Thursday 31 July 2014

SMRT Corporation

UOBKayhain on 31 Jul 2014

FY14F PE (x): 26.6
FY15F PE (x): 20.1
No surprises in 1QFY15. 1Q15 net profit of S$22.4m (+37% yoy) came in within our
expectations, accounting for 25% of our full-year forecast. Turnover grew 4.3% yoy,
with higher revenue across all key segments. The fare segments (bus and rail)
registered a 4% rise in turnover, boosted by higher ridership (+1.9% yoy for trains and
+4.3% yoy for bus) as well as a fare increase of 1.6% since Apr 14.
Still no clarity on new rail financing framework but likely to be accretive. SMRT has
submitted proposals to the government and continues to engage the authorities.
Although a change to the rail financing framework is imminent, the lack of details
makes it difficult to assess the outcome for SMRT. We estimate that SMRT has about
S$1b of rail-related assets and we believe the bulk is being considered for repurchase
by the government. A key question however would be the price that the authorities will
pay for the assets as well as the amount of licensing fees to be imposed on SMRT
following its 3.0 asset sale. Nevertheless, management highlighted during the analyst
briefing that they 2.5 are confident of structuring a win-win solution with the authorities
on this but no timeline 2.0 for the completion was provided. Maintain HOLD with a
higher DCF target price of $1.53

Singapore Airlines

UOBKayhian on 31 Jul 2014

FY15F PE (x): 62.0
FY16F PE (x): 32.4
71% decline in 1Q net profit and clearly below consensus estimate. 1Q’s net profit amounted to just 6% of full-year net profit target. The 71% decline in group net profit was due to: a) weak pax yields resulting in a 50% decline in parent airline’s op profit, b) losses from 40%-owned Tigerair, c) a 24% decline in SIA Engineering’s PBT, and d) 85% decline in Silk Air’s op profit.

Cautious guidance. SIA warned that the outlook has “become more challenging with continuing uncertain global economic climate, geo-political concerns in the region”. We reckon that SIA was referring to demand destruction in the wake of Thailand’s military coup and the decline in Chinese visitor arrivals in the wake of MH370. Maintain HOLD but lower our target price to S$10.40.

Tat Hong Holdings

UOBkayhian on 31 Jul 2014

VALUATION
  • Tat Hong is trading at FY14 PE of 17.2x and P/B of 0.8x. Tat Hong has divested several non-core assets and streamlined part of its operations in recent months and we believe this would build a stronger Tat Hong that can withstand any cyclical downturn in the future.
KEY HIGHLIGHTS FROM MANAGEMENT MEETING
  • Tat Hong provides crane rental, heavy lift, heavy haulage and equipment sales services. It is the largest crane company in the Asia-Pacific region, supplying cranes ranging from <50 tonnes to 1,600 tonnes.
  • Crane rental rates have remained firm in most countries except Singapore as a slowdown in construction projects coupled with heightened competition have pressured rates. In addition, management revealed that some local distributors had slashed margins in order to move inventories and book sales.
  • Australia’s economy is still in recovery with its government committing to infrastructure investment. This should bode well for Tat Hong’s general rental and distribution business in the country.
  • The recent divestment of the company’s non-core assets (properties in Australia, Kian Ho and Hup Hin Transport) is also a testament of the company’s goal to streamline its resources to its core expertise of crane management.
OUR VIEW
  • According to the company, Australia’s contribution to the bottom-line had fallen substantially to low single-digits in FY14 from high teens as the sharp resource sector slowdown had caught the management by surprise. Coupled with the depreciation in rupiah that caused the company to record an unrealised forex loss of S$8.4m, Tat Hong’s full-year net profits fell 53.4% to S$32.8m in FY14.
  • Earnings recovery from Australia to previous high remains to be seen, in our view, but improvement from last year’s doldrums should not be a challenge given Australia’s recent infrastructure investment package. In May 14, the Australian government announced that it will provide an additional AUD$11.6b to fast-track investment in critical infrastructure across the country.
  • We await Tat Hong’s 1Q15 results that will be released in mid-August as it will most probably set the outlook for the rest of the year.

Mapletree Greater China Commercial Trust

DBS Group Research, July 30
MAPLETREE Greater China Commercial Trust's gross revenue grew 9 per cent y-o-y to S$63.8 million, beating prospectus forecast by 6 per cent. NPI also came in 9 per cent better than expected at S$52.6 million (+10 per cent y-o-y).
The improved results were driven by an increase in portfolio occupancy to 99.2 per cent from 98.5 per cent at end-March. Festival Walk continued to enjoy full occupancy with Gateway Plaza adding more tenants (98.6 per cent occupancy).
Over the quarter, Festival Walk and Gateway Plaza also achieved positive rental reversion of 12-21 per cent and 33 per cent, respectively. Underlying shopper traffic at Festival Walk was stable, up 0.5 per cent y-o-y to 9.25 million, while tenant sales inched up 0.1 per cent y-o-y to HK$1.2 billion (S$193 million).
Mapletree Greater China declared 1.56 Singapore cents distribution per unit (DPU) in Q1 2015. This was on the back of S$42.1 million distribution income, which was 10 per cent ahead of prospectus forecast.
Moving forward, Mapletree Greater China has hedged 90 per cent of forecast FY2014/2015 Hong Kong dollar distributable income and is actively monitoring the market to progressively convert yuan distributable income to Singapore dollar.
Meanwhile, exposure to rising interest rates is partially mitigated with 71 per cent of the group's debt carrying fixed rates until end- FY2016.
Outlook remains positive. Despite slower retail sales in Hong Kong YTD, we expect positive rental reversion at Festival Walk given its positioning in the mid-to-upper consumer segment, supported by the manager's active tenant management and strong demand from tenants.
Rents should also rise at Gateway Plaza as recent new leases were transacted at 320-350 yuan (S$65-71) per square foot per month, more than 35 per cent higher than existing rents. In 2014, Mapletree Greater China will see 14 per cent of leases (by gross rental income) expiring at Festival Walk and 13 per cent at Gateway Plaza.
After adjusting for the stronger-than-expected results YTD, we raised FY2015 and FY2016 distributable income estimates by 4-5 per cent and lifted our discounted cash flow-based target price (TP) to S$1.04 (implied yield of 5.9-6.3 per cent) from S$1.02.
The stock remains attractive, offering 12 per cent upside to our revised TP and FY2015 DPU yield of 6.6 per cent. Mapletree Greater China offers a strong organic growth profile backed by positive rental reversion at its portfolio of quality properties.
BUY

SMRT

Kim Eng on 31 Jul 2014

  • 1QFY3/15 net income of SGD22.4m (+37% YoY) in line. Recent fare hikes helped to narrow losses at fare-based business. Non-fare performed better too.
  • Management remains confident of prospects with impending regulatory changes. No updates were provided.
  • Maintain HOLD and unchanged TP of SGD1.36.
What’s New
1QFY3/15 net income made up 33% of FY3/15E. Losses at fare-based business narrowed to SGD1.1m (1QFY3/14: SGD5.5m), helped by recent fare hikes and strong cost control. Non-fare operating profit improved to SGD29.9m (+17% YoY), aided by rate uplift from taxi rental renewals, higher rentals for retail space and increased advertising. Management remains confident of prospects with impending regulatory changes but no details or timeline were provided for the long-awaited rail transition.
What’s Our View
The treatment of SMRT’s asset purchase obligations under the current licensing regime remains the biggest hurdle to transition, in our view. LTA’s recent comments on SMRT’s financial obligations worth SGD2b and the “wide gap between SMRT’s expectations and LTA’s position” on rail transition highlight the challenges. Details remain scarce and the stock’s 60% YTD rally may have factored in the positives. In our base-case scenario of its valuation post-transition, we assume that: 1) its rail and bus operating assets will be sold to the regulators for SGD1.0b; 2) contractual agreements under the previous regime will be written off; and 3) bus and rail (including rental profits) margins will be 10% post-transition. Maintain HOLD with unchanged base-case TP of SGD1.36.

Singapore Airlines

Kim Eng on 31 Jul 2014

  • 1QFY3/15 core net income of SGD34.5m met expectations.
  • Earnings cut by 31-46% for market weakness, to reflect lower management guidance.
  • Still, maintain BUY and TP of SGD12.00, set at 1.05x FY3/15E P/BV, for eventual recovery as airlines cut capacity.
What’s New
1QFY3/15 EBIT weakened to SGD39.5m (1QFY3/14: SGD81.7m; 4QFY3/14: SGD60.3m loss), due to lower operating profits from airlines and engineering, offset by narrower cargo losses. Passenger yields continued to weaken at the parent airline and SilkAir amid regional overcapacity. Management says that outlook for the air transportation industry has become more challenging with continuing uncertain global economic climate, geo-political concerns in the region and elevated fuel prices. Aggressive fares and capacity injections from competitors will continue to place pressure on yields.

