ST Engineering

DBS Group Research on 18 Feb 2013

RESULTS for Q4 2012 and FY2012 were in line with estimates. STE reported net profit of $576 million for FY2012, up 9 per cent y-o-y on the back of 6 per cent growth in revenue to $6.4 billion. Earnings were mainly driven by the Aerospace and Electronics segments, but all divisions showed improvement. Results would have been better if not for higher allowances for doubtful debts, impairment of goodwill and higher tax charges. Group profit-before-tax margin remained stable at 11 per cent. Aerospace margins improved to 15 per cent despite start-up losses at new projects.

STE finished the year with an order book of $12.1 billion, but this could be boosted by another $1.5 billion-$2 billion (our estimate) from the recently secured contract to build eight patrol vessels for the Singapore Navy. We conservatively expect earnings growth of about 6 per cent per annum in FY2013/14, but there is upside potential from the MRO division, where business has been picking up, especially in the US.

While the stock is currently trading at 20 times FY2013 PE, it is still below the +2 standard deviation level, unlike some of the other dividend yield names in the market. In terms of yield spreads, we are still not quite close to the previous peaks. With yield compression in vogue, we reckon there is room for further upside. Thus, we maintain our "buy" call on STE with a revised TP of $4.40, premised on higher valuation metrics, as justified above. With healthy earnings growth of about 6 per cent and yield of about 4.5 per cent, we believe the stock still presents one of the more compelling investment cases among the defensive, dividend yield names listed on the SGX.

BUY

TEE International

OCBC on 14 Feb 2013

Since our last report on TEE International (10 Jan), its share price has stayed firm, retaining most of the gains made since the start of the year, despite its disappointing 2QFY13 results. We believe that TEE’s share price has been supported by recent strong interest in Singapore construction stocks generally, boosted by the government’s latest projections for construction demand and population growth, both of which should benefit the construction sector. We raise our valuation of TEE’s main engineering business to 5.5x FY13 forecast earnings from 5x previously, to reflect the improved long-term outlook for its engineering segment. This raises our overall fair value estimate for TEE to S$0.30, from S$0.28. Given its weak 2QFY13 showing, however, we prefer to remain cautious on TEE until we see stronger contributions from its real estate business. We maintain our HOLD rating on TEE.

Investors shrug off disappointing earnings
TEE International’s share price has remained firm since its weak 2QFY13 earnings report on 8 Jan, trading in a range of S$0.365-S$0.425 (compared to S$0.380 just before the results were published and S$0.31 on 31 Dec 2012). We believe that TEE’s share price has been supported by recent strong interest in Singapore construction stocks generally, boosted by the government’s latest projections for construction demand and population growth, both of which should benefit the construction sector. To recap, TEE announced a 32.9% YoY drop in net profit to S$2.5m for the three months to 30 Nov, due mainly to a sharp drop in associates’ contributions and higher tax expenses.

Singapore construction demand expected to remain strong
The latest government projections for construction demand in Singapore (S$26b-S$32b in 2013 and S$20b-S$28b a year in 2014-15, according to the Building and Construction Authority on 16 Jan) offer reassurance of a steady pipeline of potential projects for TEE’s main engineering business (~90% of its revenue). Meanwhile, the government’s promises to step up spending on infrastructure to prepare for a population of as many as 6.9m people by 2030 suggests that construction demand here will remain strong well beyond the next three years. TEE is also trying to secure more regional projects for its engineering business, in markets such as Brunei, the Philippines, Macau and Myanmar, to diversify its sources of revenue.

Fair value raised to S$0.30 per share, maintain HOLD
We raise our valuation of TEE’s main engineering business to 5.5x FY13 forecast earnings from 5x previously, to reflect the improved long-term outlook for its engineering segment. This raises our overall fair value estimate for TEE to S$0.30, from S$0.28. We have not factored in any potential gains from its planned spin off of its real estate business (TEE is targeting an IPO by May) and given its weak 2QFY13 showing, we prefer to remain cautious on the stock until we see stronger contributions from its real estate business. We maintain our HOLD rating on TEE.

ST Engineering

OCBC on 18 Feb 2013

Singapore Technologies Engineering (STE) reported FY12 results that were in line with ours and consensus expectations. For FY12, revenue rose 6% YoY to S$6.4b, profit before tax climbed 10% YoY to S$723m and profit attributable to shareholders rose 9% to S$576m. All sectors recorded higher PBT for FY12 versus FY11. Aerospace, Electronics, Land Systems and Marine saw PBT increase by 9%, 11%, 6% and 5% YoY respectively. Aerospace’s FY12 PBT margin of 15.0% improved over FY11's 14.4%. STE expects to achieve higher revenue and PBT in FY13 versus FY12. We forecast a FY13F EPS of 19.9 S cents, and keeping a P/E peg of 20.7x, we raise our fair value from S$3.90 to S$4.12 and maintain a HOLD on STE. We estimate a FY13F dividend yield of 4.5%.

FY12 results in line
STE reported FY12 results that were in line with ours and consensus expectations. For FY12, revenue rose 6% YoY to S$6.4b, profit before tax climbed 10% YoY to S$723m and profit attributable to shareholders rose 9% to S$576m. Allowance for doubtful debts and bad debt written off totalled S$22.3m, chiefly due to Land Systems in China. Some of the assets involved have been repossessed. STE is currently taking legal action and some write-backs may be seen later this year. Commercial sales accounted for 63% of revenue. Order book stood at S$12.1b as of end-2012 (3Q12: S$12.5b), of which S$4.3b is expected to be delivered in 2013. The 4Q12 figure excluded the recent newbuild contract for eight vessels for the Singapore Navy, which we estimate could be worth ~S$1.6b. 

