9%).
SELL ahead of weak 1Q12 results. DBS will be announcing its 1Q12 results on the morning of 27 April. We expect no major surprises, unless net interest margins (NIM)/treasury income prove to be more robust than expected. Our Sell call is maintained as is our SGD11.50 TP (2012 ROE: 10.3%).
Expect YoY dip in net profit. Our 1Q12 net profit estimate of SGD776m implies a 4% YoY dip in earnings (+6% QoQ). The YoY dip is largely premised on:
Lower trading income, which was exceptionally buoyant in 1Q11, supported by stronger income from customer flows respectively. Trading income in 1Q11 alone made up 39% of the full-year's income.
Lower YoY margins. NIM in 1Q11 was 1.80% versus 1.73% in 4Q11. We expect NIMs to have bottomed but do not expect a significant recovery at this stage.
The QoQ improvement in earnings is expected to largely emanate from seasonally lower overheads. Earnings could surprise on the upside if:
NIM recovers at a faster pace. Our forecasts assume an average NIM of 1.74% for the year which implies a stable outlook for now. Better-than-expected NIM recovery, particularly in Hong Kong, could provide the impetus for improved prospects.
Credit costs come in lower than expected. 4Q11 saw a blip up in NPLs but this has been attributed to a specific shipping loan. We do nevertheless expect a pick-up in credit charge this year to about 43 bps from 39 bps in 2011 and lower rates here would be positive to earnings.
Loan growth still buoyant. Latest industry stats point to moderating but still buoyant momentum. DBS has guided for loan growth in the low teens in 2012 as it scales back on its USD trade financing lines, but we would expect momentum to only trail off towards 2H. Our forecast builds in an 11.5% growth expectation this year.
2% net profit growth for 2012. Our 2012 net profit forecast of SGD3.08b is broadly in line with consensus expectations and this translates to relatively flat earnings for the year. One of the key growth drivers for DBS in 2011 was the ramp-up in asset utilisation, with its loan/deposit ratio rising to 89% from 81% end-2010 – further improvements here are likely capped. Nevertheless, with more stable margins, we do expect net interest income to expand by about 14% YoY this year. Moreover, we expect overheads to expand at
a slower pace. The dampener to our growth expectations as such emanates from lower non-interest income amid capital market volatility and higher credit charge rates.
Still wary of earnings risks. Our SELL call continues to be premised on the greater susceptibility of DBS’s earnings to exogenous factors, which thus warrants a discount to peers in this environment. Separately, we expect the potential acquisition of Bank Danamon and Alliance Financial Group to be slightly dilutive to 2013 earnings (-5%) and ROE (from 10.5% to 9.9%).
Friday 20 April 2012
Keppel Land
OCBC on 19 Apr 2012
Keppel Land (KPLD) reported 1Q12 PATMI of S$141.9m, up 70% YoY, mostly due to a bumper contribution from Reflections at Keppel after the handover of DPS units. 1Q12 topline was S$170m, down 52% YoY as property trading revenues fell. We judge 1Q12 PATMI (making up 38% of our annual forecast) to be mostly within expectations, given “lumpier” earnings post adoption of INT FRS 115. Grade A office rents fell 3.6% to S$10.60 in 1Q12. Given residual macro risks, we believe it is too early to call a bottom for the domestic office sector - a key driver for KPLD’s share price. This risk is balanced out, however, by potential RNAV accretion given ample capital (16% net gearing) and sufficiently attractive valuations. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
1Q12 results mostly within expectations
Keppel Land (KPLD) reported 1Q12 PATMI of S$141.9m, up 70% YoY, mostly due to a bumper contribution from Reflections at Keppel after the handover of DPS units. 1Q12 topline was S$170m, down 52% YoY as property trading revenues fell. We judge 1Q12 PATMI (making up 38% of our annual forecast) to be mostly within expectations. As guided previously, we expected ‘lumpier” earnings post adoption of INT FRS 115 whereby profits on overseas projects and sales under DPS are recognized only on full completion.
Residential sales in China stay subdued
In overseas markets, 270 units were sold in 1Q12, of which 190 units were in China (Botanica Township (Ph 6) in Chengdu and the Springdale in Shanghai). This is only somewhat higher than the 150 Chinese units sold in 1Q11, which reflects persistently difficult conditions in China, in our view, as the central government continues property curbs. In Singapore, KPLD sold over 90 homes in 1Q12 mostly at the Luxurie which brings it to ~52% sold. Management also indicated that they would set aside 150 units at the Reflections for leasing.
MBFC Phase 2 up to 67% committed
MBFC Phase 2 (T3) is currently 67% committed having signed on new tenants Rio Tinto (46k sq ft), Fitness First (16k sq ft) and Regus (13k sq ft). In Vietnam, KPLD secured a key anchor tenant, Takashimaya, for Saigon Centre Phase 2 (Ho Chi Minh City) ahead of its completion in 2015.
Maintain HOLD
Grade A office rents fell 3.6% to S$10.60 psf in 1Q12. Given residual macro risks, we believe it is too early to call a bottom for the domestic office sector - a key driver for KPLD’s share price. This risk is balanced out, however, by potential RNAV accretion given ample capital (16% net gearing) and sufficiently attractive valuations. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
Keppel Land (KPLD) reported 1Q12 PATMI of S$141.9m, up 70% YoY, mostly due to a bumper contribution from Reflections at Keppel after the handover of DPS units. 1Q12 topline was S$170m, down 52% YoY as property trading revenues fell. We judge 1Q12 PATMI (making up 38% of our annual forecast) to be mostly within expectations, given “lumpier” earnings post adoption of INT FRS 115. Grade A office rents fell 3.6% to S$10.60 in 1Q12. Given residual macro risks, we believe it is too early to call a bottom for the domestic office sector - a key driver for KPLD’s share price. This risk is balanced out, however, by potential RNAV accretion given ample capital (16% net gearing) and sufficiently attractive valuations. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
1Q12 results mostly within expectations
Keppel Land (KPLD) reported 1Q12 PATMI of S$141.9m, up 70% YoY, mostly due to a bumper contribution from Reflections at Keppel after the handover of DPS units. 1Q12 topline was S$170m, down 52% YoY as property trading revenues fell. We judge 1Q12 PATMI (making up 38% of our annual forecast) to be mostly within expectations. As guided previously, we expected ‘lumpier” earnings post adoption of INT FRS 115 whereby profits on overseas projects and sales under DPS are recognized only on full completion.
Residential sales in China stay subdued
In overseas markets, 270 units were sold in 1Q12, of which 190 units were in China (Botanica Township (Ph 6) in Chengdu and the Springdale in Shanghai). This is only somewhat higher than the 150 Chinese units sold in 1Q11, which reflects persistently difficult conditions in China, in our view, as the central government continues property curbs. In Singapore, KPLD sold over 90 homes in 1Q12 mostly at the Luxurie which brings it to ~52% sold. Management also indicated that they would set aside 150 units at the Reflections for leasing.
MBFC Phase 2 up to 67% committed
MBFC Phase 2 (T3) is currently 67% committed having signed on new tenants Rio Tinto (46k sq ft), Fitness First (16k sq ft) and Regus (13k sq ft). In Vietnam, KPLD secured a key anchor tenant, Takashimaya, for Saigon Centre Phase 2 (Ho Chi Minh City) ahead of its completion in 2015.
Maintain HOLD
Grade A office rents fell 3.6% to S$10.60 psf in 1Q12. Given residual macro risks, we believe it is too early to call a bottom for the domestic office sector - a key driver for KPLD’s share price. This risk is balanced out, however, by potential RNAV accretion given ample capital (16% net gearing) and sufficiently attractive valuations. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
CapitaMall Trust
OCBC on 19 Apr 2012
CapitaMall Trust (CMT) reported 1Q12 distributable income of S$76.6m (DPU: 2.30 S-cents) which is 4.6% higher YoY. This is broadly in line with our expectations and make up 23% of our FY12 forecast. Topline came in at S$155.2m, up 0.4% YoY. 1Q performances across CMT’s portfolio stayed firm; occupancy improved to 96% with pressure coming mostly from the Atrium due to enhancement works. Management also reported that JCube opened on 2 Apr 12, with 99% of NLA committed, and would contribute to earnings from 2Q12 onwards. We continue to like CMT for its AEI execution and believe that valuations remain attractive at current levels. Maintain BUY with an unchanged S$2.02 fair value estimate.
1Q12 results broadly in line
CapitaMall Trust (CMT) reported 1Q12 distributable income of S$76.6m (DPU: 2.30 S cents) which is 4.6% higher YoY. This is broadly in line with our expectations and make up 23% of our FY12 forecast. Topline came in at S$155.2m, up 0.4% YoY - rental income was boosted by higher rentals and the Illuma acquisition but mostly offset by lower income from the Atrium due to enhancement works.
Rental reversions could ease ahead
1Q performances across CMT’s portfolio stayed firm; occupancy improved to 96% with pressure coming mostly from Atrium’s enhancement works. Average rental reversions over 1Q12 remained positive at 6.1% across the portfolio. However, we forecast reversions to ease into the year, as the economic outlook softens. Operating expenses (Opex) on a comparable mall basis fell 6.7% YoY which surprised us mildly; we understand from management that this was mostly attributed to one-time items and expect opex ratios to track closer to FY11 levels ahead.
Malls returning from AEIs – a key driver for growth
We continue to see CMT execute well on its asset enhancement initiatives (AEI) – a key driver for distribution upside ahead as malls under enhancement return to operations over FY12-13. JCube opened on 2 Apr 12, with 99% of NLA committed at average rentals of S$11-12 psf, and we expect contributions to begin in 2Q12. Management expects a 9.7% ROE on investment upon stabilization. Enhancement works for Illuma (to be renamed as Bugis +) remains on track to complete by Jul 12, and over 90% of the tenants are slated to start operations by Jun 12. We observe a significant revitalization of the retail tenant mix with Uniqlo, Sephora and Aeropostale coming into the mall. The Atrium would complete its enhancement in 4Q12. The take-up rates at Bugis + and Atrium are encouraging with over 80% and 73% of NLA currently taken up.
Maintain BUY with unchanged fair value
We continue to like CMT for its AEI execution and believe that valuations remain attractive at current levels. Maintain BUY with an unchanged S$2.02 fair value estimate.
CapitaMall Trust (CMT) reported 1Q12 distributable income of S$76.6m (DPU: 2.30 S-cents) which is 4.6% higher YoY. This is broadly in line with our expectations and make up 23% of our FY12 forecast. Topline came in at S$155.2m, up 0.4% YoY. 1Q performances across CMT’s portfolio stayed firm; occupancy improved to 96% with pressure coming mostly from the Atrium due to enhancement works. Management also reported that JCube opened on 2 Apr 12, with 99% of NLA committed, and would contribute to earnings from 2Q12 onwards. We continue to like CMT for its AEI execution and believe that valuations remain attractive at current levels. Maintain BUY with an unchanged S$2.02 fair value estimate.
1Q12 results broadly in line
CapitaMall Trust (CMT) reported 1Q12 distributable income of S$76.6m (DPU: 2.30 S cents) which is 4.6% higher YoY. This is broadly in line with our expectations and make up 23% of our FY12 forecast. Topline came in at S$155.2m, up 0.4% YoY - rental income was boosted by higher rentals and the Illuma acquisition but mostly offset by lower income from the Atrium due to enhancement works.
Rental reversions could ease ahead
1Q performances across CMT’s portfolio stayed firm; occupancy improved to 96% with pressure coming mostly from Atrium’s enhancement works. Average rental reversions over 1Q12 remained positive at 6.1% across the portfolio. However, we forecast reversions to ease into the year, as the economic outlook softens. Operating expenses (Opex) on a comparable mall basis fell 6.7% YoY which surprised us mildly; we understand from management that this was mostly attributed to one-time items and expect opex ratios to track closer to FY11 levels ahead.
Malls returning from AEIs – a key driver for growth
We continue to see CMT execute well on its asset enhancement initiatives (AEI) – a key driver for distribution upside ahead as malls under enhancement return to operations over FY12-13. JCube opened on 2 Apr 12, with 99% of NLA committed at average rentals of S$11-12 psf, and we expect contributions to begin in 2Q12. Management expects a 9.7% ROE on investment upon stabilization. Enhancement works for Illuma (to be renamed as Bugis +) remains on track to complete by Jul 12, and over 90% of the tenants are slated to start operations by Jun 12. We observe a significant revitalization of the retail tenant mix with Uniqlo, Sephora and Aeropostale coming into the mall. The Atrium would complete its enhancement in 4Q12. The take-up rates at Bugis + and Atrium are encouraging with over 80% and 73% of NLA currently taken up.
Maintain BUY with unchanged fair value
We continue to like CMT for its AEI execution and believe that valuations remain attractive at current levels. Maintain BUY with an unchanged S$2.02 fair value estimate.
Hiap Hoe
Kim Eng on 20 Apr 2012
Background: Hiap Hoe Limited has more than three decades of experience in construction and building, and is now an integrated property developer focused on mid-tier and luxury residential properties. Its construction arm, WestBuild Construction, has an orderbook of more than SGD200m as of the end of last year.
Share price spiked on family infighting. The feud between founder Teo Guan Seng and his family has come to a standstill. Meanwhile, the shares have shot up as much as 66%, the highest since late-2007, as speculators awaited the founder’s move to divest its assets to shareholders.
Blow from ABSD. Residential sales for Hiap Hoe have slowed down significantly after the rollout of the Additional Buyer’s Stamp Duty (ABSD) last December. The group only sold four units YTD and has delayed the launch of Treasure on Balmoral. Assuming an ASP of SGD2,500 psf for the project in which it has a 60% stake, it can potentially a pre-tax profit of $13.2m. The 40-unit Three Balmoral, situated next to Treasure on Balmoral, sold six of the 20 units launched last October for SGD2,500 psf on average.