What’s Our View
Marginally weaker-than-expected passenger yields were made up by a 4.4% YoY improvement in unit costs at the parent airline. We continue to believe that overcapacity in the region will ease, as airlines scale back their expansion. This should support an eventual recovery in yields and earnings at SIA, which is why we maintain BUY.
However, market weakness could keep yields depressed for a more prolonged period than we initially expected given the operational challenges. We cut our FY3/15E-17E net income by 46%/35%/31%  for new yield/capacity assumptions. However, our TP remains at SGD12.00, based on an unchanged 1.05x FY3/15E P/BV.

Wednesday 30 July 2014

Indofood Agri Resources

DBS Group Research, July 29
Q2 2014 earnings in line on annualised basis: Excluding translational foreign exchange losses of 91.5 billion rupiah (S$9.78 million), IndoAgri (IFAR) booked Q2 2014 core earnings of Rp316 billion (+377 per cent y-o-y; +228 per cent q-o-q ) - representing 25 per cent of our full year forecast (ex translational foreign exchange gains/losses).
On a pretax level, H1 2014 results represented only 32 per cent of our full year forecast versus 41 per cent historical average) - given the poor Q1 2014 performance.
Despite strong sequential recovery in Q2 2014 edible oils and fats contribution, overall performance was dragged by 22 per cent q-o-q jump in G&A expenses, sequentially lower CPO ASP (average selling price); and a jump in tax rate to 34 per cent from 26 per cent in Q2 2014.
Higher contribution from edible oil and fats division: The group omitted disclosure of segmental Ebitda in its results announcement, but Q2 2014 plantations revenue recorded a 4 per cent sequential decline (+21 per cent y-o-y) to Rp2,332 billion; we suspect marginally higher volumes were offset by lower ASP.
On the other hand, edible oils and fats revenue rebounded sequentially by 28 per cent (+32 per cent y-o-y), as Q2 2014 benefited from the full impact of the about 6 per cent hike in cooking oil and margarine ASPs since April 2014 and the delivery of inventory backlogs in the previous quarter.
Expanding debt, but balance sheet still strong. Net debt to total equity ratio stood at 27 per cent at end of June 2014, up from 25 per cent at end March 2014, on higher debt. IndoAgri had spent about Rp1.5 trillion on capex in H1 2014 vs. our forecast of Rp2.2 trillion for the full year. This excludes announced acquisition of 3.8k ha of sugarcane estates for Rp227billion in July 2014.
Our view: Boost from Q3 2014 earnings may be inadequate to meet our earnings expectations. We expect seasonal contribution from its sugar division to drive IndoAgri's Q3 2014 earnings, in addition to peak harvesting season for palm oil. But, with ramp-up in fertiliser costs and dry conditions re-appearing in East Sumatra, H2 2014 earnings may not meet our current expectations.
Recommendation: Near-term recovery priced in. Our "hold" rating stays for now, pending further analysis and review of our CPO price forecasts. We do not expect a significant recovery in IFAR's share price, given the bearish outlook on near term soya bean prices. We believe the counter has priced in this year's prospective jump in earnings.
HOLD

Genting Hong Kong

UOBKayhian on 2014

FY14F PE (x): 16.5
FY15F PE (x): 16.4
NCL’s 2Q14 results were broadly in line with our expectations as lower-than- expected
costs made up for a slight shortfall in revenue. 2Q14 core net profit rose 101% yoy to
US$121m, lifted by a 20% increase in capacity (from the delivery of Norwegian
Breakway in Apr 13 and Norwegian Getaway in Jan 14), an improvement in occupancy,
and normalised interest costs (2013 included US$70m in debt refinancing charges post-
IPO in 1Q13). 1H14 EBITDA of US$347m (+51.4% yoy) made up 41% of our full-year
forecast, within expectations, considering the annual seasonal peak in 3Q.
Maintain HOLD and US$0.43 target price, or 9.5x 2014F EV/EBITDA, as we do not
expect near-term catalysts for now. Our target price applies a 12% discount to our
SOTP valuation.

Raffles Medical Group

UOBKayhian on 30 Jul 2014

FY14F PE (x): 29.5
FY15F PE (x): 25.1
In line; solid healthcare mitigates hospital weakness. Raffles Medical’s (RMG) 1H14 net
profit of S$30.2m (+8% yoy) came in within our expectations. Although net profits
accounted for only 41% of our full-year estimate, we forecast a seasonally stronger 2H
to lift earnings closer to our full-year estimate. An interim dividend of 1.5 S cents/share
(vs 1.0 S cent/share in 1H13) was announced, which was higher than our estimates.
Core healthcare holding in Singapore. RMG remains on our BUY list with a DCF- based
target price of S$4.30, implying 27x 2015F PE. This is close to its +1SD to mean PE of
28.6x but we think this is warranted given its strong cash flow generation and resilient
business model. Also, 2014-16F ROE of 15.1-16.1% are also higher than its long-term
average ROE of 11.0% (1997-2012).

Oversea-Chinese Banking Corp

UOBKayhian on 30 Jul 2014

FY14F PE (x): 10.7
FY15F PE (x): 10.2
The offer for Wing Hang Bank has closed and OCBC has successfully garnered a controlling 97.52% stake. This is a favourable outcome as the risk of having to sell down to a 75% stake to maintain free float of at least 25% did not materialise. Overhang on OCBC’s share price would be removed once management discloses the structure of its equity fund-raising exercise. Maintain BUY. Ttarget price: S$11.14.

Raffles Medical Group

OCBC on 30 Jul 2014
  • Key negative: The lucrative hospital services posted its second consecutive quarter of slow YoY growth.
  • No clarity over expansion plans in China, while a new rival in Singapore is emerging.
  • HOLD with unchanged DCF-derived TP of SGD3.94.
Key negative: Slowdown in hospital services
While 2Q14 earnings were within our expectation, they fell short of consensus estimates. The continued slowdown in its more profitable hospital services segment (63.5% of FY13 revenue) is a concern. Hospital services, which command lucrative PBT margins of 26% vs 9% for healthcare services, grew a mere 5% YoY in 2Q14, its second consecutive quarter of single-digit growth. Managementattributed this to fewer visits by Indonesian patients, owing to a depreciating IDR vs SGD and the presidential election.China expansion plans remain murky; no catalyst Management remains committed to China and reiterates that  regulatory approvals have been impeding progress. It would still  take at least three years to commence operations even after the  approvals are obtained.

Confronting new rival in Singapore
Raffles Medical’s local redevelopment and expansion plans are on track for completion in 2016. Management does not think that the opening of a new private hospital in Farrer Park will pose a threat, given that the latter operates on a different business model. In our  view, this new potential competitor still bears monitoring. In the  absence of an external earnings driver, Singapore has to provide all  the growth.

Reiterate HOLD with DCF-derived TP of SGD3.94
Trading at 33x FY14E P/E against a projected three-year EPS CAGR of 12.3%, valuations look fair. However, we like its resilient  earnings, backed by its corporate and foreign patient business and government initiatives.

Soilbuild Business Space REIT

OCBC on 30 Jul 2014

Soilbuild Business Space REIT (Soilbuild REIT) reported 2Q14 DPU of 1.50 S cents, ahead of its prospectus forecasts by 1.3%. We note that management remains confident in delivering its forecast distribution for FY14, notwithstanding the current challenges in the industrial market and upcoming supply in industrial space in the year ahead. To achieve this, Soilbuild REIT will continue to focus on early renewals or re-leasing of space that expires in 2H14. We understand that over 85% of all lease expiries due in 2014 has already been renewed, re-leased or pre-committed, which should provide a high degree of certainty to its income stream. We maintain BUY and S$0.88 fair value on Soilbuild REIT.

2Q14 results within expectations
Soilbuild Business Space REIT (Soilbuild REIT) reported a firm set of 2Q14 results, with gross revenue of S$16.7m coming in 0.9% higher than its prospectus forecast and NPI of S$14.0m 3.4% above forecast. The positive topline performance was due to new revenue stream from Tellus Marine (acquisition completed in May), while NPI was boosted further by lower maintenance costs incurred for both Eightrium and Tuas Connection. Distributable income and DPU, on the other hand, stood at S$12.1m and 1.50 S cents, both at 1.3% ahead of the respective forecasts. Together with 1Q distribution, 1H14 DPU amounted to 3.062 S cents and formed 49.8% of our full-year DPU projection. This is in line with our expectations, as Tellus Marine will make full-quarter revenue contribution for the rest of year.