Aerospace FY12 margin improvement
All sectors recorded higher PBT for FY12 versus FY11. Aerospace, Electronics, Land Systems and Marine saw PBT increase by 9%, 11%, 6% and 5% YoY respectively. Aerospace registered a PBT margin of 13.6% for 4Q12, versus 16.8% for 3Q12 due to seasonal weakness (winter in the US) and Guangzhou start-up costs. However, FY12 PBT margin of 15.0% improved over FY11's 14.4%. 

Outlook
STE expects to achieve higher revenue and PBT in FY13 versus FY12. For Aerospace, FY13 revenue is expected to be comparable to FY12 while PBT is expected to be higher. STE views the American Airlines-US Airways merger as neutral to slightly positive; cost control after merger could lead to more outsourcing. For Electronics and Marine, FY13 revenue and PBT are expected to exceed FY12 figures. For Land Systems, FY13 revenue is expected to be higher while PBT is expected to be comparable for FY12.

Maintain HOLD
We forecast a FY13F EPS of 19.9 S cents, and keeping a P/E peg of 20.7x, we raise our fair value from S$3.90 to S$4.12 and maintain a HOLD on STE. We estimate a FY13F dividend yield of 4.5%.

Sarin Technologies

Kim Eng on 19 Feb 2013

Slightly below expectations, but recovery on track. Sarin reported FY12 revenue and net profit of USD63.8m (+10% YoY) and USD20.8m (+20% YoY) respectively. FY12 net profit came in slightly below our forecast of USD22.1m but we believe that sales recovery is on track to resume to normal levels from 1Q13. Final dividends of 1.25 US cts/sh were declared, bringing total FY12 dividends to 4.5 US cts/sh, with an implied yield of 4.5%. It also raised its dividend policy to 1.5 US cts/sh (from 1.0 US cts/sh) every half-yearly. Reiterate Buy, with TP trimmed to SGD1.48 (pegged to 13x FY13F PER) due to minor cuts of 3-5% on FY13-14F net profits.

Accelerating sales of GalaxyTM. Eight additional GalaxyTM units were deployed in 4Q12. This brings total number of installed units to 95, with 40 sold in the year. This was slightly below the initial 100 targeted for FY12 due mainly to the temporary hiccup in 3Q12. Management expects sales momentum to accelerate into FY13F as demand seems to have picked up with increasingly positive sentiments. We are assuming addition of 45 GalaxyTM units for FY13F.

Strengthening recurring income. Recurring income base accounted for 25% of total revenue in FY12, and we expect this to grow to 31% in FY13F with a higher installed base, bringing more stability to sales. Further developments in polished diamond sector. Sarine LightTM achieved a significant milestone as it secured an initial commercial agreement with a leading retail chain in Asia. Commercial launch is also expected for Sarine LoupeTM later in the year. We expect to see some contributions in FY13F albeit more significant contributions would only come in from FY14F.

Cautious optimism ahead, creating structural change. A more stable global economy and growing demand for luxury goods in China and India will provide the impetus to support Sarin’s business. The recent 10% fall in rough diamond prices and stability in polished diamond prices, would also ease the liquidity issues faced by manufacturers. However, be reminded that investing in Sarin is about its potential to create a structural change in the diamond industry with its new technologies. Maintain Buy.

Singtel

OCBC on 15 Feb 2013

SingTel saw its 3QFY13 group revenue dipping 4.8% YoY to S$4597m, and while EBITDA rose 0.5% to S$1262m, net profit fell 8.3% to S$827m (mainly due to exceptional loss of S$67m). However, excluding exceptional items, underlying net profit was down 2.3% at S$874m. 9MFY13 revenue fell 2.4% to S$13702m, meeting 73% of our FY13 forecast, while net profit slipped 2.2% to S$2640m; core earnings was down 1.6% at S$2610m, or 69% of full-year estimate. SingTel has kept its guidance for FY13, which we have already captured in our forecast. As such, we would not be making any changes. However, in line of the recent recovery in the price of its listed associates, our SOTP-based fair value improves from S$3.53 to S$3.68. We also maintain our BUY rating on the stock.

Stable 3QFY13 results
SingTel saw its 3QFY13 group revenue dipping 4.8% YoY to S$4597m, and while EBITDA rose 0.5% to S$1262m, net profit fell 8.3% to S$827m (mainly due to exceptional loss of S$67m). However, excluding exceptional items, underlying net profit was down 2.3% at S$874m. 9MFY13 revenue fell 2.4% to S$13702m, meeting 73% of our FY13 forecast, while net profit slipped 2.2% to S$2640m; core earnings was down 1.6% at S$2610m, or 69% of full-year estimate. 

FY13 guidance unchanged
Going forward, SingTel has kept its previously revised guidance unchanged for FY13 i.e. consolidated revenue to see single-digit decline, although EBITDA will remain stable. Free cashflow (FCF) is expected to remain around S$2.6b (its 9MFY13 FCF hit S$2.49b); capex for Singapore still around S$950m and Australia about A$1.1b (excluding spectrum payments). SingTel adds that consolidated revenue and EBITDA would be impacted by material exchange rate movements in A$ and regional currencies. 