Hotel-cum-commercial development to be ready in 2014. With JV partner Superbowl, Hiap Hoe bought a mixed commercial-and-hotel site at Zhongshan Park along Balestier Road. The 421,000-sq-ft GFA site was bought for SGD172 psf ppr in mid-2008. When completed in 2014, the two hotels will have 390 rooms and 405 rooms, respectively. They will be managed by Wyndam Management and operate under the Ramada and Days Inn brands. We estimate its 50% stake is worth $0.24/sh. (avg. $500,000 per key)
44% discount to RNAV. The group is trading at a steep 44% discount to the RNAV and below its book of $0.53. If the founder decides to divest its assets, then the upside will be attractive.
Background: Hiap Hoe Limited has more than three decades of experience in construction and building, and is now an integrated property developer focused on mid-tier and luxury residential properties. Its construction arm, WestBuild Construction, has an orderbook of more than SGD200m as of the end of last year.
Share price spiked on family infighting. The feud between founder Teo Guan Seng and his family has come to a standstill. Meanwhile, the shares have shot up as much as 66%, the highest since late-2007, as speculators awaited the founder’s move to divest its assets to shareholders.
Blow from ABSD. Residential sales for Hiap Hoe have slowed down significantly after the rollout of the Additional Buyer’s Stamp Duty (ABSD) last December. The group only sold four units YTD and has delayed the launch of Treasure on Balmoral. Assuming an ASP of SGD2,500 psf for the project in which it has a 60% stake, it can potentially a pre-tax profit of $13.2m. The 40-unit Three Balmoral, situated next to Treasure on Balmoral, sold six of the 20 units launched last October for SGD2,500 psf on average.
Hotel-cum-commercial development to be ready in 2014. With JV partner Superbowl, Hiap Hoe bought a mixed commercial-and-hotel site at Zhongshan Park along Balestier Road. The 421,000-sq-ft GFA site was bought for SGD172 psf ppr in mid-2008. When completed in 2014, the two hotels will have 390 rooms and 405 rooms, respectively. They will be managed by Wyndam Management and operate under the Ramada and Days Inn brands. We estimate its 50% stake is worth $0.24/sh. (avg. $500,000 per key)
44% discount to RNAV. The group is trading at a steep 44% discount to the RNAV and below its book of $0.53. If the founder decides to divest its assets, then the upside will be attractive.
Starhub
Kim Eng on 20 Apr 2012
Expect earnings to rebound in 1Q12. StarHub will report 1QFY12/12 results on 4 May. We expect net profit of SGD85m, up 8% QoQ from an adjusted SGD79m. Given its rather lazy balance sheet currently, we will be on the lookout for indications of a dividend hike in coming quarters, but even without any, the current yield is still attractive at 6.3%. Given its recent outperformance, the stock may pull back before re-rating further, but fundamentally, we maintain our BUY call with a higher target price of SGD3.50, based on the average 5.7% yield of the top 15 dividend stocks over a billion in market cap.
Margins should rebound. For one thing, we do expect margins to bounce back in 1Q12. Similar to M1, margins should recover QoQ. In 4Q11, handset subsidies pushed EBITDA margin to 30.7% (excluding capex writebacks), although the severity was much less than the other telcos. Relieved of this pressure, we expect margin to rebound toward 32% in 1Q12. Nevertheless, our full year forecast assumes a lower 31% margin, reflecting higher cost pressures in 2H12.
Mobile business should continue to outperform. In addition, mobile should grow QoQ despite lower seasonality, for a couple of reasons. One, we believe StarHub has gained market share at the higher end of the market, with its postpaid base now skewed more toward the higherend SmartSurf plans. Two, we expect data revenue to continue to benefit from higher penetration for smartphones and tablets.
Pay TV should also get a price hike kick. Last Aug, StarHub raised its Pay TV basic rate by SGD2, which stemmed the decline in Pay TV revenue that started after the loss of BPL. 1Q12 should continue to reflect this increase. However, margins may be squeezed slightly by operational costs related to cross-carriage ahead of the UEFA Euro 2012 games that will kick off in Jun 2012.
What to look out for. In particular, we would be interested in whether StarHub will utilise its currently under-utilised balance sheet to raise dividend payout this year. In 2006 and 2007, it had made two rounds of capital returns when net debt/EBITDA fell to current levels. Further, it has raised dividends every year except 2010 and 2011. Looking at its forward cashflow and capex needs, we reckon it is in a good position to increase dividends beyond SGD0.20 a share.
Expect earnings to rebound in 1Q12. StarHub will report 1QFY12/12 results on 4 May. We expect net profit of SGD85m, up 8% QoQ from an adjusted SGD79m. Given its rather lazy balance sheet currently, we will be on the lookout for indications of a dividend hike in coming quarters, but even without any, the current yield is still attractive at 6.3%. Given its recent outperformance, the stock may pull back before re-rating further, but fundamentally, we maintain our BUY call with a higher target price of SGD3.50, based on the average 5.7% yield of the top 15 dividend stocks over a billion in market cap.
Margins should rebound. For one thing, we do expect margins to bounce back in 1Q12. Similar to M1, margins should recover QoQ. In 4Q11, handset subsidies pushed EBITDA margin to 30.7% (excluding capex writebacks), although the severity was much less than the other telcos. Relieved of this pressure, we expect margin to rebound toward 32% in 1Q12. Nevertheless, our full year forecast assumes a lower 31% margin, reflecting higher cost pressures in 2H12.
Mobile business should continue to outperform. In addition, mobile should grow QoQ despite lower seasonality, for a couple of reasons. One, we believe StarHub has gained market share at the higher end of the market, with its postpaid base now skewed more toward the higherend SmartSurf plans. Two, we expect data revenue to continue to benefit from higher penetration for smartphones and tablets.
Pay TV should also get a price hike kick. Last Aug, StarHub raised its Pay TV basic rate by SGD2, which stemmed the decline in Pay TV revenue that started after the loss of BPL. 1Q12 should continue to reflect this increase. However, margins may be squeezed slightly by operational costs related to cross-carriage ahead of the UEFA Euro 2012 games that will kick off in Jun 2012.
What to look out for. In particular, we would be interested in whether StarHub will utilise its currently under-utilised balance sheet to raise dividend payout this year. In 2006 and 2007, it had made two rounds of capital returns when net debt/EBITDA fell to current levels. Further, it has raised dividends every year except 2010 and 2011. Looking at its forward cashflow and capex needs, we reckon it is in a good position to increase dividends beyond SGD0.20 a share.
Thursday 19 April 2012
Elec & Eltek
Kim Eng on 19 Apr
Background: Elec & Eltek International Company is the largest manufacturer of printed circuit boards (PCBs) in China. Along with other PCB manufacturing sites under its parent company Kingboard Chemical Holdings, which is the world’s largest laminate manufacturer, Kingboard Group and Elec & Eltek (E&E) together rank seventh in the world in terms of sales revenue. E&E has an annual production capacity of 6m sq ft, with seven offices worldwide and 14 plants in Asia – one in Hong Kong, two in Thailand and 11 in China.
Why are we highlighting this stock? E&E’s share price has corrected significantly since our last update in April 2011, shortly after it successfully pulled off a dual listing on the Hong Kong Stock Exchange (HKSE). However, its generous final dividend of USD0.12 per share, representing 98% of its 2H11 profits, will go ex on 9 May 2012. We anticipate there will be a trading opportunity between now and 9 May.
Earnings went into a tailspin in 2H11… Following its HKSE dual listing in April last year, E&E was hit by the perfect storm of higher raw material costs, a hike in labour costs due to its exposure in China, as well as the flooding in Thailand that affected its extensive manufacturing operations in the country. Its 2Q11 results were also affected by dual-listing professional fees.
…but cash flow and dividends stayed healthy. Through it all however, cash flow stayed healthy. Even as E&E reported its worst quarterly profit in 4Q11 (net profit fell 59% YoY), operating cash flow recovered strongly to the highest level in the past two years on the back of good working capital management. As at end-2011, net gearing was just 0.2x. Although the company did cut its final dividend per share in 2011 from USD0.25 to USD0.12, it was able to declare healthy 2011 dividends of USD0.27 per share, maintaining its traditional payout ratio of 90-100%.
Earnings expected to recover in 2Q12. Demand remained soft at the beginning of the year, with the company expecting revenue and profits to decline sequentially. However, its medium-term orderbook is beginning to build up again, and E&E anticipates a recovery from 2Q12 onwards. Capacity-wise, the company continues to expand and rationalise its capacity, with a new plant in Yangzhou, China, expected to begin commercial production in 2Q12 with full ramp-up likely by year-end.
Keppel Land
Kim Eng on 19 Apr
Boost from Reflections. Keppel Land enjoyed a 70.3% YoY growth in its 1Q12 PATMI to $141.9m, thanks largely to profits from Reflections at Keppel Bay from the completed units previously sold under the Deferred Payment Scheme. While 1Q12 PATMI already accounts for 40% of full-year consensus estimates, we believe the results were largely in line with expectations due to the irregular recognition of development profits under current accounting rules. Buy now, to be entitled to the proposed 20 cents/share dividend.
Strong contributions from Singapore. Singapore accounted for 77.2% of KepLand’s 1Q12 PATMI, mainly on the back of higher development profits recognized from Reflections and Marina Bay Suites. Operationally, KepLand sold >90 residential units in Singapore in the first quarter, mainly from The Luxurie in Sengkang. Phase 2 of MBFC has already obtained TOP, with Tower 3 about 67% committed.
Sales expectations in China trimmed. During the quarter, KepLand sold about 190 homes across China, mainly from its township projects and The Springdale in Shanghai. As buying sentiment remains subdued, KepLand has scaled down its launch programme for China to 3,988 units for 2012, mainly cutting back on the units to be launched from Tianjin Eco-city and Stamford City in Jiangyin.
Myanmar ops improving, but still negligible. With the recent positive political outcome in Myanmar, KepLand’s Sedona hotels in Yangon and Mandalay enjoyed improved occupancy and room rates, driven by more tourists and business travelers. While KepLand may have first-mover advantage for opportunities in Myanmar, we note that it is still early days and earnings contributions from its hotels remain negligible.
Valuations remain attractive. We have raised our target price to $4.04, pegged at a 30% discount to RNAV due to K-REIT’s recent positive share price performance. The proposed bumper dividend of 20 cents/share is expected to be approved at the AGM on 20 Apr, before the stock goes ex-div on 24 Apr.
Boost from Reflections. Keppel Land enjoyed a 70.3% YoY growth in its 1Q12 PATMI to $141.9m, thanks largely to profits from Reflections at Keppel Bay from the completed units previously sold under the Deferred Payment Scheme. While 1Q12 PATMI already accounts for 40% of full-year consensus estimates, we believe the results were largely in line with expectations due to the irregular recognition of development profits under current accounting rules. Buy now, to be entitled to the proposed 20 cents/share dividend.
Strong contributions from Singapore. Singapore accounted for 77.2% of KepLand’s 1Q12 PATMI, mainly on the back of higher development profits recognized from Reflections and Marina Bay Suites. Operationally, KepLand sold >90 residential units in Singapore in the first quarter, mainly from The Luxurie in Sengkang. Phase 2 of MBFC has already obtained TOP, with Tower 3 about 67% committed.
Sales expectations in China trimmed. During the quarter, KepLand sold about 190 homes across China, mainly from its township projects and The Springdale in Shanghai. As buying sentiment remains subdued, KepLand has scaled down its launch programme for China to 3,988 units for 2012, mainly cutting back on the units to be launched from Tianjin Eco-city and Stamford City in Jiangyin.
Myanmar ops improving, but still negligible. With the recent positive political outcome in Myanmar, KepLand’s Sedona hotels in Yangon and Mandalay enjoyed improved occupancy and room rates, driven by more tourists and business travelers. While KepLand may have first-mover advantage for opportunities in Myanmar, we note that it is still early days and earnings contributions from its hotels remain negligible.
Valuations remain attractive. We have raised our target price to $4.04, pegged at a 30% discount to RNAV due to K-REIT’s recent positive share price performance. The proposed bumper dividend of 20 cents/share is expected to be approved at the AGM on 20 Apr, before the stock goes ex-div on 24 Apr.
Cache Logistics Trust
OCBC on 19 Apr
Cache Logistics Trust’s (CACHE) 1Q12 DPU of 2.086 S cents was in line with our expectations, forming 25.0% of our full-year estimate. As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases and multi-tenanted lease structures. Management reiterated that there will be no lease renewal in 2012. This provides a significant amount of earnings visibility and stability. Following the recent private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Going forward, we believe CACHE will actively seek growth avenues to improve its DPU payout now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre at 21 Changi North Way is due to complete by end Apr. This is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.
Stable set of 1Q12 results
Cache Logistics Trust (CACHE) released its 1Q12 results after market close yesterday. NPI grew 11.6% YoY (flat QoQ) to S$16.1m, while distributable income rose 7.6% (flat QoQ) to S$13.4m. The YoY performance was mainly driven by incremental rental income from upward rental adjustments and acquisitions over the past year. DPU for the quarter came in at 2.086 S cents and represented a 6.9% YoY increase. The results were in line with our expectations, with DPU forming 25.0% of our full-year estimate (24.8% of consensus).
Portfolio performance remains robust
As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases (with locked-in annual rental escalation of 1.5-2.0%) and multi-tenanted lease structures. The weighted average lease expiry (WALE) stood at 4.4 years, relatively unchanged from the WALE of 4.65 years seen in prior quarter. Management reiterated that there will be no lease renewal in 2012 (<2% of GFA due for renewal in 2013). This provides a significant amount of earnings visibility and stability.
Private placement improves financial position
With the recent issuance of 60m new units to raise ~S$57.1m in net proceeds via a private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Average all-in financing cost increased marginally from 3.89% in 4Q11 to 3.94%, but interest cover was maintained at a strong 8.0x.
Maintain BUY
Going forward, we believe CACHE will actively seek growth avenues to improve its DPU payout now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre at 21 Changi North Way is due to complete by end Apr. The warehouse has an expected initial NPI yield of 7.7% and is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.
