OCBC on 25 Jul 2012
SIA Engineering Co Ltd’s (SIAEC) 1QFY13 financial results were mostly in line with our expectations. Revenue increased 8.2% YoY to S$300.5m and PATMI grew 2.9% to S$70.1m. Revenue growth was primarily driven by its fleet management and line maintenance segments. However, SIAEC’s saw a 1.1ppt slide in its operating margin to 11.4%, causing its operating profit to contract by 0.9% to S$34.4m. Positively, SIAEC’s share of profits of JV and associated companies climbed 7.5% to S$40m, ensuring that it still recorded PATMI growth in the quarter. Going forward, management guided that demand for its services is expected to remain stable. We maintain our fair value estimate of S$4.04/share and HOLD rating on SIAEC.
1QFY13 financials in line with expectations
SIA Engineering Co Ltd’s (SIAEC) 1QFY13 financial results were mostly in line with our expectations. Revenue increased 8.2% YoY to S$300.5m and PATMI grew 2.9% to S$70.1m. Despite the growth in revenue, SIAEC’s expenses grew at an even faster rate. The higher expenses caused a 1.1ppt slide in its operating margin to 11.4% and its operating profit to contract by 0.9% to S$34.4m. Management attributed the higher expenses to increased subcontract, staff and material costs to support the increase in workload. On the positively side, SIAEC’s share of profits of JV and associated companies climbed 7.5% to S$40m, ensuring that it still recorded PATMI growth in the quarter.
Fleet management and line maintenance segments grew
SIAEC’s revenue growth in 1QFY13 was primarily driven by its fleet management and line maintenance segments. After SIAEC recorded stellar growth in its fleet management segment in FY12, the segment has continued growing. This growth can be attributed to the larger fleet of aircraft it now services under this programme.
Outlook remains stable
Going forward, management guided that demand for its services is expected to remain stable and it is confident that SIAEC’s strategic partnerships and capabilities in new-generation aircraft should help maintain its competitiveness and long-term growth potential. However, management also highlighted the possible downside risk related to the prevailing global economic uncertainties. On the group level, management will continue to focus on managing costs and efficiency in order to improve its profitability.
Maintain HOLD
Due to its stable though unspectacular financial performance, coupled with its rich valuation amid uncertainty in the global economy, we maintain our fair value estimate of S$4.04/share and HOLD rating on SIAEC.
Wednesday, 25 July 2012
Armstrong Industrial Corporation
UOBKayhian on 25 Jul 2012
Valuations
· Downgrade to sell. Our target price of S$0.24 is based on 3-year historical average PE of 11.0x on our 2012F EPS of 2.2 cents. The only positive is that Armstrong has restarted its share buyback programme, having bought 461,000 shares at 27 cents each.
· Investors should also track the financial results and outlook of the HDD industry of Armstrong’s customer Western Digital set on 25 July.
What’s new
· Major semiconductor and hard disc drive (HDD) players have reiterated the weakening PC sales outlook, underscoring concerns of a global economic downturn. Advanced Micro Devices slashed its outlook for 2Q13 revenue after seeing floundering chip sales in China and Europe. We believe the gain in popularity of smartphones and tablets will also erode demand for personal computers and will indirectly impact the HDD industry. Similarly, semicon equipment maker Applied Materials has cut its revenue outlook due to a sudden drop in orders in its biggest market towards the end of the current quarter.
· The HDD segment contributes 22-25% of Armstrong’s revenue and HDD sales had declined 10.3% yoy to S$47.9m in 2011 as the flood in Thailand impacted the group’s key HDD customers. We forecast the weaker HDD outlook will shave another 10% off Armstrong’s 2012 HDD revenue.
· The group’s 1Q12 results had already reflected the challenging period ahead. Revenue declined 7% yoy to S$52.3m as turnover from the HDD segment fell 12.5% due to the aftermaths of the Thailand flood. Gross profit decreased 36.7% yoy to S$8.5m as higher material and labour costs eroded gross margin to 16.2% in 1Q12 from 23.7% in 1Q11. Excluding non-recurring items such as a S$2.7m fair value gain on derivative contracts and S$2.3m insurance claims in relation to the Thailand floods, Armstrong would have barely broken even.
Earnings revision
· We cut our net profit forecasts for 2012 to S$11.4m from S$17.1m to reiterate our bearish view on the data storage sector. But we still expect Armstrong to declare a dividend of 1.0 cents, providing investors a yield of 3.9% as of last traded price.
Valuations
· Downgrade to sell. Our target price of S$0.24 is based on 3-year historical average PE of 11.0x on our 2012F EPS of 2.2 cents. The only positive is that Armstrong has restarted its share buyback programme, having bought 461,000 shares at 27 cents each.
· Investors should also track the financial results and outlook of the HDD industry of Armstrong’s customer Western Digital set on 25 July.
What’s new
· Major semiconductor and hard disc drive (HDD) players have reiterated the weakening PC sales outlook, underscoring concerns of a global economic downturn. Advanced Micro Devices slashed its outlook for 2Q13 revenue after seeing floundering chip sales in China and Europe. We believe the gain in popularity of smartphones and tablets will also erode demand for personal computers and will indirectly impact the HDD industry. Similarly, semicon equipment maker Applied Materials has cut its revenue outlook due to a sudden drop in orders in its biggest market towards the end of the current quarter.
· The HDD segment contributes 22-25% of Armstrong’s revenue and HDD sales had declined 10.3% yoy to S$47.9m in 2011 as the flood in Thailand impacted the group’s key HDD customers. We forecast the weaker HDD outlook will shave another 10% off Armstrong’s 2012 HDD revenue.
· The group’s 1Q12 results had already reflected the challenging period ahead. Revenue declined 7% yoy to S$52.3m as turnover from the HDD segment fell 12.5% due to the aftermaths of the Thailand flood. Gross profit decreased 36.7% yoy to S$8.5m as higher material and labour costs eroded gross margin to 16.2% in 1Q12 from 23.7% in 1Q11. Excluding non-recurring items such as a S$2.7m fair value gain on derivative contracts and S$2.3m insurance claims in relation to the Thailand floods, Armstrong would have barely broken even.
Earnings revision
· We cut our net profit forecasts for 2012 to S$11.4m from S$17.1m to reiterate our bearish view on the data storage sector. But we still expect Armstrong to declare a dividend of 1.0 cents, providing investors a yield of 3.9% as of last traded price.
Downstream Oil & Gas
OCBC on 24 Jul 2012
DOWNSTREAM oil and gas companies under our coverage (Rotary Engineering and PEC) will report their Q2 calendar year 2012 results next month and we expect a relatively weak financial performance from both companies. The industry has been experiencing severe pricing competition amidst a shortage of local large-scale petrochemical project works. In our view, a quick turnaround is unlikely.
Recent comments from the Economic Development Board (EDB) - the lead government agency responsible for attracting energy investments - have also been telling.
When asked for an update on a refinery plan, EDB's deputy director of energy and chemicals said, "EDB does not have a specific aim of attracting a green-field refinery investment at the moment ... the focus is on upgrading the complexity of these refineries."
We believe the sector's profitability will continue to remain depressed. In the last quarter, operating margins for Rotary and PEC were 0.83 per cent and 1.82 per cent, respectively. Outside our coverage, Hiap Seng Engineering and Mun Siong Engineering reported Q1 calendar year 2012 operating losses of $1.2 million and $180,000, respectively. Although margins may recover over the medium-term horizon, we have yet to see any meaningful catalyst. For now, the companies still lack the scale and bargaining power (against oil companies) to push prices upwards.
Investors should also watch out for any unexpected delay in Rotary's Fujairah project and PEC's unresolved claim on its Rotterdam joint venture. To-date, PEC has taken $11.2 million of provisions against $18.3 million of outstanding claims. Depending on the outcome of its negotiations with Verwater (its joint-venture partner), PEC may need to write off further losses. As we feel that there are more downside risks than upside risks, we keep our "underweight" rating for the sector. We also maintain our "hold" ratings for Rotary (fair value: $0.64) and PEC (fair value: $0.50).
SIA Engineering
Kim Eng on 25 Jul 2012
1QFY3/13 results in line. SIA Engineering (SIE) reported 1QFY3/13 NPATMI of SGD 70.1 m, making up 25% of our full year FY3/13 forecast. Although revenue improved 8.2% YoY to SGD 300.5 m, cost pressures contributed to a 0.9% drop in operating profit to SGD 34.4 m. JVs and Associates continued their significant contribution (~51% of PBT) to SIE’s bottomline, posting a 7.5% increase YoY.
Cost pressures and Margin concerns. In our previous note, we had highlighted our concerns of margin erosion and a delayed recovery in the aviation sector as key risks for SIE. These risk factors are still largely prevalent, with higher subcontract, staff and material costs being cited by SIE as main contributors to its 9.6% YoY increase in operating expenditure for 1QFY3/13.
Supported by positive MRO macro outlook. Amidst a possible delay in an aviation sector-wide recovery, the MRO segment remains relatively resilient, with a ~4% CAGR growth forecasted globally (Fig 2) for the next 5 years. 1H2012 aircraft movement at Changi Airport has also maintained strong growth of 10.2% YoY (Fig 3), offering further growth support for SIE on a domestic front. SIE’s strong balance sheet with its net cash position of SGD 572 m and healthy cash-generating business (1QFY3/13 net cash inflow of +SGD 75.9 m) should continue to support a steady, growing dividend payout.