Myanmar is a potential market
While SingTel will continue to focus on its transformation plan to grow in the new digital era, it can also grow its regional business. We understand that the telco is understandably keen on getting into a new and untapped market in Myanmar. However, management notes that it is still early days as the government there has just called for an expression of interest. It adds that many global telco players are also keen on securing one of the two licenses potentially on offer. 

Maintain BUY with new S$3.68 FV
As results were in line with our expectations, we opt to leave our forecasts unchanged for now. However, in line of the recent recovery in the price of its listed associates, our SOTP-based fair value improves from S$3.53 to S$3.68. We also maintain our BUY rating on the stock.

Tat Hong Holdings

OCBC on 15 Feb 2013

Tat Hong Holdings (Tat Hong) reported a fairly strong set of 3Q13 results with net profit attributable to shareholders surging by 37% YoY to S$17.8m. Gross margin increased slightly to 35.9% (3Q12: 34.4%) due to higher contribution from Crane Rental and Tower Rental segments which yielded higher margins compared to Distribution. Looking ahead, the crane divisions are expected to continue their strong momentums with the roll-out of infrastructure projects across the region. However, Distribution and General Equipment Rental may slow due to weaker demand in Australia. Overall, we are still positive on Tat Hong and raise our fair value estimate to S$1.75 (previously S$1.70) as we roll forward our projections to FY13/14F. Maintain BUY.

3Q net profit jumped 37% YoY
Tat Hong Holdings (Tat Hong) reported a fairly strong set of 3Q13 results with revenue increasing by 5% YoY to S$206m and net profit attributable to shareholders surging by 37% YoY to S$17.8m. 3Q13 gross margin increased slightly to 35.9% (3Q12: 34.4%) due to higher contribution from Crane Rental and Tower Rental segments which yielded higher margins compared to Distribution. 

Robust demand for cranes
3Q revenue for Crane Rental jumped 27% YoY to S$73.6m on the back of broad-based improvements in all key markets. In Singapore, Tat Hong benefitted from the construction of MRT lines and LNG plants in Jurong Island, while Malaysia’s operations were boosted by jetty and oil & gas projects. Tat Hong’s China-based Tower Crane division also performed well with a 24% YoY increase in revenue to S$19.4m. This was largely due to a larger fleet size and higher utilization rates. With the roll-out of various infrastructure projects across the region, both Crane Rental and Tower Crane divisions are expected to maintain their strong momentum in the near term.

Weakness in Distribution and Equipment Rental 
Meanwhile, the group’s Distribution and General Equipment Rental segments registered revenue declines of 7% and 12% to S$90.6m and S$22.5m respectively for 3Q13, impacted by lower commodity prices and weaker demand in Australia. Looking ahead, the group warned that Australia could turn in a weaker performance due to reduced public spending by the government, a slower pace of activity outside the mining sector and inclement weather (i.e. Queensland flooding). 

Maintain BUY
On the whole, we are still positive on Tat Hong as we believe that growth from its crane divisions should more than offset weakness in other divisions. We rolled forward our estimates to FY13/14F and raised our fair value to S$1.75 (previously S$1.70), still on 14x PER. Maintain BUY.

Singapore Property

Kim Eng on 18 Feb 2013

New home sales jumped in January. New private home sales jumped by 43% MoM in January, as developers sold 2,013 units (excluding ECs) on the back of 1,799 units launched. Including ECs, the number would have been 2,269 units. However, as the most recent round of cooling measures took effect only on 12 Jan, we believe these sales figures are unlikely to reflect true demand.

Figures likely to be skewed. The bestseller for the month was the 810-unit La Fiesta, by unlisted developer EL Development. The developer had brought forward its launch date and extended sales hours the night before the cooling measures took effect, with many buyers rushing to beat the deadline. Consequently, La Fiesta registered 404 units sold in January, at a median price of SGD1,163 psf. This was followed by Q Bay Residences, which was the first project to be launched post-cooling measures. With some clever marketing and reported discounts of up to 22%, Far East Organization (FEO) sold 372 units at the 630-unit project at a median price of SGD1,012 psf.

Other notable projects. With more aggressive pricing strategies, CapitaLand managed to sell another 263 units at the 1,715-unit D’Leedon, achieving a median price of SGD1,406 psf for the month of January. The mega-development is now 65%-sold. City Developments Limited (CDL) saw sales momentum at its highly-successful Echelon at Alexandra View being carried over from December, as another 87 units were sold in January at a median price of SGD1,853 psf.

12 units above SGD3,000 psf sold in the month. The number of luxury units priced above SGD3,000 psf sold fell from 17 in the previous month to 12 in January. Nine of the units were from FEO’s The Scotts Tower, with a median price of SGD3,825 psf and one unit attaining a month-high of SGD4,267 psf. Solitary units were sold at FEO’s Skyline@Orchard Boulevard and ALBA, as well as Perennial’s Eden Residences Capitol.

Probably just a blip. Considering that January’s figures are likely to include forward demand from investors looking to beat the cooling measures’ deadline, we reiterate that the feat is unlikely to be replicated in February and March, although it is still too early to determine if the cooling measures have indeed worked. Nonetheless, we expect the marginal investors to be priced out of the market already, given the onerous cash requirements and higher Additional Buyer’s Stamp Duty. We estimate full-year new home sales to be between 14,000 and 16,000 units.