Cache Logistics Trust’s (CACHE) 1Q12 DPU of 2.086 S cents was in line with our expectations, forming 25.0% of our full-year estimate. As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases and multi-tenanted lease structures. Management reiterated that there will be no lease renewal in 2012. This provides a significant amount of earnings visibility and stability. Following the recent private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Going forward, we believe CACHE will actively seek growth avenues to improve its DPU payout now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre at 21 Changi North Way is due to complete by end Apr. This is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.
Stable set of 1Q12 results
Cache Logistics Trust (CACHE) released its 1Q12 results after market close yesterday. NPI grew 11.6% YoY (flat QoQ) to S$16.1m, while distributable income rose 7.6% (flat QoQ) to S$13.4m. The YoY performance was mainly driven by incremental rental income from upward rental adjustments and acquisitions over the past year. DPU for the quarter came in at 2.086 S cents and represented a 6.9% YoY increase. The results were in line with our expectations, with DPU forming 25.0% of our full-year estimate (24.8% of consensus).
Portfolio performance remains robust
As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases (with locked-in annual rental escalation of 1.5-2.0%) and multi-tenanted lease structures. The weighted average lease expiry (WALE) stood at 4.4 years, relatively unchanged from the WALE of 4.65 years seen in prior quarter. Management reiterated that there will be no lease renewal in 2012 (<2% of GFA due for renewal in 2013). This provides a significant amount of earnings visibility and stability.
Private placement improves financial position
With the recent issuance of 60m new units to raise ~S$57.1m in net proceeds via a private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Average all-in financing cost increased marginally from 3.89% in 4Q11 to 3.94%, but interest cover was maintained at a strong 8.0x.
Maintain BUY
Going forward, we believe CACHE will actively seek growth avenues to improve its DPU payout now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre at 21 Changi North Way is due to complete by end Apr. The warehouse has an expected initial NPI yield of 7.7% and is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.
Wednesday 18 April 2012
CDL Hospitality Trusts
We are raising our 2012 RevPAR growth estimates from 5.5% to 7.5% for CDLHT’s Singapore hotels on the basis of strong Singapore hotel figures year to date and continued positive outlook. A senior executive of Millennium & Copthorne (M&C) International expects room rates at M&C’s five Singapore hotels to grow 5% YoY from ~S$219 in 2011, while occupancies could climb by 2-3 ppt from 87%. RevPAR for these hotels have already increased 10% in the first two months of this year. These five hotels are on master leases whereby CDLHT receives rent in the form of 20-30% of the hotel revenue and 20% of the hotel gross operating profit, subject to minimum fixed rents. The hotels constituted 60.5% of CDLHT’s 2011 gross revenue. We maintain our BUY rating on CDLHT and raise our fair value estimate to S$2.04 (from S$2.00 previously).
Positive signs for hotels
According to the Singapore Tourism Board, for the first two months of 2012, RevPAR for Singapore hotels climbed 19.1% YoY on the back of a 14.5% YoY increase in room rates and an increase in occupancy rates. A senior vice-president of Millennium & Copthorne (M&C) International, Lim Boon Kwee, was quoted in a Business Times article dated 9th Apr as saying he expects that room rates at M&C’s five Singapore hotels will grow 5% YoY from ~S$219 in 2011, while occupancies could climb by 2-3 ppt from 87%. Mr. Lim said that RevPAR for the M&C hotels increased by 10% for the first two months of this year.
Raising RevPAR growth assumption
These above-mentioned M&C hotels (Orchard Hotel, Copthorne King’s Hotel, Grand Copthorne Waterfront Hotel, M Hotel and Studio M Hotel) are owned by CDLHT and M&C is the master leasee. CDLHT receives rent in the form of 20-30% of the hotel revenue and 20% of the hotel gross operating profit, subject to minimum fixed rents. The hotels constituted 60.5% of CDLHT’s 2011 gross revenue. CDLHT has one other hotel in Singapore – Novotel Clarke Quay, which is managed by Accor and which we assume will perform similar to the M&C hotels. We are raising our RevPAR growth rate assumption from 5.5% to 7.5% for CDLHT’s Singapore hotels in 2012.
Corporate guests and events
Corporate guests account for ~65% of CDLHT’s guests in the Singapore hotels, thus MICE events are an important driver. A key MICE event in the first quarter was the Singapore Airshow (Feb). Food&HotelAsia 2012 is currently running (17th-20th Apr) and is expecting to draw over 54k attendees, up ~3.8% from 2010. Other major events lined up this year include CommunicAsia (Jun) and the F1 Singapore Grand Prix (Sep).
Maintain BUY; raising fair value to S$2.04
We maintain our BUY rating on CDLHT and raise our fair value estimate to S$2.04 (vs. S$2.00 previously).
Positive signs for hotels
According to the Singapore Tourism Board, for the first two months of 2012, RevPAR for Singapore hotels climbed 19.1% YoY on the back of a 14.5% YoY increase in room rates and an increase in occupancy rates. A senior vice-president of Millennium & Copthorne (M&C) International, Lim Boon Kwee, was quoted in a Business Times article dated 9th Apr as saying he expects that room rates at M&C’s five Singapore hotels will grow 5% YoY from ~S$219 in 2011, while occupancies could climb by 2-3 ppt from 87%. Mr. Lim said that RevPAR for the M&C hotels increased by 10% for the first two months of this year.
Raising RevPAR growth assumption
These above-mentioned M&C hotels (Orchard Hotel, Copthorne King’s Hotel, Grand Copthorne Waterfront Hotel, M Hotel and Studio M Hotel) are owned by CDLHT and M&C is the master leasee. CDLHT receives rent in the form of 20-30% of the hotel revenue and 20% of the hotel gross operating profit, subject to minimum fixed rents. The hotels constituted 60.5% of CDLHT’s 2011 gross revenue. CDLHT has one other hotel in Singapore – Novotel Clarke Quay, which is managed by Accor and which we assume will perform similar to the M&C hotels. We are raising our RevPAR growth rate assumption from 5.5% to 7.5% for CDLHT’s Singapore hotels in 2012.
Corporate guests and events
Corporate guests account for ~65% of CDLHT’s guests in the Singapore hotels, thus MICE events are an important driver. A key MICE event in the first quarter was the Singapore Airshow (Feb). Food&HotelAsia 2012 is currently running (17th-20th Apr) and is expecting to draw over 54k attendees, up ~3.8% from 2010. Other major events lined up this year include CommunicAsia (Jun) and the F1 Singapore Grand Prix (Sep).
Maintain BUY; raising fair value to S$2.04
We maintain our BUY rating on CDLHT and raise our fair value estimate to S$2.04 (vs. S$2.00 previously).
Ascendas REIT
OCBC on 18 Apr 2012
Ascendas REIT (A-REIT) turned in a sturdy set of results as expected. 4QFY12 NPI rose by 13.2% YoY to S$95.1m, in line with our estimate of S$93.2m. DPU of 3.50 S cents is also consistent with our expectation of 3.24 S cents, and represents a 7.0% YoY growth despite an 11.2% increase in unit base. On its operational front, we note that the occupancy for multi-tenanted properties and portfolio remained robust at 92.8% and 96.4% respectively. Additionally, all segments of the portfolio registered positive rental reversions of 5.2-15.7% over the year. In the coming year, A-REIT expects to maintain a stable performance, with acquisitions and developments completed in FY12 to contribute positively to its income. Management also appears to be comfortable with the potential supply in industrial space over the next two years, but is more concerned with the impact of a broad-based slowdown in the economy and its accompanying volatility. However, the REIT noted that the threat of such a downturn is low, and that the enquiries and viewing of its properties are still healthy. We maintain our BUY rating and S$2.31 fair value on A-REIT.
Results in line with expectations
Ascendas REIT (A-REIT) turned in a sturdy set of results as expected. 4QFY12 NPI rose by 13.2% YoY to S$95.1m, while distributable income increased 27.2% to S$71.9m, due largely to the completion of development projects and acquisitions. This is in line with our NPI and earnings estimates of S$93.2m and S$68.5m, respectively. DPU of 3.50 S cents is also consistent with our expectation of 3.24 S cents, and represents a 7.0% YoY growth despite an 11.2% increase in unit base. For FY12, NPI and distributable income were up 8.5% and 14.2% to S$368.3m and S$277.8m, respectively. DPU, on the other hand, was up 2.5% to 13.56 S cents (6.7% yield).
Portfolio performance remains sound
On a same-store basis, we note that the occupancy for multi-tenanted properties and portfolio remained robust at 92.8% and 96.4% respectively (0.4ppt and 0.7ppt YoY improvement). The occupancy for investments completed in FY12 was lower at 76.6%, dragged down chiefly by FoodAxis @ Senoko which is currently 25.5% occupied. However, A-REIT is optimistic of its leasing prospects, with 35.6% of space under different stages of negotiation and another 11.6% receiving a list of enquiries. On its rental performance, we understand that all segments of the portfolio registered positive rental reversions of 5.2-15.7% over the year. Moreover, the passing rents for the area due for renewal in FY13 are currently 16-32% below the spot market rates, implying room for further positive renewal reversions.
Outlook still sanguine
In the coming year, A-REIT expects to maintain a stable performance, with acquisitions and developments completed in FY12 contributing positively to its income. Management also appears to be comfortable with the potential supply in industrial space over the next two years, but is more concerned with the impact of a broad-based slowdown in the economy and its accompanying volatility. However, A-REIT noted that the threat of such a downturn is low, and that the enquiries and viewing of its properties are still healthy. We maintain our BUY rating and S$2.31 fair value on A-REIT.
Ascendas REIT (A-REIT) turned in a sturdy set of results as expected. 4QFY12 NPI rose by 13.2% YoY to S$95.1m, in line with our estimate of S$93.2m. DPU of 3.50 S cents is also consistent with our expectation of 3.24 S cents, and represents a 7.0% YoY growth despite an 11.2% increase in unit base. On its operational front, we note that the occupancy for multi-tenanted properties and portfolio remained robust at 92.8% and 96.4% respectively. Additionally, all segments of the portfolio registered positive rental reversions of 5.2-15.7% over the year. In the coming year, A-REIT expects to maintain a stable performance, with acquisitions and developments completed in FY12 to contribute positively to its income. Management also appears to be comfortable with the potential supply in industrial space over the next two years, but is more concerned with the impact of a broad-based slowdown in the economy and its accompanying volatility. However, the REIT noted that the threat of such a downturn is low, and that the enquiries and viewing of its properties are still healthy. We maintain our BUY rating and S$2.31 fair value on A-REIT.
Results in line with expectations
Ascendas REIT (A-REIT) turned in a sturdy set of results as expected. 4QFY12 NPI rose by 13.2% YoY to S$95.1m, while distributable income increased 27.2% to S$71.9m, due largely to the completion of development projects and acquisitions. This is in line with our NPI and earnings estimates of S$93.2m and S$68.5m, respectively. DPU of 3.50 S cents is also consistent with our expectation of 3.24 S cents, and represents a 7.0% YoY growth despite an 11.2% increase in unit base. For FY12, NPI and distributable income were up 8.5% and 14.2% to S$368.3m and S$277.8m, respectively. DPU, on the other hand, was up 2.5% to 13.56 S cents (6.7% yield).
Portfolio performance remains sound
On a same-store basis, we note that the occupancy for multi-tenanted properties and portfolio remained robust at 92.8% and 96.4% respectively (0.4ppt and 0.7ppt YoY improvement). The occupancy for investments completed in FY12 was lower at 76.6%, dragged down chiefly by FoodAxis @ Senoko which is currently 25.5% occupied. However, A-REIT is optimistic of its leasing prospects, with 35.6% of space under different stages of negotiation and another 11.6% receiving a list of enquiries. On its rental performance, we understand that all segments of the portfolio registered positive rental reversions of 5.2-15.7% over the year. Moreover, the passing rents for the area due for renewal in FY13 are currently 16-32% below the spot market rates, implying room for further positive renewal reversions.
Outlook still sanguine
In the coming year, A-REIT expects to maintain a stable performance, with acquisitions and developments completed in FY12 contributing positively to its income. Management also appears to be comfortable with the potential supply in industrial space over the next two years, but is more concerned with the impact of a broad-based slowdown in the economy and its accompanying volatility. However, A-REIT noted that the threat of such a downturn is low, and that the enquiries and viewing of its properties are still healthy. We maintain our BUY rating and S$2.31 fair value on A-REIT.
Singapore Exchange
OCBC on 18 Apr 2012
Summary: Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ. Securities Revenue accounted for 40% of total revenue, followed by Derivatives at 26%. It declared an unchanged base dividend of 4 cents per share for this quarter. While the IPO market was quiet in 3Q12, it has picked up in the early part of 4Q12, and indications are that there are more in the pipeline. As its results were in line with our expectations, we are leaving our full year estimates intact. The stock has appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.
3QFY12 results were in line with expectations
Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations, buoyed by the rally in global equities during the quarter. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ, and just a slight tad below consensus estimate of S$78m. Securities Revenue remained the core contributor or almost 40% of revenue, followed by Derivatives at 26%. For Derivatives, daily average traded volume rose 15% QoQ to 315,919 contacts. The strong pick up in Securities trading activities led to a 22% QoQ gain in Securities Revenue. For 9MFY12, net earnings grew 7% to S$215.4m. It declared an unchanged base dividend of 4 cents per share for this quarter, with book closure on 3 May 2012 and payable on 16 May 2012.
IPO activities picking up
While the IPO market was very quiet in the last quarter, with only one IPO and one reverse takeover, sentiments have definitely improved in the current quarter with the recent listing and favourable take-up rates for Bumitama Agri and Civmec Ltd. Early indications point to a healthy pipeline of potential IPOs which could come into the market in the coming months, including several prominent names. Other initiatives such as trying to attract more high-frequency trading (HFT) and Asian connectivity are positive, but we do not expect any near term impact.
