OCBC on 27 Jul 2012
CMA announced 2Q12 PATMI of S$232.0m - up 40.7% YoY mostly due to a S$64.6m divestment gain (net-tax), offset partially by lower revaluation gains. Accounting for one-time items, we estimate 2Q12 core PATMI at S$39.0m which is somewhat below view due to a slower than expected rental income ramp-up in China. Management also declared an interim dividend of 1.625 S-cents, and a formal dividend policy to pay out at least 20% of annual PATMI. 1H12 shopper traffic and tenant sales (psf) in CMA’s Chinese malls were up 10.7% and 11.6% YoY respectively, underscoring still healthy retail conditions. We pare our FY12 core PATMI estimate, however, by 16% to account for softer income growth from China. Despite this, our fair value estimate rises to S$1.85 (10% RNAV discount) versus S$1.79 previously, mostly due to stronger valuations for listed holdings. We believe CMA’s valuation appears undemanding at this juncture. Maintain BUY.
Rental ramp-up at Chinese malls slower than expected
CMA announced 2Q12 PATMI of S$232.0m, which was 40.7% higher YoY mostly due to a S$64.6m divestment gain (net-tax) from injecting CapitaMall Tianfu and CapitaMall Meilicheng into CapitaMalls China Development Fund III, offset partially by a lower revaluation gain of investment properties over the quarter. Accounting for one-time items, we estimate 2Q12 core PATMI at S$39.0m which is somewhat below view due to a slower than expected rental income ramp-up in China. 2Q12 topline came in at S$74.6m – up 18.7% YoY mostly due to the acquisition of three Japanese malls in Feb 12 and higher revenue from the management fee business. Management also declared an interim dividend of 1.625 S-cents, and a formal dividend policy to pay out at least 20% of annual PATMI.
Retail conditions in China still healthy
1H12 shopper traffic and tenant sales (psf) in CMA’s Chinese malls remained healthy and were up 10.7% and 11.6% YoY, respectively. Excluding Tier 1 cities, tenant sales were up an even stronger 15.9%. In addition, 1H12 same-mall NPI in China was up 18.3% YoY, underscoring still healthy retail conditions. In Singapore, we saw 1H12 shopper traffic come down 0.8% YoY due to construction works and competitive pressures at several malls, though tenant sales still increased a respectable 2.1%. Looking ahead, we expect six more new malls opening in China and Star Vista in Singapore to open by Sep12. We understand that Star Vista is currently ~83% leased, and management is looking to hold out for better rates for the remaining space as the mall gains traction after opening.
FV rises to S$1.85 due to valuation of listed holdings
We pare our FY12 core PATMI estimate by 16% to S$161.7m as we incorporate into our model a softer rental income ramp-up in China. Our fair value estimate, however, rises to S$1.85 (10% RNAV discount) versus S$1.79 previously, mostly due to stronger valuations for listed holdings. We believe CMA’s valuation appears undemanding at this juncture. Maintain BUY.
Friday, 27 July 2012
OSIM International
OCBC on 27 Jul 2012
OSIM International Ltd’s (OSIM) 2Q12 revenue of S$154.7m (+11.6% YoY) was similar to our forecast, but PATMI of S$22.5m (+20.1% YoY) exceeded our projection by 9.1% due to better-than-expected margins. Another positive surprise came from a special declared DPS of 1 S cent (on top of a 1 S cent/share interim dividend). The stronger bottomline growth was driven by a favourable product mix, better productivity and continued rationalisation of stores. We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. Despite ongoing concerns over China’s slowing economy, we believe OSIM could be a laggard play as it continues to execute well on driving its productivity gains and product innovation. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.
2Q12 PATMI ahead of our expectations
OSIM International Ltd (OSIM) reported 2Q12 revenue of S$154.7m (+11.6% YoY, +3.1% QoQ) which matched our forecast of S$154.6m. PATMI jumped 20.1% YoY and 1.4% QoQ to S$22.5m. This exceeded our projection by 9.1% due to better-than-expected margins. For 1H12, revenue increased 6.0% YoY to S$304.8m, while PATMI of S$44.7m represented a growth of 15.0%. A pleasant surprise in the form of a special dividend of 1 S cent/share was declared, on top of an interim dividend of 1 S cent/share. This brings total DPS to 3 S cents YTD. The dividend payouts are supported by the healthy S$29.8m of operating cashflows generated during the quarter, versus S$24.7m in 2Q11. We raise our FY12 DPS forecast to 4.5 S cents.
It’s all about the margins
OSIM reported a strong operating margin of 19.1% in 2Q12, an improvement of 1.3ppt from 2Q11, backed by a favourable product mix from new launches, better productivity and continued rationalisation of non-performing stores. Management continued to emphasise on its focus on innovation to enhance its product offerings and drive its sales per store growth. Other initiatives include strengthening its backend infrastructure to improve efficiencies.
Laggard play, BUY rating reinforced
We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. OSIM’s share price has increased 2.6% YTD, underperforming the broader market. We believe that OSIM could be a laggard play as it remains on track to exceed consensus’ previous FY12F PATMI forecast of S$81.8m. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. OSIM also offers an attractive FY12F dividend yield of 3.8%. While we acknowledge that concerns over the slowing Chinese economy remain entrenched, OSIM has executed well on driving its productivity gains and expanding its margins to mitigate this. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.
OSIM International Ltd’s (OSIM) 2Q12 revenue of S$154.7m (+11.6% YoY) was similar to our forecast, but PATMI of S$22.5m (+20.1% YoY) exceeded our projection by 9.1% due to better-than-expected margins. Another positive surprise came from a special declared DPS of 1 S cent (on top of a 1 S cent/share interim dividend). The stronger bottomline growth was driven by a favourable product mix, better productivity and continued rationalisation of stores. We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. Despite ongoing concerns over China’s slowing economy, we believe OSIM could be a laggard play as it continues to execute well on driving its productivity gains and product innovation. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.
2Q12 PATMI ahead of our expectations
OSIM International Ltd (OSIM) reported 2Q12 revenue of S$154.7m (+11.6% YoY, +3.1% QoQ) which matched our forecast of S$154.6m. PATMI jumped 20.1% YoY and 1.4% QoQ to S$22.5m. This exceeded our projection by 9.1% due to better-than-expected margins. For 1H12, revenue increased 6.0% YoY to S$304.8m, while PATMI of S$44.7m represented a growth of 15.0%. A pleasant surprise in the form of a special dividend of 1 S cent/share was declared, on top of an interim dividend of 1 S cent/share. This brings total DPS to 3 S cents YTD. The dividend payouts are supported by the healthy S$29.8m of operating cashflows generated during the quarter, versus S$24.7m in 2Q11. We raise our FY12 DPS forecast to 4.5 S cents.
It’s all about the margins
OSIM reported a strong operating margin of 19.1% in 2Q12, an improvement of 1.3ppt from 2Q11, backed by a favourable product mix from new launches, better productivity and continued rationalisation of non-performing stores. Management continued to emphasise on its focus on innovation to enhance its product offerings and drive its sales per store growth. Other initiatives include strengthening its backend infrastructure to improve efficiencies.
Laggard play, BUY rating reinforced
We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. OSIM’s share price has increased 2.6% YTD, underperforming the broader market. We believe that OSIM could be a laggard play as it remains on track to exceed consensus’ previous FY12F PATMI forecast of S$81.8m. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. OSIM also offers an attractive FY12F dividend yield of 3.8%. While we acknowledge that concerns over the slowing Chinese economy remain entrenched, OSIM has executed well on driving its productivity gains and expanding its margins to mitigate this. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.
Lian Beng Group
OCBC on 27 Jul 2012
Lian Beng Group (LBG) reported that its 4QFY12 revenue fell 13% YoY to S$111.4m while PATMI remained flat at S$11.5m. LBG’s operating margin climbed an impressive 3.6ppt to 14%, but the impact of one-off items resulted in no growth in its PATMI. Management also recommended final and special dividends totalling S$0.02/share. In full-year comparison, LBG’s revenue in FY12 fell 12% to S$445.0m but PATMI rose 8% to S$52.1m. Revenue growth in ready-mixed concrete was particularly strong, jumping 83% in FY2012. LBG’s order book contracted to S$652m at end-FY12. However, the order book is still robust since it is twice the size of its construction revenue in FY12. We maintain our fair value estimate of S$0.47/share and BUY rating on LBG.
Reasonably strong financial performance in 4QFY12
Lian Beng Group (LBG) reported that its 4QFY12 revenue fell 13% YoY to S$111.4m while PATMI remained flat at S$11.5m. LBG’s operating margin climbed an impressive 3.6ppt to 14%, helping its operating profit to grow 18% YoY to S$15.5m. However, the combination of one-off gains in 4QFY11 and one-off losses in 4QFY12 caused LBG’s PATMI to stay flat. Management shared that the higher profit margins were achieved as a result of better project management. In addition, management recommended dividends totalling S$0.02/share, made up of a final dividend and a special dividend of each S$0.01/share.
Strong growth in ready-mixed concrete
In full-year comparison, LBG’s revenue in FY12 fell 12% to S$445.0m but PATMI rose 8% to S$52.1m. LBG’s construction segment remains its biggest revenue contributor, making up 75% of total revenue. Meanwhile, its ready-mixed concrete and property development segments contributed 17% and 7% to total revenue respectively. Revenue growth in ready-mixed concrete was particularly strong, jumping 83% in FY2012. The strong growth was due to LBG’s capacity expansion and strong demand from the construction sector.
Management stays cautiously optimistic
LBG’s order book contracted to S$652m at end-FY12, from S$742m at end-3QFY12. However, the order book is still robust since it is twice the size of its construction revenue in FY12. Management remains cautiously optimistic of the outlook for Singapore’s construction industry over the next 12 months and said LBG will remain active in tendering for new projects. Management added that construction demand is expected to remain strong, especially from public housing developments, institutional buildings and civil engineering projects.
Maintain BUY
We lower our revenue forecast of LBG in FY13F by 2% but increase our PATMI forecast by 1% to account for slower revenue growth but higher profit margins. Thus, we maintain our fair value estimate of S$0.47/share and BUY rating on LBG.
Lian Beng Group (LBG) reported that its 4QFY12 revenue fell 13% YoY to S$111.4m while PATMI remained flat at S$11.5m. LBG’s operating margin climbed an impressive 3.6ppt to 14%, but the impact of one-off items resulted in no growth in its PATMI. Management also recommended final and special dividends totalling S$0.02/share. In full-year comparison, LBG’s revenue in FY12 fell 12% to S$445.0m but PATMI rose 8% to S$52.1m. Revenue growth in ready-mixed concrete was particularly strong, jumping 83% in FY2012. LBG’s order book contracted to S$652m at end-FY12. However, the order book is still robust since it is twice the size of its construction revenue in FY12. We maintain our fair value estimate of S$0.47/share and BUY rating on LBG.