Outlook remains sanguine
We note that management remains confident in delivering its forecast distribution for FY14, notwithstanding the current challenges in the industrial market and upcoming supply in industrial space in the year ahead. To achieve this, Soilbuild REIT will continue to focus on early renewals or re-leasing of space that expires in 2H14. We understand that over 85% of all lease expiries due in 2014 has already been renewed, re-leased or pre-committed, which should provide a high degree of certainty to its income stream. For 2Q14, leasing activity appears healthy in our view, as leases secured/renewed all saw positive rental reversions ranging from 3.6% to 31.7%. Only the portfolio occupancy dipped slightly from 100% in 1Q to 98.5% due mainly to a non-renewing lease expiring in Tuas Connection.

Maintain BUY
As at 30 Jun, Soilbuild REIT’s aggregate leverage also remained robust at 30.3% (1Q: 29.1%), providing it good debt headroom for future acquisitions. All-in interest costs dropped slightly from 3.12% in 1Q to 3.08% as Soilbuild REIT drew down debt facility on floating rate to fund the acquisition of Tellus Marine in 2Q. While its fixed interest rate exposure is reduced 5ppt to 95%, this is still higher than the sector average. We maintain BUY and S$0.88 fair value on Soilbuild REIT.

Raffles Medial Group

OCBC on 30 Jul 2014

Raffles Medical Group (RMG) reported a 8.5% YoY increase in its 2Q14 PATMI to S$15.6m on the back of a 6.6% growth in revenue to S$92.6m. This was in-line with our expectations. An interim dividend of 1.5 S cents/share was declared, slightly higher than the 1 S cent/share dividend declared in 2Q13. RMG’s Hospital Services segment recorded only a 4.9% YoY increase in revenue in 2Q14, as its foreign patients’ growth was flattish due to the strong SGD and uncertainties caused by the Indonesian presidential elections. Although we retain our financial forecasts and S$3.90 fair value estimate on RMG, we downgrade the stock to a HOLD on valuation grounds. Its share price has already appreciated 34.3% since we last upgraded it to a ‘Buy’ on 18 Jun 2013.

2Q14 results within our expectations
Raffles Medical Group (RMG) reported a 8.5% YoY increase in its 2Q14 PATMI to S$15.6m on the back of a 6.6% growth in revenue to S$92.6m. The latter was driven by a 14.7% jump in revenue for its Healthcare division, while its Hospital Services division grew at a slower pace of 4.9%. For 1H14, revenue was 7.3% higher at S$180.2m and PATMI rose 8.2% to S$30.2m. This formed 47.3% and 44.4% of our FY14 forecasts, respectively. We view this set of results as in-line with our expectations as 2H is traditionally RMG’s stronger half. RMG also declared an interim dividend of 1.5 S cents/share, slightly higher than the 1 S cent/share dividend declared in 2Q13.

Softer foreign patient figures
RMG’s Hospital Services segment, which has typically been its main growth driver, registered only a ~5% YoY growth in revenue for the second consecutive quarter (1Q14: +4.8%). Management highlighted that its foreign patients’ growth was flattish in 2Q14, as there was a fall in patients from Indonesia. We believe this can be attributed to the strong SGD and uncertainties caused by the Indonesian presidential elections. Meanwhile, management expects to break ground for its Raffles Hospital extension in 4Q14. Construction will take approximately two years, and hence a full year of contribution would only happen in FY17. 

Downgrade to HOLD with unchanged FV estimate
We retain our financial forecasts but raise our FY14 and FY15 DPS estimates marginally from 5 S cents to 5.5 S cents. RMG’s share price has performed well since we last upgraded it to a ‘Buy’ on 18 Jun 2013, appreciating 34.3%, versus the STI’s 5.4% increase during the same period. While we like RMG for its strong track record and upcoming network expansion plans, we believe these positives have already been priced in. Hence, we downgrade RMG to HOLD, with an unchanged fair value estimate of S$3.90 (pegged to 30x blended FY14/15F EPS). We would turn buyers again below the S$3.60 level.

Tuesday 29 July 2014

CDL Hospitality Trusts

Kim Eng on 29 Jul 2014

  • 2Q14 results dented by weaker tourist arrivals and seasonally weaker contribution from its Maldives resorts.
  • CDLHT remains positive on 2H14 tourism outlook and is seeing signs of an uptick in recent months.
  • TP remained unchanged at SGD1.93; reiterate BUY.
2Q14 results weaker but in line
CDLHT posted a 6.4%/11% YoY rise in 2Q14/1H14 revenue to SGD 37.9m/81.6m, bolstered by its Maldives resort acquisitions.  2Q14/1H14 DPU, however, fell 8.1%/3% YoY to 2.50/5.25 SGD cts
partly due weaker tourist arrivals into Singapore, the on-going refurbishments at Claymore Link and weaker performance at Jumeirah Dhevanafushi resort in Maldives. Management clarified that 2Q/3Q are seasonally the weakest quarters for Jumeirah. More than 70% of the revenue contribution typically comes through in 1Q/4Q with the arrival of higher-yielding tourists from China, Europe and Russia. The Singapore hotels RevPAR also fell by 6.2%YoY to SGD181, dragged down by tight business travel budgets and a 27.4% YoY fall in YTD Chinese tourist arrivals following the ‘forced shopping’ ban introduced by China last October.

2H14 tourism outlook remains positive
Despite the weaker 2Q14, CDLHT sees some signs of improvement in 3Q14. For one, the Singapore Tourism Board and Changi Airport Group launched a SGD1m drive to attract Chinese visitors and promote the city-state as a standalone tourism destination. With only 926 hotel room additions in 2H14 (2013: 3,340), CDLHT expects some respite for hoteliers. The newly-opened Singapore Sports Hub – hosting 10 international sporting events this year such as the new Women's Tennis Association Championships in October -is also expected to be a tourism boost in 2H14. Reiterate BUY with an unchanged DDM-derived TP of SGD1.93 (cost of equity = 6.7%; Tg = 1%).

SIA Engineering

Kim Eng on 29 Jul 2014

  • Downgrade to SELL with a revised TP of SGD4.20, based on 20x FY3/15E P/E, as short-term outlook turns challenging.
  • Sinister signposts: A decline in heavy maintenance workload after recent expansion in the Philippines, and a persistent weakness in shop visits for its Rolls-Royce engine shops.
  • Management has turned bearish on its outlook.
Yet another disappointment
We see various challenging trends in this set of results. Revenue was little changed (+1.6% YoY) with higher fleet management sales offset by lower heavy maintenance workload. EBIT margin contracted to merely 7.0% (lowest since 1QFY3/10) as subcontract cost rose 4.5% YoY. Share of profits of associates and JVs fell 28.8% YoY to SGD30.6m due to a 37.8% fall in contribution from the engine repair and overhaul centres. Management turned bearish on its outlook, citing challenges from decline in heavy checks,reduction in engine shop visits and rising business costs.

Grounded by short-term headwinds
We see three headwinds to weigh down on FY3/15E earnings:
  • New hangar facilities in the Philippines (Hangar 2: Apr 2013,Hangar 3: under construction) are coming on-stream at a time when heavy maintenance workload is slowing down.
  • Persistent weakness in shop visits for its Rolls-Royce engine shops (FY3/14: 41% of net income).
  • The scale-back in capacity expansion by regional airlines looks set to reduce overall maintenance workload.
We therefore cut our FY3/15E-17E by 15-16%. In our view, valuation looks expensive against cyclical earnings contraction. Downgrade to SELL with a revised TP of SGD4.20 (from SGD5.75), based on 20x FY3/15E P/E (from 23x), equivalent to 1SD above its historical mean; justified by its positive long-term outlook.

Keppel Corp

Kim Eng on 25 Jul 2014

  • 2Q14 results met expectations. O&M operating margin rose by 0.5ppt to 14.7%, on track to meet our full-year forecast.
  • An oversupplied deepwater rig market and reduced capex by oil companies could cap share price upside.
  • Maintain HOLD with revised SOTP-based TP of SGD10.95.
No surprises
Keppel Corp’s 2Q14 PATMI of SGD406m (+17% YoY, +20% QoQ) was within our and consensus expectations. 1H14 PATMI meets 45% of  our full-year forecast. O&M operating margin for the quarter  inched up by 0.5ppt QoQ to 14.7% (1Q14: 14.2%, 2Q13: 14.1%), on  track to meet our 14.9% full-year forecast. An interim dividend of  12 SGD cts/sh was declared.

Near-term headwinds to cap share price upside
The SGD3.2b of O&M orders secured YTD account for 58% of our full-year order win forecast of SGD5.5b. Net orderbook stands at SGD14.1b with deliveries up until 2019. In the property division,
1H14 revenue dipped by 13% YoY on weaker sales in Singapore and China, as well as the deconsolidation of Keppel REIT in Aug 2013.No further provisions were made for its infrastructure EPC projects in Qatar and UK which are at the final stages of completion.Keppel remains bullish on the jackup rig market, but acknowledgesweakness in the deepwater rig segment. In our view, an oversupplied deepwater rig market and the spectre of further reductions in capex by oil companies would dampen drillers’ propensity to order new rigs in the next six months.