Lack of medium term price drivers; downgrade to HOLD
Since its results were in line with our expectations and taking into account the slower start to 4QFY12, we are leaving our full year estimates intact. This means full-year earnings of S$300.5m or 4Q earnings of S$70m. As we head into a quieter quarter, there is also a resultant lack of price drivers for the medium term. In addition, the stock has already appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.
Summary: Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ. Securities Revenue accounted for 40% of total revenue, followed by Derivatives at 26%. It declared an unchanged base dividend of 4 cents per share for this quarter. While the IPO market was quiet in 3Q12, it has picked up in the early part of 4Q12, and indications are that there are more in the pipeline. As its results were in line with our expectations, we are leaving our full year estimates intact. The stock has appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.
3QFY12 results were in line with expectations
Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations, buoyed by the rally in global equities during the quarter. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ, and just a slight tad below consensus estimate of S$78m. Securities Revenue remained the core contributor or almost 40% of revenue, followed by Derivatives at 26%. For Derivatives, daily average traded volume rose 15% QoQ to 315,919 contacts. The strong pick up in Securities trading activities led to a 22% QoQ gain in Securities Revenue. For 9MFY12, net earnings grew 7% to S$215.4m. It declared an unchanged base dividend of 4 cents per share for this quarter, with book closure on 3 May 2012 and payable on 16 May 2012.
IPO activities picking up
While the IPO market was very quiet in the last quarter, with only one IPO and one reverse takeover, sentiments have definitely improved in the current quarter with the recent listing and favourable take-up rates for Bumitama Agri and Civmec Ltd. Early indications point to a healthy pipeline of potential IPOs which could come into the market in the coming months, including several prominent names. Other initiatives such as trying to attract more high-frequency trading (HFT) and Asian connectivity are positive, but we do not expect any near term impact.
Lack of medium term price drivers; downgrade to HOLD
Since its results were in line with our expectations and taking into account the slower start to 4QFY12, we are leaving our full year estimates intact. This means full-year earnings of S$300.5m or 4Q earnings of S$70m. As we head into a quieter quarter, there is also a resultant lack of price drivers for the medium term. In addition, the stock has already appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.
Tiger Airways
Kim Eng 18 Apr 2012
Background: Tiger Airways is a low cost carrier offering short-haul flights spanning Asia and Australia. It operates a fleet of 34 Airbus A320 aircraft, which is based mainly in Singapore and Australia.
Recent development: Tiger’s operating statistics for the month of March continued to disappoint on a YoY basis. The budget airline carried 19% fewer passengers in March 2012 compared to a year ago, and 8% fewer when viewed on a trailing 12-month basis (12 months to March 2012 vs March 2011). With corresponding lower load factors and rising fuel costs, this data likely portends another set of poor 4QFY Mar12/FY Mar12 results, which are scheduled to be announced in mid-May.
A year in the red. In our regional aviation report, Turbulence still (dated 4 April 2012), we highlighted rising fuel cost as a primary headwind facing airlines. Tiger’s fourth-quarter fuel bill is expected to balloon to about S$80m from S$76m in 4Q, and exacerbate losses for the quarter by 25%. This analysis excludes the impact of the weak load factors and seems set to deepen the red ink on Tiger’s financials.
Down Under woes. Much of Tiger’s troubles started when Australia’s Civil Aviation Safety Authority began investigating the airline in April last year. By early July, all its flights in Australia were grounded over safety concerns. The suspension lasted more than a month, resulting in its Australian operations recording a loss of almost S$5m during the quarter.
JVs still in infancy. Although Tiger’s new JVs (SEAir in the Philippines, Mandala in Indonesia) may prove to be strong drivers for its earnings growth in the region, they are still in their infancy. For FY Mar13 at least, a significant earnings contribution is unlikely.
Background: Tiger Airways is a low cost carrier offering short-haul flights spanning Asia and Australia. It operates a fleet of 34 Airbus A320 aircraft, which is based mainly in Singapore and Australia.
Recent development: Tiger’s operating statistics for the month of March continued to disappoint on a YoY basis. The budget airline carried 19% fewer passengers in March 2012 compared to a year ago, and 8% fewer when viewed on a trailing 12-month basis (12 months to March 2012 vs March 2011). With corresponding lower load factors and rising fuel costs, this data likely portends another set of poor 4QFY Mar12/FY Mar12 results, which are scheduled to be announced in mid-May.
A year in the red. In our regional aviation report, Turbulence still (dated 4 April 2012), we highlighted rising fuel cost as a primary headwind facing airlines. Tiger’s fourth-quarter fuel bill is expected to balloon to about S$80m from S$76m in 4Q, and exacerbate losses for the quarter by 25%. This analysis excludes the impact of the weak load factors and seems set to deepen the red ink on Tiger’s financials.
Down Under woes. Much of Tiger’s troubles started when Australia’s Civil Aviation Safety Authority began investigating the airline in April last year. By early July, all its flights in Australia were grounded over safety concerns. The suspension lasted more than a month, resulting in its Australian operations recording a loss of almost S$5m during the quarter.
JVs still in infancy. Although Tiger’s new JVs (SEAir in the Philippines, Mandala in Indonesia) may prove to be strong drivers for its earnings growth in the region, they are still in their infancy. For FY Mar13 at least, a significant earnings contribution is unlikely.
ST Engineering
Kim Eng on 18 Apr 2012
A mega contract in the bag. ST Engineering’s (STE) marine arm, ST Marine, has bagged its largest order in recent years – an S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. This was welcome news, coming on the back of ST Kinetic’s recent blacklisting by India for its alleged involvement in a bribery scandal. It also confirms that STE’s reputation as a defence engineering specialist is untarnished.
Multi-pillar earnings growth model. ST Aerospace, STE’s largest revenue contributor, also reported significant contract wins in 1Q12 that amounted to S$550m. The increase in defence expenditure by the government and its push for a more efficient public transportation system should augur well for ST Electronics and ST Kinetics as well. Taken together, these factors would continue to drive STE’s growing orderbook, thereby providing earnings visibility for the near future.
Healthy dividend payout. STE has a strong history of dividend payment, even in the absence of a formal policy. It typically pays out approximately 90% of its earnings. We do not expect any major change to this assumption and believe that its yield of 5% is sustainable.
Reputation untarnished, upgrade to Buy. We believe that the latest contract win by ST Marine reaffirms STE’s reputation as a global defence engineering specialist. Its multi-pillar strategy should also offer comprehensive support for growth, prompting us to raise our forecasts to account for a more visible earnings outlook, especially from ST Marine. Our target price thus goes up from $2.88 to $3.60, pegged at the historical PER mean of 19x FY12 earnings and providing upside of 16% (including FY12F dividend of $0.17). Upgrade to Buy.
A mega contract in the bag. ST Engineering’s (STE) marine arm, ST Marine, has bagged its largest order in recent years – an S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. This was welcome news, coming on the back of ST Kinetic’s recent blacklisting by India for its alleged involvement in a bribery scandal. It also confirms that STE’s reputation as a defence engineering specialist is untarnished.
Multi-pillar earnings growth model. ST Aerospace, STE’s largest revenue contributor, also reported significant contract wins in 1Q12 that amounted to S$550m. The increase in defence expenditure by the government and its push for a more efficient public transportation system should augur well for ST Electronics and ST Kinetics as well. Taken together, these factors would continue to drive STE’s growing orderbook, thereby providing earnings visibility for the near future.
Healthy dividend payout. STE has a strong history of dividend payment, even in the absence of a formal policy. It typically pays out approximately 90% of its earnings. We do not expect any major change to this assumption and believe that its yield of 5% is sustainable.
Reputation untarnished, upgrade to Buy. We believe that the latest contract win by ST Marine reaffirms STE’s reputation as a global defence engineering specialist. Its multi-pillar strategy should also offer comprehensive support for growth, prompting us to raise our forecasts to account for a more visible earnings outlook, especially from ST Marine. Our target price thus goes up from $2.88 to $3.60, pegged at the historical PER mean of 19x FY12 earnings and providing upside of 16% (including FY12F dividend of $0.17). Upgrade to Buy.
Tuesday 17 April 2012
M1
Kim Eng on 17 Apr 2012
2012’s opening quarter within expectations. M1 opened 2012 with all the signals intact and pointing in the right direction, namely that greater visibility is being gained on its future margin and topline drivers. While net profit rise of 7.5% QoQ to $40.3m is inline with market expectations, we also saw extremely positive YoY trends. Notably, there are very encouraging signs of an earlier-than-expected ability to monetise its data business. Further, as rollout issues are increasingly resolved, we expect greater gains in fibre subscriber base in the quarters ahead to be another positive catalyst for the stock.
Positive trends for data monetisation ahead. Data revenue continued to outpace voice. In 1Q12, M1 saw 36.9% of service revenue coming from data, up from 36.2% in 4Q11 and 34.7% in 1Q11. As a result, its data ARPU also ticked up for the fourth straight quarter in 1Q12. In addition, management reported that revenue per gigabyte of data consumption has improved. This positions M1 well for more effective data monetisation in future.
NGNBN issues on the way to resolution. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet increases installation capacity and better handles demand fluctuations, we anticipate faster growth in fibre net-adds this year. M1 added 7,000 fibre subscribers in 1Q12 to 29,000, still below the optimal level of 80,000-100,000, but this could rise very fast as bottlenecks are worked out and the public becomes more aware of the benefits.
Margins should improve further as fibre takeup rises. As expected, handset sales retreated from 4Q11’s high, which saw EBITDA margin sequentially improved to 40.1% (4Q11: 39.1%, 1Q11: 42.2%). While this was due to a change in device mix toward Android-based devices, we expect launches of more non-iPhone handsets in the next few quarters and better economies-of-scale in the fibre fixed services business to drive further improvement in margins.
Gaining greater clarity. We believe M1’s outlook is clearing up as greater visibility is gained on its margin and topline drivers. BUY with TP of $2.85 (including DPS of $0.145) for a total return of 17%.
2012’s opening quarter within expectations. M1 opened 2012 with all the signals intact and pointing in the right direction, namely that greater visibility is being gained on its future margin and topline drivers. While net profit rise of 7.5% QoQ to $40.3m is inline with market expectations, we also saw extremely positive YoY trends. Notably, there are very encouraging signs of an earlier-than-expected ability to monetise its data business. Further, as rollout issues are increasingly resolved, we expect greater gains in fibre subscriber base in the quarters ahead to be another positive catalyst for the stock.
Positive trends for data monetisation ahead. Data revenue continued to outpace voice. In 1Q12, M1 saw 36.9% of service revenue coming from data, up from 36.2% in 4Q11 and 34.7% in 1Q11. As a result, its data ARPU also ticked up for the fourth straight quarter in 1Q12. In addition, management reported that revenue per gigabyte of data consumption has improved. This positions M1 well for more effective data monetisation in future.
NGNBN issues on the way to resolution. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet increases installation capacity and better handles demand fluctuations, we anticipate faster growth in fibre net-adds this year. M1 added 7,000 fibre subscribers in 1Q12 to 29,000, still below the optimal level of 80,000-100,000, but this could rise very fast as bottlenecks are worked out and the public becomes more aware of the benefits.
Margins should improve further as fibre takeup rises. As expected, handset sales retreated from 4Q11’s high, which saw EBITDA margin sequentially improved to 40.1% (4Q11: 39.1%, 1Q11: 42.2%). While this was due to a change in device mix toward Android-based devices, we expect launches of more non-iPhone handsets in the next few quarters and better economies-of-scale in the fibre fixed services business to drive further improvement in margins.
Gaining greater clarity. We believe M1’s outlook is clearing up as greater visibility is gained on its margin and topline drivers. BUY with TP of $2.85 (including DPS of $0.145) for a total return of 17%.
Singapore Residential Property
OCBC on 17 Apr 2012
URA data yesterday showed 3,032 new private residential homes (including 639 EC units) sold in Mar 2012. Excluding EC and landed-units, new home sales were mostly flat MoM and up 76% YoY to 2,363 units - keeping up the rapid pace from Feb 2012. The take-up rate continued to be healthy at 94%, coming down somewhat from 110% last month. We continue to witness broad-based buyer demand across the market underpinned by ample liquidity and buoyant buyer sentiment, but remain cautious of additional curbs given the rapid sales pickup after ABSD measures only in Dec 2011. Moreover, we continue to be wary of potential macro-economic headwinds going forward given residual uncertainty in Europe. We maintain a NEUTRAL stance on residential developers. Our top property picks are CMA [FV: S$1.79, BUY] and CAPL [FV: S$3.40, BUY]. We have a SELL rating on CDL [FV: S$8.92].
Momentum carries into Mar 2012
A headline total of 3,032 new private residential homes (including 639 EC units) were sold in Mar 2012. Excluding EC and landed-units, units sold were mostly flat MoM (-1%) and up 76% YoY to 2,363 units - keeping up the rapid pace of sales from Feb 2012. The take-up rate continued to be healthy at 94%, coming down somewhat from 110% last month.
Still a mass-market and mid-tier story
Sales in the mass-market segment (OCR) kept up its momentum for a third month with 1,798 units sold (1,801 in Feb 12). Mid-tier segment sales (RCR) were maintained at 510 units in Mar 12 (524 units sold in Feb 12). A new OCR launch at Ripple Bay (Pasir Ris) put in a solid performance with 369 units sold (out of 728 total units). We also saw healthy sales in previously launched projects such as The Minton and Riverside Residences with ~100 units sold each.
Buyer sentiments further consolidate
We continue to witness broad-based buyer demand across the market underpinned by ample liquidity and buoyant buyer sentiment. In our view, buyers sidelined by the Dec 2011 ABSB curbs likely re-entered the market after witnessing the strong bounce in new home sales over Jan-Feb 12. With ample liquidity and strong HDB resale prices, we expect healthy sales momentum in 1H12, barring additional policy curbs.
Cautious of additional property curbs
Given the torrid sales momentum after ABSD measures only in Dec 2011, we remain cautious of additional property curbs. Moreover, we continue to be wary of possible macro-economic headwinds going forward given residual uncertainty in Europe. Maintain NEUTRAL on residential developers. Our top property picks are CapitaMalls Asia [FV: S$1.79, BUY] and CapitaLand [FV: S$3.40, BUY]. We have a SELL rating on City Developments [FV: S$8.92, SELL].