Reasonably strong financial performance in 4QFY12
Lian Beng Group (LBG) reported that its 4QFY12 revenue fell 13% YoY to S$111.4m while PATMI remained flat at S$11.5m. LBG’s operating margin climbed an impressive 3.6ppt to 14%, helping its operating profit to grow 18% YoY to S$15.5m. However, the combination of one-off gains in 4QFY11 and one-off losses in 4QFY12 caused LBG’s PATMI to stay flat. Management shared that the higher profit margins were achieved as a result of better project management. In addition, management recommended dividends totalling S$0.02/share, made up of a final dividend and a special dividend of each S$0.01/share.
Strong growth in ready-mixed concrete
In full-year comparison, LBG’s revenue in FY12 fell 12% to S$445.0m but PATMI rose 8% to S$52.1m. LBG’s construction segment remains its biggest revenue contributor, making up 75% of total revenue. Meanwhile, its ready-mixed concrete and property development segments contributed 17% and 7% to total revenue respectively. Revenue growth in ready-mixed concrete was particularly strong, jumping 83% in FY2012. The strong growth was due to LBG’s capacity expansion and strong demand from the construction sector.
Management stays cautiously optimistic
LBG’s order book contracted to S$652m at end-FY12, from S$742m at end-3QFY12. However, the order book is still robust since it is twice the size of its construction revenue in FY12. Management remains cautiously optimistic of the outlook for Singapore’s construction industry over the next 12 months and said LBG will remain active in tendering for new projects. Management added that construction demand is expected to remain strong, especially from public housing developments, institutional buildings and civil engineering projects.
Maintain BUY
We lower our revenue forecast of LBG in FY13F by 2% but increase our PATMI forecast by 1% to account for slower revenue growth but higher profit margins. Thus, we maintain our fair value estimate of S$0.47/share and BUY rating on LBG.
Sheng Siong
OCBC on 27 Jul 2012
There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share. Going forward, with the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well with SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.
No surprises in 2Q12 results
There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. On a sequential basis, revenue and net profit declined 8% and 58.2% respectively on seasonality factors and the one-off S$10.5m gain from the sale of its Marsiling warehouse, which was recorded in 1Q12. However, excluding the one-off gain, net profit rose 11% on the back of gross profit margin improvements. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share.
Gross profit margins improve
As expected, 2Q12 gross profit margin climbed higher by 1 percentage point to 21.9% (1Q12: 20.8%) following the easing of competition amongst the Big 3 supermarkets. Although margins are still down on a YoY basis (2Q11: 22.9%), we believe that the trend of higher comparable same store sales and the favourable responses to SSG’s new stores will continue to push margins back to the upper ranges of 22%-23%.
More retail space to come
As part of its drive to increase presence in locations with lower representation, SSG announced the addition of two more stores at Bukit Batok and Bedok North, which will bring the total retail space to 385K sf (378K sf previously). Coupled with the 24-hr outlet in Geylang that was opened in early July, SSG’s revenue growth will continue in the second half of the year.
SSG to benefit from weakening sentiment
With the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well for SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.
There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share. Going forward, with the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well with SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.
No surprises in 2Q12 results
There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. On a sequential basis, revenue and net profit declined 8% and 58.2% respectively on seasonality factors and the one-off S$10.5m gain from the sale of its Marsiling warehouse, which was recorded in 1Q12. However, excluding the one-off gain, net profit rose 11% on the back of gross profit margin improvements. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share.
Gross profit margins improve
As expected, 2Q12 gross profit margin climbed higher by 1 percentage point to 21.9% (1Q12: 20.8%) following the easing of competition amongst the Big 3 supermarkets. Although margins are still down on a YoY basis (2Q11: 22.9%), we believe that the trend of higher comparable same store sales and the favourable responses to SSG’s new stores will continue to push margins back to the upper ranges of 22%-23%.
More retail space to come
As part of its drive to increase presence in locations with lower representation, SSG announced the addition of two more stores at Bukit Batok and Bedok North, which will bring the total retail space to 385K sf (378K sf previously). Coupled with the 24-hr outlet in Geylang that was opened in early July, SSG’s revenue growth will continue in the second half of the year.
SSG to benefit from weakening sentiment
With the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well for SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.
Genting Singapore
DBS Group Research on 26 July 2012
MARINA Bay Sands' (MBS) Q2 2012 Ebitda contracted 19 per cent yoy and 30 per cent qoq to US$330 million (S$534 million) as net revenue fell 6 per cent yoy and 18 per cent qoq, due to declines in VIP rolling chip volume (down 6 per cent yoy and 10 per cent qoq) and win rate (2.4 per cent versus Q2 2011's 3.0 per cent and Q1 2012's 3.6 per cent).
If we normalise the luck factor, gross gaming revenue would have risen marginally by one per cent yoy but declined 4 per cent qoq due to the seasonally stronger Chinese New Year in Q1 2012.
The mass market segment continued to strengthen (mass drop up 8 per cent yoy and 3 per cent qoq; slots handle up 15 per cent yoy and flat qoq), contributing 60 per cent of gross gaming revenue (compared to 51 per cent in Q2 2011 and 47 per cent in Q1 2012). Non-gaming revenue held up (17 per cent of net revenue), with hotel occupancy and the average room rate inching up further to 99.1 per cent and US$351.
MBS raised receivables provisions to 14 per cent of VIP gross gaming revenue, compared to 3 per cent in Q2 2011 (the last hike in provisions was in Q4 2011, to 10 per cent), dragging its Ebitda margin down to 48 per cent (Q2 2011: 55 per cent; Q1 2012: 56 per cent).
Macau has also seen VIP gross gaming revenue contracting qoq for the past two quarters. While junkets could be a boost, the timing of more licence awards (including to China-based junkets) remains uncertain.
Genting Singapore's Q2 2012 results will likely be unexciting, but H2 2012 should be stronger with the completion of Resorts World Sentosa's western zone by Q4 2012. We cut 2012-14 earnings forecasts by 9-12 per cent to factor in an 8 per cent contraction in rolling chip volume, lower net win/slot and higher receivables provisions. Downgrade Genting Singapore to "hold" from "buy", with a revised target price of S$1.17 (pegged to Macau sector average of eight times 2013 forecast enterprise value/ Ebitda compared to 12 times previously, given slower growth and multiples contraction).
While partly in the price, there could be further negative knee-jerk reaction from policy risk - the public consultation on proposed amendments to the Casino Control Act will end on Aug 6 and be tabled in Parliament by year-end - and a potential full-blown tussle against Crown Ltd for Echo Entertainment Group, which would require US$1.5 billion-US$3.5 billion to bring Genting Group's 10 per cent stake to 50-100 per cent (compared to Genting Singapore's net cash of US$2 billion, plus US$1.3 billion in annual operating cash flows).
HOLD
Biomedical Boost
Kim Eng on 27 Jul 2012
Industrial Production (IP) growth surprised on the upside in June 2012 as it gained +7.6% YoY (revised May 2012: +6.8% YoY; Consensus: +2.8% YoY), led by biomedical production. MoM, the seasonally adjusted IP grew by +3.9% (May 2012: +2.8%), while for the first half of this year, production was up +1.8% YoY (1H 2011: +6.5% YoY). Growth in 2Q 2012 was 4.5% YoY, better than the 3% YoY estimate made for the quarter’s preliminary real GDP growth of +1.9% YoY and -1.1% annualized QoQ, offering some scope for a small upward revision to the final figure.
Biomedical Manufacturing and Transport Engineering were at it again. Pharmaceuticals (June 2012: +68.8% YoY; May 2012: +39.2% YoY) posted a second consecutive month of strong double-digit growth which boosted output of Biomedical cluster by +54.4% YoY (May 2012: +33.3% YoY). Transport Engineering (June 2012: +7.6% YoY; May 2012: +36.2% YoY) cluster was the second largest contributor to IP growth in Jun 2012, although the growth pace decelerated considerably amid slower growth in the Marine & Offshore Engineering (June 2012: +8.1% YoY; May 2012: +45.3% YoY) and Aerospace (June 2012: +4.4% YoY; May 2012: +23.3% YoY) subdivisions.
IP ex-Biomedical fell by -1.5% YoY (May 2012: +2.2% YoY) as the Electronics cluster remained a drag following the -4.4% YoY decline in production (May 2012: -9.3% YoY). Lower output were reported in Computer Peripherals (June 2012: -18.1% YoY; May 2012: -7.1% YoY) as a result of lower production of printed circuit boards and other computer product, while Data Storage (June 2012: -2.5% YoY; May 2012: +28.6% YoY) fell reflecting lingering hard disk drive supply shortages caused by the Thai flood. Adding to the Electronics negative contribution to output in June 2012 were further contractions in Chemicals (Jun 2012: -5.7% YoY; May 2012: -3.9% YoY) and Precision Engineering (Jun 2012: -3.4% YoY; May 2012: -1.4% YoY).
Recently-released European data remain cause for concern, but some encouraging signs from China. MAS recently noted that Singapore’s 2012 GDP growth could come in below 1% if US and China economies were to slump and conditions in Eurozone worsen, although the Official forecast remains at 1%-3%. Our expectations are for the economy to expand by +3.0% (2011: +4.9%). Flash Eurozone manufacturing PMI for July 2012 came in at 44.1, the lowest since May 2009 as both Germany and France registered lower readings of 43.3 and 43.6 respectively as business confidence in these two countries slumped to a two-year low this month, while UK registered a second consecutive contraction in quarterly real GDP growth (2Q 2012: -0.7% QoQ; 1Q 2012: -0.3% QoQ). However, China’s HSBC/Markit preliminary manufacturing PMI for July 2012 improved to 49.5, the highest reading since Feb 2012, suggesting the economy is responding to the two benchmark interest rate cuts as well as the administrative/fiscal stimulus over the past two months.
Industrial Production (IP) growth surprised on the upside in June 2012 as it gained +7.6% YoY (revised May 2012: +6.8% YoY; Consensus: +2.8% YoY), led by biomedical production. MoM, the seasonally adjusted IP grew by +3.9% (May 2012: +2.8%), while for the first half of this year, production was up +1.8% YoY (1H 2011: +6.5% YoY). Growth in 2Q 2012 was 4.5% YoY, better than the 3% YoY estimate made for the quarter’s preliminary real GDP growth of +1.9% YoY and -1.1% annualized QoQ, offering some scope for a small upward revision to the final figure.