Top-picks remain unchanged. We reiterate CapitaMalls Asia (CMA SP, BUY, TP: SGD2.55) as our top-pick amongst the big-caps for its retail exposure and Wing Tai (WINGT SP, BUY, TP: SGD2.55) for its high-end exposure. We also maintain our BUY ratings on CapitaLand (CAPL SP, TP: SGD4.27) and Keppel Land (KPLD SP, TP: SGD4.78) for their diversified businesses and China exposure.

ST Engineering

Kim Eng on 18 Feb 2013

FY12 PATMI up 9.2%, 1Q13 to provide boost. ST Engineering (STE) reported FY2012 PATMI of SGD576m (+9.2% YoY), which was in-line with expectations, as growth was driven primarily by the Electronics (+10% YoY) and Aerospace segments (+9.3% YoY). Final and special dividends totaling SG13.8 cts/sh were declared, bringing full-year yields to ~4.2% p.a. We believe 1Q13 will be one to look forward to given the positive newsflow of a record orderbook once the recent MINDEF contract for 8 naval vessels is factored in. Upgrade to BUY, TP of SGD4.40 now based on a higher 21.5x FY2013 PER.

SGD12.1b orderbook belies true worth. We believe that the recent vessel design and build contract awarded by MINDEF could have a value in the region of SGD1.8b, and hence pave the way to yet another record orderbook of ~SGD13b to be announced in 1Q13. We had mentioned in our previous report that we were waiting for STE to once again show signs of outdoing itself in orderbook size before upgrading our valuation metrics, and this contract looks to fit our criteria.

Margins inching up. Another positive sign was the general trend of improvement in terms of profitability margins, which helped boost STE’s bottom-line in addition to the 6% YoY improvement in revenue.
Outlook positive. Management’s guidance for 2013 was largely positive, as the Aerospace, Electronics and Marine sectors were expected to record higher PBT YoY, while Land Systems was expected to maintain comparable profitability.

Going from strength to strength: Upgrade to BUY. Although STE’s share price has seen recent strength, we still see more up-side for a company we expect will provide further positive guidance in 1Q13 especially in terms of its orderbook. In light of firmer earnings visibility, we are raising our profit forecasts by 4-5% for FY2013-15 and upgrading STE to a BUY as we believe it now deserves a valuation pegged to 21.5x FY2013 PER (1 SD above historical mean).

China Minzhong

Kim Eng on 18 Feb 2013

Indofood comes! China Minzhong announced issue of 98m new shares by way of private placement to Indofood Sukses Makmur Tbk, a leading Indonesian packaged food producer, at SGD0.915 per share. The new shares will represent 14.95% of total shares outstanding following the placement. Upon the completion of the deal, Indofood will surpass GIC becoming the biggest shareholder of Minzhong.

The alliance with Indofood should benefit Minzhong. Indofood is a leading packaged food producer in Indonesia. With the support from this strategic shareholder, Minzhong could not only expand its revenue by supplying raw materials to Indofood, but also leverage on Indofood’s distribution network to march into fast-growing Southeast Asia market.

Upgrade earnings forecast. We raise our revenue and net profit forecast for the next three years on the back of the potential synergies generated from the deal. Despite the dilution in EPS due to the enlarged share base, we believe China Minzhong can leverage on Indofood’s strength and experiences to accelerate its growth thus offset the dilution effect and protect minority shareholders’ interest.

15% control might not be the end of the story. Indofood’s acuqitision track records shows that it usually prefers to controlling the majority of the targeted companies. Thus we suspect that 15% stake in China Minzhong is probably not the end for Indofood. In our view it is highly possible that in the future Indofood will acquire more shares in open market or from other big shareholders such as GIC through another placement. We even cannot rule out the possibility of a privatisation offer by Indofood some day in the future.

Maintain BUY and raise TP. We continue to like China Minzhong for its prosperous growth outlook and undemanding valuation. Better use of the proceeds from the placement would be a catalyst for the stock. We still believe some dividends payment in FY13 is possible. At current low PE multiple, even a small payout ratio could give an attractive dividends yield. Maintain BUY with target price SGD1.36, pegged to 5x FY6/14 PER.

OCBC

Kim Eng on 18 Feb 2013

Within expectations. OCBC’s FY12 recurring net profit of SGD2.82b (+23.9% YoY) was within expectations. We raise our FY13-14 earnings forecasts by a marginal 4% to factor in lower credit costs, and up our TP to SGD10.50 (+9%) on a higher 1.4x P/BV target (1.3x previously) to factor in a higher FY13 ROE expectation of 11.9% (from 11.1%). While we view positively the strong growth in the group’s wealth management businesses, much of this is factored into the current share price. Prefer DBS (BUY, TP: SGD17.60) for its more attractive valuations (2013: PER 10.6x, P/BV 1.1x, ROAE: 10.6%, yield: 3.7%) and the strong growth in its non-traditional income channels.

Positively, loan growth picked up momentum in 4Q12, up 3% QoQ vs 1% QoQ in 3Q12, with a healthy replenishment of China trade financing loans. Management has guided for high single-digit loan growth in FY13 (FY12: +7%). CASA improved to 50.6% of total deposits at end-2012 from 47.2% at end-Sep 2012, as the bank captured new corporate/ commercial operating accounts, which also contributed to a decline in the group’s USD LDR to 101% at end-2012 from 163% at end-2011.