URA data yesterday showed 3,032 new private residential homes (including 639 EC units) sold in Mar 2012. Excluding EC and landed-units, new home sales were mostly flat MoM and up 76% YoY to 2,363 units - keeping up the rapid pace from Feb 2012. The take-up rate continued to be healthy at 94%, coming down somewhat from 110% last month. We continue to witness broad-based buyer demand across the market underpinned by ample liquidity and buoyant buyer sentiment, but remain cautious of additional curbs given the rapid sales pickup after ABSD measures only in Dec 2011. Moreover, we continue to be wary of potential macro-economic headwinds going forward given residual uncertainty in Europe. We maintain a NEUTRAL stance on residential developers. Our top property picks are CMA [FV: S$1.79, BUY] and CAPL [FV: S$3.40, BUY]. We have a SELL rating on CDL [FV: S$8.92].
Momentum carries into Mar 2012
A headline total of 3,032 new private residential homes (including 639 EC units) were sold in Mar 2012. Excluding EC and landed-units, units sold were mostly flat MoM (-1%) and up 76% YoY to 2,363 units - keeping up the rapid pace of sales from Feb 2012. The take-up rate continued to be healthy at 94%, coming down somewhat from 110% last month.
Still a mass-market and mid-tier story
Sales in the mass-market segment (OCR) kept up its momentum for a third month with 1,798 units sold (1,801 in Feb 12). Mid-tier segment sales (RCR) were maintained at 510 units in Mar 12 (524 units sold in Feb 12). A new OCR launch at Ripple Bay (Pasir Ris) put in a solid performance with 369 units sold (out of 728 total units). We also saw healthy sales in previously launched projects such as The Minton and Riverside Residences with ~100 units sold each.
Buyer sentiments further consolidate
We continue to witness broad-based buyer demand across the market underpinned by ample liquidity and buoyant buyer sentiment. In our view, buyers sidelined by the Dec 2011 ABSB curbs likely re-entered the market after witnessing the strong bounce in new home sales over Jan-Feb 12. With ample liquidity and strong HDB resale prices, we expect healthy sales momentum in 1H12, barring additional policy curbs.
Cautious of additional property curbs
Given the torrid sales momentum after ABSD measures only in Dec 2011, we remain cautious of additional property curbs. Moreover, we continue to be wary of possible macro-economic headwinds going forward given residual uncertainty in Europe. Maintain NEUTRAL on residential developers. Our top property picks are CapitaMalls Asia [FV: S$1.79, BUY] and CapitaLand [FV: S$3.40, BUY]. We have a SELL rating on City Developments [FV: S$8.92, SELL].
M1
OCBC on 17 Apr 2012
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate. For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and keeps capex guidance of S$110-130m. While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.
1Q12 results mostly in line
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate.
Modest margin improvement
As expected, the dip in margins in 4Q11 was largely seasonal (also due to higher-than-expected sale of the new iPhone 4S). In 1Q12, service EBITDA margin recovered to 40.1% from 39.2% in 4Q11, although still lower than 3Q11’s 42.1%. Management believes that once it reaches economies of scale for its fixed services (where it added another 7k new fiber broadband customers), margins should continue to improve. Meanwhile, post-paid acquisition eased slightly to S$363/subscriber from S$423 in 4Q11; but cost could remain elevated given that more subscribers are moving towards smartphones (now 60% of subscribers are smartphone users).
Stable financial guidance for 2012
For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and also keeps capex guidance of S$110-130m. Management also expects the growth momentum for mobile data and fixed services revenue to continue for the rest of 2012; and believes it is well placed to capture this growth with the completion of its LTE network rollout in 2H12 and also the nationwide coverage and increased awareness of NBN. However, M1 did note that the pace of the NBN rollout is still below its expectation.
Maintain BUY with S$2.81 fair value
While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate. For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and keeps capex guidance of S$110-130m. While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.
1Q12 results mostly in line
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate.
Modest margin improvement
As expected, the dip in margins in 4Q11 was largely seasonal (also due to higher-than-expected sale of the new iPhone 4S). In 1Q12, service EBITDA margin recovered to 40.1% from 39.2% in 4Q11, although still lower than 3Q11’s 42.1%. Management believes that once it reaches economies of scale for its fixed services (where it added another 7k new fiber broadband customers), margins should continue to improve. Meanwhile, post-paid acquisition eased slightly to S$363/subscriber from S$423 in 4Q11; but cost could remain elevated given that more subscribers are moving towards smartphones (now 60% of subscribers are smartphone users).
Stable financial guidance for 2012
For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and also keeps capex guidance of S$110-130m. Management also expects the growth momentum for mobile data and fixed services revenue to continue for the rest of 2012; and believes it is well placed to capture this growth with the completion of its LTE network rollout in 2H12 and also the nationwide coverage and increased awareness of NBN. However, M1 did note that the pace of the NBN rollout is still below its expectation.
Maintain BUY with S$2.81 fair value
While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.
Singapore Press Holding
OCBC on 17 Apr 2012
Singapore Press Holdings’ (SPH) 2QFY12 PATMI came in at S$83.9m, or 5 S-cents per share, which was 16% higher YoY. 1HFY12 PATMI now make up 46% of our full year forecast, falling short mainly due to lower investment income. 2QFY12 topline was S$298.5m - in-line with our expectations - and making up 50% of our full year forecast. An interim dividend of 7 S-cents was declared. We continue to view SPH favorably as it continues to ramp up on its retail mall strategy - a stable counterweight to its print business going forward. Group investible funds currently stand at S$0.9bn, which points to sufficient capacity for further allocation into its retail strategy ahead. Maintain BUY with a higher fair value estimate of S$4.05 (versus S$3.99 previously) mostly due to stronger assumptions for Clementi Mall.
2QFY12 results mostly within expectations
Singapore Press Holdings’ (SPH) 2QFY12 PATMI came in at S$83.9m, or 5 S-cents per share, which was 16% higher YoY. Recurring income (before income from investments and associates) for the quarter was S$90.1m – up 14% YoY mostly due to Clementi Mall’s contributions. 1HFY12 PATMI now make up 46% of our full year forecast, falling short mainly due to lower investment income. 2QFY12 topline was S$298.5m - in-line with our expectations - and making up 50% of our full year forecast. An interim dividend of 7 S-cents was declared.
Pressure from falling recruitment ad demand
1HFY12 print advertisement and circulation revenues were both marginally lower YoY (down 0.3% and 1.4% respectively), with pressure coming mainly from lower demand for recruitment ads and lower circulation. Average staff headcount in 1HFY12 increased 3.7% to 4,228. However, staff costs were mostly flat at S$178.3m (up 0.6% YoY) as bonuses (pegged to profitability benchmarks) decreased. Newsprint costs were stable in 2QFY12 at US$690/MT versus S$$691 the previous quarter.
Another strong quarter from retail malls
We saw another strong quarter from retail landlord operations. Paragon revenue in 1HFY12 increased 2.2% (S$1.6m) due to positive rental reversions. The Clementi Mall also took in S$18.2m in rental income; it is currently 100% leased with daily foot traffic around 60k. Management indicates that development plans for its new commercial development in Sengkang (70:30 JV with United Engineers Limited) is proceeding as planned and is expected to have a maximum GFA of ~284k sq ft. Completion is expected within four years.
Maintain BUY
We continue to view SPH favorably as it continues to ramp up on its retail mall strategy, which would constitute a stable counterweight to its print business going forward. We note that group investible funds currently stand at S$0.9bn, which points to sufficient capacity for further allocation into its retail strategy ahead. Maintain BUY with a higher fair value estimate of S$4.05 (versus S$3.99 previously) mostly due to stronger assumptions for Clementi Mall.
Singapore Press Holdings’ (SPH) 2QFY12 PATMI came in at S$83.9m, or 5 S-cents per share, which was 16% higher YoY. 1HFY12 PATMI now make up 46% of our full year forecast, falling short mainly due to lower investment income. 2QFY12 topline was S$298.5m - in-line with our expectations - and making up 50% of our full year forecast. An interim dividend of 7 S-cents was declared. We continue to view SPH favorably as it continues to ramp up on its retail mall strategy - a stable counterweight to its print business going forward. Group investible funds currently stand at S$0.9bn, which points to sufficient capacity for further allocation into its retail strategy ahead. Maintain BUY with a higher fair value estimate of S$4.05 (versus S$3.99 previously) mostly due to stronger assumptions for Clementi Mall.
2QFY12 results mostly within expectations
Singapore Press Holdings’ (SPH) 2QFY12 PATMI came in at S$83.9m, or 5 S-cents per share, which was 16% higher YoY. Recurring income (before income from investments and associates) for the quarter was S$90.1m – up 14% YoY mostly due to Clementi Mall’s contributions. 1HFY12 PATMI now make up 46% of our full year forecast, falling short mainly due to lower investment income. 2QFY12 topline was S$298.5m - in-line with our expectations - and making up 50% of our full year forecast. An interim dividend of 7 S-cents was declared.
Pressure from falling recruitment ad demand
1HFY12 print advertisement and circulation revenues were both marginally lower YoY (down 0.3% and 1.4% respectively), with pressure coming mainly from lower demand for recruitment ads and lower circulation. Average staff headcount in 1HFY12 increased 3.7% to 4,228. However, staff costs were mostly flat at S$178.3m (up 0.6% YoY) as bonuses (pegged to profitability benchmarks) decreased. Newsprint costs were stable in 2QFY12 at US$690/MT versus S$$691 the previous quarter.
Another strong quarter from retail malls
We saw another strong quarter from retail landlord operations. Paragon revenue in 1HFY12 increased 2.2% (S$1.6m) due to positive rental reversions. The Clementi Mall also took in S$18.2m in rental income; it is currently 100% leased with daily foot traffic around 60k. Management indicates that development plans for its new commercial development in Sengkang (70:30 JV with United Engineers Limited) is proceeding as planned and is expected to have a maximum GFA of ~284k sq ft. Completion is expected within four years.
Maintain BUY
We continue to view SPH favorably as it continues to ramp up on its retail mall strategy, which would constitute a stable counterweight to its print business going forward. We note that group investible funds currently stand at S$0.9bn, which points to sufficient capacity for further allocation into its retail strategy ahead. Maintain BUY with a higher fair value estimate of S$4.05 (versus S$3.99 previously) mostly due to stronger assumptions for Clementi Mall.
Monday 16 April 2012
ST Engineering
OCBC on 16 Apr 2012
ST Engineering (STE) announced that its aerospace arm has secured a total of ~$540m worth of contracts in 1Q12. Together with its recent announcements, STE has announced a total of ~S$1.5b worth of new orders in 1Q12, including ~S$100m of new contracts secured by its electronics segment and a ~S$880m contract to build four patrol vessels for the Royal Navy of Oman. With the contract wins in 1Q12, STE’s robust S$12.3b order book at end-FY11 has likely grown further by end-1Q12. Also, the contract with the Royal Navy of Oman should restore investors’ confidence in STE’s defence sales. STE’s recent strong flow of new orders should improve sentiments on its shares. Thus, we maintain our BUY rating on STE with a new fair value of S$3.50/share, from S$3.32/share previously.
ST Aerospace won $540m of new contracts
ST Engineering (STE) announced that its aerospace arm, ST Aerospace, has secured a total of ~$540m worth of contracts in 1Q12. STE added that these contracts are to be carried out at its maintenance, repair and overhaul (MRO) locations around the world. Also included in the new contacts are passenger-to-freighter conversions of 15 Boeing 757-200 aircraft.
S$1.5b of new orders in 1Q12
Together with its recent announcements, STE has announced a total of ~S$1.5b worth of new orders in 1Q12. STE earlier reported that in 1Q12, its electronics segment won a total of ~S$100m of new contracts while its marine arm was awarded a contract worth €534.8m (~S$880m) to build four patrol vessels for the Royal Navy of Oman. With the strong order flow in 1Q12, STE’s robust S$12.3b order book at the end of FY11 has likely grown further by end-1Q12.
Restores investors’ confidence in defence sales
The ~S$880m contract to build patrol vessels for the Royal Navy of Oman, in particular, should restore investors’ confidence in STE’s defence sales. This comes after news reports of the Indian Ministry of Defence blacklisting six defence firms, including STE’s subsidiary ST Kinetics (STK), from doing business in India over the next 10 years. Furthermore, STE has vigorously maintained its innocence of any wrongdoing resulting in this disbarment.
Maintain BUY with higher fair value of $3.50
STE’s recent strong flow of new orders should improve sentiments on its shares. Thus, we assigned a higher P/E multiple of 20x, from 19x previously, to its EPS over the next four quarters and derived a new fair value of S$3.50/share, from S$3.32/share previously. We maintain our BUY rating on STE.
ST Engineering (STE) announced that its aerospace arm has secured a total of ~$540m worth of contracts in 1Q12. Together with its recent announcements, STE has announced a total of ~S$1.5b worth of new orders in 1Q12, including ~S$100m of new contracts secured by its electronics segment and a ~S$880m contract to build four patrol vessels for the Royal Navy of Oman. With the contract wins in 1Q12, STE’s robust S$12.3b order book at end-FY11 has likely grown further by end-1Q12. Also, the contract with the Royal Navy of Oman should restore investors’ confidence in STE’s defence sales. STE’s recent strong flow of new orders should improve sentiments on its shares. Thus, we maintain our BUY rating on STE with a new fair value of S$3.50/share, from S$3.32/share previously.
ST Aerospace won $540m of new contracts
ST Engineering (STE) announced that its aerospace arm, ST Aerospace, has secured a total of ~$540m worth of contracts in 1Q12. STE added that these contracts are to be carried out at its maintenance, repair and overhaul (MRO) locations around the world. Also included in the new contacts are passenger-to-freighter conversions of 15 Boeing 757-200 aircraft.