Within expectations, maintain HOLD. With SIE’s results in line with ours and consensus forecasts, we maintain our HOLD call, pegged to SIE’s historical PER average of 15.4x FY3/13 earnings. Existing investors keen on pure aviation engineering exposure can continue to enjoy SIE’s dividend yields in the 5-6% range. However, we reiterate our preference for ST Engineering in the aviation engineering sector, for its defense-backed contracts and strong orderbook which provides better earnings visibility.
1QFY3/13 results in line. SIA Engineering (SIE) reported 1QFY3/13 NPATMI of SGD 70.1 m, making up 25% of our full year FY3/13 forecast. Although revenue improved 8.2% YoY to SGD 300.5 m, cost pressures contributed to a 0.9% drop in operating profit to SGD 34.4 m. JVs and Associates continued their significant contribution (~51% of PBT) to SIE’s bottomline, posting a 7.5% increase YoY.
Cost pressures and Margin concerns. In our previous note, we had highlighted our concerns of margin erosion and a delayed recovery in the aviation sector as key risks for SIE. These risk factors are still largely prevalent, with higher subcontract, staff and material costs being cited by SIE as main contributors to its 9.6% YoY increase in operating expenditure for 1QFY3/13.
Supported by positive MRO macro outlook. Amidst a possible delay in an aviation sector-wide recovery, the MRO segment remains relatively resilient, with a ~4% CAGR growth forecasted globally (Fig 2) for the next 5 years. 1H2012 aircraft movement at Changi Airport has also maintained strong growth of 10.2% YoY (Fig 3), offering further growth support for SIE on a domestic front. SIE’s strong balance sheet with its net cash position of SGD 572 m and healthy cash-generating business (1QFY3/13 net cash inflow of +SGD 75.9 m) should continue to support a steady, growing dividend payout.
Within expectations, maintain HOLD. With SIE’s results in line with ours and consensus forecasts, we maintain our HOLD call, pegged to SIE’s historical PER average of 15.4x FY3/13 earnings. Existing investors keen on pure aviation engineering exposure can continue to enjoy SIE’s dividend yields in the 5-6% range. However, we reiterate our preference for ST Engineering in the aviation engineering sector, for its defense-backed contracts and strong orderbook which provides better earnings visibility.
Starhill Global REIT
Kim Eng on 25 Jul 2012
1H12 earnings inline. SGREIT’s 2Q12 revenue rose by 5% YoY to SGD46.4m, while the distributable income for unitholders increased by 4% YoY to SGD21m. 1H12 revenue at SGD92.4m, up 3% YoY, was 50% of our FY12 forecast and consensus estimate. 1H12 DPU at 2.15 SG-cts, up 2% YoY, was 50% of ours and consensus estimate.
Wisma Atria harvesting upside. Wisma’s AEI is completed in 2Q12 with all Orchard road fronting stores commencing business. ROI is 12.8%, exceeding the initial target of 8%. (CAPEX ~SGD31m), representing an annualized incremental NPI of SGD3.9m (based on secured tenancies as at 30 Jun 2012). Positive rental reversions of ~33% was achieved for leases committed between Jul 2011 to Jul 2012, since the start of the AEI. Wisma’s 2Q12 retail revenue rose 7.5% QoQ to SGD13.045m while average passing rent is up SGD34.29 psf/mth from SGD33.30 psf/mth last quarter, according to our estimates.
Portfolio review. Wisma’s retail and office occupancy improved to 99.5% and 99% from 95.3% and 96.8% last quarter respectively. Similarly, Ngee Ann City retail maintained at full occupancy while Ngee Ann City office occupancy improved to 98% from 97% last quarter. However, we noted that there was a 520bps occupancy dip in the Japan portfolio (representing 4.3% of 2Q12 revenue), due to a sharp occupancy decline in the Daikanyama mall (from 100% in 1Q12 to 62.6% in 2Q12).
Toshin rental review. Despite the court tussle having gone before the Singapore court of appeal, Toshin has exercised its option to renew Ngee Ann City (NAC) retail for another 12-year term, expiring in 2025, thus lowering the lease expiry in 2013 from 89.6% of gross rent last quarter to 3.8%. The next rent review will be in 3-years time. Toshin constitutes 88.6% of NAC retail gross rent as at 30 Jun 2012 and is SGREIT’s largest tenant (18.8% of portfolio gross rent). 2Q12 average passing rent at NAC retail stays at depressed levels of SGD13.60 psf/mth from our estimates.
We expect marginal increment until the next rent review. Deserving better. A prime retail play trading at a sharp 20% discount to its book value, Starhill Global REIT deserves better in our opinion. For one, its key assets are in the coveted Orchard Road area, where tight supply and the entry of new international retailers should give it greater bargaining power in terms of leasing its space. We like Starhill for the rental upside at Wisma Atria and income stability in Malaysia and Australia. At 6.1% FY12F yield, we reiterate BUY with a DDM-derived TP of SGD0.76.
1H12 earnings inline. SGREIT’s 2Q12 revenue rose by 5% YoY to SGD46.4m, while the distributable income for unitholders increased by 4% YoY to SGD21m. 1H12 revenue at SGD92.4m, up 3% YoY, was 50% of our FY12 forecast and consensus estimate. 1H12 DPU at 2.15 SG-cts, up 2% YoY, was 50% of ours and consensus estimate.
Wisma Atria harvesting upside. Wisma’s AEI is completed in 2Q12 with all Orchard road fronting stores commencing business. ROI is 12.8%, exceeding the initial target of 8%. (CAPEX ~SGD31m), representing an annualized incremental NPI of SGD3.9m (based on secured tenancies as at 30 Jun 2012). Positive rental reversions of ~33% was achieved for leases committed between Jul 2011 to Jul 2012, since the start of the AEI. Wisma’s 2Q12 retail revenue rose 7.5% QoQ to SGD13.045m while average passing rent is up SGD34.29 psf/mth from SGD33.30 psf/mth last quarter, according to our estimates.
Portfolio review. Wisma’s retail and office occupancy improved to 99.5% and 99% from 95.3% and 96.8% last quarter respectively. Similarly, Ngee Ann City retail maintained at full occupancy while Ngee Ann City office occupancy improved to 98% from 97% last quarter. However, we noted that there was a 520bps occupancy dip in the Japan portfolio (representing 4.3% of 2Q12 revenue), due to a sharp occupancy decline in the Daikanyama mall (from 100% in 1Q12 to 62.6% in 2Q12).
Toshin rental review. Despite the court tussle having gone before the Singapore court of appeal, Toshin has exercised its option to renew Ngee Ann City (NAC) retail for another 12-year term, expiring in 2025, thus lowering the lease expiry in 2013 from 89.6% of gross rent last quarter to 3.8%. The next rent review will be in 3-years time. Toshin constitutes 88.6% of NAC retail gross rent as at 30 Jun 2012 and is SGREIT’s largest tenant (18.8% of portfolio gross rent). 2Q12 average passing rent at NAC retail stays at depressed levels of SGD13.60 psf/mth from our estimates.
We expect marginal increment until the next rent review. Deserving better. A prime retail play trading at a sharp 20% discount to its book value, Starhill Global REIT deserves better in our opinion. For one, its key assets are in the coveted Orchard Road area, where tight supply and the entry of new international retailers should give it greater bargaining power in terms of leasing its space. We like Starhill for the rental upside at Wisma Atria and income stability in Malaysia and Australia. At 6.1% FY12F yield, we reiterate BUY with a DDM-derived TP of SGD0.76.
Tuesday, 24 July 2012
Raffles Medical Group
OCBC on 24 Jul 2012
Raffles Medical Group’s (RMG) 2Q12 revenue of S$76.9m (+14.9% YoY; +5.5% QoQ) was in line with our expectations but PATMI of S$12.4m (+6.8% YoY; +6.9% QoQ) was slightly below due to higher-than-expected operating expenses. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. As expected, an interim dividend of 1 S cent/share was declared, similar to 1H11. We maintain our revenue projections but cut our PATMI estimates for FY12 by 4.2% and FY13 by 3.0% on lower margin assumptions. Our fair value estimate thence declines from S$2.73 to S$2.63. While we expect RMG’s earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level given its recent share price surge. Downgrade RMG from Buy to HOLD.
2Q12 revenue in line but PATMI misses slightly
Raffles Medical Group (RMG) reported its 2Q12 results with revenue within our expectations but PATMI was slightly below due to higher-than-expected operating expenses. Revenue rose 14.9% YoY and 5.5% QoQ to S$76.9m. PATMI was up 6.8% YoY and 6.9% QoQ to S$12.4m. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. For 1H12, revenue jumped 14.0% to S$149.9m, forming 48.0% of our full-year estimates; while PATMI increased 8.7% to S$24.0m, or 42.8% of our FY12 forecast. 2H is typically a seasonally stronger half for RMG, and we expect this trend to be maintained in FY12. An interim dividend of 1 S cent/share was declared (payable on 31 Aug 2012), similar to 1H11 and is in line with our expectations.
Cost pressures higher-than-expected
Staff costs grew 19.1% YoY on the back of salary increments and a 14% increase in headcount in anticipation of its expanded operations. The former was in line with industry-wide wage adjustments. The group also incurred higher operating lease expenses (+23.6% YoY) and inventories and consumables costs (+23.1% YoY) which rose faster than revenue growth. As a result, RMG’s net margin eased from 17.4% in 2Q11 to 16.1% in 2Q12.