Maintain HOLD with a minor 1% cut to FY14E PATMI, while FY15E-16E forecasts are left unchanged. Our SOTP-based TP is revised toSGD10.95 (from SGD10.74) after incorporating market prices of itslisted entities. Rerating catalysts would come from (1) improved market sentiments as supply-demand for deepwater rigs balances out, (2) stronger-than-expected orders from other offshore vessel types (FPSO/FLNG) and (3) higher-than-expected O&M margin.

Hutchison Port Holdings Trust

OCBC on 29 Jul 2014

2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.

1H14 interim DPU at 18.70 HK-cents
2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14.

Higher throughput at group’s deep-water ports
The trust reported that outbound cargoes both to the US and EU continued their uptrends in 2Q14. The throughput of HPHT’s deep-water ports in 1H14 increased ~6%, with throughput at HIT and YICT growing 3.7% and 4.9%, respectively. YICT’s throughput growth was driven by transshipment and US cargoes, while HIT’s higher throughput was due to higher transshipment volume, partially offset by weaker intra-Asia cargoes. The average revenue per TEU for HK and China was mostly flat YoY; fewer concessions were granted to some liners for China which was offset by a higher proportion of transshipment throughput handled.

Maintain HOLD with unchanged US0.68 FV
Over the quarter, we continue to see upward pressure in terms of cost of services rendered, which increased 9.8% YoY due to higher external contractor costs and inflationary pressures while staff cost also increased 7.7%. 1H14 capex is up 64% to HK$643m, as management continues its expansionary plans at Yantian to add one berth each year from 2015. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.

Yoma Strategic Holdings

OCBC on 29 Jul 2014

Yoma reported 1QFY15 PATMI of S$1.4m, which increased 243% YoY mostly due to fair value gains (S$6.4m) recognized from completed units in Building A5 in Star City Zone A which have been retained as investment properties. Overall, we judge these figures to be mostly in line with expectations, after taking into account the lumpy nature of progress recognition due to the rainy season from May/June which decelerated the pace of construction. In terms of the topline, 1QFY15 revenue increased 13.9% to S$17.3m as the group recognized higher sales from property developments and land rights mostly from Star City. Sales in Star City remain firm; as at end Mar-14, 528 units have been sold in Zone A. We also understand that 724 units have been sold in Zone B at Star City. Maintain BUY on Yoma with an unchanged fair value estimate of S$0.82.

Fair value gains from completion of investment assets
Yoma reported 1QFY15 PATMI of S$1.4m, which increased 243% YoY mostly due to fair value gains (S$6.4m) recognized from completed units in Building A5 in Star City Zone A which have been retained as investment properties. Overall, we judge these figures to be mostly in line with expectations, after taking into account the lumpy nature of progress recognition due to the rainy season from May/June which decelerated the pace of construction. In terms of the topline, 1QFY15 revenue increased 13.9% to S$17.3m as the group recognized higher sales from property developments and land rights mostly from Star City. 

Launch of Zone C of Star City anticipated in FY15
As at end Mar-14, 528 units have been sold in Zone A. We understand that S$8.2m of revenue was recognized over the quarter for Buildings A3 and A4, and management expects construction to pick up in 2HFY15 (unrecognized progress billings at ~S$27.6m). In Zone B, developed in collaboration with a third party investor, 724 units have been sold and the group has also received booking deposits for an additional 134 units. Management expects the incentive fees relating to sales for Buildings B3 and B4 to be recognized ahead when the sales targets are met. In addition, Zone C of Star City, comprising 914 units, is anticipated to be launched in FY15.

Proposed acquisition of Pun Hlaing Golf Estate
To recap, the group has recently been offered the right to acquire a 70% stake in 10.8m sq ft of land in Pun Hlaing Golf Estate (estimated at US$100m on 100% basis). Assuming that this proposed acquisition is approved by shareholders, the recently proposed rights of 1 for every 8 shares at S$0.38 would likely be revised to 1 for every 3 shares, which could take place in 2HFY15. Maintain BUY on Yoma with an unchanged fair value estimate of S$0.82.

Sheng Siong

OCBC on 25 Jul 2014

Sheng Siong Group’s (SSG) 1H14 results came in above expectations. 1H14 revenue came in at S$361.3m, forming 50.1% of our FY14 forecast, despite 1H typically being the weaker half-year; 1H14 net profit was S$23.6m, making up 53.9% of our FY14 forecast. In this quarter itself, 2Q14 revenue increased by 7.4% YoY to S$171.6m. Management guided that 6% was due to volume increase as consumers switch from competitors; the remaining 1.4% was attributed to passing on of food inflation to consumers through higher average selling price. Compared to revenue, 2Q14 net profit increased proportionally higher by 30.3% to S$11.1m due to better GP margin. With upside surprise in the quarter, we revise our assumptions upwards and derive a new S$0.78 fair value estimate (previous: S$0.68). A near-term catalyst would be HDB’s approval for SSG acquisition of Block 506 Tampines Central 1, which has a gfa of approximately 10% of existing total gfa. Maintain BUY.

1H14 results above expectations
Sheng Siong Group’s (SSG) 1H14 results came in slightly above expectations. 1H14 revenue came in at S$361.3m, forming 50.1% of our FY14 forecast, despite 1H typically being the weaker half-year; 1H14 net profit was S$23.6m, making up 53.9% of our FY14 forecast. In this quarter itself, 2Q14 revenue increased by 7.4% YoY to S$171.6m. We note that this was achieved despite closure of the Chin Swee store for a month for a total makeover and lack of new store opening. Management guided that 6% was due to volume increase as consumers switch from competitors; the remaining 1.4% was attributed to passing on of food inflation to consumers through higher average selling price. Compared to revenue, 2Q14 net profit increased proportionally higher by 30.3% to S$11.1m due to better GP margin (+0.9ppt QoQ to 24.7%). An interim cash dividend of 1.5 S-cents was declared.

Higher warehouse utilisation to drive GP margin
According to management, the better GP margin in 2Q14 was driven by: 1) larger proportion of bulk handling, 2) higher fresh produce sales, and 3) lower input costs for house brands as manufacturing slack surfaced in China. We think the latter two are situational and thus not sustainable drivers. Going forward, we expect the new-high GP margin to taper off. Nevertheless, sustained GP margin improvement would come from higher utilisation of Mandai warehouse (~75% utilised now). Currently, ~60% of goods are purchased through bulk handling, and management is looking to increase it eventually to ~80%. 

Maintain BUY with new S$0.78 FV
With upside surprise in the quarter, we raise our assumptions to 6.5% revenue growth in FY14 (previous: 5%) and 24.0% GP margin (previous: 23.5%). We maintain BUY and derive a new S$0.78 fair value estimate (previous: S$0.68). A near-term catalyst would be HDB’s approval for SSG acquisition of Block 506 Tampines Central 1, which has a gfa of approximately 10% of existing total gfa and 9.8k sq ft of it would be able to contribute to earnings as early as 2015.

Keppel Corp

OCBC on 25 Jul 2014

Keppel Corp reported a 3.3% YoY rise in revenue to S$3.18b and a 17.1% increase in net profit to S$406.0m in 2Q14, such that 1H14 net profit met 49% of our full year estimates, in line with expectations. Operating margin in the O&M division remained strong in the quarter, at 14.7% in 2Q14 vs. 14.2% in 2Q13. Though the deepwater market has softened, management sees the jack-up market as resilient, for which the group is still receiving healthy enquiries. Meanwhile, the weaker property market is opening prospects for the group, while no additional provisions were made in the infrastructure division in 1H14. KEP has secured orders of about S$3.2b in 1H14, accounting for close to half of our full-year new order win estimate, and bringing its net order book to S$14.1b (as at 30 Jun) with visibility into 2019. Maintain BUY with higher fair value estimate of S$12.31 (prev S$12.25); an interim dividend of S$0.12/share has also been declared.

2Q14 results in line
Keppel Corp reported a 3.3% YoY rise in revenue to S$3.18b and a 17.1% increase in net profit to S$406.0m in 2Q14, such that 1H14 net profit met 49% of our full year estimates, in line with expectations. 

O&M division operating well
Operating margin in the O&M division remained strong in the quarter, at 14.7% in 2Q14 vs. 14.2% in 2Q13. Excluding gains from the sale of Keppel Kazakhstan in Feb this year, O&M operating margins continued to hold up at 14.5% for 1H14, vs. 14.1% for 1H13. The semi-submersibles for Sete Brasil are also on track, with the first unit 70% completed, the second 30% completed, and the third unit is now in the initial stages of construction. Though the deepwater market has softened, management sees the jack-up market as resilient, and the group is still receiving healthy enquiries for the standard B-Class jack-ups and specialised high spec units.