S$1.5b of new orders in 1Q12
Together with its recent announcements, STE has announced a total of ~S$1.5b worth of new orders in 1Q12. STE earlier reported that in 1Q12, its electronics segment won a total of ~S$100m of new contracts while its marine arm was awarded a contract worth €534.8m (~S$880m) to build four patrol vessels for the Royal Navy of Oman. With the strong order flow in 1Q12, STE’s robust S$12.3b order book at the end of FY11 has likely grown further by end-1Q12.
Restores investors’ confidence in defence sales
The ~S$880m contract to build patrol vessels for the Royal Navy of Oman, in particular, should restore investors’ confidence in STE’s defence sales. This comes after news reports of the Indian Ministry of Defence blacklisting six defence firms, including STE’s subsidiary ST Kinetics (STK), from doing business in India over the next 10 years. Furthermore, STE has vigorously maintained its innocence of any wrongdoing resulting in this disbarment.
Maintain BUY with higher fair value of $3.50
STE’s recent strong flow of new orders should improve sentiments on its shares. Thus, we assigned a higher P/E multiple of 20x, from 19x previously, to its EPS over the next four quarters and derived a new fair value of S$3.50/share, from S$3.32/share previously. We maintain our BUY rating on STE.
Genting SP
OCBC on 16 Apr 2012
Genting Singapore (GS) is offering up to S$500m worth of perpetual subordinated capital securities for retail investors at 5.125% per annum; this following the very well-received issue of similar securities to institutional investors last month. While the securities are perpetual, we believe that GS has the ability to redeem them, given its strong cashflow generating business; it also has the incentive should the interest rate environment stays low. Meanwhile the presence of a dividend stopper feature should help allay fears of any potential deferment in interest payments. We are generally positive on the issuance as it will further boost GS’s growing cash hoard for potential overseas investments, potentially via acquisitions or Greenfield projects in Japan or South Korea. As such, we maintain our BUY rating and S$2.02 fair value.
Issuing up to S$500m of perpetual securities
Genting Singapore (GS) is offering up to S$500m worth of perpetual subordinated capital securities for retail investors; this may be increased by another S$200m in the event of over-subscription. Issued in denominations of S$1,000 each (minimum subscription of S$5,000), the securities will pay a distribution rate of 5.125% per annum (cumulative; payable twice a year on 18 Apr and 18 Oct); and this rate will increase to 6.125% per annum if the securities are not redeemed on 18 Oct 2022.
Why perpetual securities?
First is the ability to treat the perpetual as “equity”, which would not only increase its NTA (and overall balance sheet strength), but also not lead to deterioration in its net gearing ratio. But most importantly, the perpetual offers GS flexibility in managing its financials, given that the perpetual is callable after 5.5 years on every interest payment date.
Ability to redeem is strong
We believe that GS has the ability to redeem the perpetual, as RWS is likely to be free of debt in 2017; and it should be able to generate some S$1.2b of free cashflow per year. And should the interest rate environment remains low, GS will also have the incentive to redeem the perpetual. Meanwhile, concerns of GS deferring interest payment are likely overdone, given that the perpetual comes with a dividend stopper feature i.e. GS cannot pay dividends if the interest payments are not made. Since GS has already started to pay dividend last year, it is likely to want to continue paying dividends.
Maintain BUY with S$2.02 fair value
We are generally positive on the issuance as it will further boost GS’s growing cash hoard for potential overseas investments, potentially via acquisitions or Greenfield projects in Japan or South Korea. As such, we maintain our BUY rating and S$2.02 fair value.
Genting Singapore (GS) is offering up to S$500m worth of perpetual subordinated capital securities for retail investors at 5.125% per annum; this following the very well-received issue of similar securities to institutional investors last month. While the securities are perpetual, we believe that GS has the ability to redeem them, given its strong cashflow generating business; it also has the incentive should the interest rate environment stays low. Meanwhile the presence of a dividend stopper feature should help allay fears of any potential deferment in interest payments. We are generally positive on the issuance as it will further boost GS’s growing cash hoard for potential overseas investments, potentially via acquisitions or Greenfield projects in Japan or South Korea. As such, we maintain our BUY rating and S$2.02 fair value.
Issuing up to S$500m of perpetual securities
Genting Singapore (GS) is offering up to S$500m worth of perpetual subordinated capital securities for retail investors; this may be increased by another S$200m in the event of over-subscription. Issued in denominations of S$1,000 each (minimum subscription of S$5,000), the securities will pay a distribution rate of 5.125% per annum (cumulative; payable twice a year on 18 Apr and 18 Oct); and this rate will increase to 6.125% per annum if the securities are not redeemed on 18 Oct 2022.
Why perpetual securities?
First is the ability to treat the perpetual as “equity”, which would not only increase its NTA (and overall balance sheet strength), but also not lead to deterioration in its net gearing ratio. But most importantly, the perpetual offers GS flexibility in managing its financials, given that the perpetual is callable after 5.5 years on every interest payment date.
Ability to redeem is strong
We believe that GS has the ability to redeem the perpetual, as RWS is likely to be free of debt in 2017; and it should be able to generate some S$1.2b of free cashflow per year. And should the interest rate environment remains low, GS will also have the incentive to redeem the perpetual. Meanwhile, concerns of GS deferring interest payment are likely overdone, given that the perpetual comes with a dividend stopper feature i.e. GS cannot pay dividends if the interest payments are not made. Since GS has already started to pay dividend last year, it is likely to want to continue paying dividends.
Maintain BUY with S$2.02 fair value
We are generally positive on the issuance as it will further boost GS’s growing cash hoard for potential overseas investments, potentially via acquisitions or Greenfield projects in Japan or South Korea. As such, we maintain our BUY rating and S$2.02 fair value.
Technics Oil & Gas
Kim Eng on 16 Apr 2012
Background: Technics Oil & Gas is a full-service integrator of compression systems and process modules for the global offshore oil and gas sector. It designs and fabricates modules that are integrated to form the operating systems in offshore production. The company operates a yard each in Singapore and Batam. Set up in 1990, it was listed since April 2003 and upgraded to the main board in January 2008.
Recent developments: Technics reported a strong set of results for 1HFY Sep12, with NPAT growing by 60% YoY to $12.5m. The second quarter outshone the first, accounting for $8.3m of 1HFY Sep12 NPAT.
Increased E&P activities a boon. E&P spending worldwide is expected to increase by about 10% YoY in 2012, which should provide Technics with more contract opportunities. The company has an outstanding orderbook of about $95.5m and is vying for projects in the region worth about $260m.
Spin off subsidiaries for better valuation. Technics intends to spin off two of its subsidiaries, Norr Systems and Wecom Engineering, for a separate listing on the Gretai Securities Market of Taiwan. Both are in the contract engineering segment. Technics believes that it can get a better valuation through the listing, which is expected to take place in 1H13.
Strong dividends. The past two years saw high dividend payouts from Technics. For FY Sep12, it guided for a final dividend per share of 8 cents, which would translate to an attractive yield of 8.8%.
On track for another record year. Given its current performance, stable contract pipeline and healthy enquiry levels, Technics looks set to achieve record profits yet again in FY Sep12. Consensus forecasts put its full-year net profit at $21.4m, which implies a FY Sep12F PER of 8.6x.
Background: Technics Oil & Gas is a full-service integrator of compression systems and process modules for the global offshore oil and gas sector. It designs and fabricates modules that are integrated to form the operating systems in offshore production. The company operates a yard each in Singapore and Batam. Set up in 1990, it was listed since April 2003 and upgraded to the main board in January 2008.
Recent developments: Technics reported a strong set of results for 1HFY Sep12, with NPAT growing by 60% YoY to $12.5m. The second quarter outshone the first, accounting for $8.3m of 1HFY Sep12 NPAT.
Increased E&P activities a boon. E&P spending worldwide is expected to increase by about 10% YoY in 2012, which should provide Technics with more contract opportunities. The company has an outstanding orderbook of about $95.5m and is vying for projects in the region worth about $260m.
Spin off subsidiaries for better valuation. Technics intends to spin off two of its subsidiaries, Norr Systems and Wecom Engineering, for a separate listing on the Gretai Securities Market of Taiwan. Both are in the contract engineering segment. Technics believes that it can get a better valuation through the listing, which is expected to take place in 1H13.
Strong dividends. The past two years saw high dividend payouts from Technics. For FY Sep12, it guided for a final dividend per share of 8 cents, which would translate to an attractive yield of 8.8%.
On track for another record year. Given its current performance, stable contract pipeline and healthy enquiry levels, Technics looks set to achieve record profits yet again in FY Sep12. Consensus forecasts put its full-year net profit at $21.4m, which implies a FY Sep12F PER of 8.6x.
CapitaMall Trust
Kim Eng on 16 Apr 2012
Always forward-looking. CapitaMall Trust (CMT) has a proven track record of delivering consistent growth in distributable income and the next three years could be even more rewarding for investors. This year alone, it will complete its asset enhancement initiatives (AEIs) at four properties. CMT is rated Buy for its active lease management, proactive asset enhancements for organic DPU growth and potential upside of 22%. The company will release its 1Q12 results on Wednesday.
Harvesting rewards. JCube recently reopened, making it the only shopping mall in Singapore with an Olympic-size ice skating rink. For the rest of this year, CMT will conclude its AEIs at Iluma, Clarke Quay and The Atrium@Orchard. Together with the normal rental reversions, we forecast a DPU growth of 15.7% over a two-year period, resulting in a decent DPU yield of about 6% in FY13F.
Retail assets to remain resilient. CMT’s malls have consistently enjoyed healthy occupancy rates in excess of 99%, unless they are undergoing AEIs. With over 70% of its portfolio catering to necessity shopping, CMT’s underlying distributions should remain defensive even if domestic economic growth were to slow to sub-3% pa. As of 2011, the occupancy costs for CMT’s tenants stood at a comfortable 16%, lower than the comparables in Australia and New Zealand.
Acquisitions not on the radar. Last year, CMT acquired Iluma and a 30% stake in the upcoming Westgate. In our view, acquisitions are unlikely this year as the company reels in the rewards from the abovementioned AEIs. Timing aside, we reckon that first on its to-buy list will be CapitaMalls Asia’s 50% stake in the iconic ION Orchard, which we value at $1.45b (or $4,500 psf NLA). At 50% LTV, we estimate that such an acquisition could take CMT’s gearing to about 43% – not ideal, but still fairly comfortable.
More exciting than it looks. While CMT is recognised for its defensive nature, we believe that its DPU growth prospects over the next two years will continue to warrant a Buy call. Our DDM-derived target price of $2.20 suggests an attractive 22% upside potential.
Always forward-looking. CapitaMall Trust (CMT) has a proven track record of delivering consistent growth in distributable income and the next three years could be even more rewarding for investors. This year alone, it will complete its asset enhancement initiatives (AEIs) at four properties. CMT is rated Buy for its active lease management, proactive asset enhancements for organic DPU growth and potential upside of 22%. The company will release its 1Q12 results on Wednesday.
Harvesting rewards. JCube recently reopened, making it the only shopping mall in Singapore with an Olympic-size ice skating rink. For the rest of this year, CMT will conclude its AEIs at Iluma, Clarke Quay and The Atrium@Orchard. Together with the normal rental reversions, we forecast a DPU growth of 15.7% over a two-year period, resulting in a decent DPU yield of about 6% in FY13F.
Retail assets to remain resilient. CMT’s malls have consistently enjoyed healthy occupancy rates in excess of 99%, unless they are undergoing AEIs. With over 70% of its portfolio catering to necessity shopping, CMT’s underlying distributions should remain defensive even if domestic economic growth were to slow to sub-3% pa. As of 2011, the occupancy costs for CMT’s tenants stood at a comfortable 16%, lower than the comparables in Australia and New Zealand.
Acquisitions not on the radar. Last year, CMT acquired Iluma and a 30% stake in the upcoming Westgate. In our view, acquisitions are unlikely this year as the company reels in the rewards from the abovementioned AEIs. Timing aside, we reckon that first on its to-buy list will be CapitaMalls Asia’s 50% stake in the iconic ION Orchard, which we value at $1.45b (or $4,500 psf NLA). At 50% LTV, we estimate that such an acquisition could take CMT’s gearing to about 43% – not ideal, but still fairly comfortable.
More exciting than it looks. While CMT is recognised for its defensive nature, we believe that its DPU growth prospects over the next two years will continue to warrant a Buy call. Our DDM-derived target price of $2.20 suggests an attractive 22% upside potential.
Genting SP
Kim Eng on 16 Apr
More upbeat. Resorts World Sentosa’s (RWS) VIP volume likely troughed in 4Q11 but will recover going forward. The two new junkets may not add greatly to VIP volume but more and larger junkets may be approved next year. The S$2.5b of perpetual bonds (PBs) may be for a Mongolian casino soon. We trim our earnings estimates by 22-24% to account for lower VIP volume and the PBs. Maintain Buy on Genting Singapore (GENS) with the TP cut by 5% to S$2.00.
1Q12 VIP volume to be poor before recovering. We discovered that the Singapore VIP volume, and hence, gross gaming revenue (GGR), could be correlated to the PMI with one quarter lag. This implies that the Singapore VIP volume troughed in 4Q11 and would revert to YoY growth from 2Q12 onwards. Recovery will be aided by the 194-room Equarius Hotel and Beach Villas, which opened in February and boosted RWS’s VIP room inventory by threefold.
Junkets unlikely to be meaningful this year. Our channel checks indicated a lack of enthusiasm for the two new junkets, as many of their clients are ASEAN-based and overlap with RWS’s. Mr Huang may have a Macau junket licence, but his presence there is small. We are told that there were large Macau junkets in the 12 rejected applications and they will reapply next year with more disclosures and transparency.
Mongolia first? After issuing S$1.8b in PBs on 12 March, GENS intends to issue another S$500-700m in PBs at a similar rate of 5.125% on 18 April. We are told that they are for a Mongolian casino. GENS incorporated four Mongolian companies in 4Q11. It also said during its 4Q11 earnings call that it was studying investments of USD0.5-4b. Interestingly, the second offer of PBs will likely raise about USD500m.