Conversely, NIMs remained under pressure, contracting a further 5bps QoQ to 1.70%, taking total contraction for the year to 15bps. Management guides for NIM compression to continue, but to a lesser degree than in FY12, on the back of ongoing funding cost pressure as well as the repricing of the group’s mortgage book.

Non-core gains retained to grow core assets. Dashing hopes of a special dividend, management emphasised that gains from the sale of F&N and APB will be retained for future growth. The group’s capital ratios have been greatly enhanced by the disposals, with its core capital ratio strengthening from 14.4% at end-2011 to 16.6% at end-2012.

Areas of focus moving forward continue to be wealth management, Indonesia and China. OCBC NISP’s strength is in the mass commercial market; it also hopes to build on the SME and retail divisions. In China, OCBC is strong in the high-end segment and sees much opportunity to build on offshore business from China.

Singtel

OSK Research on 14 Feb 2013

SINGTEL reported a 2 per cent y-o-y decline in 9M FY2013 core profit to $2.61 billion on the back of a 2.4 per cent contraction in revenue to $13.7 billion.

Core earnings for the quarter narrowed 1.2 per cent sequentially (down 2.3 per cent y-o-y) to $874 million. The share of associate contributions fell 15.3 per cent q-o-q (up 2.2 per cent y-o-y) to $486 million in Q3 FY2013, albeit up 6 per cent YTD to $1.57 billion.

The group's overall results continued to reflect weaknesses across key regional currencies, in particular the Australian dollar, Indian rupee and Indonesian rupiah, which depreciated 3-13 per cent y-o-y (down 2-3 per cent q-o-q) against the Singapore dollar.

At 70 per cent of our and 71 per cent of consensus estimates, SingTel's 9M FY2013 results narrowly missed our expectations, albeit in line with street estimates.

The key takeaways from the results were: extended losses at its new digital life business which had diluted overall group margin; higher Singapore and Optus revenues marked by seasonality; and weaker regional currencies, specifically the Australian dollar, Indian rupee and Indonesian rupiah which impacted revenue and profits when translated.

Optus' revenue improved 2 per cent q-o-q after three consecutive quarters of contraction or flat growth, but was down 4 per cent y-o-y in 9M FY2013, reflecting the lower mobile termination rate implemented in January 2012.

The restructuring of its business and unrelenting focus on cost and yield management contributed to the 3 per cent q-o-q and y-o-y growth in Ebitda, which translates into slightly stronger Ebitda margin of 25.2 per cent during the quarter.

SingTel's Ebitda fell 2 per cent q-o-q (up 1.4 per cent y-o-y) in Q3 FY2013, reflecting the start-up losses at Amobee which contributed $21 million in revenue for the quarter and $49 million in 9M FY2013.

Mobile revenue improved 4 per cent q-o-q (Q2 FY2013: up 2 per cent q-o-q), supported by seasonally higher roaming revenue, increased handset sales and stronger subs net-addition.

SingTel added 64,000 mobile subscribers during the quarter and signed-up a further 8,000 mio-TV customers with total pay-TV subs crossing the 400,000 mark in January as it continued to chip away StarHub's dominance in the pay-TV segment through increased channel offerings.

SingTel's bright spots are in Indonesia and Thailand. The stronger showing from Telkomsel and AIS offset Bharti's weaker numbers.

Overall contributions from associates were negatively impacted by the steep depreciation of the respective currencies.

Management has maintained its prior guidance of consolidated revenue to decline by low single-digit Singapore revenue to grow at low single digit; low single-digit decline for Optus' revenue (which was downgraded post Q2 FY2013 results); and stable Ebitda for both Singapore and Optus operations.

Our forecasts and fair value are under review pending the results conference call with management. We are likely to finetune our forecast but keep our "neutral" recommendation on the stock.

NEUTRAL, UNDER REVIEW

Tiong Woon Corporation

UOBKayhian on 15 Feb 2013

Valuation

·      Tiong Woon is trading at a 18.7% discount to its book value of 49.2 S cents with a dividend yield of 1%.

Our View

·      We highlighted to investors that Tiong Woon’s share price may have hit bottom 6 months ago.The counter has since gained 66.7% on improving business outlook. To recap, we shared with investors that margins are expected to improve in 1HFY13 from an increase in both utilisation rate and rental rates. With demand from numerous oil and gas projects rising in the region, rental rates will normalise to 85% and utilisation rate is also expected to improve from 66% in FY12 to 75% for FY13.

·      Tiong Woon continues to see opportunities in emerging markets. According to management, Tiong Woon will focus in sectors such as oil and gas, petrochemical, power and construction in Myanmar,Vietnam and India. Tiong Woon remains committed toIndia despite the fact that they had to make some provisions of S$3.4m for impairment on trade receivables from a series of oil & gas customers in FY12.

·      We reiterate that Tiong Woon is not a pure crane rental operator. Tiong Woon differentiates itself from other crane operators by providing a comprehensive project management service apart from bare crane rental. These service project contracts are longer term in nature (rates are locked in) and therefore, earnings theoretically are more resilient in nature. However, we cautioned that margins from these contracts are lower as Tiong Woon has to incorporate higher staff costs (project managers) and are unable to ride on rising rates on such longer-term contracts.

·      We think the book could be undervalued by 15-20%. We observed that Tiong Woon is able to record strong gains from disposal of property, plant and equipment. For example, the group had disposed five large cranes in 2QFY13 and recorded close to S$1m of gains from S$4m of proceeds. Thus, based on a back-of-the-napkin calculation, these cranes are worth 10-20% more in the market than book value and thus conservatively the NAV of Tiong Woon is actually undervalued by that amount. That explains why some of their peers are trading above book.