Growth still expected, but downgrade to HOLD
RMG’s share price has accelerated 16.7% since the start of July (+21.7% YTD), far outpacing that of the broader market (+3.6%). We believe this has been buoyed largely by positive sentiment from the impending dual-listing of IHH Healthcare Berhad; although the group’s defensive earnings quality has also found flavour amongst investors given the still-volatile macroeconomic landscape. We maintain our revenue projections but adjust our PATMI estimates downwards by 4.2% for FY12 and 3.0% for FY13 on lower margin assumptions. This correspondingly decreases our fair value estimate from S$2.73 to S$2.63 (24x blended FY12/13F EPS). While we expect RMG’s earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level. Downgrade RMG from Buy to HOLD.
Raffles Medical Group’s (RMG) 2Q12 revenue of S$76.9m (+14.9% YoY; +5.5% QoQ) was in line with our expectations but PATMI of S$12.4m (+6.8% YoY; +6.9% QoQ) was slightly below due to higher-than-expected operating expenses. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. As expected, an interim dividend of 1 S cent/share was declared, similar to 1H11. We maintain our revenue projections but cut our PATMI estimates for FY12 by 4.2% and FY13 by 3.0% on lower margin assumptions. Our fair value estimate thence declines from S$2.73 to S$2.63. While we expect RMG’s earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level given its recent share price surge. Downgrade RMG from Buy to HOLD.
2Q12 revenue in line but PATMI misses slightly
Raffles Medical Group (RMG) reported its 2Q12 results with revenue within our expectations but PATMI was slightly below due to higher-than-expected operating expenses. Revenue rose 14.9% YoY and 5.5% QoQ to S$76.9m. PATMI was up 6.8% YoY and 6.9% QoQ to S$12.4m. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. For 1H12, revenue jumped 14.0% to S$149.9m, forming 48.0% of our full-year estimates; while PATMI increased 8.7% to S$24.0m, or 42.8% of our FY12 forecast. 2H is typically a seasonally stronger half for RMG, and we expect this trend to be maintained in FY12. An interim dividend of 1 S cent/share was declared (payable on 31 Aug 2012), similar to 1H11 and is in line with our expectations.
Cost pressures higher-than-expected
Staff costs grew 19.1% YoY on the back of salary increments and a 14% increase in headcount in anticipation of its expanded operations. The former was in line with industry-wide wage adjustments. The group also incurred higher operating lease expenses (+23.6% YoY) and inventories and consumables costs (+23.1% YoY) which rose faster than revenue growth. As a result, RMG’s net margin eased from 17.4% in 2Q11 to 16.1% in 2Q12.
Growth still expected, but downgrade to HOLD
RMG’s share price has accelerated 16.7% since the start of July (+21.7% YTD), far outpacing that of the broader market (+3.6%). We believe this has been buoyed largely by positive sentiment from the impending dual-listing of IHH Healthcare Berhad; although the group’s defensive earnings quality has also found flavour amongst investors given the still-volatile macroeconomic landscape. We maintain our revenue projections but adjust our PATMI estimates downwards by 4.2% for FY12 and 3.0% for FY13 on lower margin assumptions. This correspondingly decreases our fair value estimate from S$2.73 to S$2.63 (24x blended FY12/13F EPS). While we expect RMG’s earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level. Downgrade RMG from Buy to HOLD.
Boustead Singapore
UOBKayhian on 24 Jul 2012
Valuations
· Boustead is trading at 8.8x FY12 earnings with a dividend yield of 5.2%. Based on Bloomberg’s consensus estimate, Boustead has a 12-month target price of S$1.14 and is set to report S$55.2m of earnings in 2013.
· We view that Boustead should be trading at S$1.10/share, pegged to the 3-year historical average PE of 10.0x on consensus EPS of 11.0 S cents. This gives us an upside of 14.0%.
Investment Highlights
· Boustead Singapore Limited provides infrastructure-related Engineering Services and Geo-Spatial Technology. Its Engineering Services segment comprises of Energy-Related Engineering, Water & Wastewater Engineering and Real Estate Solutions. Clients for this division include Amoco, Bechtel, BHP Billiton, Rolls-Royce, Jabil and etc. Current book orders stand at S$371m, and we estimate that about 80% will be recognised in this financial year.
· Industrial Real Estate solutions form the largest section of the group's total orderbook and will contribute the most revenue in FY13. Boustead design, build and in some projects lease turnkey industrial facilities for corporations in Singapore, China, Malaysia and Vietnam. By providing a comprehensive real estate solution, Boustead is able to tender for projects at a more competitive rate with adequate profit margins.
· Currently the group also has 10 properties within the industrial leasehold portfolio with a gross floor area (GFA) of 107,000sqm. The portfolio is generating S$7m-8m in PBT and the group aims to build this to 200,000sqm before potentially spinning the assets off into a REIT.
· Its Energy-Related engineering provides direct-fired process heater systems to downstream oil and gas (O&G) and petrochemical industries and process control system to upstream O&G corporations. Lastly, Boustead Maxitherm Energy supplies solid waste energy recovery plants to mini-power plants. Orderbook stands at S$130m and this will be completed over 18 months.
· Although Boustead has been in the water and waste water treatment industry since 1980, the group currently has an orderbook of S$30m and only expects to breakeven for FY13.
· Lastly, Boustead provides geographical information systems to government agencies, commodities traders, O&G explorers, financial institutes in exclusive markets of Australia, Singapore, Malaysia, Indonesia, Brunei, Bangladesh and Timor-Leste. Management projects that this segment is likely to register a high single-digit growth, driven by new client acquisitions and systems upgrade.
Our view
· Stock price performance will be driven by sustainable contract wins by Boustead. The increase in O&G exploration activities from stronger energy demand in the region is likely to induce more energy-related engineering projects while the geo-spatial division will generate adequate recurring cash flow for the group.
· In additional, Boustead is sitting on a healthy net cash position of S$170.5m that allows the group to make synergistic acquisitions if required.
Valuations
· Boustead is trading at 8.8x FY12 earnings with a dividend yield of 5.2%. Based on Bloomberg’s consensus estimate, Boustead has a 12-month target price of S$1.14 and is set to report S$55.2m of earnings in 2013.
· We view that Boustead should be trading at S$1.10/share, pegged to the 3-year historical average PE of 10.0x on consensus EPS of 11.0 S cents. This gives us an upside of 14.0%.
Investment Highlights
· Boustead Singapore Limited provides infrastructure-related Engineering Services and Geo-Spatial Technology. Its Engineering Services segment comprises of Energy-Related Engineering, Water & Wastewater Engineering and Real Estate Solutions. Clients for this division include Amoco, Bechtel, BHP Billiton, Rolls-Royce, Jabil and etc. Current book orders stand at S$371m, and we estimate that about 80% will be recognised in this financial year.
· Industrial Real Estate solutions form the largest section of the group's total orderbook and will contribute the most revenue in FY13. Boustead design, build and in some projects lease turnkey industrial facilities for corporations in Singapore, China, Malaysia and Vietnam. By providing a comprehensive real estate solution, Boustead is able to tender for projects at a more competitive rate with adequate profit margins.
· Currently the group also has 10 properties within the industrial leasehold portfolio with a gross floor area (GFA) of 107,000sqm. The portfolio is generating S$7m-8m in PBT and the group aims to build this to 200,000sqm before potentially spinning the assets off into a REIT.
· Its Energy-Related engineering provides direct-fired process heater systems to downstream oil and gas (O&G) and petrochemical industries and process control system to upstream O&G corporations. Lastly, Boustead Maxitherm Energy supplies solid waste energy recovery plants to mini-power plants. Orderbook stands at S$130m and this will be completed over 18 months.
· Although Boustead has been in the water and waste water treatment industry since 1980, the group currently has an orderbook of S$30m and only expects to breakeven for FY13.
· Lastly, Boustead provides geographical information systems to government agencies, commodities traders, O&G explorers, financial institutes in exclusive markets of Australia, Singapore, Malaysia, Indonesia, Brunei, Bangladesh and Timor-Leste. Management projects that this segment is likely to register a high single-digit growth, driven by new client acquisitions and systems upgrade.
Our view
· Stock price performance will be driven by sustainable contract wins by Boustead. The increase in O&G exploration activities from stronger energy demand in the region is likely to induce more energy-related engineering projects while the geo-spatial division will generate adequate recurring cash flow for the group.
· In additional, Boustead is sitting on a healthy net cash position of S$170.5m that allows the group to make synergistic acquisitions if required.
Raffles Medical Group
DBS Group Research on 23 July 2012
RAFFLES Medical Group's Q2 2012 results are below expectations. Net profit rose 6.8 per cent y-o-y to $12.4 million, while topline revenue grew a robust 14.9 per cent y-o-y to $76.9 million. The lower-than-expected growth was a result of higher cost items, such as staff costs (up 19.1 per cent at $37.8 million), inventory and consumables (up 23.1 per cent at $9.4 million), and operating lease expenses (up 23.6 per cent at $1.8 million). Earnings before interest and tax (Ebit) margins fell 1.9 percentage points to 19.5 per cent in Q2 2012 from 21.4 per cent a year ago.
The bright spot was the growth in revenues, largely due to strong contribution from its hospital division, which registered a growth rate of 19.1 per cent y-o-y. We understand that patient volumes and price/intensity had contributed equally to this growth.
The group has appointed consultants to work on a 42,668 sq ft property at Thong Sia Building, and it is expected to commence operations in H1 2013. Expansion plans for its hospital are likely to commence operations in late 2014 or by early 2015.
The higher staff costs are a result of newly recruited employees to meet business expansion requirements. Higher wages are also in line with industry-wide salary adjustments. This is not a surprise as the Ministry of Health has recently indicated that public-sector medical and allied healthcare workers' compensation will increase by some 20 per cent by 2014, with the first increase in April 2012.