Biomedical Manufacturing and Transport Engineering were at it again. Pharmaceuticals (June 2012: +68.8% YoY; May 2012: +39.2% YoY) posted a second consecutive month of strong double-digit growth which boosted output of Biomedical cluster by +54.4% YoY (May 2012: +33.3% YoY). Transport Engineering (June 2012: +7.6% YoY; May 2012: +36.2% YoY) cluster was the second largest contributor to IP growth in Jun 2012, although the growth pace decelerated considerably amid slower growth in the Marine & Offshore Engineering (June 2012: +8.1% YoY; May 2012: +45.3% YoY) and Aerospace (June 2012: +4.4% YoY; May 2012: +23.3% YoY) subdivisions.
IP ex-Biomedical fell by -1.5% YoY (May 2012: +2.2% YoY) as the Electronics cluster remained a drag following the -4.4% YoY decline in production (May 2012: -9.3% YoY). Lower output were reported in Computer Peripherals (June 2012: -18.1% YoY; May 2012: -7.1% YoY) as a result of lower production of printed circuit boards and other computer product, while Data Storage (June 2012: -2.5% YoY; May 2012: +28.6% YoY) fell reflecting lingering hard disk drive supply shortages caused by the Thai flood. Adding to the Electronics negative contribution to output in June 2012 were further contractions in Chemicals (Jun 2012: -5.7% YoY; May 2012: -3.9% YoY) and Precision Engineering (Jun 2012: -3.4% YoY; May 2012: -1.4% YoY).
Recently-released European data remain cause for concern, but some encouraging signs from China. MAS recently noted that Singapore’s 2012 GDP growth could come in below 1% if US and China economies were to slump and conditions in Eurozone worsen, although the Official forecast remains at 1%-3%. Our expectations are for the economy to expand by +3.0% (2011: +4.9%). Flash Eurozone manufacturing PMI for July 2012 came in at 44.1, the lowest since May 2009 as both Germany and France registered lower readings of 43.3 and 43.6 respectively as business confidence in these two countries slumped to a two-year low this month, while UK registered a second consecutive contraction in quarterly real GDP growth (2Q 2012: -0.7% QoQ; 1Q 2012: -0.3% QoQ). However, China’s HSBC/Markit preliminary manufacturing PMI for July 2012 improved to 49.5, the highest reading since Feb 2012, suggesting the economy is responding to the two benchmark interest rate cuts as well as the administrative/fiscal stimulus over the past two months.
CapitaMalls Asia
Kim Eng on 27 Jul 2012
China earnings coming through. CMA reported a 2Q12 headline PATMI growth of 41% YoY to SGD232m, partly lifted by revaluation gains. 1H12 PATMI excluding revaluation gains came in at SGD162.7m, largely within expectations. Property income from China has picked up as expected, due to contributions from Minhang and Hongkou malls. We remain positive on CMA’s positioning and prospects. Maintain BUY.
Mall operations continue to grow steadily. Property income of SGD117m accounted for 29% of CMA’s 1H12 EBIT – a 46% improvement from the same period last year. That was underpinned by steady same-mall NPI growth particularly in China (up 18.3% YoY). Tenant sales have also continued to improve in 1H12, especially those in China where sales grew by 11.6% YoY. Tenant sales outside of Tier 1 cities have in fact grown by an even stronger 15.9% YoY.
Upside potential from Singapore. The Star Vista, expected to open in mid-Sep 2012, is already more than 80% committed. Based on our own estimates, the asset could contribute ~SGD11m per annum in NPI. In addition, a substantial amount of leases at ION Orchard expire this year, and we expect some uplift from positive rental reversions, as well as improvement in tenant mix in some areas of the mall.
Setting a dividend policy. The Board has approved a dividend policy, whereby ordinary dividends of >20% of the annual PATMI (incl. revaluation gains) will be paid. Additional dividends may be declared in the event of exceptional gains from monetization or divestment of assets, taking into consideration outstanding capital commitments and economic outlook. We believe that this is a positive step to reward shareholders. An interim dividend of 1.625 cts/sh has been declared.
Reiterate BUY. Another six malls in China will be opened before the end of the year, and these will contribute fully to CMA’s FY13 earnings. We remain confident of CMA’s prospects and have rais ed our target price slightly to SGD2.09, pegged to a 20% discount to RNAV on the back of the recent re-rating in its REITs.
China earnings coming through. CMA reported a 2Q12 headline PATMI growth of 41% YoY to SGD232m, partly lifted by revaluation gains. 1H12 PATMI excluding revaluation gains came in at SGD162.7m, largely within expectations. Property income from China has picked up as expected, due to contributions from Minhang and Hongkou malls. We remain positive on CMA’s positioning and prospects. Maintain BUY.
Mall operations continue to grow steadily. Property income of SGD117m accounted for 29% of CMA’s 1H12 EBIT – a 46% improvement from the same period last year. That was underpinned by steady same-mall NPI growth particularly in China (up 18.3% YoY). Tenant sales have also continued to improve in 1H12, especially those in China where sales grew by 11.6% YoY. Tenant sales outside of Tier 1 cities have in fact grown by an even stronger 15.9% YoY.
Upside potential from Singapore. The Star Vista, expected to open in mid-Sep 2012, is already more than 80% committed. Based on our own estimates, the asset could contribute ~SGD11m per annum in NPI. In addition, a substantial amount of leases at ION Orchard expire this year, and we expect some uplift from positive rental reversions, as well as improvement in tenant mix in some areas of the mall.
Setting a dividend policy. The Board has approved a dividend policy, whereby ordinary dividends of >20% of the annual PATMI (incl. revaluation gains) will be paid. Additional dividends may be declared in the event of exceptional gains from monetization or divestment of assets, taking into consideration outstanding capital commitments and economic outlook. We believe that this is a positive step to reward shareholders. An interim dividend of 1.625 cts/sh has been declared.
Reiterate BUY. Another six malls in China will be opened before the end of the year, and these will contribute fully to CMA’s FY13 earnings. We remain confident of CMA’s prospects and have rais ed our target price slightly to SGD2.09, pegged to a 20% discount to RNAV on the back of the recent re-rating in its REITs.
OSIM International
Kim Eng on 27 Jul 2012
In-line with expectations. 2Q12 results were in line with expectations as OSIM achieved another record quarter. 2Q12 net profit was up 20% yoy to SGD22.5m, driven by sales growth of 12% during the quarter. Management declared another interim dividend this quarter, this time a bumper SGD 2 cents/ share (including SGD 1 cent special dividend).
Revenue growth in China and Hong Kong. Despite widespread concerns about weak retail data, revenue from this region was up 12% yoy during the quarter, even without any significant net store increase. This is no mean feat considering many brands are reporting sales declines. The key difference, in our opinion is that the potential market for OSIM is still immense, with a penetration rate of less than 1%. To put into perspectives, OSIM only needs to grow against its base of less than 40,000 massage chairs (by our est) sold in China last year.
Don’t forget GNC is also a very dominant brand. Numbers for GNC are not separately disclosed, but we believe its steady growth was a factor in South Asia revenue this quarter surging 13% yoy. GNC has a dominant market position in Singapore/ Malaysia. Not only is it a beneficiary of increasing health awareness, we also continue to be impressed by its product innovation. This quarter, it is introducing proprietary products “Taut”, a collagen drink for women and “StemC” a placenta of thorough-bred horses from Japan.
Ability to generate cash. The company is sitting on a net cash position of SGD54m, despite having bought back more than 86.5m shares and paying out bumper dividends this year. We now expect full-year dividends to top SGD 5 cents/ share. This is a company that can generate very strong free-cash flow of more than $75m a year (9% free cash-flow yield) in the absence of major investments.
Rare blend of growth and dividends. At the current price, investors are getting an estimated 4% dividend yield, which is very attractive for a growth company and in light of the current market yield compression. We trim FY12-FY14F earnings by 2-5%, accounting for a weaker China retail market as well as adjust for lower number of shares. We now peg our TP of SGD1.90 to 17x FY12F (1x 3-year PEG). Reiterate BUY.
In-line with expectations. 2Q12 results were in line with expectations as OSIM achieved another record quarter. 2Q12 net profit was up 20% yoy to SGD22.5m, driven by sales growth of 12% during the quarter. Management declared another interim dividend this quarter, this time a bumper SGD 2 cents/ share (including SGD 1 cent special dividend).
Revenue growth in China and Hong Kong. Despite widespread concerns about weak retail data, revenue from this region was up 12% yoy during the quarter, even without any significant net store increase. This is no mean feat considering many brands are reporting sales declines. The key difference, in our opinion is that the potential market for OSIM is still immense, with a penetration rate of less than 1%. To put into perspectives, OSIM only needs to grow against its base of less than 40,000 massage chairs (by our est) sold in China last year.
Don’t forget GNC is also a very dominant brand. Numbers for GNC are not separately disclosed, but we believe its steady growth was a factor in South Asia revenue this quarter surging 13% yoy. GNC has a dominant market position in Singapore/ Malaysia. Not only is it a beneficiary of increasing health awareness, we also continue to be impressed by its product innovation. This quarter, it is introducing proprietary products “Taut”, a collagen drink for women and “StemC” a placenta of thorough-bred horses from Japan.
Ability to generate cash. The company is sitting on a net cash position of SGD54m, despite having bought back more than 86.5m shares and paying out bumper dividends this year. We now expect full-year dividends to top SGD 5 cents/ share. This is a company that can generate very strong free-cash flow of more than $75m a year (9% free cash-flow yield) in the absence of major investments.
Rare blend of growth and dividends. At the current price, investors are getting an estimated 4% dividend yield, which is very attractive for a growth company and in light of the current market yield compression. We trim FY12-FY14F earnings by 2-5%, accounting for a weaker China retail market as well as adjust for lower number of shares. We now peg our TP of SGD1.90 to 17x FY12F (1x 3-year PEG). Reiterate BUY.
Thursday, 26 July 2012
Frasers Commercial Trust
OCBC on 26 Jul 2012
Frasers Commercial Trust (FCOT) turned in a strong set of 3QFY12 results last evening. The robust quarterly performance was mainly driven by the acquisition of the balance 50% interest in Caroline Chisholm Centre (CCC) and higher income from direct tenant leases at China Square Central (CSC) following the expiry of the master lease. Leasing activities within FCOT’s portfolio has also remained robust. On the capital management front, FCOT updated that it has successfully completed the early refinancing of its S$500m term loan facility using two new facilities. Notably, blended interest margin is ~1ppt lower than its previous borrowing margin. Hence, we expect FCOT to gain from interest savings going forward. Maintain BUY on FCOT with a higher fair value of S$1.16.