Softening property market; upbeat on infrastructure
In the property segment, home transactions in Singapore and China continued to slide in 2Q14, but the softening market is also opening prospects for Keppel. As for the infrastructure division, no additional provisions were made in 1H14. The Doha North Sewage Treatment Works is going through its testing and commissioning phase, and is ready to take in sewage. In Singapore, demand for data centre space remains strong, and Keppel Datahub 2 (completed in 2Q14) is receiving “strong enquiries” from the market.

4.3% dividend yield on a quality stock
KEP has secured orders of about S$3.2b in 1H14, accounting for close to half of our full-year new order win estimate, and bringing its net order book to S$14.1b (as at 30 Jun) with visibility into 2019. Meanwhile, an interim dividend of S$0.12/share has been declared in 1H14, compared to a S$0.1/share interim dividend and special dividend in specie of S$0.095/share in 1H13. We roll forward our valuations to blended FY14/15F earnings, and update the market values of the group’s listed entities. As such our fair value estimate rises from S$12.25 to S$12.31. Maintain BUY with forecasted dividend yield of ~4.3%.

Tiger Airways

OCBC on 24 Jul 2014

Tiger Airways Holdings’ (TR) 1QFY15 revenue came in 7.7% below expectations at S$169.0m while higher-than-expected operating costs resulted in an operating loss of S$16.4m. 1QFY15 PATMI loss almost doubled from S$32.8m to S$65.2m due to associate Tigerair Mandala’s operating losses (S$35.3m) and shutdown costs (S$14.6m). Correspondingly, shareholder’s equity was eroded by 22.5% QoQ to S$216.1m, or almost half of the S$469.7m a year ago. Tigerair Singapore, the sole remaining TR operation, reported an operating loss of S$19.8m in 1QFY15 (vs. operating profit of S$5.9m in 1QFY14). Breakeven load factor is at an exceedingly high 96.7%, which essentially implies that Tigerair Singapore cannot breakeven (maximum PLF was 89% in the past three years). Additionally, we think provisions will be made eventually on the four aircraft returned from now-defunct Tigerair Mandala. We maintain SELL with S$0.30 fair value estimate.

1QFY15 losses from operations and one-off costs
Tiger Airways Holdings’ (TR) 1QFY15 revenue came in 7.7% below expectation at S$169.0m while higher-than-expected operating costs resulted in an operating loss of S$16.4m. On a YoY basis, 1QFY15 revenue and operating expenses declined 28.4% and 23.5% respectively due to the exclusion of Tigerair Australia, which ceased to be a subsidiary from 8 Jul-13. 1QFY15 PATMI loss almost doubled from S$32.8m to S$65.2m due to associate Tigerair Mandala’s operating losses (S$35.3m) and shutdown costs (S$14.6m). Correspondingly, shareholder’s equity was eroded by 22.5% QoQ to S$216.1m, or almost half of the S$469.7m a year ago. 

Remaining Singapore operations unpromising
Tigerair Singapore, the sole remaining TR operation, reported an operating loss of S$19.8m in 1QFY15 (vs. operating profit of S$5.9m in 1QFY14). Revenue growth (+3.2% YoY to S$166.0m) stemmed from capacity growth (+14.8%) and improved load factor (+0.8ppt). However, this was more than offset by: 1) weaker yield (-11.5% to 6.24 S-cent/rpk), and increase in unit cost (+4.5% to 6.03 S-cent/ask). Correspondingly, breakeven load factor is at an exceedingly high 96.7%, which essentially implies that Tigerair Singapore cannot breakeven (maximum PLF was 89% in the past three years). But we also note that there are signs of bottoming out as there is yield drop moderates QoQ (from -7.3% in 4QFY14 to -2.2% in 1QFY15) on top of PLF improvements. Management guided that they would improve PLF before yield, though we think the latter is more a function of competition, which is beyond management’s control.

Expect further provisions ahead
Four aircraft are returned to TR from the now-defunct Tigerair Mandala. We understand from management that as planes’ deployment are still being assessed, provisions have not been made. Unless the new Tigerair Taiwan venture can absorb them, we think provisions will be made eventually because: 1) prior eight grounded aircraft suggests lack of redeployment, leasing or sales opportunities, and 2) 1QFY15 aircraft utilisation decreased by 9.0% YoY to 11.3/aircraft/day, thus it is unlikely more planes will be operated. We maintain SELL with S$0.30 fair value estimate.

Keppel Land

OCBC on 24 Jul 2014

KPLD reported 2Q14 PATMI of S$107.2m, increasing 12.2% YoY mostly due to profit recognition for Plot R5B of The Botanica in Chengdu and write-back of cost accruals. We judge this to be mostly in line with expectations and YTD PATMI now constitutes 43.7% of our full year forecast. Over 1H14, the group sold 94 homes in Singapore (down 55% YoY) and 1,060 homes in China (down 45% YoY). KPLD also recently divested its stake in Equity Plaza, which will result in net proceeds of ~S$195.3m and a net divestment gain of S$59.5m. Management reiterates its policy of paying out about 1/3 of divestment gains in dividends, and expects to opportunistically recycle capital and replenish land-bank amidst current weaknesses in the residential sectors of its core markets, Singapore and China. Maintain BUY with an unchanged fair value estimate of S$4.09 (30% discount to RNAV).

No surprises in 2Q14 results
KPLD reported 2Q14 PATMI of S$107.2m, increasing 12.2% YoY mostly due to profit recognition for Plot R5B of The Botanica in Chengdu (completed in May-14) and write-back of cost accruals. We judge this to be mostly in line with expectations and YTD PATMI now constitutes 43.7% of our full year forecast. 2Q14 topline came in at S$304.6m, down 7.8% mainly due to lower revenues from Chinese projects, partially offset by contributions from The Luxurie and The Glades in Singapore.

Wait-and-see stance for Highline Residences launch
The group sold 94 homes in Singapore over 1H14, mostly from The Glades which is ~28% sold (~200 out of 726 units, ASP S$1.44k psf) as at end Jun-14. While 1H14 SG home sales have dipped 55% YoY versus the 210 total units sold in 1H13, this is in line with our expectations for a fairly muted FY14 in terms of SG home sales given the weak outlook. Management indicates that its condominium project in Tiong Bahru, Highline Residences, is ready for launch. However, again given the soft market, the group is taking a wait-and-see stance regarding the timing; pricing will likely be a key driver for sales performance for the project, in our view. In China, 1,060 home units were sold over 1H14, down 45% YoY versus the 1,940 units in 1H13. This is partially because The Botanica, a key driver for sales in 1H13, is now almost fully-sold. 

Recently divested stake in Equity Plaza
The group recently divested its stake in Equity Plaza, which will result in net proceeds of ~S$195.3m and a net divestment gain of S$59.5m. Management reiterates its policy of paying out about 1/3 of divestment gains as dividend, and expects to opportunistically recycle capital and replenish land-bank amidst current weaknesses in the residential sectors of its core markets, Singapore and China. MaintainBUY with an unchanged fair value estimate of S$4.09 (30% discount to RNAV).

Friday 25 July 2014

CSE GLOBAL

UOBKayhian on 25 Jul 2014

Lean And Mean Undervalued Machine
CSE Global (CSE) is an international technology group with clients from the oil & gas
(O&G), mining and infrastructure sectors. CSE provides engineering solutions
throughout the entire O&G supply chain - upstream (automation systems), midstream
(pipeline monitoring) and downstream (telecommunications). It also has a unit that
provides environmental furnace systems.
INVESTMENT HIGHLIGHTS
  • Initiate with BUY and a street-high target price of S$0.88, representing a 23% upside. Our target price is based on 12.6x 2015F PE (EPS: 7 cents), or a 20% discount to sector mean. CSE offers the highest dividend yields of 3.6-4.2% in the sector, based on a 40% payout. We project a conservative 3-year net profit CAGR of 8.3% on the back of: a) rising orderbook driven by maintenance projects and a refocus on brownfield and small greenfield projects, and b) improving margins. We see room for more upside from a turnaround in its environmental division and earnings-accretive M&As.
  • Constant-flow business accounts for 80% of group revenue. These include maintenance, upgrading and brownfield projects that consistently flow in based on the requirements of the current O&G market and from existing customers. These provide a base level of business that the group has to sustain and also provides stability in an otherwise volatile and long-drawn O&G market.
  • S$300m orderbook provides visibility from 2014 onwards. With maintenance & enhancement revenue estimated at S$150m-200m p.a., we think revenue for this year will meet last year’s over S$400m. With more higher-margin projects and lower financing costs, we project a net profit growth of 8.5% yoy in 2014. Management is now looking to secure contracts for 2015 recognition.
  • Leaner and refocused after divestment of healthcare unit; decamping in the Middle East. We view the sale of its UK subsidiary, Servelec Group, in 2013 positively as the division was rather isolated from the rest of the group and had limited growth potential. Decamping from three loss-making projects in the Middle East in 1H14 also removes the overhang of further provisions. We believe management is now focused on consolidating its position and running a more efficient strategy.
  • Carving a niche in engineering integration solutions for O&G. With a smaller and nimbler business model, CSE has refocused on small greenfield and brownfield projects where it can compete more effectively. Gross margins are higher at 30-35%, and execution horizons are shorter at 3-6 months. Its relatively small size allows it flexibility and faster turnarounds when bidding for projects.
  • Clean balance sheet supports strategic M&As. We do not rule out small M&As for regional strengthening while more sizeable transactions may come in 2H15. Management targets companies that are earnings-accretive with strong cash flows. As of end-Mar 14, the group had a gearing of 10% and net cash of S$44m (or 8.6 cents/ share).