This counter is trading at 25 times forecast FY2012 earnings, which is above its historical mean of around 21 times. The stock has recently re-rated on the back of higher multiples for the healthcare sector.
We have trimmed our FY2012/13 earnings forecasts marginally by 2.2 per cent and one per cent, respectively, on the back of higher staff costs. Though the prospects of the healthcare industry are still resilient, we see competitive pressures rising. With the stock trading at above-mean valuations, although operations are stable, we believe there is limited upside from current level. Maintain "hold", with a revised target price of $2.59.
HOLD
Raffles Medical Group
Kim Eng on 24 Jul 2012
Results within expectations. Raffles Medical Group (RMG) reported 2Q12 revenue of SGD76.9m (+14.9% YoY, +5.5% QoQ) and corresponding net profit of SGD12.4m (+6.8% YoY, +6.9% QoQ). Results were in line with our expectations with 1H12 net profit making up 44% of our FY12F forecast. The second-half would typically be stronger. The company also declared an interim dividend of 1.0 cents per share. While our DCF-based target price of SGD2.71 is maintained, we downgrade the stock to a HOLD as we think that share price is now within a fair-value range.
Growth from all divisions. Revenue for Hospital services and Healthcare services divisions rose by 19.1% and 9.1% respectively. The higher revenue was driven by both higher patient load and patient acuity. We expect to see continual topline growth, which would be supported by the group’s expansion plans with its new Specialist Centre in Thong Sia Building and Raffles Hospital capacity expansion.
Margin compression from rising staff cost. As we pointed out in our previous report, RMG’s near-term challenge is in managing staff cost, which rose by 19.1% YoY this quarter. RMG increased wages to maintain competitiveness and recruited more staff to meet its business expansion needs. Net margin for the current reported quarter was lower by 1.2ppt YoY at 16.3%. However, we expect net margins on a full-year basis to be higher than in 2Q12, as RMG increases its average pricing.
Room for price increases. Management remarked that there is room for price increases and intends to do so to defend its margins and recover the higher staff cost increases. We expect price increases in the range of 10-20% in the coming quarters. We forecast net margins for FY12 to come in at 17.2%, which is about 1.3ppt lower than in FY11.
Valuation gap has closed, downgrade to HOLD. In our last report, we highlighted that RMG was the cheapest hospital stock in the region, trading at the widest valuation discount relative to peers. The valuation gap has closed after a 18% surge in share price since our last call, which is the premise behind our downgrade of the stock to HOLD. Implied FY12F/13F PERs based on our target price are 26.7x and 23.3x respectively.
Results within expectations. Raffles Medical Group (RMG) reported 2Q12 revenue of SGD76.9m (+14.9% YoY, +5.5% QoQ) and corresponding net profit of SGD12.4m (+6.8% YoY, +6.9% QoQ). Results were in line with our expectations with 1H12 net profit making up 44% of our FY12F forecast. The second-half would typically be stronger. The company also declared an interim dividend of 1.0 cents per share. While our DCF-based target price of SGD2.71 is maintained, we downgrade the stock to a HOLD as we think that share price is now within a fair-value range.
Growth from all divisions. Revenue for Hospital services and Healthcare services divisions rose by 19.1% and 9.1% respectively. The higher revenue was driven by both higher patient load and patient acuity. We expect to see continual topline growth, which would be supported by the group’s expansion plans with its new Specialist Centre in Thong Sia Building and Raffles Hospital capacity expansion.
Margin compression from rising staff cost. As we pointed out in our previous report, RMG’s near-term challenge is in managing staff cost, which rose by 19.1% YoY this quarter. RMG increased wages to maintain competitiveness and recruited more staff to meet its business expansion needs. Net margin for the current reported quarter was lower by 1.2ppt YoY at 16.3%. However, we expect net margins on a full-year basis to be higher than in 2Q12, as RMG increases its average pricing.
Room for price increases. Management remarked that there is room for price increases and intends to do so to defend its margins and recover the higher staff cost increases. We expect price increases in the range of 10-20% in the coming quarters. We forecast net margins for FY12 to come in at 17.2%, which is about 1.3ppt lower than in FY11.
Valuation gap has closed, downgrade to HOLD. In our last report, we highlighted that RMG was the cheapest hospital stock in the region, trading at the widest valuation discount relative to peers. The valuation gap has closed after a 18% surge in share price since our last call, which is the premise behind our downgrade of the stock to HOLD. Implied FY12F/13F PERs based on our target price are 26.7x and 23.3x respectively.
Monday, 23 July 2012
CapitaCommercial Trust
OCBC on 23 Jul 2012
CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m - 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street. Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals of only 4.1% of office leases for the rest of FY12. At current price levels, however, we believe most positives are already priced in. Maintain HOLD with a higher fair value estimate of S$1.31, versus S$1.14 previously, due to stronger cap rate assumptions.
2Q12 results broadly in line
CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m, which was 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street.
RC Hotels master lease renewed to 2036
Portfolio occupancy was at 94.5% as of end 2Q12, flat from the 94.4% last quarter. We expect only 4.1% of office leases, by gross rental income, to be due to renewal for the rest of FY12, and believe rental reversions would likely turn positive by 1H13. Management has also renewed the RC Hotels master lease to 2036, with a step-up minimum rent structure and rental review every five years. We also saw S$48.4m of revaluation gains from portfolio assets this quarter; cap rates for CCT’s Grade A assets are at 4.0%.
Additional lettable office space at Golden Shoe
At Golden Shoe, management plans to convert storeroom space into lettable office space and carry out lift enhancement works in 3Q12. This would cost S$0.6m, with a projected ROI of 14%. In addition, CapitaGreen’s construction and 6BR’s AEI remain on schedule. At 6BR, 200k sq ft of space was targeted for upgrading in FY12, of which 49% was completed YTD.
Maintain HOLD with an increased fair value estimate of S$1.31
Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals for the rest of FY12. Our fair value estimate is raised to S$1.31, from S$1.14 previously, due to stronger cap rate assumptions. At current price levels, however, we believe most positives are already priced in. Maintain HOLD; we would turn buyers at S$1.26.
CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m - 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street. Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals of only 4.1% of office leases for the rest of FY12. At current price levels, however, we believe most positives are already priced in. Maintain HOLD with a higher fair value estimate of S$1.31, versus S$1.14 previously, due to stronger cap rate assumptions.
2Q12 results broadly in line
CapitaCommercial Trust (CCT) reported 2Q12 distributable income of S$58.5m, which was 7.5% higher YoY. This translates to a DPU of 2.06 S-cents per share which is broadly in line with expectations. 2Q12 revenues came in at S$95.8m – up 5.2% YoY mostly due to revenue contribution by Twenty Anson, higher revenues from Raffles City and HSBC Building, and higher yield protection income for One George Street.
RC Hotels master lease renewed to 2036
Portfolio occupancy was at 94.5% as of end 2Q12, flat from the 94.4% last quarter. We expect only 4.1% of office leases, by gross rental income, to be due to renewal for the rest of FY12, and believe rental reversions would likely turn positive by 1H13. Management has also renewed the RC Hotels master lease to 2036, with a step-up minimum rent structure and rental review every five years. We also saw S$48.4m of revaluation gains from portfolio assets this quarter; cap rates for CCT’s Grade A assets are at 4.0%.
Additional lettable office space at Golden Shoe
At Golden Shoe, management plans to convert storeroom space into lettable office space and carry out lift enhancement works in 3Q12. This would cost S$0.6m, with a projected ROI of 14%. In addition, CapitaGreen’s construction and 6BR’s AEI remain on schedule. At 6BR, 200k sq ft of space was targeted for upgrading in FY12, of which 49% was completed YTD.
Maintain HOLD with an increased fair value estimate of S$1.31
Though Grade A office rentals have dipped a further 4-5% in 2Q12, we see short-term vacancy rates likely stabilizing for the remainder of FY12 due to limited CDB additions till 2H13. We continue to like CCT’s portfolio of prime office assets, and also note limited lease renewals for the rest of FY12. Our fair value estimate is raised to S$1.31, from S$1.14 previously, due to stronger cap rate assumptions. At current price levels, however, we believe most positives are already priced in. Maintain HOLD; we would turn buyers at S$1.26.
Fortune Real Estate Investment Trust
OCBC on 23 Jul 2012
FRT achieved a record-breaking 1H12, with revenue and net property income climbing by 20.3% and 19.6% YoY to historic highs of HK$537.4m and HK$382.1m respectively. 1H12 DPU rose by 23.6% YoY, the highest growth in FRT's nine-year operating history, to 15.82 HK cents, slightly better than our expectations. The strong results are attributable to FRT's three-pronged growth strategy: active lease management, yield-accretive acquisitions of Provident Square and Belvedere Square in mid-Feb and good returns on AEIs of Fortune City One and Ma On Shan Plaza. We maintain our BUY rating and raise our fair value from HK$5.22 to HK$5.33.
Impressive growth and strong financial position
FRT achieved a record-breaking 1H12, with revenue and net property income climbing by 20.3% and 19.6% YoY to historic highs of HK$537.4m and HK$382.1m respectively. 1H12 DPU rose by 23.6% YoY, the highest growth in FRT's nine-year operating history, to 15.82 HK cents, slightly better than our expectations. As of 30 Jun, FRT's gearing is healthy at 24.5%. The weighted average effective cost of borrowing was brought down to 2.77% for 1H12 versus 4.44% for 1H11.
Good rental reversion and occupancy
FRT's private housing estate shopping mall portfolio saw rental reversion of 20.6% for the enlarged portfolio, with passing rent for the original portfolio rising 11.5% YoY. Portfolio occupancy was healthy at 96.5% as at 30 June 2012. There are vacancies due to ongoing AEIs at Fortune City One (FCO) and Jubilee Square.