Financials Highlights

·      Tiong Woon reported a net profit of S$9.1m in 1HFY13 driven by a rise in revenues and margins from the Heavy Lift and Haulage and Trading segments. Revenue from Heavy Lift and Haulage grew 38% yoy to S$74.5m as the group took on larger heavy lift and installation projects in the Asia Pacific region. However, the Fabrication & Engineering business continued to be in the red with profit before tax of S$3.3m in 1HFY13 from higher subcontractor and equipment rental costs incurred during the quarter.

Cordlife Group

UOBKayhian on 15 Feb 2013

1HFY13 Results Highlights

·          Revenue up 18.4% yoy on higher client deliveries. Cordlife Group (Cordlife) benefitted from the baby boom during the Dragon Year as well as from successful educational efforts to raise awareness of the benefits of cord blood banking. The number of client deliveries increased 18.4% yoy in 1HFY13. Gross margin was sustained at a strong 69.9% (FY12: 69.6%) while EBIT margin jumped to 24.2% (FY12: 13.9%).

·          Net profit surged 123.2% yoy due to one-off gain on disposal of associate. Cordlife completed the disposal of its stake in Guangzhou Tianhe Nuoya Biology Engineering on 12 Nov 12. This resulted in a gain of about S$2.7m. Excluding this one-off gain, net profit grew 52.8% yoy to S$5.8m.

·          Earnings from China Cord Blood Corporation (CCBC) kicked in. In 1HFY13, Cordlife recognised two months of CCBC’s profit. Associate’s earnings grew 39.2% yoy to a substantial S$1.3m, mainly attributable to new customer sign-ups.

·          Interim dividend of 1 cent to be paid on 5 Apr 13. We forecast a full-year dividend of 3.2 cents, based on a 60% payout. This implies a yield of 4.8%.

Our View

·          Potential beneficiary of Singapore’s Marriage & Parenthood Package 2013.Cordlife directly benefits from the enhanced Baby Bonus scheme as savings in the Child Development Account (CDA) can be used to pay for private cord blood banking services. Should the government succeed in boosting fertility and birth rates, the greater awareness of cord blood banking could give a lift to the ~20% penetration rate in Singapore. Management believes there is significant upside to this as penetration rates in other Asian countries such as Korea and Taiwan are 50-55%.

·          10% stake in CCBC cemented; betting on a larger Chinese market. CCBC is the largest cord blood banking operator in China, holding exclusive licences in Beijing, Guangdong andZhejiang. It also holds a 24% stake in Shandong Cord Blood Bank. Management aims to ride on the growth opportunity in Chinawhere the penetration rate in provinces with cord blood banking operations is projected to reach 5% in 2015, from only 2% in 2010.

·          New HQ to incur one-time relocation expenses but will contribute additional income. Cordlife will incur one-off costs related to the relocation to its new facility in 3QFY13. Nonetheless, we also project gross margin to improve to 70% in FY13 and 71% in FY14 on rental savings. A new income stream could come in the form of sub-leasing income as management intends to lease out about 50% of its HQ space.

Valuation

·          We adjust our forecasts to reflect the higher contribution from CCBC. Share price has run up more than 21% ytd and we believe prospects are currently priced in. Maintain HOLD with a higher target price of S$0.65, pegged to 15.5x FY13F PE. We suggest an entry price of S$0.54 for a potential capital upside of at least 20%.

Cache Logistics Trust

OCBC on 14 Feb 2013

Cache Logistics Trust (CACHE) has signed an option agreement to acquire a three-storey fully ramp-up warehouse for S$55.2m, or S$194 psf GFA. The transaction is expected to complete in Apr, subject to JTC approval. According to management, the initial NPI yield is ~8.7%, higher than CACHE’s FY12 implied portfolio yield of 7.1%. Hence, we expect the acquisition to be earnings accretive. CACHE also announced that it has received its maiden corporate family rating from Moody’s Investors Service. With this development, we believe CACHE may finance the acquisition wholly by debt, since it is now able to exceed its previous regulatory debt ceiling of 35%. We raise our fair value to S$1.34 from S$1.32 after factoring in the investment. Maintain BUY.

Acquires ramp-up warehouse from third party
Cache Logistics Trust (CACHE) has signed an option agreement to acquire a three-storey fully ramp-up warehouse known as Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m, or S$194 psf GFA. The purchase price includes the upfront land premium amount of S$6.2m based on JTC posted land premium rate and adjusted for the duration of the remaining land lease. The transaction is expected to complete in Apr, subject to JTC approval. Upon completion, PDPL will enter into a master lease arrangement to lease the whole building for six years with an option to renew for another six years. A built-in rental escalation every two years is expected to be incorporated, but the quantum will be only disclosed after the deal is finalised.

Investment to be earnings accretive
Precise Two is strategically located in the Jurong Industrial Precinct at 15 Gul Way and has modern and attractive technical specifications such as heavy floor loading, making it attractive for end-users who require storage space for heavy products and equipment. The property has just received its TOP on 12 Dec 2012 (land lease tenure of 30 years starting from 1 Oct 2003). According to management, the initial NPI yield is ~8.7%, higher than CACHE’s FY12 implied portfolio yield of 7.1%. Hence, we expect the acquisition to be earnings accretive. The acquisition will increase its market share of ramp-up warehouses in Singapore (currently at 22.9%) and bring its portfolio asset value above S$1.0b.