3Q results were within expectations
Frasers Commercial Trust (FCOT) turned in a strong set of 3QFY12 results last evening. NPI and distributable income were up 7.1% and 16.7% YoY to S$26.6m and S$15.6m respectively. DPU for the quarter came in at 1.70 S cents (+23.2% YoY), after netting off S$4.7m in distribution to CPPU holders. For 9MFY12, DPU totaled 4.94 S cents, representing a growth of 16.8%. This is roughly in line with our estimates, given that it formed 73.1% of our full year DPU forecast.
Improvement from all fronts
The robust quarterly performance was mainly driven by the acquisition of the balance 50% interest in Caroline Chisholm Centre (CCC) and higher income from direct tenant leases at China Square Central (CSC) following the expiry of the master lease. Leasing activities within FCOT’s portfolio has also remained robust. Overall portfolio occupancy as at 30 Jun was at 96.7%, up marginally from 96.1% in the previous quarter, thanks to improved occupancy rates at its Singapore and Australia properties. FCOT also secured a number of lease renewals during the quarter, such as leases with Cerebos Pacific at CSC. Together with long-term lease at CCC, the portfolio weighted average lease to expiry was strengthened to 4.2 years, up from 3.4 years in 2Q.
Retain BUY, raising FV to S$1.16
Management also updated that it has successfully completed the early refinancing of its S$500m term loan facility using two new facilities (S$320m and S$185m loans). Notably, blended interest margin is ~1ppt lower than its previous borrowing margin. Hence, we expect FCOT to gain from interest savings going forward. We also understand that unitholders had approved the sale of KeyPoint. We believe FCOT may possibly use the proceeds to redeem 50% of its CPPUs and pare down its debts, given that its aggregate leverage is at 39.5%. After factoring in the results and redeployment of KeyPoint sale proceeds, our fair value is now raised to S$1.16 from S$0.97 previously. Maintain BUY on FCOT.
Frasers Commercial Trust (FCOT) turned in a strong set of 3QFY12 results last evening. The robust quarterly performance was mainly driven by the acquisition of the balance 50% interest in Caroline Chisholm Centre (CCC) and higher income from direct tenant leases at China Square Central (CSC) following the expiry of the master lease. Leasing activities within FCOT’s portfolio has also remained robust. On the capital management front, FCOT updated that it has successfully completed the early refinancing of its S$500m term loan facility using two new facilities. Notably, blended interest margin is ~1ppt lower than its previous borrowing margin. Hence, we expect FCOT to gain from interest savings going forward. Maintain BUY on FCOT with a higher fair value of S$1.16.
3Q results were within expectations
Frasers Commercial Trust (FCOT) turned in a strong set of 3QFY12 results last evening. NPI and distributable income were up 7.1% and 16.7% YoY to S$26.6m and S$15.6m respectively. DPU for the quarter came in at 1.70 S cents (+23.2% YoY), after netting off S$4.7m in distribution to CPPU holders. For 9MFY12, DPU totaled 4.94 S cents, representing a growth of 16.8%. This is roughly in line with our estimates, given that it formed 73.1% of our full year DPU forecast.
Improvement from all fronts
The robust quarterly performance was mainly driven by the acquisition of the balance 50% interest in Caroline Chisholm Centre (CCC) and higher income from direct tenant leases at China Square Central (CSC) following the expiry of the master lease. Leasing activities within FCOT’s portfolio has also remained robust. Overall portfolio occupancy as at 30 Jun was at 96.7%, up marginally from 96.1% in the previous quarter, thanks to improved occupancy rates at its Singapore and Australia properties. FCOT also secured a number of lease renewals during the quarter, such as leases with Cerebos Pacific at CSC. Together with long-term lease at CCC, the portfolio weighted average lease to expiry was strengthened to 4.2 years, up from 3.4 years in 2Q.
Retain BUY, raising FV to S$1.16
Management also updated that it has successfully completed the early refinancing of its S$500m term loan facility using two new facilities (S$320m and S$185m loans). Notably, blended interest margin is ~1ppt lower than its previous borrowing margin. Hence, we expect FCOT to gain from interest savings going forward. We also understand that unitholders had approved the sale of KeyPoint. We believe FCOT may possibly use the proceeds to redeem 50% of its CPPUs and pare down its debts, given that its aggregate leverage is at 39.5%. After factoring in the results and redeployment of KeyPoint sale proceeds, our fair value is now raised to S$1.16 from S$0.97 previously. Maintain BUY on FCOT.
Biosensors International
OCBC on 26 Jul 2012
Biosensors International Group’s (BIG) reported 1QFY13 results were within our expectations. Revenue accelerated 51.3% YoY to US$86.3m, with solid growth recorded in EMEA, APAC and China. This formed 22.7% of our full-year forecast. Core PATMI rose 17.4% YoY to US$28.3m, in line with our US$29.2m forecast. BIG managed to achieve better economies of scale and a more favourable product and geographical mix for the quarter, which helped to boost its gross margin. However, gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. We reiterate our BUY rating as valuations still appear attractive.
1QFY13 core PATMI grows 17.4% YoY to US$28.3m
Biosensors International Group (BIG) reported its 1QFY13 results which were in line with our expectations. Revenue accelerated 51.3% YoY but declined 2.1% QoQ to US$86.3m, or 22.7% of our FY13 forecast. This was driven largely by organic growth from its BioMatrix Flex™ drug-eluting stents (DES) and inorganic growth from the consolidation of JW Medical Systems (JWMS) from 3QFY12. Licensing revenue grew 10.5% YoY but slipped 24.3% QoQ due to a ~15% decline in ASPs. According to management, BIG continued to record solid growth in EMEA, APAC and China during the quarter. PATMI jumped 44.7% YoY and 19.9% QoQ to US$32.6m. Adjusting for exceptional items, core PATMI rose 17.4% YoY but fell 0.9% QoQ to US$28.3m, versus our US$29.2m forecast.
Boost in gross margins and operating cashflows
BIG’s product gross margin showed a significant improvement of 7.0ppt YoY and 5.3ppt QoQ to 81.0% on the back of improving economies of scale from strong unit growth, absence of consolidation costs for JWMS and favourable product and geographical mix. But we believe that BIG’s gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. BIG’s SG&A expenses spiked up by 43.6% YoY and 8.7% QoQ but we note that this was due partly to expenses incurred for its participation in the EuroPCR, an important interventional cardiology conference in which BIG continued to present positive clinical evidence for its DES products. We expect this to drive its market share gains and revenue moving forward. BIG also generated strong operating cashflows of US$36.3m in 1QFY13, versus US$2.3m in 1QFY12.
Undervalued gem, reiterate our BUY rating
We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. BIG is currently trading at 12.3x FY13F PER, a 23% discount to its peers’ average 15.9x PER. Reiterate our BUY rating as valuations still appear attractive.
Biosensors International Group’s (BIG) reported 1QFY13 results were within our expectations. Revenue accelerated 51.3% YoY to US$86.3m, with solid growth recorded in EMEA, APAC and China. This formed 22.7% of our full-year forecast. Core PATMI rose 17.4% YoY to US$28.3m, in line with our US$29.2m forecast. BIG managed to achieve better economies of scale and a more favourable product and geographical mix for the quarter, which helped to boost its gross margin. However, gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. We reiterate our BUY rating as valuations still appear attractive.
1QFY13 core PATMI grows 17.4% YoY to US$28.3m
Biosensors International Group (BIG) reported its 1QFY13 results which were in line with our expectations. Revenue accelerated 51.3% YoY but declined 2.1% QoQ to US$86.3m, or 22.7% of our FY13 forecast. This was driven largely by organic growth from its BioMatrix Flex™ drug-eluting stents (DES) and inorganic growth from the consolidation of JW Medical Systems (JWMS) from 3QFY12. Licensing revenue grew 10.5% YoY but slipped 24.3% QoQ due to a ~15% decline in ASPs. According to management, BIG continued to record solid growth in EMEA, APAC and China during the quarter. PATMI jumped 44.7% YoY and 19.9% QoQ to US$32.6m. Adjusting for exceptional items, core PATMI rose 17.4% YoY but fell 0.9% QoQ to US$28.3m, versus our US$29.2m forecast.
Boost in gross margins and operating cashflows
BIG’s product gross margin showed a significant improvement of 7.0ppt YoY and 5.3ppt QoQ to 81.0% on the back of improving economies of scale from strong unit growth, absence of consolidation costs for JWMS and favourable product and geographical mix. But we believe that BIG’s gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. BIG’s SG&A expenses spiked up by 43.6% YoY and 8.7% QoQ but we note that this was due partly to expenses incurred for its participation in the EuroPCR, an important interventional cardiology conference in which BIG continued to present positive clinical evidence for its DES products. We expect this to drive its market share gains and revenue moving forward. BIG also generated strong operating cashflows of US$36.3m in 1QFY13, versus US$2.3m in 1QFY12.
Undervalued gem, reiterate our BUY rating
We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. BIG is currently trading at 12.3x FY13F PER, a 23% discount to its peers’ average 15.9x PER. Reiterate our BUY rating as valuations still appear attractive.
First REIT
OCBC on 26 Jul 2012
First REIT’s (FREIT) 2Q12 results were within our expectations. Gross revenue, distributable amount to unitholders and DPU rose 6.1%, 23.1% and 22.2%YoY to S$14.0m, S$12.2m and 1.93 S cents, respectively. For 1H12, gross revenue rose 6.2% YoY to S$28.0m and constituted 47.4% of our full-year projection. DPU increased 22.2% to 3.86 S cents and formed 50.1% of our FY12 forecast if we exclude a special distribution arising from an asset divestment. Looking ahead, we believe that acquisitions are possible in 2H12, which could be financed by a combination of debt and equity, given its current rich valuations. FREIT trades at FY12F P/B of 1.23x, a significant 26% premium to the S-REIT universes’ average P/B of 0.98x. Hence we downgrade FREIT from Buy to HOLD on valuation grounds, with an unchanged fair value estimate of S$0.96.
2Q12 results were within expectations
First REIT’s (FREIT) 2Q12 results were within our expectations. Gross revenue increased 6.1% YoY to S$14.0m. This was driven by contribution from its Sarang Hospital which was acquired in Aug 2011 and higher rental income from its remaining portfolio. Distributable amount to unitholders and DPU jumped 23.1% and 22.2%YoY to S$12.2m and 1.93 S cents, respectively. This is payable on 29 Aug 2012 (ex-div: 30 Jul). The hike in DPU was boosted by a special distribution of S$2.2m (S$0.34 per unit) which arose from a gain from the sale of the Adam Road property. This is the last tranche of special distribution arising from this divestment gain. Sequentially, revenue and DPU were both flat. For 1H12, gross revenue rose 6.2% YoY to S$28.0m and constituted 47.4% of our full-year projection. DPU increased 22.2% to 3.86 S cents. Excluding the special distribution highlighted earlier, DPU would have formed 50.1% of our FY12 forecast.