Ongoing AEIs to deliver returns
Over 70% of the planned AEI at FCO is completed and the remaining works are to be completed by end 2012. The capex is expected to total HK$100m and target ROI is 15%. FRT has started AEI at Jubilee Square in 2Q12 to capitalise on the growth in the immediate catchment. Capex is estimated to be HK$15m with a target ROI of 15%. The expected completion is in 1H13.
Newly acquired malls are improving
Since Feb, a few retail shops and a F&B outlet have been introduced at Belvedere Square. With over 30% of its leased area expiring in the rest of 2012, the management seeks to broaden the tenant and trade mix. Provident Square's occupancy has been significantly boosted to 99.6% as of 30 Jun, versus 92.3% in Sep 2011.
Maintain BUY
Fortune is trading at a P/B of 0.6x (NAV per unit of HK$8.34) and an estimated FY12 dividend yield of 6.5%. We maintain our BUY rating and raise our fair value from HK$5.22 to HK$5.33.
FRT achieved a record-breaking 1H12, with revenue and net property income climbing by 20.3% and 19.6% YoY to historic highs of HK$537.4m and HK$382.1m respectively. 1H12 DPU rose by 23.6% YoY, the highest growth in FRT's nine-year operating history, to 15.82 HK cents, slightly better than our expectations. The strong results are attributable to FRT's three-pronged growth strategy: active lease management, yield-accretive acquisitions of Provident Square and Belvedere Square in mid-Feb and good returns on AEIs of Fortune City One and Ma On Shan Plaza. We maintain our BUY rating and raise our fair value from HK$5.22 to HK$5.33.
Impressive growth and strong financial position
FRT achieved a record-breaking 1H12, with revenue and net property income climbing by 20.3% and 19.6% YoY to historic highs of HK$537.4m and HK$382.1m respectively. 1H12 DPU rose by 23.6% YoY, the highest growth in FRT's nine-year operating history, to 15.82 HK cents, slightly better than our expectations. As of 30 Jun, FRT's gearing is healthy at 24.5%. The weighted average effective cost of borrowing was brought down to 2.77% for 1H12 versus 4.44% for 1H11.
Good rental reversion and occupancy
FRT's private housing estate shopping mall portfolio saw rental reversion of 20.6% for the enlarged portfolio, with passing rent for the original portfolio rising 11.5% YoY. Portfolio occupancy was healthy at 96.5% as at 30 June 2012. There are vacancies due to ongoing AEIs at Fortune City One (FCO) and Jubilee Square.
Ongoing AEIs to deliver returns
Over 70% of the planned AEI at FCO is completed and the remaining works are to be completed by end 2012. The capex is expected to total HK$100m and target ROI is 15%. FRT has started AEI at Jubilee Square in 2Q12 to capitalise on the growth in the immediate catchment. Capex is estimated to be HK$15m with a target ROI of 15%. The expected completion is in 1H13.
Newly acquired malls are improving
Since Feb, a few retail shops and a F&B outlet have been introduced at Belvedere Square. With over 30% of its leased area expiring in the rest of 2012, the management seeks to broaden the tenant and trade mix. Provident Square's occupancy has been significantly boosted to 99.6% as of 30 Jun, versus 92.3% in Sep 2011.
Maintain BUY
Fortune is trading at a P/B of 0.6x (NAV per unit of HK$8.34) and an estimated FY12 dividend yield of 6.5%. We maintain our BUY rating and raise our fair value from HK$5.22 to HK$5.33.
Mapletree Logistics Trust
OCBC on 23 Jul 2012
Mapletree Logistics Trust (MLT) delivered DPU of 1.70 S cents for 1QFY13. This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts. Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. We maintain our BUY rating with an unchanged fair value of S$1.19 on MLT.
Stable 1QFY13 results
Mapletree Logistics Trust (MLT) delivered NPI of S$67.5m (+18.4% YoY) and distributable income of S$45.8m (+18.0%) for 1QFY13. Expectedly, the strong performance came chiefly from its recent overseas acquisitions and enhanced operational performance. A total of S$4.7m from distributable income will be paid to perpetual securities holders, leaving S$41.1m for unitholders. As a result, DPU for the quarter came in at 1.70 S cents (+6.0% YoY). This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts.
Expecting positive FY13 performance
During the quarter, we note that MLT’s portfolio occupancy rate improved from 98.7% as at 31 Mar to 99.0% amid strong take-up rates in three of its Singapore multi-tenanted assets. In addition, the REIT continued to enjoy positive rental reversions of 10% on average (albeit lower than 12% achieved in prior quarter). We understand that 12.7% of its leases by NLA are due for renewal in FY13, of which ~42% has been successfully renewed/replaced to-date. Hence, we remain positive on its full-year financial performance.
Maintain BUY
Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. In our view, MLT is certainly in a favourable position, having a strong weighted average lease to expiry (WALE) of 6 years, still healthy aggregate leverage ratio of 37% and no immediate refinancing needs (long debt duration of 4.4 years). Maintain BUY with unchanged fair value of S$1.19 on MLT.
Mapletree Logistics Trust (MLT) delivered DPU of 1.70 S cents for 1QFY13. This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts. Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. We maintain our BUY rating with an unchanged fair value of S$1.19 on MLT.
Stable 1QFY13 results
Mapletree Logistics Trust (MLT) delivered NPI of S$67.5m (+18.4% YoY) and distributable income of S$45.8m (+18.0%) for 1QFY13. Expectedly, the strong performance came chiefly from its recent overseas acquisitions and enhanced operational performance. A total of S$4.7m from distributable income will be paid to perpetual securities holders, leaving S$41.1m for unitholders. As a result, DPU for the quarter came in at 1.70 S cents (+6.0% YoY). This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts.
Expecting positive FY13 performance
During the quarter, we note that MLT’s portfolio occupancy rate improved from 98.7% as at 31 Mar to 99.0% amid strong take-up rates in three of its Singapore multi-tenanted assets. In addition, the REIT continued to enjoy positive rental reversions of 10% on average (albeit lower than 12% achieved in prior quarter). We understand that 12.7% of its leases by NLA are due for renewal in FY13, of which ~42% has been successfully renewed/replaced to-date. Hence, we remain positive on its full-year financial performance.
Maintain BUY
Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. In our view, MLT is certainly in a favourable position, having a strong weighted average lease to expiry (WALE) of 6 years, still healthy aggregate leverage ratio of 37% and no immediate refinancing needs (long debt duration of 4.4 years). Maintain BUY with unchanged fair value of S$1.19 on MLT.
OKP Holdings
OCBC on 23 Jul 2012
OKP Holdings (OKP) reported that its 2Q12 revenue fell 17% YoY to S$23.6m, while PATMI sank 55% to S$3.1m. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. Management also said the fall in revenue is due to slower revenue recognition from some recently awarded projects. While management has not confirmed this, it is likely that the design-and-build project to expand the CTE/TPE/SLE interchange has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, we expect the execution of this project to ramp up by the end of this year. Based on our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.
A disappointing quarter
OKP Holdings (OKP) reported its 2Q12 financials. Revenue fell 17% YoY to S$23.6m and PATMI sank 55% to S$3.1m. Management said the fall in revenue is due to slower revenue recognition from some recently awarded projects. Also, OKP’s 2Q12 gross margin contracted by 15.1ppt to 24% because its gross margin in 2Q11 was boosted by a more profitable project, which has since been completed. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. In addition, management did not recommend an interim dividend, compared to last year’s $0.01/share.
Order book remains robust
OKP’s current gross order book of S$341.6m remains robust. It was boosted by new contracts secured year-to-date worth a total of S$93m, including the design-and-build project to expand the CTE/TPE/SLE interchange worth $75.3m. While management has not confirmed this, it is likely that this project has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, the execution of this expressway project is still expected to ramp up by the end of this year.
Management reiterates focus
Despite OKP’s recent foray into property development, via its 10%-stake in CS Amber Development to redevelop the former Amber Towers, management reiterated OKP’s focus on its core business of public construction and maintenance projects. In addition, OKP will likely bid for larger and more complex civil engineering projects going forward so as to increase its profitability.
Maintain HOLD
We further reduce our FY12F revenue and PATMI estimates of OKP by 18% and 38% respectively to S$98.7m and S$12.2m. Since the revenue recognition of recently awarded projects will eventually pick up, coupled with our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.
OKP Holdings (OKP) reported that its 2Q12 revenue fell 17% YoY to S$23.6m, while PATMI sank 55% to S$3.1m. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. Management also said the fall in revenue is due to slower revenue recognition from some recently awarded projects. While management has not confirmed this, it is likely that the design-and-build project to expand the CTE/TPE/SLE interchange has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, we expect the execution of this project to ramp up by the end of this year. Based on our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.
A disappointing quarter
OKP Holdings (OKP) reported its 2Q12 financials. Revenue fell 17% YoY to S$23.6m and PATMI sank 55% to S$3.1m. Management said the fall in revenue is due to slower revenue recognition from some recently awarded projects. Also, OKP’s 2Q12 gross margin contracted by 15.1ppt to 24% because its gross margin in 2Q11 was boosted by a more profitable project, which has since been completed. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. In addition, management did not recommend an interim dividend, compared to last year’s $0.01/share.
Order book remains robust
OKP’s current gross order book of S$341.6m remains robust. It was boosted by new contracts secured year-to-date worth a total of S$93m, including the design-and-build project to expand the CTE/TPE/SLE interchange worth $75.3m. While management has not confirmed this, it is likely that this project has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, the execution of this expressway project is still expected to ramp up by the end of this year.