Buy with TP cut to S$2.00 (-5%). We trim our EBITDA estimates by 11-12% to account for flat VIP volume this year and core net profit estimates by 22-24% to account for S$2.5b in PBs. Our DCF-based TP of S$2.00 is only 5% lower vis-Ã -vis our EBITDA estimates as we now assume recurring capex of S$150-200m pa (S$300m pa previously).
More upbeat. Resorts World Sentosa’s (RWS) VIP volume likely troughed in 4Q11 but will recover going forward. The two new junkets may not add greatly to VIP volume but more and larger junkets may be approved next year. The S$2.5b of perpetual bonds (PBs) may be for a Mongolian casino soon. We trim our earnings estimates by 22-24% to account for lower VIP volume and the PBs. Maintain Buy on Genting Singapore (GENS) with the TP cut by 5% to S$2.00.
1Q12 VIP volume to be poor before recovering. We discovered that the Singapore VIP volume, and hence, gross gaming revenue (GGR), could be correlated to the PMI with one quarter lag. This implies that the Singapore VIP volume troughed in 4Q11 and would revert to YoY growth from 2Q12 onwards. Recovery will be aided by the 194-room Equarius Hotel and Beach Villas, which opened in February and boosted RWS’s VIP room inventory by threefold.
Junkets unlikely to be meaningful this year. Our channel checks indicated a lack of enthusiasm for the two new junkets, as many of their clients are ASEAN-based and overlap with RWS’s. Mr Huang may have a Macau junket licence, but his presence there is small. We are told that there were large Macau junkets in the 12 rejected applications and they will reapply next year with more disclosures and transparency.
Mongolia first? After issuing S$1.8b in PBs on 12 March, GENS intends to issue another S$500-700m in PBs at a similar rate of 5.125% on 18 April. We are told that they are for a Mongolian casino. GENS incorporated four Mongolian companies in 4Q11. It also said during its 4Q11 earnings call that it was studying investments of USD0.5-4b. Interestingly, the second offer of PBs will likely raise about USD500m.
Buy with TP cut to S$2.00 (-5%). We trim our EBITDA estimates by 11-12% to account for flat VIP volume this year and core net profit estimates by 22-24% to account for S$2.5b in PBs. Our DCF-based TP of S$2.00 is only 5% lower vis-Ã -vis our EBITDA estimates as we now assume recurring capex of S$150-200m pa (S$300m pa previously).
Friday 13 April 2012
Keppel Corporation
OCBC on 13 Apr 2012
Keppel Corporation (KEP) announced that its offshore and marine arm has signed a letter of intent with Sete Brasil for the design and construction of five additional semisubmersible rigs worth approximately US$4.12b. If exercised, which we think is highly likely, KEP would have secured S$6.2b worth of new orders this year vs last year’s S$9.8b wins. Though the market has been expecting Petrobras to award rigs from its 28-rig tender with KEP as a frontrunner, this announcement adds more certainty to the final award, which may be within two months. Meanwhile, we increase our FY12 new order win estimate to S$10.2b (including Petrobras orders) and update the market values of KEP’s listed entities. As such, our SOTP-based fair value estimate increases to S$13.38 (prev. S$12.27). Maintain BUY.
Secures LOI worth about US$4.12b from Sete Brasil
Keppel Corporation (KEP) announced that its offshore and marine arm has signed a letter of intent with Sete Brasil for the design and construction of five additional semisubmersible rigs based on Keppel’s proprietary DSS 38E design. The total value of the contracts, if and when agreed and executed, is approximately US$4.12b. This translates to about US$824m per unit.
Substantial addition to order book, if LOI is exercised
These five rigs are in addition to the semisubmersible unit that KEP secured from Sete Brasil in Dec last year (recall that the contract price was US$809m), and if turned effective, bring the group’s total new order win this year to S$6.2b (includes Floatel LOI) vs last year’s full year wins of S$9.8b. However, the impact on FY12 earnings is likely to be limited given that the execution period may extend over several years.
Not a surprise, but still a positive development
Sete Brasil’s CEO attributes KEP’s strong track record in the design and construction of deepwater rigs, as well the rigbuilder’s established yard in Brazil for the award of the LOI. Though the market has been expecting Petrobras to award rigs from its 28-rig tender with KEP as a frontrunner, this announcement adds more certainty to the final award, which is important as it will boost KEP’s order book and extend earnings visibility. Hence we expect the stock to react positively to this news.
Reiterate BUY; up fair value estimate to S$13.38
After the LOI announcement, the market will be waiting for more details such as the delivery schedule of each rig, after the contracts are signed. According to Bloomberg, a final agreement may be reached within two months. Meanwhile, the spread between KEP and Sembcorp Marine has been increasing since we switched our preference to the former in late Feb. We increase KEP’s new order win estimate to S$10.2b (including Petrobras orders) for FY12 and update the market values of KEP’s listed entities. As such, our SOTP-based fair value estimate increases to S$13.38 (prev. S$12.27). Maintain BUY.
Keppel Corporation (KEP) announced that its offshore and marine arm has signed a letter of intent with Sete Brasil for the design and construction of five additional semisubmersible rigs worth approximately US$4.12b. If exercised, which we think is highly likely, KEP would have secured S$6.2b worth of new orders this year vs last year’s S$9.8b wins. Though the market has been expecting Petrobras to award rigs from its 28-rig tender with KEP as a frontrunner, this announcement adds more certainty to the final award, which may be within two months. Meanwhile, we increase our FY12 new order win estimate to S$10.2b (including Petrobras orders) and update the market values of KEP’s listed entities. As such, our SOTP-based fair value estimate increases to S$13.38 (prev. S$12.27). Maintain BUY.
Secures LOI worth about US$4.12b from Sete Brasil
Keppel Corporation (KEP) announced that its offshore and marine arm has signed a letter of intent with Sete Brasil for the design and construction of five additional semisubmersible rigs based on Keppel’s proprietary DSS 38E design. The total value of the contracts, if and when agreed and executed, is approximately US$4.12b. This translates to about US$824m per unit.
Substantial addition to order book, if LOI is exercised
These five rigs are in addition to the semisubmersible unit that KEP secured from Sete Brasil in Dec last year (recall that the contract price was US$809m), and if turned effective, bring the group’s total new order win this year to S$6.2b (includes Floatel LOI) vs last year’s full year wins of S$9.8b. However, the impact on FY12 earnings is likely to be limited given that the execution period may extend over several years.
Not a surprise, but still a positive development
Sete Brasil’s CEO attributes KEP’s strong track record in the design and construction of deepwater rigs, as well the rigbuilder’s established yard in Brazil for the award of the LOI. Though the market has been expecting Petrobras to award rigs from its 28-rig tender with KEP as a frontrunner, this announcement adds more certainty to the final award, which is important as it will boost KEP’s order book and extend earnings visibility. Hence we expect the stock to react positively to this news.
Reiterate BUY; up fair value estimate to S$13.38
After the LOI announcement, the market will be waiting for more details such as the delivery schedule of each rig, after the contracts are signed. According to Bloomberg, a final agreement may be reached within two months. Meanwhile, the spread between KEP and Sembcorp Marine has been increasing since we switched our preference to the former in late Feb. We increase KEP’s new order win estimate to S$10.2b (including Petrobras orders) for FY12 and update the market values of KEP’s listed entities. As such, our SOTP-based fair value estimate increases to S$13.38 (prev. S$12.27). Maintain BUY.
Ezra Holdings
OCBC on 13 Apr 2012
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Looking ahead, the group’s subsea vessels should be fully utilised given the strong order book which is in excess of US$1b. Meanwhile, Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). With an upside potential of about 20.6%, we upgrade our rating to BUY.
2QFY12 results were within expectations
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Revenue increased in both the offshore support services and subsea services divisions in 2QFY12, due to contributions from an expanded vessel fleet and better performance from the AMC Group. Marine services, however, saw a slight decline of US$3.4m in turnover due to lower revenue recognized for engineering projects in Vietnam compared to 2QFY11.
Not much surprises on the gross margins side
Offshore support services historically had gross profit margins of 25-30%, and we understand that this was lower at around 20-25% in the last quarter due to some off-hire vessels. As for subsea services, AMC turned in gross profit in 2QFY12, but we estimate a net loss for the quarter. Management is guiding for gross margins of about 12-15% for the subsea segment going forward.
Subsea vessels may be fully utilised in 2HFY12
Management expects that the group’s subsea vessels should be fully utilised in 2HFY12. Barring any hiccups in execution, we estimate that this is likely to be the case for the most of FY13 as well given its strong subsea order book which is in excess of US$1b. Hence looking ahead, the focus would be on execution of projects.
Stock price has declined; upgrade to BUY
Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain and the FTSE Oil and Gas index’s 3.0% rise. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). Given that the stock now has an upside potential of about 20.6%, we upgrade our rating to BUY.
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Looking ahead, the group’s subsea vessels should be fully utilised given the strong order book which is in excess of US$1b. Meanwhile, Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). With an upside potential of about 20.6%, we upgrade our rating to BUY.
2QFY12 results were within expectations
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Revenue increased in both the offshore support services and subsea services divisions in 2QFY12, due to contributions from an expanded vessel fleet and better performance from the AMC Group. Marine services, however, saw a slight decline of US$3.4m in turnover due to lower revenue recognized for engineering projects in Vietnam compared to 2QFY11.
Not much surprises on the gross margins side
Offshore support services historically had gross profit margins of 25-30%, and we understand that this was lower at around 20-25% in the last quarter due to some off-hire vessels. As for subsea services, AMC turned in gross profit in 2QFY12, but we estimate a net loss for the quarter. Management is guiding for gross margins of about 12-15% for the subsea segment going forward.
Subsea vessels may be fully utilised in 2HFY12
Management expects that the group’s subsea vessels should be fully utilised in 2HFY12. Barring any hiccups in execution, we estimate that this is likely to be the case for the most of FY13 as well given its strong subsea order book which is in excess of US$1b. Hence looking ahead, the focus would be on execution of projects.
Stock price has declined; upgrade to BUY
Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain and the FTSE Oil and Gas index’s 3.0% rise. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). Given that the stock now has an upside potential of about 20.6%, we upgrade our rating to BUY.
Sheng Siong
OCBC on 13 Apr 2012
Ahead of Sheng Siong Group’s (SSG) 1Q12 results, we are anticipating a YoY increase in its 1Q12 revenue following additional contributions from more stores and higher sales volumes following the Chinese New Year festivities. In terms of its margins, we expect increased sales turnover over the CNY period and higher rebates from suppliers to overcome sustained price competition amongst the big three local supermarket chains. With SSG’s share price relatively unchanged since the release of its FY11 results, it is our view that the above expectations have been priced in, and the counter should continue to remain stable going forward. As such, with recent market weakness and uncertainty, we reiterate our belief that SSG offers investors downside protection with the addition of an attractive dividend yield (FY12F: 5.8%). Maintain our HOLD rating at an unchanged fair value estimate of S$0.49.
Price consolidation so far
Sheng Siong Group’s (SSG) share price has consolidated around the S$0.48-S$0.50 range since the release of its FY11 results more than a month ago. By comparison, the FTSE STI Index was almost flat over the same period although it experienced greater fluctuations. Given the defensive qualities of SSG and its stable business operations (consumer staples), we view this price consolidation as a trend that will likely continue even after the release of its 1Q12 results around the last week of April.
1Q12 results preview – higher revenues
With Chinese New Year (CNY) in 1Q12, we expect revenue contribution from the quarter to be the highest for the year as supermarkets tend to enjoy peak volumes during this festive period. Furthermore, SSG should record a YoY improvement in 1Q revenues following full quarter contributions from its Woodlands and Thomson stores, as compared to last year’s loss in revenue after the closure of its Ten Mile Junction store locations.
1Q12 results preview – margins to maintain
Although price competition amongst the three big local supermarket chains continued into 2012 due to the early start of the festive period, we expect gross profit margins to at least maintain or improve slightly on a QoQ basis (4Q11: 19.3%) with margin support coming from increased sales turnover over the CNY period and higher rebates from suppliers.
Store expansions on the way
Although no new stores were added in 1Q12, four new stores (Jalan Besar, Geylang and Toa Payoh) are being prepped for operations by the end of 1H12. The new stores will add about 30.3K sf to its overall retail space.
Decent dividend play; maintain HOLD
With no other surprises expected for SSG’s 1Q12 results, we leave our FY12 projections unchanged and maintain our HOLD rating at the same fair value estimate of S$0.49. Given recent market weaknesses, we reiterate our belief that SSG offers a quality, defensive play into domestic consumption demand and downside protection. In addition, with a committed 90% of net profit payout in FY12, SSG presents an attractive dividend play opportunity with an expected yield of about 5.8%.
Ahead of Sheng Siong Group’s (SSG) 1Q12 results, we are anticipating a YoY increase in its 1Q12 revenue following additional contributions from more stores and higher sales volumes following the Chinese New Year festivities. In terms of its margins, we expect increased sales turnover over the CNY period and higher rebates from suppliers to overcome sustained price competition amongst the big three local supermarket chains. With SSG’s share price relatively unchanged since the release of its FY11 results, it is our view that the above expectations have been priced in, and the counter should continue to remain stable going forward. As such, with recent market weakness and uncertainty, we reiterate our belief that SSG offers investors downside protection with the addition of an attractive dividend yield (FY12F: 5.8%). Maintain our HOLD rating at an unchanged fair value estimate of S$0.49.
Price consolidation so far
Sheng Siong Group’s (SSG) share price has consolidated around the S$0.48-S$0.50 range since the release of its FY11 results more than a month ago. By comparison, the FTSE STI Index was almost flat over the same period although it experienced greater fluctuations. Given the defensive qualities of SSG and its stable business operations (consumer staples), we view this price consolidation as a trend that will likely continue even after the release of its 1Q12 results around the last week of April.