Acquisitions likely to complement organic growth
Looking ahead, we believe that acquisitions could possibly take place in 2H12, given FREIT’s low leverage ratio of 15.1% and ongoing negotiations with its sponsor Lippo Karawaci over the past several months. We had previously factored in acquisitions amounting to S$88.9m in our model assumptions, with details delineated in our 29 Jun 2012 report.
Downgrade to HOLD on valuation grounds
Following our last upgrade on FREIT to Buy on 29 Jun 2012, the stock has since appreciated 6.0%, outperforming both the STI and FTSE ST RE Invest Trust Index. Although FREIT offers an FY12F yield of 7.6% (6.9% if we strip out the special gain distributions), while providing income streams that are largely resilient in nature given its long-term master leases, valuations appear rich at current price level, in our opinion. The stock trades at FY12F P/B of 1.23x, a significant 26% premium to the S-REIT universes’ average P/B of 0.98x. Hence we downgrade FREIT from Buy to HOLD on valuation grounds, with an unchanged fair value estimate of S$0.96. We believe that it is also possible for FREIT to fund its next acquisitions via a combination of debt and equity given its current rich valuations.
First REIT’s (FREIT) 2Q12 results were within our expectations. Gross revenue, distributable amount to unitholders and DPU rose 6.1%, 23.1% and 22.2%YoY to S$14.0m, S$12.2m and 1.93 S cents, respectively. For 1H12, gross revenue rose 6.2% YoY to S$28.0m and constituted 47.4% of our full-year projection. DPU increased 22.2% to 3.86 S cents and formed 50.1% of our FY12 forecast if we exclude a special distribution arising from an asset divestment. Looking ahead, we believe that acquisitions are possible in 2H12, which could be financed by a combination of debt and equity, given its current rich valuations. FREIT trades at FY12F P/B of 1.23x, a significant 26% premium to the S-REIT universes’ average P/B of 0.98x. Hence we downgrade FREIT from Buy to HOLD on valuation grounds, with an unchanged fair value estimate of S$0.96.
2Q12 results were within expectations
First REIT’s (FREIT) 2Q12 results were within our expectations. Gross revenue increased 6.1% YoY to S$14.0m. This was driven by contribution from its Sarang Hospital which was acquired in Aug 2011 and higher rental income from its remaining portfolio. Distributable amount to unitholders and DPU jumped 23.1% and 22.2%YoY to S$12.2m and 1.93 S cents, respectively. This is payable on 29 Aug 2012 (ex-div: 30 Jul). The hike in DPU was boosted by a special distribution of S$2.2m (S$0.34 per unit) which arose from a gain from the sale of the Adam Road property. This is the last tranche of special distribution arising from this divestment gain. Sequentially, revenue and DPU were both flat. For 1H12, gross revenue rose 6.2% YoY to S$28.0m and constituted 47.4% of our full-year projection. DPU increased 22.2% to 3.86 S cents. Excluding the special distribution highlighted earlier, DPU would have formed 50.1% of our FY12 forecast.
Acquisitions likely to complement organic growth
Looking ahead, we believe that acquisitions could possibly take place in 2H12, given FREIT’s low leverage ratio of 15.1% and ongoing negotiations with its sponsor Lippo Karawaci over the past several months. We had previously factored in acquisitions amounting to S$88.9m in our model assumptions, with details delineated in our 29 Jun 2012 report.
Downgrade to HOLD on valuation grounds
Following our last upgrade on FREIT to Buy on 29 Jun 2012, the stock has since appreciated 6.0%, outperforming both the STI and FTSE ST RE Invest Trust Index. Although FREIT offers an FY12F yield of 7.6% (6.9% if we strip out the special gain distributions), while providing income streams that are largely resilient in nature given its long-term master leases, valuations appear rich at current price level, in our opinion. The stock trades at FY12F P/B of 1.23x, a significant 26% premium to the S-REIT universes’ average P/B of 0.98x. Hence we downgrade FREIT from Buy to HOLD on valuation grounds, with an unchanged fair value estimate of S$0.96. We believe that it is also possible for FREIT to fund its next acquisitions via a combination of debt and equity given its current rich valuations.
Cache Logistics Trust
OCBC on 26 Jul 2012
Cache Logistics Trust’s (CACHE) 1HFY12 results were generally consistent with our projections, with NPI and DPU forming 47.8% and 49.1% of our full-year forecasts respectively. For 2HFY12, we remain confident that CACHE will continue to deliver sustainable distributions, given its recent initiatives on growth plans and capital management. The acquisitions of Pan Asia Logistics Centre and Pandan Logistics Hub, we note, have to yet make their full-quarter contributions to CACHE’s income stream and are expected to boost the DPU going forward. CACHE also refinanced all its outstanding debts with a new S$375.0m bank facility, thereby extending its debt maturity and enlarging its pool of unsecured assets. Notably, all-in financing cost is expected to improve to 3.44% from 4.38% over the quarter. This is in line with our view that CACHE is likely to gain from interest savings going forward. We maintain our BUY rating and fair value of S$1.18 on CACHE.
2QFY12 performance within expectations
Cache Logistics Trust (CACHE) reported its 2QFY12 results after the market close yesterday. NPI grew by 8.1% YoY to S$16.7m, while distributable income rose 4.1% YoY to S$13.9m. The positive performance was mainly attributable to incremental income from upward rental adjustments and acquisitions made over the past year. DPU, on the other hand, eased 5.0% YoY to 1.981 S cents. However, this was expected as CACHE had issued 60m new units via a private placement in Mar. The results were generally consistent with our projections, with 1HFY12 NPI and DPU forming 47.8% and 49.1% of our full-year forecasts respectively.
Positive outlook remains
For 2HFY12, we remain confident that CACHE will continue to deliver sustainable distributions, given its recent initiatives on growth plans and capital management. The acquisitions of Pan Asia Logistics Centre and Pandan Logistics Hub (completed in Apr and Jul respectively), we note, have to yet make their full-quarter contributions to CACHE’s income stream and are expected to boost the DPU going forward. CACHE also refinanced all its outstanding debts with a new S$375.0m bank facility, thereby extending its debt maturity and enlarging its pool of unsecured assets. Notably, all-in financing cost is expected to improve to 3.44% from 4.38% over the quarter. This is in line with our view that CACHE is likely to gain from interest savings going forward.
Reiterate BUY on CACHE
CACHE has one of the most resilient portfolios in the industrial REIT space, in our opinion. The portfolio occupancy has remained 100% occupied since listing. The weighted average lease to expiry and aggregate leverage post acquisition of Pandan Logistics Hub were also strong at 4.4 years (less than 2% expiring in 2013) and 32.5% respectively. We maintain our BUY rating and fair value of S$1.18 on CACHE.
Cache Logistics Trust’s (CACHE) 1HFY12 results were generally consistent with our projections, with NPI and DPU forming 47.8% and 49.1% of our full-year forecasts respectively. For 2HFY12, we remain confident that CACHE will continue to deliver sustainable distributions, given its recent initiatives on growth plans and capital management. The acquisitions of Pan Asia Logistics Centre and Pandan Logistics Hub, we note, have to yet make their full-quarter contributions to CACHE’s income stream and are expected to boost the DPU going forward. CACHE also refinanced all its outstanding debts with a new S$375.0m bank facility, thereby extending its debt maturity and enlarging its pool of unsecured assets. Notably, all-in financing cost is expected to improve to 3.44% from 4.38% over the quarter. This is in line with our view that CACHE is likely to gain from interest savings going forward. We maintain our BUY rating and fair value of S$1.18 on CACHE.
2QFY12 performance within expectations
Cache Logistics Trust (CACHE) reported its 2QFY12 results after the market close yesterday. NPI grew by 8.1% YoY to S$16.7m, while distributable income rose 4.1% YoY to S$13.9m. The positive performance was mainly attributable to incremental income from upward rental adjustments and acquisitions made over the past year. DPU, on the other hand, eased 5.0% YoY to 1.981 S cents. However, this was expected as CACHE had issued 60m new units via a private placement in Mar. The results were generally consistent with our projections, with 1HFY12 NPI and DPU forming 47.8% and 49.1% of our full-year forecasts respectively.
Positive outlook remains
For 2HFY12, we remain confident that CACHE will continue to deliver sustainable distributions, given its recent initiatives on growth plans and capital management. The acquisitions of Pan Asia Logistics Centre and Pandan Logistics Hub (completed in Apr and Jul respectively), we note, have to yet make their full-quarter contributions to CACHE’s income stream and are expected to boost the DPU going forward. CACHE also refinanced all its outstanding debts with a new S$375.0m bank facility, thereby extending its debt maturity and enlarging its pool of unsecured assets. Notably, all-in financing cost is expected to improve to 3.44% from 4.38% over the quarter. This is in line with our view that CACHE is likely to gain from interest savings going forward.
Reiterate BUY on CACHE
CACHE has one of the most resilient portfolios in the industrial REIT space, in our opinion. The portfolio occupancy has remained 100% occupied since listing. The weighted average lease to expiry and aggregate leverage post acquisition of Pandan Logistics Hub were also strong at 4.4 years (less than 2% expiring in 2013) and 32.5% respectively. We maintain our BUY rating and fair value of S$1.18 on CACHE.
SATS Ltd
OCBC on 26 Jul 2012
SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’ 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. But if we exclude the discontinued operations and one-offs, SATS would have shown a 4% PATMI increase. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively; while non-aviation food revenue was flat YoY in 1QFY13. SATS’ staff costs, its largest expense, grew almost at the same pace as revenue growth after the group increased the workforce in its Gateway Services segment. Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS.
1QFY13 in line with consensus
SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’s 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. However, if we exclude the discontinued operations and a write-back of retirement benefit plan obligations in 1QFY12, related to the pension restructuring at its Japanese subsidiary TFK Corporation, SATS would have shown a 4% PATMI increase in 1QFY13.
Strong organic growth
By our estimation, SATS in 1QFY13 recorded strong revenue growth for all its aviation-related segments. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively. The exceptional growth in TFK can be attributed to the Tokyo earthquake in Mar 2011, which greatly affected TFK’s operations in 1QFY12. Management shared that TFK’s current operating levels have not yet recovered back to pre-earthquake levels. This means TFK can continue growing, albeit at a slower pace. On a less positive note, SATS’s non-aviation food revenue was flat YoY in 1QFY13.