Management reiterates focus
Despite OKP’s recent foray into property development, via its 10%-stake in CS Amber Development to redevelop the former Amber Towers, management reiterated OKP’s focus on its core business of public construction and maintenance projects. In addition, OKP will likely bid for larger and more complex civil engineering projects going forward so as to increase its profitability.
Maintain HOLD
We further reduce our FY12F revenue and PATMI estimates of OKP by 18% and 38% respectively to S$98.7m and S$12.2m. Since the revenue recognition of recently awarded projects will eventually pick up, coupled with our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.
CapitaCommercial Trust
Kim Eng on 23 Jul 2012
1H12 earnings stronger than expected. CCT’s 2Q12 net property income rose by a better-than-expected 7.8% YoY to SGD75.2m, while the distributable income increased by 7.5% YoY to SGD58.5m, mainly attributable to lower property tax and the addition of Twenty Anson. DPUs for 2Q12 and 1H12 grew by 7% and 5% to 2.06 cents and 3.96 cents respectively. We think this is a creditable showing despite the challenging leasing market. We upgrade our recommendation to HOLD.
Retrospective tax savings. Property tax in 2Q12 was SGD1.7m (or 23.6%) lower than a year before, due to vacancy refund and successful appeal of annual value assessment. For 1H12, the tax savings amounted to SGD4.2m, or about 0.15 cents/unit. Management said that they will continue to work with the tax authorities to ensure the annual value assessment remains fair.
Positive leasing activity in 1H12. In 1H12, CCT signed new office and retail leases and renewals of ~180,500 sq ft, with demand still mainly from financial services companies, although demand is still restricted to small and mid-sized office space. New tenants and existing ones seeking additional space for expansion accounted for approximately half of those spaces. Compared with 1Q12, the average office portfolio
rent slid marginally from SGD7.45 to SGD7.39 psf. With another 5.7% of its office NLA up for renewal for the rest of this year, the impact from any potential negative rental reversion is likely to be limited.
Balance sheet’s sound as a pound. On the back of a marginal 1% growth in its portfolio valuation, CCT’s gearing edged down to 30.1% this quarter from 30.5%. There are no refinancing needs for the rest of this year, and the debt maturing in FY13 is a very manageable SGD197m. CCT’s average cost of debt stayed low at 3.1%.
Upgrade to HOLD. We raise our forward DPU forecasts by an average of 4% per annum, mainly due to lower property tax estimates, as well as a slight upward revision in our rental assumptions. We have also raised our terminal growth rate assumption to 1.5%, resulting in a new DDM-derived target price of SGD1.24. We expect the forward average DPU yields to remain fairly stable at 5.7% based on the current share price, but CCT is fairly valued now, in our view. Upgrade to HOLD.
1H12 earnings stronger than expected. CCT’s 2Q12 net property income rose by a better-than-expected 7.8% YoY to SGD75.2m, while the distributable income increased by 7.5% YoY to SGD58.5m, mainly attributable to lower property tax and the addition of Twenty Anson. DPUs for 2Q12 and 1H12 grew by 7% and 5% to 2.06 cents and 3.96 cents respectively. We think this is a creditable showing despite the challenging leasing market. We upgrade our recommendation to HOLD.
Retrospective tax savings. Property tax in 2Q12 was SGD1.7m (or 23.6%) lower than a year before, due to vacancy refund and successful appeal of annual value assessment. For 1H12, the tax savings amounted to SGD4.2m, or about 0.15 cents/unit. Management said that they will continue to work with the tax authorities to ensure the annual value assessment remains fair.
Positive leasing activity in 1H12. In 1H12, CCT signed new office and retail leases and renewals of ~180,500 sq ft, with demand still mainly from financial services companies, although demand is still restricted to small and mid-sized office space. New tenants and existing ones seeking additional space for expansion accounted for approximately half of those spaces. Compared with 1Q12, the average office portfolio
rent slid marginally from SGD7.45 to SGD7.39 psf. With another 5.7% of its office NLA up for renewal for the rest of this year, the impact from any potential negative rental reversion is likely to be limited.
Balance sheet’s sound as a pound. On the back of a marginal 1% growth in its portfolio valuation, CCT’s gearing edged down to 30.1% this quarter from 30.5%. There are no refinancing needs for the rest of this year, and the debt maturing in FY13 is a very manageable SGD197m. CCT’s average cost of debt stayed low at 3.1%.
Upgrade to HOLD. We raise our forward DPU forecasts by an average of 4% per annum, mainly due to lower property tax estimates, as well as a slight upward revision in our rental assumptions. We have also raised our terminal growth rate assumption to 1.5%, resulting in a new DDM-derived target price of SGD1.24. We expect the forward average DPU yields to remain fairly stable at 5.7% based on the current share price, but CCT is fairly valued now, in our view. Upgrade to HOLD.
Friday, 20 July 2012
Suntec REIT
OCBC on 20 Jul 2012
Suntec REIT announced 2QFY12 DPU of 2.361 S cents, down 6.8% YoY and 3.8% QoQ. However, we feel that management has executed well, as this was achieved despite the loss of income from the divestment of Chijmes and commencement of asset enhancement works (AEI) at Suntec City on 1 Jun. Office segment, we note, was the star performer for the quarter, with gross revenue 5.5% higher YoY due to positive rental reversions. Suntec REIT also announced that the Suntec City AEI is now projected to complete by end 2014, earlier than its last guidance for completion in 2015. We now incorporate the stronger performance at Suntec REIT’s office portfolio and the revised completion schedule of Suntec City AEI into our model. Maintain HOLD with a revised fair value of S$1.41 (prev: S$1.23) on Suntec REIT.
2QFY12 DPU declined marginally QoQ
Suntec REIT announced 2QFY12 DPU of 2.361 S cents, down 6.8% YoY and 3.8% QoQ. However, we feel that management has executed well, as this was achieved despite the loss of income from the divestment of Chijmes and commencement of asset enhancement works (AEI) at Suntec City on 1 Jun. Together with 1Q distribution, DPU for 1HFY12 amounted to 4.814 S cents, representing 51.8% of both our and consensus FY12 DPU forecasts.
Good performance at office portfolio
Office segment was the star performer for the quarter, with gross revenue 5.5% higher YoY due to positive rental reversions. Notably, Suntec City office achieved 100% committed occupancy, the first since Mar 2008. However, gross retail revenue was down by 16.1% YoY. On a positive note, occupancy of Suntec City Mall for area not affected by the AEI remained stable at 98.1%.
Escalating enhancement works at Suntec City
Suntec REIT announced that the Suntec City AEI is now projected to complete by end 2014, earlier than its last guidance for completion in 2015. Works on Phase 1 which encompasses Suntec Singapore and Galleria was said to progress smoothly and is on schedule for completion by 2QFY13. We understand that ~193,000 sq ft NLA will be closed progressively and that a 58.5% pre-commitment for the Phase 1 leases has been achieved to-date. Management also reiterated that it will consider utilizing part of the proceeds from the sale of Chijmes to mitigate the temporary dip in DPU, if necessary.
Maintain HOLD with higher fair value
We now incorporate the stronger performance at Suntec REIT’s office portfolio and the revised completion schedule of Suntec City AEI into our model. We also fine-tune our GST refund assumptions for income support, which is expected to be end by 2012. This raises our fair value to S$1.41 from S$1.23 previously. While we are now fully convinced of management’s strong execution, we believe that all the positives have been factored in. Maintain HOLD on valuation grounds.
Suntec REIT announced 2QFY12 DPU of 2.361 S cents, down 6.8% YoY and 3.8% QoQ. However, we feel that management has executed well, as this was achieved despite the loss of income from the divestment of Chijmes and commencement of asset enhancement works (AEI) at Suntec City on 1 Jun. Office segment, we note, was the star performer for the quarter, with gross revenue 5.5% higher YoY due to positive rental reversions. Suntec REIT also announced that the Suntec City AEI is now projected to complete by end 2014, earlier than its last guidance for completion in 2015. We now incorporate the stronger performance at Suntec REIT’s office portfolio and the revised completion schedule of Suntec City AEI into our model. Maintain HOLD with a revised fair value of S$1.41 (prev: S$1.23) on Suntec REIT.
2QFY12 DPU declined marginally QoQ
Suntec REIT announced 2QFY12 DPU of 2.361 S cents, down 6.8% YoY and 3.8% QoQ. However, we feel that management has executed well, as this was achieved despite the loss of income from the divestment of Chijmes and commencement of asset enhancement works (AEI) at Suntec City on 1 Jun. Together with 1Q distribution, DPU for 1HFY12 amounted to 4.814 S cents, representing 51.8% of both our and consensus FY12 DPU forecasts.
Good performance at office portfolio
Office segment was the star performer for the quarter, with gross revenue 5.5% higher YoY due to positive rental reversions. Notably, Suntec City office achieved 100% committed occupancy, the first since Mar 2008. However, gross retail revenue was down by 16.1% YoY. On a positive note, occupancy of Suntec City Mall for area not affected by the AEI remained stable at 98.1%.
Escalating enhancement works at Suntec City
Suntec REIT announced that the Suntec City AEI is now projected to complete by end 2014, earlier than its last guidance for completion in 2015. Works on Phase 1 which encompasses Suntec Singapore and Galleria was said to progress smoothly and is on schedule for completion by 2QFY13. We understand that ~193,000 sq ft NLA will be closed progressively and that a 58.5% pre-commitment for the Phase 1 leases has been achieved to-date. Management also reiterated that it will consider utilizing part of the proceeds from the sale of Chijmes to mitigate the temporary dip in DPU, if necessary.