Keppel Corp

UOBKayhian on 25 Jul 2014

FY14F PE (x): 12.2
FY15F PE (x): 11.6

Within our expectation. Keppel reported a net profit of S$406m (+17% yoy) and S$745m (+6% yoy) for 2Q14 and 1H14 respectively. 1H14’s net profit was 46% of our 2014 net profit forecast of S$1.62b. 2Q14’s net profit of S$406m was 14% higher than 1Q14’s S$357m. An interim DPS of 12.0 S cents has been declared (1H13: 10.0 S cents excluding special dividend in specie).

Forecasts are unchanged. We maintain our 2014-16 earnings forecasts. Risks to our earnings forecasts are lower-than-expected contract wins, worse-than-expected O&M margins, and lower-than-expected infrastructure and property earnings contributions. Maintain BUY and target price of S$13.50, based on the sum-of-the-parts valuation which values Keppel’s O&M business at 15x 2015F PE. Keppel remains our preferred large-cap O&M stock pick.

CapitaCommercial Trust

Kim Eng on 21 Jul 2014

  • 23% pre-commitment leases signed to-date for CapitaGreen.
  • The expanded scope for AEI at Capital Tower will delay the completion date by six months to 4Q15.
  • GIC to renew leases at Capital Tower next year with significant reversion.
In-line results
CCT saw a 3.2% YoY rise in both 2Q14/1H14 revenue, bolstered by higher income from all properties except One George Street, whose Deed of Yield Protection expired on 10 Jul 2013. 2Q14/1H14 DPU grew 5.3%/5.2% YoY to 2.18/4.22 SGD cts, driven by lower interest expenses and higher NPI. Balance sheet remained strong, with a low gearing of 28.8% and 80% of borrowings are on fixed rates. Portfolio occupancy remained strong at 99.4%.

CapitaGreen achieves 23% pre-commitment
CapitaGreen has secured another 14,200 sq ft of lease commitments since its topping-out on 2 Jul, boosting its NLA take-up rate from 21% to 23%. To reach the 50% pre-commitments by year-end, an additional 185,000 sq ft needs to go. We expect the new tenants to be signing up at rentals north of SGD10-11 psf/month vs ‘loss-leader’ Cargill, who contracted for 51,000 sq ft previously at a likely rental of SGD9-10 psf/month. The AEI at Capital Tower has also expanded its scope at an unchanged budget of SGD40m, but completion will be pushed back by six months. GIC (CCT’s top 10 tenant contributing 5% of monthly gross rental income) will be renewing its leases at Capital Tower next year, with significant reversion, given its low base, according to management. CCT stands to benefit from higher office spot rents given its favourable lease expiry profile: ~49% of office leases, by monthly gross rental income, are expiring in 2014-2016.
Reiterate BUY with an unchanged DDM-derived TP of SGD1.83 (cost of equity = 6.7%; Tg = 2%).

OSIM International

Kim Eng on 22 Jul 2014

  • TWG Tea to strengthen OSIM’s brand and help to generate higher sales per outlet for massage chairs.
  • New uInfinity and uDiva massage chairs are the best ever, with uDiva’s 30% price rise a powerful revenue catalyst.
  • Raising FY14E-15E forecasts by 4% and 5%; TP raised to SGD3.50. Maintain BUY.
Forecasts, TP raised
We believe the combination of TWG Tea and OSIM’s massage chair business will allow OSIM to break new ground this year and next. As coverage is transferred to the author, our FY14E-15E forecasts are raised by 4% and 5% respectively to 5-6% above consensus, and TP upped to SGD3.50 (based on 19x FY15E P/E), in line with regional and global peers, and a deserved premium to its historical mean.

Have a tea after a massage
We do not know when or where or how the custom of serving a cup of tea after a massage came about but they blend in well. As such, we believe OSIM’s high-end tea purveyor TWG Tea will prove to be a great and natural fit for its massage chair business, and help it to break into higher-end locations where sales per outlet can be up to 1.5x higher than lower-end locations. All TWG stores are located in high-end destination malls.

Bullish on the new chairs
After extensive product testing, we think OSIM’s new uInfinity and uDiva chairs deserve to outsell every other generation of chairs and the competition as well. Simply put, this is as close to a human massage experience as one will ever get. In addition, the new chairs are set to enter homes as high-end furniture. Even the uInfinity’s leg module can be flipped over to become an ottoman, turning it into a luxury lounger. Lastly, we expect the change in celebrity endorser to Korean star Lee Min Ho for uDiva to help OSIM tap into a larger target market. Despite a 30% price rise, uDiva is still affordable.

Keppel Reit

Kim Eng on 22 July 2014

  • 2Q14/1H14 DPU fell 3.6%/1.8% YoY on expiry of MBFC rental support and higher borrowing costs.
  • All eyes on OFC to meet its breakeven rent when its income support ends in 2017.
  • No news of MBFC Tower 3 acquisition; equity fund raising remains on the horizon. Forecasts and TP stay unchanged.
In-line 2Q14/1H14 results
KREIT posted a 3.6%/1.8% YoY decline in 2Q14/1H14 DPU, meeting 24.6%/50.2% of our full-year estimate. The decrease came on the back of the expiry of MBFC rental support and higher borrowing costs. Portfolio occupancy rate was slightly down 40bps to 99.4%, with some tenants churn at Ocean Financial Centre (OFC) and 77 King Street. Aggregate leverage edged up to 42.8% in 2Q14 (1Q14: 42.4%), with higher all-in financing cost of 2.2% (1Q14: 2.18%).

Room to minimise potential income shortfall
The income support for OFC will cease in 2017. Management cited the monthly breakeven rent for OFC’s rental support at SGD12.60-12.70 psf, which is higher than our estimated average passing rent of SGD9.20 psf for 2Q14. Given the lack of new Grade A office supply in the Central Business District from now until mid-2016, we see room for KREIT to minimise potential income shortfall.
MBFC Tower 3 is over 90% occupied and KREIT has yet to announce any acquisition plans from its sponsor. To fund this hefty acquisition of SGD1.1-1.3b, equity fund raising remains on the cards, in our view. The SGD512m divestment of Prudential Tower is likely to complete by September. We forecast flat DPU CAGR over FY13-19E with the progressive expiry of income support.
We keep our DPU forecasts unchanged and reiterate our HOLD recommendation with an unchanged DDM-derived TP of SGD1.32

CACHE Logistics Trust

Kim Eng on 22 Jul 2014

  • 2Q14/1H14 results in line with our and consensus forecasts.
  • Working with the sponsor to transform to a more multi-tenanted property portfolio over time.
  • No changes to our DPU forecasts and TP. Reiterate HOLD with a DDM-derived TP of SGD1.23.
1H14 results in line
CACHE’s 1H14 revenue grew 4.8% YoY to SGD41.5m, driven by positive rental reversions and the acquisition of Precise Two last April. 1H14 distributable income rose 2.9% YoY to SGD33.4m. Weighted average lease term to expiry of the portfolio is 3.8 years, with 52% of the leases (previously: 56%) due to expire in 2015-2016 (including the new DHL build-to-suit warehouse at Tampines LogisPark). The all-in-financing cost for 2Q14 averaged 3.47% (1Q14: 3.48%) with debt maturity of 1.4 years (1Q14: 1.6 years).

Making progress with sponsor’s master leases
CACHE is working with the sponsor to transform to a more multi-tenanted property portfolio over time. The sponsor, CWT/C&P, is expected to gradually wind down its master lease positions. The REIT manager will then work with the CWT/C&P to secure existing and new end-users to lease premises directly from CACHE.

In 2Q14, CACHE has forward renewed ~4% of the portfolio GFA expiring in 2015 to 2018 and beyond. This bodes well for the remaining 52% of portfolio GFA expiring in 2015-16, the majority of which are master leases with the sponsor.