Staff costs increased strongly too
In 1QFY13, SATS’s staff costs, its largest expense, grew almost at the same pace as revenue growth. Management said the increase in staff costs was the result of the group increasing the workforce in its Gateway Services segment. More manpower is needed to support a new contract won in Hong Kong and an increased number of flights handled at Changi Airport. Separately, SATS is also in the process of merging Country Foods and Singapore Food Industries in order to achieve synergies and cost savings.
Maintain HOLD
Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS. And as a reminder, SATS’ FY12 final and special dividend of S$0.21/share goes ex-date on 31 Jul 2012.
SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’ 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. But if we exclude the discontinued operations and one-offs, SATS would have shown a 4% PATMI increase. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively; while non-aviation food revenue was flat YoY in 1QFY13. SATS’ staff costs, its largest expense, grew almost at the same pace as revenue growth after the group increased the workforce in its Gateway Services segment. Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS.
1QFY13 in line with consensus
SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’s 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. However, if we exclude the discontinued operations and a write-back of retirement benefit plan obligations in 1QFY12, related to the pension restructuring at its Japanese subsidiary TFK Corporation, SATS would have shown a 4% PATMI increase in 1QFY13.
Strong organic growth
By our estimation, SATS in 1QFY13 recorded strong revenue growth for all its aviation-related segments. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively. The exceptional growth in TFK can be attributed to the Tokyo earthquake in Mar 2011, which greatly affected TFK’s operations in 1QFY12. Management shared that TFK’s current operating levels have not yet recovered back to pre-earthquake levels. This means TFK can continue growing, albeit at a slower pace. On a less positive note, SATS’s non-aviation food revenue was flat YoY in 1QFY13.
Staff costs increased strongly too
In 1QFY13, SATS’s staff costs, its largest expense, grew almost at the same pace as revenue growth. Management said the increase in staff costs was the result of the group increasing the workforce in its Gateway Services segment. More manpower is needed to support a new contract won in Hong Kong and an increased number of flights handled at Changi Airport. Separately, SATS is also in the process of merging Country Foods and Singapore Food Industries in order to achieve synergies and cost savings.
Maintain HOLD
Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS. And as a reminder, SATS’ FY12 final and special dividend of S$0.21/share goes ex-date on 31 Jul 2012.
CapitaRetail China Trust
OCBC on 26 Jul 2012
For 2Q12, CRCT’s revenue rose 18.2% YoY to RMB190.2m and net property income climbed 15.0% to RMB124.4m. Income available for distribution rose 23.5% to S$16.65m. Solid rental reversions of 15.2% YoY for the portfolio were achieved (versus 13.0% for 1Q12). CapitaMall Xizhimen in Beijing saw the highest rental reversion of 28.9% on the back of a 52.1% YoY increase in shopper traffic to approximately 85k-90k people per day, following the opening of a basement connection to the subway. CapitaMall Saihan in Huhot, Inner Mongolia, registered the highest NPI growth of 38.2%. We maintain our BUY rating on CRCT and raise out fair value from S$1.44 to S$1.50. CRCT is offering an attractive FY12F dividend yield of 6.9%.
Slightly above expectations
CRCT reported 2Q12 income available for distribution of S$16.65m, up 23.5% YoY. 2Q12 DPU is 2.41 S-cents per share. The results were slightly above our expectations; YTD DPU of 4.82 S-cents made up 52% of our initial full-year forecast. 2Q12 revenue rose 18.2% YoY to RMB190.2m and net property income climbed 15.0% to RMB124.4m. CapitaMall. The increase was chiefly due to the contribution from CapitaMall Minzhongleyuan which was acquired on 30 June 2011, as well as higher rental growth at its multi-tenanted malls. Shopper traffic and tenant sales at CRCT’s multi-tenanted malls grew 26.4% and 13.1% respectively.
Good rental reversions
Solid rental reversions of 15.2% YoY for the portfolio were achieved (versus 13.0% for 1Q12). CapitaMall Xizhimen in Beijing saw the highest rental reversion of 28.9% on the back of a 52.1% YoY increase in shopper traffic to approximately 85k-90k people per day, following the opening of a basement connection to the subway. Management said that tenant sales at Xizhimen grew at a high single digit percentage rate, and believes that there is further potential to fine-tune the tenant mix at the mall. Management will be bringing in international fast fashion brands such as UNIQLO and Urban Renewal to Xizhimen. Our understanding is that the recent floods in Beijing will not have a significant impact on CRCT’s malls there.
Transformation of CapitaMall Saihan
CapitaMall Saihan in Huhot, Inner Mongolia, registered the highest NPI growth of 38.2%. Since the completion of AEI at Saihan in 2010, which marked its transformation from a master-leased mall to a multi-tenanted mall, Saihan has experienced strong growth, with occupancy at 99.7% as of Jun 2012.
Maintain BUY
We maintain our BUY rating on CRCT and raise our fair value from S$1.44 to S$1.50. CRCT is offering a good FY12F dividend yield of 6.9%.
For 2Q12, CRCT’s revenue rose 18.2% YoY to RMB190.2m and net property income climbed 15.0% to RMB124.4m. Income available for distribution rose 23.5% to S$16.65m. Solid rental reversions of 15.2% YoY for the portfolio were achieved (versus 13.0% for 1Q12). CapitaMall Xizhimen in Beijing saw the highest rental reversion of 28.9% on the back of a 52.1% YoY increase in shopper traffic to approximately 85k-90k people per day, following the opening of a basement connection to the subway. CapitaMall Saihan in Huhot, Inner Mongolia, registered the highest NPI growth of 38.2%. We maintain our BUY rating on CRCT and raise out fair value from S$1.44 to S$1.50. CRCT is offering an attractive FY12F dividend yield of 6.9%.
Slightly above expectations
CRCT reported 2Q12 income available for distribution of S$16.65m, up 23.5% YoY. 2Q12 DPU is 2.41 S-cents per share. The results were slightly above our expectations; YTD DPU of 4.82 S-cents made up 52% of our initial full-year forecast. 2Q12 revenue rose 18.2% YoY to RMB190.2m and net property income climbed 15.0% to RMB124.4m. CapitaMall. The increase was chiefly due to the contribution from CapitaMall Minzhongleyuan which was acquired on 30 June 2011, as well as higher rental growth at its multi-tenanted malls. Shopper traffic and tenant sales at CRCT’s multi-tenanted malls grew 26.4% and 13.1% respectively.
Good rental reversions
Solid rental reversions of 15.2% YoY for the portfolio were achieved (versus 13.0% for 1Q12). CapitaMall Xizhimen in Beijing saw the highest rental reversion of 28.9% on the back of a 52.1% YoY increase in shopper traffic to approximately 85k-90k people per day, following the opening of a basement connection to the subway. Management said that tenant sales at Xizhimen grew at a high single digit percentage rate, and believes that there is further potential to fine-tune the tenant mix at the mall. Management will be bringing in international fast fashion brands such as UNIQLO and Urban Renewal to Xizhimen. Our understanding is that the recent floods in Beijing will not have a significant impact on CRCT’s malls there.
Transformation of CapitaMall Saihan
CapitaMall Saihan in Huhot, Inner Mongolia, registered the highest NPI growth of 38.2%. Since the completion of AEI at Saihan in 2010, which marked its transformation from a master-leased mall to a multi-tenanted mall, Saihan has experienced strong growth, with occupancy at 99.7% as of Jun 2012.
Maintain BUY
We maintain our BUY rating on CRCT and raise our fair value from S$1.44 to S$1.50. CRCT is offering a good FY12F dividend yield of 6.9%.
Starhill Global REIT
OCBC on 25 Jul 2012
Starhill Global REIT (SGREIT) announced DPU of 1.08 S cents for 2QFY12 (+3.8% YoY), in line with our projections. Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy and comparatively higher rentals following the asset redevelopment at its retail segment. Going forward, we believe SGREIT will continue to perform as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY on SGREIT.
Consistent set of 2QFY12 results
Starhill Global REIT (SGREIT) reported NPI of S$37.1m (+4.4% YoY) and distributable income of S$23.3m (+2.0% YoY) for 2QFY12, in line with our projections. DPU came in at 1.08 S cents (+3.8% YoY), after netting off S$2.3m in distribution to CPU holders. Together with the distribution in 1Q, 1HFY12 DPU amounted to 2.15 S cents, meeting 49.6% of our FY12 DPU forecast (50.0% of consensus). This translates to an annualized DPU yield of 6.2%.
Strong numbers from Wisma Atria
Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy (99.0% vs. 92.0% a year ago) and comparatively higher rentals following the asset redevelopment (AEI) at its retail segment. We understand that SGREIT had achieved positive rental reversions of 33% for leases committed at the property, since the start of refurbishment works (Jul 2011 - Jun 2012). In addition, management updated that the AEI at Wisma Atria was substantially completed in the quarter and that the ROI of 12.8% based on annualized NPI had exceeded its initial target of 8%.
Maintain BUY
As at 30 Jun, SGREIT’s portfolio occupancy rate improved 50bps QoQ to 99.5% as a result of higher occupancies at all properties except Daikanyama in Japan. Aggregate leverage also remained healthy at 30.5% (30.4% in 1Q), with no debt refinancing until Jan 2013. In our view, SGREIT’s growth potential has yet to be unleashed as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY. Other catalysts, we note, may come from interest savings from refinancing of its outstanding debts, favourable outcome from court appeal pertaining to the master lease arrangement with Toshin Development (expected latest by Sep 2012) and divestment of Japan properties at attractive valuations.
Starhill Global REIT (SGREIT) announced DPU of 1.08 S cents for 2QFY12 (+3.8% YoY), in line with our projections. Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy and comparatively higher rentals following the asset redevelopment at its retail segment. Going forward, we believe SGREIT will continue to perform as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY on SGREIT.
Consistent set of 2QFY12 results
Starhill Global REIT (SGREIT) reported NPI of S$37.1m (+4.4% YoY) and distributable income of S$23.3m (+2.0% YoY) for 2QFY12, in line with our projections. DPU came in at 1.08 S cents (+3.8% YoY), after netting off S$2.3m in distribution to CPU holders. Together with the distribution in 1Q, 1HFY12 DPU amounted to 2.15 S cents, meeting 49.6% of our FY12 DPU forecast (50.0% of consensus). This translates to an annualized DPU yield of 6.2%.
Strong numbers from Wisma Atria
Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy (99.0% vs. 92.0% a year ago) and comparatively higher rentals following the asset redevelopment (AEI) at its retail segment. We understand that SGREIT had achieved positive rental reversions of 33% for leases committed at the property, since the start of refurbishment works (Jul 2011 - Jun 2012). In addition, management updated that the AEI at Wisma Atria was substantially completed in the quarter and that the ROI of 12.8% based on annualized NPI had exceeded its initial target of 8%.