Maintain HOLD with higher fair value
We now incorporate the stronger performance at Suntec REIT’s office portfolio and the revised completion schedule of Suntec City AEI into our model. We also fine-tune our GST refund assumptions for income support, which is expected to be end by 2012. This raises our fair value to S$1.41 from S$1.23 previously. While we are now fully convinced of management’s strong execution, we believe that all the positives have been factored in. Maintain HOLD on valuation grounds.
Frasers Centrepoint Trust
OCBC on 20 Jul 2012
Frasers Centrepoint Trust’s (FCT) 3QFY12 DPU of 2.6 S cents (+33.3% YoY) was above our expectations. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. During the quarter, we note that FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view. We now re-jig our FY12-13 forecasts to reflect the better-than-expected results. This in turn raises our fair value from S$1.74 to S$1.89. Maintain BUY.
3QFY12 results exceeded expectations
Frasers Centrepoint Trust (FCT) turned in a good set of 3QFY12 results last evening. NPI was up 32.1% YoY to S$24.6m, while distributable income grew by 37.1% to S$20.2m. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. For the quarter, DPU came in at 2.6 S cents (+33.3% YoY), partially boosted by distribution of S$1.2m which was retained in previous quarters. Together with 1HFY12 DPU of 4.7 S cents, 9MFY12 DPU totaled 7.3 S cents, forming 76.8% of our and consensus FY12 DPU projections.
Improved operating statistics
After dipping 4.0ppt in prior quarter, FCT’s portfolio occupancy as at 30 Jun improved marginally to 93.7%. The re-opening of the food court in May, we note, was the primary driver for the better number. This was somewhat offset by lower occupancy at CWP (down 3.6ppt QoQ to 87.8%) as refurbishment works commence on the fifth and seven floors. However, management reiterated that the asset enhancement initiative at CWP is in its final phase and that the mall is likely to be fully occupied when the project is completed in Dec 2012. Additionally, FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view.
Retain BUY with higher fair value
Due to the better-than-expected results, we now re-jig our FY12-13 forecasts to reflect better occupancy and rental rates. This in turn raises our fair value from S$1.74 to S$1.89. We continue to like FCT for its pure suburban exposure, strong execution and sturdy financial position. We believe the injection of Changi City Point may happen in the next fiscal year, as its leases appear to have stabilized (though business park segment has yet to obtain TOP). This may provide potential for further DPU expansion. Maintain BUY.
Frasers Centrepoint Trust’s (FCT) 3QFY12 DPU of 2.6 S cents (+33.3% YoY) was above our expectations. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. During the quarter, we note that FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view. We now re-jig our FY12-13 forecasts to reflect the better-than-expected results. This in turn raises our fair value from S$1.74 to S$1.89. Maintain BUY.
3QFY12 results exceeded expectations
Frasers Centrepoint Trust (FCT) turned in a good set of 3QFY12 results last evening. NPI was up 32.1% YoY to S$24.6m, while distributable income grew by 37.1% to S$20.2m. The strong performance was achieved mainly on the back of a 60.9% NPI growth by Causeway Point (CWP) and S$2.0m NPI contribution from newly-acquired Bedok Point. For the quarter, DPU came in at 2.6 S cents (+33.3% YoY), partially boosted by distribution of S$1.2m which was retained in previous quarters. Together with 1HFY12 DPU of 4.7 S cents, 9MFY12 DPU totaled 7.3 S cents, forming 76.8% of our and consensus FY12 DPU projections.
Improved operating statistics
After dipping 4.0ppt in prior quarter, FCT’s portfolio occupancy as at 30 Jun improved marginally to 93.7%. The re-opening of the food court in May, we note, was the primary driver for the better number. This was somewhat offset by lower occupancy at CWP (down 3.6ppt QoQ to 87.8%) as refurbishment works commence on the fifth and seven floors. However, management reiterated that the asset enhancement initiative at CWP is in its final phase and that the mall is likely to be fully occupied when the project is completed in Dec 2012. Additionally, FCT continued to track positive rental reversions, where rental rates of new leases were 27.2% higher than preceding leases on average (2Q: +11.0%). This reflects continued strong demand for suburban retail space, in our view.
Retain BUY with higher fair value
Due to the better-than-expected results, we now re-jig our FY12-13 forecasts to reflect better occupancy and rental rates. This in turn raises our fair value from S$1.74 to S$1.89. We continue to like FCT for its pure suburban exposure, strong execution and sturdy financial position. We believe the injection of Changi City Point may happen in the next fiscal year, as its leases appear to have stabilized (though business park segment has yet to obtain TOP). This may provide potential for further DPU expansion. Maintain BUY.
Keppel Corporation
OCBC on 20 Jul 2012
Keppel Corporation (KEP) reported a 52.2% YoY rise in revenue to S$3.5b and a 35.4% increase in net profit to S$520.9m in 2Q12, such that 1H12 net profit accounted for 78% and 80% of ours and the street’s full year estimates, respectively. Lumpy earnings from the property division boosted net profit, and this is not expected to recur in 2H12. Operating margin in the O&M division continued to normalize to about 12% in the quarter, in line with management’s guidance. Meanwhile the group’s net order book stands at S$7.6b, with deliveries extending to 2015. KEP remains optimistic about the return of semi-submersible orders, given the tight supply of deepwater rigs. We fine-tune our estimates and update the market values of KEP’s listed entities, such that our fair value estimate eases slightly from S$13.38 to S$13.34. In line with our expectations, an interim dividend of S$0.18 has been declared. Maintain BUY.
Another set of strong results
Keppel Corporation (KEP) reported a 52.2% YoY rise in revenue to S$3.5b and a 35.4% increase in net profit to S$520.9m in 2Q12, such that 1H12 net profit accounted for 78% and 80% of ours and the street’s full year estimates, respectively. Lumpy earnings from the property division boosted net profit, mainly due to earnings recognition from homes sold under the deferred payment scheme at Reflections at Keppel Bay. However operating margin slipped from 20.1% in 2Q11 to 18.8% in 2Q12 as margins in the offshore marine division continue to normalize.
O&M margins normalize to low teens
Operating margin in the O&M division has more than halved from 24.2% in 2Q11 to 12.0% in 2Q12 as margins continue to normalize. Recall that margins were impressive around the 20+% range from 4Q10 to 4Q11 as high profit margin contracts secured largely before the crisis were executed, along with productivity gains. This trend is within our expectations as management had earlier guided that a normalized level would be around 10-12%.
Earnings momentum will not continue into 2H12
Management has stressed that the good showing in 1H12 is exceptional and will not be repeated in 2H12, as earnings were largely supported by one-time profits from the property division. We understand that contribution from Reflections accounted for more than three quarters of the property arm’s net profit in 1H12.
Maintain BUY
The group’s net order book stands at S$7.6b, with deliveries extending to 2015. KEP remains optimistic about the return of semi-submersible orders, given the tight supply of deepwater rigs. Meanwhile management also shared that the earliest delivery for a jack-up order placed today is Sep 2014. We fine-tune our estimates and update the market values of KEP’s listed entities, such that our fair value estimate eases slightly from S$13.38 to S$13.34. In line with our expectations, an interim dividend of S$0.18 has been declared. Maintain BUY.
Keppel Corporation (KEP) reported a 52.2% YoY rise in revenue to S$3.5b and a 35.4% increase in net profit to S$520.9m in 2Q12, such that 1H12 net profit accounted for 78% and 80% of ours and the street’s full year estimates, respectively. Lumpy earnings from the property division boosted net profit, and this is not expected to recur in 2H12. Operating margin in the O&M division continued to normalize to about 12% in the quarter, in line with management’s guidance. Meanwhile the group’s net order book stands at S$7.6b, with deliveries extending to 2015. KEP remains optimistic about the return of semi-submersible orders, given the tight supply of deepwater rigs. We fine-tune our estimates and update the market values of KEP’s listed entities, such that our fair value estimate eases slightly from S$13.38 to S$13.34. In line with our expectations, an interim dividend of S$0.18 has been declared. Maintain BUY.
Another set of strong results
Keppel Corporation (KEP) reported a 52.2% YoY rise in revenue to S$3.5b and a 35.4% increase in net profit to S$520.9m in 2Q12, such that 1H12 net profit accounted for 78% and 80% of ours and the street’s full year estimates, respectively. Lumpy earnings from the property division boosted net profit, mainly due to earnings recognition from homes sold under the deferred payment scheme at Reflections at Keppel Bay. However operating margin slipped from 20.1% in 2Q11 to 18.8% in 2Q12 as margins in the offshore marine division continue to normalize.
O&M margins normalize to low teens
Operating margin in the O&M division has more than halved from 24.2% in 2Q11 to 12.0% in 2Q12 as margins continue to normalize. Recall that margins were impressive around the 20+% range from 4Q10 to 4Q11 as high profit margin contracts secured largely before the crisis were executed, along with productivity gains. This trend is within our expectations as management had earlier guided that a normalized level would be around 10-12%.
Earnings momentum will not continue into 2H12
Management has stressed that the good showing in 1H12 is exceptional and will not be repeated in 2H12, as earnings were largely supported by one-time profits from the property division. We understand that contribution from Reflections accounted for more than three quarters of the property arm’s net profit in 1H12.