Increased flexibility with new credit rating
CACHE also announced that it has received its maiden corporate family rating from Moody’s Investors Service (Baa3 with stable outlook). We have previously anticipated CACHE to fund any sizeable investment opportunities using debt and equity. However, with this development, we believe CACHE may finance the acquisition wholly by debt, since it is now able to exceed its previous regulatory debt ceiling of 35%. Based on our estimates, the new asset is likely to contribute 0.23 S cents (+2.7%) to its FY13 DPU. We raise our fair value to S$1.34 from S$1.32 after factoring in the investment. Maintain BUY.

ComfortDelgro

DBS Group Research on 13 Feb 2013

Q4 2012 net profit increased by 2 per cent y-o-y to $57.6 million, ending FY2012 at a record profit of $248.9 million (up 6 per cent y-o-y), within our forecasts ($248 million).

Q4 revenue rose by 2 per cent, driven by all business segments, except bus station and automotive engineering in China.

Ebit margins dipped marginally to 10.6 per cent (Q4 2011: 10.8 per cent) as operating expenses rose by 2 per cent mainly from higher staff costs (up 6 per cent to $284.3 million) and contract services (up 12 per cent to $121.4 million), offset partially by lower materials and consumables (down 11 per cent to $79.8 million) and fuel and electricity costs (down 13 per cent to $64.3 million).

Management indicated that they have hedged 60 per cent and 40 per cent of its fuel requirements in Singapore and the UK, respectively. This should continue to provide visibility and stability to its earnings in 2013, as in 2012.

Final dividend of 3.5 Singapore cents was proposed (FY2012: 3.3 Singapore cents). Coupled with the interim dividend of 2.9 Singapore cents, this equates to a total payout of 6.4 Singapore cents (54 per cent payout ratio).

Capital expenditure requirements are projected to taper off in FY2014, and we remain hopeful that dividend payout could increase.

ComfortDelGro remains as our preferred land transport play given its stable growth profile, geographical diversification and strong balance sheet to pursue inorganic growth. Net debt to equity stands at 0.3 per cent, down from 2.2 per cent in FY2011.

Our target price is based on discount cash flow model and 15 times average FY2013/2014 PE estimate. This implies 16.3 times and 15.8 times PEs for FY2013 and FY2014, respectively, slightly above its historical average of 15 times, but significantly below SMRT's 22 times FY2014 PE.

BUY

ComfortDelGro

OCBC on 13 Feb 2013

ComfortDelGro’s (CD) FY12 results came in within our expectations with revenue increasing 3.9% YoY to S$3.5b while operating profit rose 3.3% YoY to S$412.3m as the group managed to keep a lid on operating expenses. With PATMI rising 5.6% YoY to S$248.9m, management declared a final dividend of 3.5 S cents (FY11: 3.3 S cents), taking the total dividend declared for the year to 6.4 S cents (FY11: 6.0 S cents). Investors can now look forward to an announcement in the coming months for local fare increases, which will provide much-needed relief for domestic operations. Away from home, we expect CD’s overseas ventures to stay lucrative despite greater competitive pressures. However, while we raise our fair value to S$1.95 (from S$1.90 previously), we feel that the market has already priced in much of the upside. Therefore, we downgrade CD to HOLD on valuation grounds despite favouring the group over SMRT.

FY12 closes on a positive note
ComfortDelGro’s (CD) FY12 results came in within our expectations with revenue increasing 3.9% YoY to S$3.5b while operating profit improved 3.3% YoY to S$412.3m as the group managed to keep a lid on operating expenses during the period. With PATMI rising 5.6% YoY to S$248.9m, management declared a final dividend of 3.5 S cents (FY11: 3.3 S cents), taking the total dividend declared for the year to 6.4 S cents (FY11: 6.0 S cents). As a percentage of PATMI, the payout ratio rose marginally by 0.7ppt to 54%. 

Look forward to fare increases
A long overdue fare increase will likely materialise by the middle of 2Q13, and this will help to alleviate pressures on operating margins for CD’s domestic segments. Coupled with the continued growth in bus and rail ridership– albeit at a slower pace – we expect the two segments to post more encouraging results in the coming quarters. 

Has time to adapt to changes in overseas landscape
The loss of the two Australian bus routes will only take effect in Sep 2013 so the impact to CD will be more significant from FY14. In the absence of tender dates for its two remaining services, management has some lead time to adjust its approach although it has signalled its willingness to accept lower margins. That said, the relatively new tender process also opens up opportunities for the group to expand its footprint into other regions.

Allocation to defensive sectors has benefited CD
YTD, CD’s share price has appreciated by ~7%, benefiting largely from a combination of improving prospects and a greater emphasis on defensive qualities. Although our fair value increases to S$1.95 (from S$1.90) after we adjust our PATMI payout ratio to 52% (from 50%), much of the upside has already been priced in. Downgrade to HOLD on valuation grounds.

Lippo Malls Indonesia Retail Trust

OCBC on 13 Feb 2013

LMIRT posted 4Q12 gross rental income of S$33.0m, up 35% YoY. The increase was primarily due to the contributions from Pluit Village and Plaza Medan Fair (acquired in 4Q11) and marginal contributions from the six acquisitions made in 4Q12. Results for the quarter were generally in line with our expectations; DPU of 0.74 S cents formed 97% of our estimate. NAV per unit rose 6.3% QoQ to 56.16 S cents, giving a current P/B of 0.93x. Gearing remains healthy at 24.5%. Management indicates that the average weighted all-in cost of debt for FY13 is likely to be 5.5%-5.7%. We maintain our fair value of S$0.52. Since the current unit price is near our fair value, we downgrade LMIRT to a HOLD. We estimate a FY13F yield of 6.9%.