Maintain BUY
As at 30 Jun, SGREIT’s portfolio occupancy rate improved 50bps QoQ to 99.5% as a result of higher occupancies at all properties except Daikanyama in Japan. Aggregate leverage also remained healthy at 30.5% (30.4% in 1Q), with no debt refinancing until Jan 2013. In our view, SGREIT’s growth potential has yet to be unleashed as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY. Other catalysts, we note, may come from interest savings from refinancing of its outstanding debts, favourable outcome from court appeal pertaining to the master lease arrangement with Toshin Development (expected latest by Sep 2012) and divestment of Japan properties at attractive valuations.
Frasers Commercial Trust
UOBKayhian on 26 Jul 2012
Results
· Results in-line. Frasers Commercial Trust (FCOT) reported 3QFY12 DPU of 1.70 S cents/share, (+23% yoy, -2.3% qoq) in line with our forecast. Gross revenue was up 17% yoy to S$35.7m, while net property income (NPI) rose 7% yoy to S$26.6m due to an increased stake in Caroline Chisholm Centre (CCC) and higher contribution from China Square Central (CSC) following the end of its master lease agreement in early-12.
· WALE lengthened. Following the increased stake in CCC, FCOT’s weighted average lease expiry (WALE) has increased from 3.4 years in 2QFY12 to 4.2 years.
· CSC lease renewals on track. Several major CSC tenants have renewed their leases in 3QFY12, such as Cerebos Pacific, WT Partnership, Wavecell and Wen & Weng Medical Group. FCOT is also in discussions with several potential tenants to take up 72,000sf of space vacated by Marsh & McLennan. Currently, 24.4% of CSC’s leases by gross rental will be expiring in FY12, down from 31.3% in 2QFY12.
Stock Impact
· Minimal impact from potential CPPU conversion. FCOT has 342.5m outstanding convertible perpetual preferred units (CPPU) issued at S$1.00 with yield of 5.5% p.a.. After 26 Aug 12, a) CPPU holders have the right to convert CPPUs into ordinary FCOT units at a ratio of 1 CPPU: 0.844 units and b) the manager of FCOT will also have the right to redeem any number of units at S$1.00. Assuming full conversion by CPPU holders, our FY13 DPU estimate will decline by 4.6%. However, we deem this unlikely as about 90% of the CPPUs are held by a subsidiary of the sponsor.
· DPU uplift from capital redeployment. FCOT will realise S$360m in cash following the sale of KeyPoint and we see further DPU uplift from capital redeployment. In our view, FCOT could deploy the cash to a) repay debt, b) acquire an asset, c) redeem CPPUs, or d) buyback units. We have assumed debt repayment in our model, which is the most conservative option. Please refer to next page for the DPU and target price impact under each scenario.
· Further room for yield compression. Yield compression has taken place against a backdrop of low interest rates, with REIT yields declining 146bp ytd to 6.48% and 10-year Singapore dollar government yields declining 30bp ytd to 1.33%. Going forward, we see further room for REIT yields to compress given that the spread between REITs and government bonds is still 135bp above the historical long-term spread of 3.80%. Yield compression to the long-term spread implies a further 36% upside for REITs.
Earnings Revision
· Tweaked forecast. We tweaked our DPU forecast marginally to account for higher-than-expected gross rent and interest expense.
Valuation
· Re-iterate BUY with higher target price of S$1.17 (previously S$1.08), implying an 8.8% upside. We reduce our required rate of return by 50bp from 8.7% to 8.2%, accounting for further yield compression, and maintain the long-term growth rate at 2.0%.
Results
· Results in-line. Frasers Commercial Trust (FCOT) reported 3QFY12 DPU of 1.70 S cents/share, (+23% yoy, -2.3% qoq) in line with our forecast. Gross revenue was up 17% yoy to S$35.7m, while net property income (NPI) rose 7% yoy to S$26.6m due to an increased stake in Caroline Chisholm Centre (CCC) and higher contribution from China Square Central (CSC) following the end of its master lease agreement in early-12.
· WALE lengthened. Following the increased stake in CCC, FCOT’s weighted average lease expiry (WALE) has increased from 3.4 years in 2QFY12 to 4.2 years.
· CSC lease renewals on track. Several major CSC tenants have renewed their leases in 3QFY12, such as Cerebos Pacific, WT Partnership, Wavecell and Wen & Weng Medical Group. FCOT is also in discussions with several potential tenants to take up 72,000sf of space vacated by Marsh & McLennan. Currently, 24.4% of CSC’s leases by gross rental will be expiring in FY12, down from 31.3% in 2QFY12.
Stock Impact
· Minimal impact from potential CPPU conversion. FCOT has 342.5m outstanding convertible perpetual preferred units (CPPU) issued at S$1.00 with yield of 5.5% p.a.. After 26 Aug 12, a) CPPU holders have the right to convert CPPUs into ordinary FCOT units at a ratio of 1 CPPU: 0.844 units and b) the manager of FCOT will also have the right to redeem any number of units at S$1.00. Assuming full conversion by CPPU holders, our FY13 DPU estimate will decline by 4.6%. However, we deem this unlikely as about 90% of the CPPUs are held by a subsidiary of the sponsor.
· DPU uplift from capital redeployment. FCOT will realise S$360m in cash following the sale of KeyPoint and we see further DPU uplift from capital redeployment. In our view, FCOT could deploy the cash to a) repay debt, b) acquire an asset, c) redeem CPPUs, or d) buyback units. We have assumed debt repayment in our model, which is the most conservative option. Please refer to next page for the DPU and target price impact under each scenario.
· Further room for yield compression. Yield compression has taken place against a backdrop of low interest rates, with REIT yields declining 146bp ytd to 6.48% and 10-year Singapore dollar government yields declining 30bp ytd to 1.33%. Going forward, we see further room for REIT yields to compress given that the spread between REITs and government bonds is still 135bp above the historical long-term spread of 3.80%. Yield compression to the long-term spread implies a further 36% upside for REITs.
Earnings Revision
· Tweaked forecast. We tweaked our DPU forecast marginally to account for higher-than-expected gross rent and interest expense.
Valuation
· Re-iterate BUY with higher target price of S$1.17 (previously S$1.08), implying an 8.8% upside. We reduce our required rate of return by 50bp from 8.7% to 8.2%, accounting for further yield compression, and maintain the long-term growth rate at 2.0%.
Hi-P International
DMG on 25 July 2012
WE BELIEVE that our Hi-P International H2 Apple story is currently taking place. Sources indicate that Hi-P has successfully begun production on the Apple orders.
Despite the profit warning recently, we are satisfied with the group's H1 performance in view of the macro headwinds.
We like the fact that Hi-P is currently transforming into an ODM (original design manufacturer) player, having successfully diversified away from Research In Motion (RIM). We reiterate our "buy" recommendation but reduce our FY2012 earnings forecast by 14 per cent to $75.4 million and reduce our target price to $1.15 (pegged to 11 times FY2012/13 blended earnings), given the absence of H1 profit contribution.
Once Q2 results are announced (on Aug 2), we believe that share buybacks will resume if the price continues to be low (below $0.75), thereby limiting downside.
Industry sources have confirmed that Taiwan contract manufacturers have begun mass production on the next generation of Apple's iPhone, which we believe will be released by October at the latest, in time for the Christmas sales. While the low yield issue for the in-cell touch panel currently acts as a bottleneck for the supply chain ramp-up, we are confident that this issue will eventually be resolved, just as with the iPad in the past. Similarly, our channel checks also indicate that Hi-P has begun production on Apple's orders.
The recent profit warning was not negative, in our opinion. In view of the negative economic outlook, RIM's woes, the slower than expected mobile device growth and the sudden slump in the IT hardware industry, we view Hi-P's ability to break even as a solid achievement. We attribute this to the fact that they have successfully diversified their revenue from loss-making RIM, which used to account for half its business.
With the acquisition of Motorola's Design Centre in Singapore back in January 2011, Hi-P has managed to retain the key human capital of the Design Centre, its valued engineers. With that, we have seen Hi-P transform itself into an ODM player with the ability to provide one-stop solutions to customers. This allows Hi-P to acquire new customers and diversify beyond its current customer base (ie, RIM). We estimate that currently 20 per cent of its revenue is ODM and expect this figure to grow.
BUY
Mapletree Industrial Trust
DBS Group Research on 25 July 2012
MAPLETREE Industrial Trust reported gross revenue and net property income of $66.9 million and $48.3 million, which were higher by 22 per cent y-o-y and 26 per cent y-o-y, respectively.
The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of eight flatted-factories and three Amenity Centers (accounting for 60 per cent of the $11.9 million y-o-y topline growth). Excluding new acquisitions, Mapletree Industrial posted strong organic performance, with its portfolio achieving higher rental and occupancy rates. As a result, distributable income came in 25 per cent higher at $36.9 million, translating into a distribution per unit of 2.26 cents, forming some 27 per cent of our full-year forecasts.
On a sequential basis, performance was relatively stable, with a slight improvement in net property income margins due to lower maintenance expenses in Q1 2012; we estimate margins to normalise back to around the 70 per cent level in the coming quarters.
The performance of Mapletree Industrial's diversified portfolio of industrial properties was resilient, achieving higher average occupancies q-o-q of 94.9 per cent in Q1 2013, stable q-o-q, with its portfolio seeing healthy retention rates of 71.1 per cent. Portfolio average rentals inched up to $1.56 per sq ft per month with new leases and renewals averaging hikes of 9.3-31.7 per cent. Among the sub-sectors, the flatted factories space is the most stable - with new leases / renewals at 5-21 per cent above passing levels, ahead of our forecasts. As such, we tweak our earnings estimates slightly to account for higher reversions in FY2013/14.
Looking ahead, Mapletree Industrial's operational performance should be relatively stable, given a portfolio where occupancies are almost full while having only 13 per cent of topline that is up for renewal over the rest of FY2013. This limits downside risks, in our view. The manager continues to improve the portfolio's weighted average lease term remaining to expire (WALE, currently at 2.6 years) and income certainty for the trust, by offering tenants longer-term leases with staggered rental escalations which we understand have seen good take-ups.
Mapletree Industrial continues to offer attractive forward yields of 7.1-7.4 per cent, supported by a diversified portfolio and strong sponsor backing. We maintain our "buy" call and raise our target price to $1.35 from $1.30, offering a potential total return of 16 per cent.