Maintain BUY
The group’s net order book stands at S$7.6b, with deliveries extending to 2015. KEP remains optimistic about the return of semi-submersible orders, given the tight supply of deepwater rigs. Meanwhile management also shared that the earliest delivery for a jack-up order placed today is Sep 2014. We fine-tune our estimates and update the market values of KEP’s listed entities, such that our fair value estimate eases slightly from S$13.38 to S$13.34. In line with our expectations, an interim dividend of S$0.18 has been declared. Maintain BUY.
DBS
DMG & PARTNERS RESEARCH on 19 July 2012
INDONESIA'S central bank will set the single ownership limit in local banks at a maximum of 40 per cent, but will approve higher levels of ownership if owners are listed banks with strong financial health, including Tier 1 capital above 6 per cent.
Bank Indonesia's shedding of more light is a positive step towards the completion of DBS' acquisition of Bank Danamon.
Our DBS TP of $14.60 assumes the successful purchase of Bank Danamon by DBS.
Whilst there is huge potential for long-term growth, we see no catalyst driving DBS share price in the short term, and therefore maintain "neutral".
Recall that in early April 2012, DBS announced its plan to buy over the 67.4 per cent stake in Bank Danamon that Temasek owns, with payment in the form of new DBS shares.
DBS also made a mandatory tender offer for the remaining Danamon shares at Indonesian rupiah 7,000 cash per share.
In our view, DBS is clearly within Bank Indonesia's definition of "strong financial health".
DBS' Tier 1 capital adequacy ratio of 12.7 per cent is double Bank Indonesia's requirement of 6 per cent.
Our financial model for DBS assumes a successful acquisition of Bank Danamon by Nov 1, 2012. With this assumption, we derived a DBS TP of $14.60, pegged to 1.15x 2012 book.
This is a discount to the historical average of 1.32x P/B given the global economic uncertainties and the negative impact of the soft Sibor on DBS' net interest margin.
However, if the acquisition cannot proceed (which is an unlikely event), our TP will be a lower $14.30, which is pegged to 1.15x of a lower 2012 book (DBS' book will rise with the acquisition as goodwill increases).
NEUTRAL
NEUTRAL
Keppel Land
CIMB RESEARCH on 19 July 2012
KEPPEL Land's H1 2012 core net profit was above forecasts due to profit recognition at Reflections for units sold under Deferred Payment Scheme (DPS).
Q2 saw incremental positives: uptick in China sales and leasing progress at Marina Bay Financial Centre Tower 3. Management remains cautious in deploying capital.
Q2/H1 2012 core EPS came at 23 per cent/59 per cent of our and consensus FY12 numbers (front-end loaded). EPS is adjusted on recognitions. Maintain "neutral" with an unchanged target price (25 per cent discount to RNAV).
Further recovery in China volumes and capital-recycling initiatives are rerating catalysts.
New home sales saw an uptick in Q2 with 491 units sold (Q1: 187 units), but reflects a small recovery. H1 2012 sales of 678 units versus 1,400 and 4,000 units in 2011 and 2010, respectively, lag industry volume sales.
Q2 2012 new sales continued to be driven by Chengdu (The Botanica Ph 6) and Wuxi (Central Park City).
We anticipate slow pick-up in transaction volumes and weaker sell-through as management resists price cuts, despite moderation in launch schedule to 2,400, 7,000 and 6,900 units offered in 2012, 2013, and 2014 respectively.
Q2 2012 earnings were again bumped up by contributions from Reflections on delivery of units sold under the DPS.
New home sales remained slow at over 190 units in H1 2012 (FY11: 480 units), with Q2 contributing 101 units.
The bulk of the sales came from The Luxurie. Although construction of the showroom for Keppel Bay Plot 3 (yielding 367 units) has started, the current environment is unfavourable for a launch.
At MBFC Tower 3, new tenants (mix of financial and non-financial) have been secured for 120,000 square feet of space, bringing commitment to about 70 per cent.
While the balance sheet is relatively under-geared, KepLand remains cautious in capital deployment.
It made its maiden foray into Sri Lanka in July 2012 to develop 260 apartments.
NEUTRAL
NEUTRAL
CapitaMall Trust
OCBC on 19 Jul 2012
CapitaMall Trust (CMT) announced 2Q12 distributable income of S$79.6m or a DPU of 2.38 S-cents – up 0.8% YoY. This is mostly in line with expectations, and YTD DPU now makes up 50% and 47% of OIR and consensus FY12 forecast, respectively. CMT also booked a S$84.3m divestment gain during the quarter for the sale of Hougang Plaza. The portfolio kept up a healthy occupancy rate of 98.6% on a combined basis, as of end 2Q12, with most of the slack coming from the Atrium@Orchard (70.7% occupancy) now undergoing enhancement works. While we continue to like CMT’s exposure to resilient suburban retail malls, we judge that most of the positives have been priced in at current share price levels, which has appreciated 15.6% YTD. Downgrade to HOLD with a higher fair value estimate of S$2.04, versus S$2.02 previously, due to higher values of public holdings and marginally stronger cap rate assumptions.
2Q12 results within expectations
CapitaMall Trust (CMT) announced 2Q12 distributable income of S$79.6m or a DPU of 2.38 S-cents – up 0.8% YoY. This is mostly in line with expectations, and YTD DPU now makes up 50% and 47% of OIR and consensus FY12 forecast, respectively. 2Q12 topline was S$165.5m, which was up 3.7% mostly due to JCube which opened for operations in Apr 12 and continued positive rental reversions in the portfolio. CMT also booked a S$84.3m divestment gain during the quarter for the sale of Hougang Plaza.
Portfolio occupancy healthy at 98.6%
The portfolio kept up a healthy occupancy rate of 98.6% on a combined basis, as of end 2Q12, with most of the slack coming from the Atrium@Orchard (70.7% occupancy) now undergoing enhancement works. For 1H12, 11% of total NLA has had their leases renewed, of which 84.1% of the tenants were retained. We also saw a 6.4% positive rental reversion, on average, across the new leases. We understand that shopper traffic in 1H12 fell 3.0% YoY, mostly due to construction works near the IMM, Plaza Singapura and competitive pressures at Lot 1 and Funan Centre. Enhancement works at Bugis+, the Atrium@Orchard and Clarke Quay are on track to completion as planned.
Downgrade to HOLD with increased S$2.04 fair value estimate
CMT’s gearing ratio as of end 2Q12 is a comfortable 37.5% (38.3% at end 1Q12), and we note the refinancing of the S$783m secured term loan maturing in Oct 2012 is coming along smoothly with conclusion of the Euro-Medium Term Note Program Series 2 and 3 in Mar and Jun 12, respectively. While we continue to like CMT’s exposure to resilient suburban retail malls, we judge that most of the positives have been priced in at current share price levels, which has appreciated 15.6% to date. Downgrade to HOLD with a higher fair value estimate of S$2.04, versus S$2.02 previously, due to higher values of public holdings and marginally stronger cap rate assumptions.
CapitaMall Trust (CMT) announced 2Q12 distributable income of S$79.6m or a DPU of 2.38 S-cents – up 0.8% YoY. This is mostly in line with expectations, and YTD DPU now makes up 50% and 47% of OIR and consensus FY12 forecast, respectively. CMT also booked a S$84.3m divestment gain during the quarter for the sale of Hougang Plaza. The portfolio kept up a healthy occupancy rate of 98.6% on a combined basis, as of end 2Q12, with most of the slack coming from the Atrium@Orchard (70.7% occupancy) now undergoing enhancement works. While we continue to like CMT’s exposure to resilient suburban retail malls, we judge that most of the positives have been priced in at current share price levels, which has appreciated 15.6% YTD. Downgrade to HOLD with a higher fair value estimate of S$2.04, versus S$2.02 previously, due to higher values of public holdings and marginally stronger cap rate assumptions.
2Q12 results within expectations
CapitaMall Trust (CMT) announced 2Q12 distributable income of S$79.6m or a DPU of 2.38 S-cents – up 0.8% YoY. This is mostly in line with expectations, and YTD DPU now makes up 50% and 47% of OIR and consensus FY12 forecast, respectively. 2Q12 topline was S$165.5m, which was up 3.7% mostly due to JCube which opened for operations in Apr 12 and continued positive rental reversions in the portfolio. CMT also booked a S$84.3m divestment gain during the quarter for the sale of Hougang Plaza.
Portfolio occupancy healthy at 98.6%
The portfolio kept up a healthy occupancy rate of 98.6% on a combined basis, as of end 2Q12, with most of the slack coming from the Atrium@Orchard (70.7% occupancy) now undergoing enhancement works. For 1H12, 11% of total NLA has had their leases renewed, of which 84.1% of the tenants were retained. We also saw a 6.4% positive rental reversion, on average, across the new leases. We understand that shopper traffic in 1H12 fell 3.0% YoY, mostly due to construction works near the IMM, Plaza Singapura and competitive pressures at Lot 1 and Funan Centre. Enhancement works at Bugis+, the Atrium@Orchard and Clarke Quay are on track to completion as planned.
Downgrade to HOLD with increased S$2.04 fair value estimate
CMT’s gearing ratio as of end 2Q12 is a comfortable 37.5% (38.3% at end 1Q12), and we note the refinancing of the S$783m secured term loan maturing in Oct 2012 is coming along smoothly with conclusion of the Euro-Medium Term Note Program Series 2 and 3 in Mar and Jun 12, respectively. While we continue to like CMT’s exposure to resilient suburban retail malls, we judge that most of the positives have been priced in at current share price levels, which has appreciated 15.6% to date. Downgrade to HOLD with a higher fair value estimate of S$2.04, versus S$2.02 previously, due to higher values of public holdings and marginally stronger cap rate assumptions.
Subscribe to:
Posts (Atom)