We remain cautious of the impending amount of new industrial warehouse space that could put pressure on industrial rents and occupancy rates. Maintain HOLD with an unchanged DDM-derived TP of SGD1.23 (cost of equity = 7.2%; Tg = 0%).

M1

Kim Eng on 22 Jul 2014

  • 2Q14 results within expectations. Interim DPS raised to 7 SGD cts. Maintain BUY, TP SGD4.24.
  • Underlying momentum for tiered data migration and strong growth in data traffic remained strong.
  • Balance sheet remains strong and supportive of higher dividend payouts.
Within expectations
M1 reported in-line net profit of SGD43.9m in 2Q14 (+12% YoY, 2% QoQ), taking 1H14 earnings to SGD86.9m, representing 50.7% of our full-year forecast. M1 also raised its interim DPS to 7 SGD cts. We maintain our forecasts as 2H14 profits may be slightly weaker following the launch of the iPhone 6. Our DCF-based TP also stays unchanged at SGD4.24. Maintain BUY.

Underlying trends still positive
Data traffic and tiered plan migration continued strongly in 2Q14, driving postpaid mobile revenue up 5.4% YoY. This is in line with our expectations and underpinned by 58% of postpaid users now on tiered plans, up 4ppt QoQ and 32ppt YoY. We expect further upside to tiered data migration to further drive growth. On the cost front, subscriber acquisition cost fell on lower demand for premium handsets and lower marketing costs from higher demand for shared bucket plans.

Prepaid, broadband contained
Following the new 10-to-3 SIM card ruling on 1 Apr, prepaid users fell but prepaid revenue and ARPU recovered as M1 drove more top-up activities. On the highly competitive home broadband
front, M1 has been able to contain the situation by offering more free months subscription instead of cutting prices further.

Catalysts: more dividends, entry into Pay TV
Balance sheet remains strong even after SGD131.8m in dividends paid in 2Q14. Along with higher ordinary dividends, there is still potential for a second special dividend this year, in our view. Also, M1 is pursuing a Pay TV licence and may enter the fray in 2015.

SATS

Kim Eng on 22 July 2014

  • Downgrade to SELL with revised TP of SGD2.50, based on 16x FY3/15E P/E.
  • We expect near-term earnings to be dampened by escalating costs and a weak air cargo business.
  • Sparked by another quarter of weak earnings performance in 1QFY3/15, consensus estimates could be cut by up to 10%. .
Another quarter of earnings disappointment
SATS reported a weak 1QFY3/15 underlying net income of SGD43.4m (-9.4% YoY) despite a 14.6% YoY reduction in depreciation charge arising from an accounting change. Labour costs remained the key pressure point in 1QFY3/15, rising 3.0% YoY, amid a stagnating top-line. Efforts to reduce headcount have yet to show any results with EBITDA margin sliding further. Incremental contribution from the recently acquired stake in PT CAS failed to compensate for air cargo weakness, leading to significantly lower contributions from its associates (-16.8% YoY). The only bright spot is stable aviation statistics at Changi Airport with SATS gaining a larger slice of the air cargo market.

Another wave of earnings cuts to dampen sentiment
We cut our FY3/15-17E EPS by 8-9% to reflect the disappointing set of results and forecast a 4.5% earnings contraction in the year ahead. In our view, the spectre for consensus EPS downgrades will dampen sentiment on the stock.
While a DCF-based valuation reflects the strong cash generative nature of its business, we believe that the market will increasingly look to price SATS on earnings as it struggles to contain escalating costs in the near term. Hence, we downgrade our rating to SELL (from HOLD) and switch to a P/E-based valuation method (previously DCF) with a revised TP of SGD2.50 (from SGD3.30), based on 16x FY3/15E P/E. The stock offers an attractive FY3/15E yield of 4.8% at our revised TP.

VARD Holdings

Kim Eng on 22 July 2014

  • 2Q14 results disappointed on weaker-than-expected EBITDA margin due to teething issues at Promar yard.
  • We see two bright spots: A turnaround at Promar yard in FY15E, and a significant risk reduction for its Niteroi yard.
  • Forecasts cut by up to 6% on lower margin; TP trimmed to SGD1.25 (from SGD1.27), based on 1.4x FY15E P/BV.
Below ours but in-line with consensus estimates
While 2Q14 PATMI recovered 52.2% QoQ to NOK140m, the rebound fell short of our expectations. EBITDA margin disappointed, staying unchanged at 6.4% in 2Q14 (1Q14: 6.4%), after four consecutive quarters of improvement. This was mainly due to teething issues confronting its Promar yard in Brazil. With 1H14 PATMI accounting for 38% of our initial full-year forecast, we cut our FY14E/15E/16E forecasts by 6%/3%/2% on the back of a lower margin assumption.

Short-term pain could persist but not for long
Notwithstanding, we see a couple of bright spots:
1) Efficiency improvement at its European yards and higher utilisation for its Vietnam yard should cushion the operational drags emanating from the Promar yard. Management is confident of achieving profitability at its Promar yard in FY15E.
2) There is a significant risk reduction for its Niteroi yard now that the last sub-contracted hull was received with no additional provisions required.

We like Vard given its strong earnings visibility, supported by a large orderbook of NOK21.6b, and attractive valuations. The operating leverage should lift the FY15E/16E EBITDA margin to our revised 9.5%/10.7% (lowered from 9.8%/11/1%). Our revised TP of SGD1.25 (previously SGD1.27) is based on a conservative and unchanged 1.4x FY15E P/BV, which is one SD below its five-year historical mean. Maintain BUY.

Suntec Reit

Kim Eng on 22 July 2014

  • No surprises in 2Q14 with a 0.2 SGD cts DPU top-out.
  • Post-AEI, Suntec City average passing rent for Phases 1 and 2 hit SGD12.57 psf/month
  • Maintain BUY with an unchanged TP of SGD1.95.
Results in line with expectations
Suntec REIT’s 2Q14/1H14 DPU rose 0.8%/0.4% YoY to 2.266/4.495 SGD cts, which accounted for 26%/51% of our full-year estimate. There was a 0.2 SGD cts DPU top-out in 2Q14. Recall that Suntec received cash proceeds of SGD147m from the sale of Chijmes in 1Q12. Since 1Q13, management has topped up SGD24m. Gearing improved to 35.3% (1Q14: 38.4%) post the SGD350m prepayment of loan facility, funded by the private placement in March. Similar to other S-REITs, the all-in financing cost for Suntec inched up to 2.62% from 2.49% in the quarter before.

Suntec City AEI on track
Suntec City Phase 2 AEI opened on 1 Jun with the combined Phases 1 and 2 achieving 97.6% occupancy and the average passing rent of SGD12.57 psf/month. Phase 3 is on schedule to complete by year-end. At end-June, Suntec City office occupancy rate remained high at 99.4% (1Q14: 98.9%), with leases for the quarter secured at an average rent of SGD8.98 psf/mth (1Q14: SGD8.97 psf/mth). Overall office portfolio occupancy rate stood at 99.7% (1Q14: 99.4%). With 5.6-25% of office leases by NLA expiring each year for the next three years, we remain confident that Suntec’s proactive leasing management will ensure that its office portfolio is fully optimised.
Suntec’s share price has risen 20.5% YTD, making it the top-performing S-REIT among the 32 listed counters. We maintain our BUY recommendation with an unchanged DDM-derived TP of SGD1.95 (cost of equity = 7.0%; Tg = 2%).

Mapletree Logistics Trust

Kim Eng on 22 July 2014

  • 1QFY3/15 results in line with our and market expectations.
  • Acquiring another property from sponsor for SGD41.1m with initial NPI yield of 8%. More could be on the cards.
  • FY3/15E-17E DPU forecasts raised by up to 1.6%; reiterate HOLD with a higher TP of SGD1.18.
In-line 1QFY3/15 results
MLT posted a 5.6% YoY rise in 1QFY3/15 DPU, meeting 26% of our full-year estimate, aided by contribution from Mapletree Benoi Logistics Hub and a 12% YoY positive rental reversion for leases
secured during last quarter. MLT has about 18% of leases, in terms of NLA, due for renewal in FY3/15. The all-in-financing cost for 1QFY3/15 averaged 2.0% (4QFY3/14: 1.9%) with an average term of debt of 3.4 years. According to MLT’s interest rate sensitivity analysis, its DPU would decline by ~0.5%, or 0.009 SGD cts per quarter, for every 25bps increase in interest rates.