BUY
MAPLETREE Industrial Trust reported gross revenue and net property income of $66.9 million and $48.3 million, which were higher by 22 per cent y-o-y and 26 per cent y-o-y, respectively.
The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of eight flatted-factories and three Amenity Centers (accounting for 60 per cent of the $11.9 million y-o-y topline growth). Excluding new acquisitions, Mapletree Industrial posted strong organic performance, with its portfolio achieving higher rental and occupancy rates. As a result, distributable income came in 25 per cent higher at $36.9 million, translating into a distribution per unit of 2.26 cents, forming some 27 per cent of our full-year forecasts.
On a sequential basis, performance was relatively stable, with a slight improvement in net property income margins due to lower maintenance expenses in Q1 2012; we estimate margins to normalise back to around the 70 per cent level in the coming quarters.
The performance of Mapletree Industrial's diversified portfolio of industrial properties was resilient, achieving higher average occupancies q-o-q of 94.9 per cent in Q1 2013, stable q-o-q, with its portfolio seeing healthy retention rates of 71.1 per cent. Portfolio average rentals inched up to $1.56 per sq ft per month with new leases and renewals averaging hikes of 9.3-31.7 per cent. Among the sub-sectors, the flatted factories space is the most stable - with new leases / renewals at 5-21 per cent above passing levels, ahead of our forecasts. As such, we tweak our earnings estimates slightly to account for higher reversions in FY2013/14.
Looking ahead, Mapletree Industrial's operational performance should be relatively stable, given a portfolio where occupancies are almost full while having only 13 per cent of topline that is up for renewal over the rest of FY2013. This limits downside risks, in our view. The manager continues to improve the portfolio's weighted average lease term remaining to expire (WALE, currently at 2.6 years) and income certainty for the trust, by offering tenants longer-term leases with staggered rental escalations which we understand have seen good take-ups.
Mapletree Industrial continues to offer attractive forward yields of 7.1-7.4 per cent, supported by a diversified portfolio and strong sponsor backing. We maintain our "buy" call and raise our target price to $1.35 from $1.30, offering a potential total return of 16 per cent.
BUY
SATS Ltd
Kim Eng on 26 Jul 2012
1QFY3/13 showed robust revenue growth, TFK recovery. SATS reported a decent set of 1QFY3/13 results, posting a 3.8% YoY improvement in underlying NPAT from continuing operations to SGD41.3m. This was contributed by a healthy 13.6% increase in revenue to SGD437.9m. Revenue growth was led by both Gateway Services (+SGD11.6m, +8.1%) and Food Solutions (+SGD40.7m, +16.9%) segments. TFK saw a +40.7% YoY recovery in revenue from the Japanese March 11 disasters to SGD83.7m. Profits were also boosted by a greater contribution from its Associates/JVs (+SGD0.3m, +2.6%).
Keeping a lid on Cost pressures. Rising labour costs (Fig 2) have been cited as a concern by SATS, as their 13.4% YoY increase in staff costs contributed to their total group expenditure rising 12.6% YoY to SGD398.6m. However, management maintains a sharpened focus on productivity improvements to keep such cost pressures manageable. Their cost of raw materials have also increased significantly (+20.6%), but these were largely in line with revenue increases from their food solutions business (+16.9%).
The best has yet to come. SATS stated that TFK was still not operating at its pre-March crisis capacity, and we believe further progress in TFK’s recovery could provide further earnings upside for the Group. In addition, we should see further growth on the domestic front underpinned by robust passenger and aircraft arrivals at Changi Airport.
Maintain BUY, Ex-Div on 31 Jul. We maintain our optimism on SATS for its exposure to robust growth from domestic visitor arrivals and further TFK recovery. Its earnings resilience, strong cash-generating business and healthy balance sheet continue to support attractive forward dividend yields of 6-7%. Management does not rule out paying another special dividend with their excess cash even after the most recent bumper dividend of SGD0.21* per share going Ex-Div on 31 Jul. Maintain BUY, with Target Price pegged to 17x FY3/13 PER, 1 SD above its historical mean.
1QFY3/13 showed robust revenue growth, TFK recovery. SATS reported a decent set of 1QFY3/13 results, posting a 3.8% YoY improvement in underlying NPAT from continuing operations to SGD41.3m. This was contributed by a healthy 13.6% increase in revenue to SGD437.9m. Revenue growth was led by both Gateway Services (+SGD11.6m, +8.1%) and Food Solutions (+SGD40.7m, +16.9%) segments. TFK saw a +40.7% YoY recovery in revenue from the Japanese March 11 disasters to SGD83.7m. Profits were also boosted by a greater contribution from its Associates/JVs (+SGD0.3m, +2.6%).
Keeping a lid on Cost pressures. Rising labour costs (Fig 2) have been cited as a concern by SATS, as their 13.4% YoY increase in staff costs contributed to their total group expenditure rising 12.6% YoY to SGD398.6m. However, management maintains a sharpened focus on productivity improvements to keep such cost pressures manageable. Their cost of raw materials have also increased significantly (+20.6%), but these were largely in line with revenue increases from their food solutions business (+16.9%).
The best has yet to come. SATS stated that TFK was still not operating at its pre-March crisis capacity, and we believe further progress in TFK’s recovery could provide further earnings upside for the Group. In addition, we should see further growth on the domestic front underpinned by robust passenger and aircraft arrivals at Changi Airport.
Maintain BUY, Ex-Div on 31 Jul. We maintain our optimism on SATS for its exposure to robust growth from domestic visitor arrivals and further TFK recovery. Its earnings resilience, strong cash-generating business and healthy balance sheet continue to support attractive forward dividend yields of 6-7%. Management does not rule out paying another special dividend with their excess cash even after the most recent bumper dividend of SGD0.21* per share going Ex-Div on 31 Jul. Maintain BUY, with Target Price pegged to 17x FY3/13 PER, 1 SD above its historical mean.
Wednesday, 25 July 2012
Tee International
OCBC on 25 Jul 2012
Tee International (TEE) yesterday released its FY12 financial results. Its FY12 PATMI grew 11% to S$19.3m, beating consensus estimate by 32%. This is in spite of the 43% slide in its revenue to S$143.6m. After recording 9MFY12 PATMI of only S$7.7m, TEE turned it up with a record quarterly PATMI of S$11.6m in 4QFY12. The record quarterly PATMI in 4QFY12 can be attributed to 1) an increase in operating margin, probably due to profit recognised from TEE’s property development, and 2) asset valuation gains at the associate level. However, TEE’s profit recognition from property development should remain lumpy, and the one-off asset valuation gains are unlikely to repeat. Thus, we maintain our fair value estimate of S$0.28/share and HOLD rating on TEE.
FY12 PATMI beat estimates
Tee International (TEE) yesterday released its FY12 financial results. Its FY12 PATMI grew 11% to S$19.3m, beating consensus estimate by 32%. This is in spite of the 43% slide in its revenue to S$143.6m, or 13% below the street’s expectation. In addition, management has recommended a final dividend of 1.25 cents/share and a special dividend of 0.50 cents/share, exactly the same as a year earlier.
Record quarterly PATMI in 4QFY12
After recording 9MFY12 PATMI of only S$7.7m, TEE turned it up with a record quarterly PATMI of S$11.6m in 4QFY12. The strong quarterly PATMI in 4QFY12 can be attributed to 1) the increase in operating margin from 13.7% to 16.3%, which is probably due to profit recognised from TEE’s property development projects, and 2) asset valuation gains at the associate level, helping TEE’s share of JVs & associates to grow more than 300% to S$5.1m in 4QFY12. However, TEE’s revenue and profit recognition from property development should remain lumpy from quarter to quarter; and the one-off asset valuation gains at the associate level are unlikely to repeat.
Robust order book
TEE revealed that its engineering segment currently has an order book of S$213.5m, and its associates in Malaysia and Thailand have a combined order book of S$81.0m. Separately, TEE’s integrated real estate segment has contracted sales of S$53.4m in residential property development projects, while its Thai associates have contracted a further S$14.4m in property development sales.
Maintain HOLD
We believe that TEE’s record quarterly PATMI in 4QFY12 was boosted by lumpy property development profits and one-off valuation gains at the associate level. In particular, the valuation gains are unlikely to repeat. Thus, we maintain our fair value estimate of S$0.28/share and HOLD rating on TEE.
Tee International (TEE) yesterday released its FY12 financial results. Its FY12 PATMI grew 11% to S$19.3m, beating consensus estimate by 32%. This is in spite of the 43% slide in its revenue to S$143.6m. After recording 9MFY12 PATMI of only S$7.7m, TEE turned it up with a record quarterly PATMI of S$11.6m in 4QFY12. The record quarterly PATMI in 4QFY12 can be attributed to 1) an increase in operating margin, probably due to profit recognised from TEE’s property development, and 2) asset valuation gains at the associate level. However, TEE’s profit recognition from property development should remain lumpy, and the one-off asset valuation gains are unlikely to repeat. Thus, we maintain our fair value estimate of S$0.28/share and HOLD rating on TEE.
FY12 PATMI beat estimates
Tee International (TEE) yesterday released its FY12 financial results. Its FY12 PATMI grew 11% to S$19.3m, beating consensus estimate by 32%. This is in spite of the 43% slide in its revenue to S$143.6m, or 13% below the street’s expectation. In addition, management has recommended a final dividend of 1.25 cents/share and a special dividend of 0.50 cents/share, exactly the same as a year earlier.
Record quarterly PATMI in 4QFY12
After recording 9MFY12 PATMI of only S$7.7m, TEE turned it up with a record quarterly PATMI of S$11.6m in 4QFY12. The strong quarterly PATMI in 4QFY12 can be attributed to 1) the increase in operating margin from 13.7% to 16.3%, which is probably due to profit recognised from TEE’s property development projects, and 2) asset valuation gains at the associate level, helping TEE’s share of JVs & associates to grow more than 300% to S$5.1m in 4QFY12. However, TEE’s revenue and profit recognition from property development should remain lumpy from quarter to quarter; and the one-off asset valuation gains at the associate level are unlikely to repeat.
Robust order book
TEE revealed that its engineering segment currently has an order book of S$213.5m, and its associates in Malaysia and Thailand have a combined order book of S$81.0m. Separately, TEE’s integrated real estate segment has contracted sales of S$53.4m in residential property development projects, while its Thai associates have contracted a further S$14.4m in property development sales.
Maintain HOLD
We believe that TEE’s record quarterly PATMI in 4QFY12 was boosted by lumpy property development profits and one-off valuation gains at the associate level. In particular, the valuation gains are unlikely to repeat. Thus, we maintain our fair value estimate of S$0.28/share and HOLD rating on TEE.
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