1Q12 results preview – higher revenues
With Chinese New Year (CNY) in 1Q12, we expect revenue contribution from the quarter to be the highest for the year as supermarkets tend to enjoy peak volumes during this festive period. Furthermore, SSG should record a YoY improvement in 1Q revenues following full quarter contributions from its Woodlands and Thomson stores, as compared to last year’s loss in revenue after the closure of its Ten Mile Junction store locations.
1Q12 results preview – margins to maintain
Although price competition amongst the three big local supermarket chains continued into 2012 due to the early start of the festive period, we expect gross profit margins to at least maintain or improve slightly on a QoQ basis (4Q11: 19.3%) with margin support coming from increased sales turnover over the CNY period and higher rebates from suppliers.
Store expansions on the way
Although no new stores were added in 1Q12, four new stores (Jalan Besar, Geylang and Toa Payoh) are being prepped for operations by the end of 1H12. The new stores will add about 30.3K sf to its overall retail space.
Decent dividend play; maintain HOLD
With no other surprises expected for SSG’s 1Q12 results, we leave our FY12 projections unchanged and maintain our HOLD rating at the same fair value estimate of S$0.49. Given recent market weaknesses, we reiterate our belief that SSG offers a quality, defensive play into domestic consumption demand and downside protection. In addition, with a committed 90% of net profit payout in FY12, SSG presents an attractive dividend play opportunity with an expected yield of about 5.8%.
TA Corporation
UOBKayhian on 12 Apr 2012
Valuations
· TA Corporation (TA) is currently trading at 3.2x FY11 earnings and 0.7x FY11 P/B. We view that TA should be trading near S$0.33/share, pegged to the sector average PE of 4.1x.
Investment highlights
· TA is an integrated construction and property developer with projects spanning Singapore, China and Cambodia.
· TA has a 40-year track record in the construction business, holding the highest Building & Construction Authority (BCA) A1 grading (general building) contractor which allows unlimited tender value. Some of its customers include Keppel land, Capitaland, Allgreen, Housing Development Board (HDB) and Ministry of Information, Communications and the Arts (MICA). Currently, the group has a construction orderbook of S$526m under its belt, spanning across 34 months.
· TA also undertakes small to medium residential property projects, targeted at the middle and upper middle markets. It has three projects under development in Singapore, namely Parc Seabreeze, Auralis, Coralis and Starlight Suites as well as one development by associate coined Singapore Garden in Dalian, China. On top of these, TA has numerous landbanks across Singapore, China and Cambodia with planned gross floor area (GFA) of 8,484 sqm, 96,398 sqm and 4,977 sqm respectively.
· For 2011, the group’s revenue rose 17.2% to S$284.7m as it recognised revenue from ongoing residential developments such as Parc Seabreeze, Coralis and Auralis. Revenue from construction business rose 11.8% to S$160.2m due to contributions from projects such as Nouvel 18, Viva, Foresque Residences and Starlight Suites. However, net profit was flat at S$35.8m as TA recorded several non-recurring gains and expenses in 2010 and 2011. These include a fair value gain on investment properties and disposal of available for sale investment of S$5.4m and S$3.7m respectively in 2010 and listing expenses of S$2.3m in 2011. TA Corp also declared a first and final dividend of 1.2 S cents, a payout of 20% of net profit, twice the dividend payout recommended in the prospectus.
Our View
· Macroeconomic factors to cause share price overhand The Urban Redevelopment Authority’s (URA) latest flash estimates indicate that private home prices declined by 0.1% qoq in 1Q12, compared with a 0.2% gain in the previous quarter. Prices in the high-end segment declined the most (-0.9% yoy) impacted by the sharp drop in foreign demand followed by the mid-tier segment which saw a price decline of 0.7%. According to our UOB Kay Hian property analyst, prices are likely to weaken by a further 8-10%. Foreign worker levy and higher raw material prices are also likely to erode gross margins for the group.
Valuations
· TA Corporation (TA) is currently trading at 3.2x FY11 earnings and 0.7x FY11 P/B. We view that TA should be trading near S$0.33/share, pegged to the sector average PE of 4.1x.
Investment highlights
· TA is an integrated construction and property developer with projects spanning Singapore, China and Cambodia.
· TA has a 40-year track record in the construction business, holding the highest Building & Construction Authority (BCA) A1 grading (general building) contractor which allows unlimited tender value. Some of its customers include Keppel land, Capitaland, Allgreen, Housing Development Board (HDB) and Ministry of Information, Communications and the Arts (MICA). Currently, the group has a construction orderbook of S$526m under its belt, spanning across 34 months.
· TA also undertakes small to medium residential property projects, targeted at the middle and upper middle markets. It has three projects under development in Singapore, namely Parc Seabreeze, Auralis, Coralis and Starlight Suites as well as one development by associate coined Singapore Garden in Dalian, China. On top of these, TA has numerous landbanks across Singapore, China and Cambodia with planned gross floor area (GFA) of 8,484 sqm, 96,398 sqm and 4,977 sqm respectively.
· For 2011, the group’s revenue rose 17.2% to S$284.7m as it recognised revenue from ongoing residential developments such as Parc Seabreeze, Coralis and Auralis. Revenue from construction business rose 11.8% to S$160.2m due to contributions from projects such as Nouvel 18, Viva, Foresque Residences and Starlight Suites. However, net profit was flat at S$35.8m as TA recorded several non-recurring gains and expenses in 2010 and 2011. These include a fair value gain on investment properties and disposal of available for sale investment of S$5.4m and S$3.7m respectively in 2010 and listing expenses of S$2.3m in 2011. TA Corp also declared a first and final dividend of 1.2 S cents, a payout of 20% of net profit, twice the dividend payout recommended in the prospectus.
Our View
· Macroeconomic factors to cause share price overhand The Urban Redevelopment Authority’s (URA) latest flash estimates indicate that private home prices declined by 0.1% qoq in 1Q12, compared with a 0.2% gain in the previous quarter. Prices in the high-end segment declined the most (-0.9% yoy) impacted by the sharp drop in foreign demand followed by the mid-tier segment which saw a price decline of 0.7%. According to our UOB Kay Hian property analyst, prices are likely to weaken by a further 8-10%. Foreign worker levy and higher raw material prices are also likely to erode gross margins for the group.
FJ Benjamin Holdings
UOBKayhian on 13 Apr 2012
Maintain BUY with a higher target price of S$0.45 (previously S$0.43).
· On expansion mode. FJ Benjamin (FJB) will be looking to add a highly scalable, mass-market fashion label to its brand portfolio this year, targeted at the Indonesian casual wear market. FJB has not acquired a mass-market brand in six years and we believe that this brand acquisition could provide a platform for the group’s next leg of growth. In our view, FJB could grow the brand to 15 stores within 2-years.
· Scaling up Asian business. FJB will continue growing the Asian franchise business organically by increasing its store network by 10-15% annually, focusing on high growth markets in Indonesia andMalaysia. In our view, the group will be able to grow franchising revenue by almost 30% to S$450m within three years. This is excluding contribution from the RAOUL label and new brand additions.
· RAOUL making great strides. The RAOUL label is gaining popularity inHollywood as celebrities such as Jennifer Lawrence, Viola Davis and Kourtney Kardashian were recently spotted wearing RAOUL dresses. In our view, the RAOUL label could grow a few folds to become a S$50m business within three years. Currently, RAOUL only contributes about 5% of the group’s revenue.
· Focus on managing supply chain and inventory. Despite macro-economic uncertainties, FJB expects retail spending growth in Asia to remain resilient, driven by a growing middle class and increasing household income. Nevertheless, the group will adopt conservative measures to improve its supply chain and better manage inventory going forward.
· Beneficiary of tourism growth. FJB is a beneficiary of tourism growth, having a strong portfolio of luxury brands catering to tourist demand which include Celine, Givenchy, Goyard and Girard-Perregaux. The Singapore Tourism Board expects the tourism industry in Singapore to remain robust in 2012 and forecasts tourism receipts to grow 4-8% yoy. Visitor arrivals growth will be driven by the opening of new attractions such as the International Cruise Terminal, Gardens by the Bay and Mandai River Safari.
Earnings Revision
· Increase earnings estimate marginally. We increased our FY13F revenue and net profit forecast by 0.3% and 1.6% respectively, accounting for higher-than-expected same-store-sales growth and margin expansion from better supply chain management.
Valuation
· Maintain BUY with higher target price of S$0.45 (previously S$0.43), implying 32.4% upside from current price. Our target is based on a PEG of 0.6x, in-line with FJB’s Hong Kong and Indonesian retailing peers. Using our projected two-year EPS CAGR (FY11-13F) of 22.0%, we apply a 13.2x PE multiple to our forecasted FY13F EPS of 3.4 S cents.
Maintain BUY with a higher target price of S$0.45 (previously S$0.43).
· On expansion mode. FJ Benjamin (FJB) will be looking to add a highly scalable, mass-market fashion label to its brand portfolio this year, targeted at the Indonesian casual wear market. FJB has not acquired a mass-market brand in six years and we believe that this brand acquisition could provide a platform for the group’s next leg of growth. In our view, FJB could grow the brand to 15 stores within 2-years.
· Scaling up Asian business. FJB will continue growing the Asian franchise business organically by increasing its store network by 10-15% annually, focusing on high growth markets in Indonesia andMalaysia. In our view, the group will be able to grow franchising revenue by almost 30% to S$450m within three years. This is excluding contribution from the RAOUL label and new brand additions.
· RAOUL making great strides. The RAOUL label is gaining popularity inHollywood as celebrities such as Jennifer Lawrence, Viola Davis and Kourtney Kardashian were recently spotted wearing RAOUL dresses. In our view, the RAOUL label could grow a few folds to become a S$50m business within three years. Currently, RAOUL only contributes about 5% of the group’s revenue.
· Focus on managing supply chain and inventory. Despite macro-economic uncertainties, FJB expects retail spending growth in Asia to remain resilient, driven by a growing middle class and increasing household income. Nevertheless, the group will adopt conservative measures to improve its supply chain and better manage inventory going forward.
· Beneficiary of tourism growth. FJB is a beneficiary of tourism growth, having a strong portfolio of luxury brands catering to tourist demand which include Celine, Givenchy, Goyard and Girard-Perregaux. The Singapore Tourism Board expects the tourism industry in Singapore to remain robust in 2012 and forecasts tourism receipts to grow 4-8% yoy. Visitor arrivals growth will be driven by the opening of new attractions such as the International Cruise Terminal, Gardens by the Bay and Mandai River Safari.
Earnings Revision
· Increase earnings estimate marginally. We increased our FY13F revenue and net profit forecast by 0.3% and 1.6% respectively, accounting for higher-than-expected same-store-sales growth and margin expansion from better supply chain management.
Valuation
· Maintain BUY with higher target price of S$0.45 (previously S$0.43), implying 32.4% upside from current price. Our target is based on a PEG of 0.6x, in-line with FJB’s Hong Kong and Indonesian retailing peers. Using our projected two-year EPS CAGR (FY11-13F) of 22.0%, we apply a 13.2x PE multiple to our forecasted FY13F EPS of 3.4 S cents.
Tiong Woon
Kim Eng on 13 Apr 2012
Background: Tiong Woon is an integrated infrastructure service provider with operations in Southeast Asia, China, India and the Middle East. It is also one of the largest crane-owning companies in the world. Its four business segments are Heavy Lift and Haulage (majority of revenue), Marine Transportation, Fabrication and Engineering, and Trading. The company was listed in 1999.
Recent rights issue: Tiong Woon recently completed a 1-for-4 rights issue at S$0.11 per share, which raised about S$10m to support working capital and capex requirements for the business.
Contracted for Tuas desalination plant. Though all the attention was on Hyflux last month for winning the S$890m Tuaspring Desalination Plant project in Singapore, Tiong Woon’s gain as an indirect beneficiary did not go unnoticed. It won a one-year project with Hyflux for associated pipeline works, which should boost its topline for CY2012.
Myanmar opportunities. Riding on the expected boom in Myanmar, Tiong Woon plans to set up a representative office there to prospect for new businesses. This is particularly pertinent after it won a maiden contract with an India-based conglomerate for an infrastructure project in the country in November last year. The contract will see Tiong Woon supplying cranes and providing marine transportation services. This is a good example of the company leveraging on its various capabilities to win projects.
Bottomline still not coming through. In line with the larger project flows, revenue has recovered substantially by 36% in 1HFY Jun12, but the bottomline remains weak. If the company is able to execute more cost-efficiently, as per its stated aim going forward, there may be deep value, with the stock trading at just 0.6x P/BV, considerably lower than its peers.
Background: Tiong Woon is an integrated infrastructure service provider with operations in Southeast Asia, China, India and the Middle East. It is also one of the largest crane-owning companies in the world. Its four business segments are Heavy Lift and Haulage (majority of revenue), Marine Transportation, Fabrication and Engineering, and Trading. The company was listed in 1999.
Recent rights issue: Tiong Woon recently completed a 1-for-4 rights issue at S$0.11 per share, which raised about S$10m to support working capital and capex requirements for the business.
Contracted for Tuas desalination plant. Though all the attention was on Hyflux last month for winning the S$890m Tuaspring Desalination Plant project in Singapore, Tiong Woon’s gain as an indirect beneficiary did not go unnoticed. It won a one-year project with Hyflux for associated pipeline works, which should boost its topline for CY2012.
Myanmar opportunities. Riding on the expected boom in Myanmar, Tiong Woon plans to set up a representative office there to prospect for new businesses. This is particularly pertinent after it won a maiden contract with an India-based conglomerate for an infrastructure project in the country in November last year. The contract will see Tiong Woon supplying cranes and providing marine transportation services. This is a good example of the company leveraging on its various capabilities to win projects.
Bottomline still not coming through. In line with the larger project flows, revenue has recovered substantially by 36% in 1HFY Jun12, but the bottomline remains weak. If the company is able to execute more cost-efficiently, as per its stated aim going forward, there may be deep value, with the stock trading at just 0.6x P/BV, considerably lower than its peers.
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