Mapletree Zhenzhou Logistics Park acquisition
MLT has signed a MoU with its sponsor, Mapletree Investments Pte Ltd, to acquire Mapletree Zhenzhou Logistics Park in Henan, China for SGD41.1m. The acquisition, which will deliver an initial 8.0% NPI yield, will raise its gearing to 34.5% (33.4% at end-June). We expect this to complete by 1 Aug and to be fully debt funded. The SGD107m redevelopment of 5B Toh Guan Road East will add 40,000 sq m of space when completed in 1QFY3/17. We raise our FY3/15E-17E DPU forecasts by 1.2-1.6% to factor in these initiatives and better reversion rates for its overall portfolio.
Reiterate HOLD with a higher DDM-derived TP of SGD1.18 (cost of equity = 7.1%; Tg = 1%) from SGD1.15. Catalyst: Further asset injections by the sponsor, which has another 14 sizeable logistics
developments in Asia, representing more than half of MLT’s total portfolio NLA.

Keppel Corp

Kim Eng on 25 Jul 2014

  • 2Q14 results met expectations. O&M operating margin rose by 0.5ppt to 14.7%, on track to meet our full-year forecast.
  • An oversupplied deepwater rig market and reduced capex by oil companies could cap share price upside.
  • Maintain HOLD with revised SOTP-based TP of SGD10.95.
No surprises
Keppel Corp’s 2Q14 PATMI of SGD406m (+17% YoY, +20% QoQ) was within our and consensus expectations. 1H14 PATMI meets 45% of  our full-year forecast. O&M operating margin for the quarter  inched up by 0.5ppt QoQ to 14.7% (1Q14: 14.2%, 2Q13: 14.1%), on  track to meet our 14.9% full-year forecast. An interim dividend of 12 SGD cts/sh was declared.

Near-term headwinds to cap share price upside
The SGD3.2b of O&M orders secured YTD account for 58% of our full-year order win forecast of SGD5.5b. Net orderbook stands at SGD14.1b with deliveries up until 2019. In the property division,
1H14 revenue dipped by 13% YoY on weaker sales in Singapore and  China, as well as the deconsolidation of Keppel REIT in Aug 2013.

No further provisions were made for its infrastructure EPC projects in Qatar and UK which are at the final stages of completion. Keppel remains bullish on the jackup rig market, but acknowledges weakness in the deepwater rig segment. In our view, an oversupplied deepwater rig market and the spectre of further reductions in capex by oil companies would dampen drillers’ propensity to order new rigs in the next six months.

Maintain HOLD with a minor 1% cut to FY14E PATMI, while FY15E-16E forecasts are left unchanged. Our SOTP-based TP is revised to SGD10.95 (from SGD10.74) after incorporating market prices of its listed entities. Rerating catalysts would come from (1) improved market sentiments as supply-demand for deepwater rigs balances out, (2) stronger-than-expected orders from other offshore vessel types (FPSO/FLNG) and (3) higher-than-expected O&M margin.

Ascendas REIT

OCBC on 24 Jul 2014

Ascendas REIT (A-REIT) reported 1QFY15 DPU of 3.64 S cents, up 2.5% YoY. This is in line with our expectations. For the quarter, we note that positive rental reversion averaging 11.8% was achieved for leases renewed, as passing rents were still below the current market levels. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15. A-REIT announced two new asset enhancement initiatives (AEIs) to maximise the plot ratio and improve the marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.

No surprises for 1QFY15 results
Ascendas REIT (A-REIT) reported a consistent set of 1QFY15 results last evening. NPI grew by 7.7% YoY to S$116.3m, while distributable income increased 2.8% to S$87.6m. The improved performance was mainly due to the recognition of rental income from Nexus@one-north, A-REIT City@Jinqiao and higher secured rentals within portfolio. DPU for the quarter stood at 3.64 S cents, up by a similar 2.5% YoY. This is in line with expectations, as the interim DPU formed 24.0% of both ours and consensus FY15 distribution forecasts. However, as A-REIT has changed its distribution frequency to semi-annual basis with effect from FY15, no payout will be made this quarter.

Portfolio operating metrics largely stable
For the quarter, we note that positive rental reversion averaging 11.8% (FY14: +14.8%) was achieved for leases renewed, as passing rents were still below the current market levels. Portfolio occupancy, on the other hand, eased from 89.6% in Mar to 88.1% as a result of the expiry of leases of two single-user assets. We understand that one is 61.2% occupied while the other is vacant. Nonetheless, management guided that the latter is expected to be fully occupied by Aug, which should bring the overall occupancy above the 90% level. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15.

Maintain BUY
A-REIT announced two new asset enhancement initiatives (AEIs) at the Gemini-Aries and Science Hub with an aggregate estimated value of S$25.6m to maximise the plot ratio and improve the marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.

CapitaMall Trust

OCBC on 23 Jul 2014

CapitaMall Trust (CMT) reported 2Q14 DPU of 2.69 S cents, up 6.3% YoY. The better performance, we note, was due mainly to higher secured rentals within the portfolio and contribution from IMM Building. Positive rental reversion also remained robust at 6.6%. Management updated that the ongoing AEIs at Bugis Junction, Tampines Mall and IMM Building are progressing well. In 3Q, CMT plans to commence refurbishment works at Bukit Panjang Plaza, which includes freeing up ~18,000sqft of commercial GFA and rejuvenating its façade. Management estimates an ROI of 8.0% upon completion of the AEI in 3Q16. We keep our forecasts largely intact as the results were in line. Maintain BUY with unchanged fair value of S$2.20 on CMT.

2Q14 results within view
CapitaMall Trust (CMT) released its 2Q14 results this morning. NPI rose by 4.4% YoY to S$114.0m, while distributable income increased 6.5% to S$93.4m. Similarly, DPU for the quarter grew 6.3% to 2.69 S cents. Together with 1Q distribution, 1H14 DPU came in at 5.26 S cents (+5.4% YoY), meeting 47.9% of our full-year DPU forecast. This is well within our expectations, given that S$11.2m taxable income retained in 1H14 is expected to be distributed in the second-half year. 

Operational performance solid as ever
The better performance, we note, was due mainly to higher secured rentals within the portfolio and contribution from IMM Building following the completion of its Phase 1 asset enhancement initiative (AEI). As at 30 Jun, the portfolio occupancy stood at 98.6%. This represents a marginal decline from 98.8% seen a quarter ago, as a result of ongoing AEIs at several malls. However, positive rental reversion remained robust at 6.6%, led by a 31.2% jump in secured rents at JCube due to a renewal of a mini-anchor tenant lease that was signed in 2005. Excluding this, we note that reversion was still healthy at 6.2%, unchanged from that registered in 1Q.

Maintain BUY
Management updated that the ongoing AEIs at Bugis Junction, Tampines Mall and IMM Building are progressing well. Over at JCube, CMT has carved out a 25,000sqft retail zone called J.Avenue to cater to a trendy cluster of shops with street shopping ambience. J.Avenue is targeted to open progressively from Sep, and to-date, two-thirds of the 70 shops have been taken up. In 3Q, CMT plans to commence refurbishment works at Bukit Panjang Plaza, which includes freeing up ~18,000sqft of commercial GFA and rejuvenating its façade. Management estimates an ROI of 8.0% upon completion of the AEI in 3Q16. We keep our forecasts largely intact as the results were in line. Maintain BUY with unchanged fair value of S$2.20 on CMT.

Frasers Centrepoint Trust

OCBC on 23 Jul 2014

Frasers Centrepoint Trust (FCT) reported 3QFY14 DPU of 3.022 S cents, up 6.0% YoY. This is largely in line with our expectation. Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved, with only Bedok Point registering a mild 2.9% negative reversion. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. Maintain BUY on FCT with an unchanged fair value of S$2.08.

Strong 3QFY14 results as expected
Frasers Centrepoint Trust (FCT) reported a promising set of 3QFY14 results last evening, with gross revenue growing 3.1% YoY to S$41.2m and NPI improving 2.4% to S$29.1m. The better performance was mainly due to higher revenue from Causeway Point and maiden contribution from newly-acquired Changi City Point. Distribution to unitholders of S$25.5m (+8.6%) was further boosted by the release of S$2.1m cash retained in 1HFY14. As such, DPU for the quarter came in at 3.022 S cents, up 6.0% YoY. This brings the 9MFY14 DPU to 8.402 S cents (+5.7%), meeting 75.9%/76.4% of our/consensus full-year DPU projections.

Improvement in operating metrics
Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants including anchor tenant Harvey Norman commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved (2Q: +9.3%), with only Bedok Point registering a mild 2.9% negative reversion. Overall shopper traffic in 3Q14 picked up 2.7% QoQ, led by Causeway Point which saw a 9.0% robust growth.

Maintain BUY
While management cautions that more retail space alternatives and labour shortages are likely to pose challenges to retail landlords going forward, it expects its portfolio occupancy and rental rates to remain sustainable. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. We make minor adjustments to our forecasts as the interim results were mostly consistent with our expectations. Our fair value is unchanged at S$2.08. Maintain BUY on FCT as upside potential remains attractive.