4Q12 in line
LMIRT posted 4Q12 gross rental income of S$33.0m, up 35% YoY. The increase was primarily due to the contributions from Pluit Village and Plaza Medan Fair (acquired in 4Q11) and marginal contributions from the six acquisitions made in 4Q12. Total revenue (equivalent to gross rental income in 4Q12) fell 11% YoY to S$33.0m. This is because of the absence of the service charge and utilities recovery following the outsourcing of the operational services to a third-party operating company with effect from 1 May 2012. Net property income margin was at 93.4%, down 3.2 ppt QoQ. Management communicated that 4Q12 NPI margin is more reflective of future margins. Finance costs more than doubled to S$6.5m (+106% YoY), chiefly from additional interest expense and amortisation of transaction costs as a result of the issuance of S$250m and S$75m of notes under the EMTN Programme in Jul 2012 and Nov 2012 respectively. 4Q12 results were generally in line with our expectations; DPU of 0.74 S cents formed 97% of our estimate.

Healthy balance sheet
NAV per unit rose 6.3% QoQ to 56.16 S cents, giving a current P/B of 0.93x. Gearing remains healthy at 24.5%. The weighted average maturity of debt facilities at end FY12 was approximately three years, with no refinancing required until June 2014. 68% of LMIRT’s S$1.75b asset portfolio remains unencumbered. Management indicates that the average weighted all-in cost of debt for FY13 is likely to be 5.5%-5.7%. Management intends for LMIRT to amass a S$4b portfolio over the next three to five years. The portfolio occupancy rate of 94% as at 4Q12 is significantly above Indonesia’s retail industry average rate of ~88%. 

Downgrade to HOLD
We maintain our fair value of S$0.52, however, since that is near the current unit price, we downgrade LMIRT to a HOLD. We estimate a FY13F yield of 6.9%.

KSH Holdings

OCBC on 8 Feb 2013

KSH reported 3Q FY13 PATMI of S$8.1m, which surged 179% YoY mostly due to contributions from its property development segment as the group recognized earnings from The Boutiq, Cityscape@Farrer Park and Rezi 26. 9M FY13 earnings now cumulate to S$22.3m, up 108.3% YoY and forming 73% of our FY13 forecast. The group has sold a significant portion of launched projects, and we expect progress billings from already sold projects to underpin earnings growth ahead. Maintain BUY with an increased fair value estimate of S$0.62, versus S$0.50 previously, as we lower the RNAV discount for its property segment from 50% to 40% to reflect a lower risk profile given a larger percentage of projects sold, and raise our PE multiple for its construction segment from 3.0x to 4.0x - a level closer in line with that of its peers.

Delivering strong growth - 3QFY13 PATMI up 179% YoY
KSH reported 3Q FY13 PATMI of S$8.1m, which surged 179% YoY mostly due to contributions from its property development segment as the group recognized earnings from The Boutiq, Cityscape@Farrer Park and Rezi 26. 9M FY13 earnings now cumulate to S$22.3m, up 108.3% YoY and forming 73% of our FY13 forecast. Topline for the quarter came in at S$48.9m, which also increased 68% YoY mostly due to an increase in contributions from the construction segment.

Development progress billings underpin growth profile
The group has sold a significant portion of launched projects, and we expect progress billings from already sold projects to underpin earnings growth ahead. Cityscape@Farrer Park, a major project in KSH’s portfolio, is about 67% sold to date, while Sky Green at Macpherson and Palacio are 96% and 71% sold, respectively. Looking ahead, we expect the group to launch Hong Leong Garden, Seletar Garden and King Albert Park. Though the residential market is currently in a state of flux after recent cooling measures, we note that these three projects contain significant commercial components which would likely perform well.

Outlook for the construction segment healthy
The group recently cinched a contract win for Q Bay Residences, which boosted its construction order book by ~45% to ~S$461m as at 31 Jan 2013. Given the recent white paper on population growth indicating an increased population of 6.5m – 6.9m by 2030, we expect construction demand to remain firm over the long term as Singapore continues to ramp up infrastructure and housing growth. 

Fair value estimate increased to S$0.62
Maintain BUY with an increased fair value estimate of S$0.62, versus S$0.50 previously, as we lower the RNAV discount for its property segment from 50% to 40% to reflect a lower risk profile given a larger percentage of projects sold, and raise our PE multiple for its construction segment from 3.0x to 4.0x - a level closer in line with that of its peers.

Starhub

OCBC on 8 Feb 2013

StarHub Ltd posted FY12 results that were mostly in line, where revenue rose 4.7% to S$2421.6m, or just 0.8% above our figure, while net profit jumped 13.9% to S$359.3m, and 2.5% above our estimate. Full-year dividend came in at S$0.20 as guided. For FY13, StarHub expects to see single-digit revenue growth, with EBITDA margin on service revenue likely to be about 31% (versus 32.3% in FY12). StarHub says it also intends to maintain its annual cash dividend of S$0.20/share, or S$0.05 per quarter. However, it raised its capex guidance to ~13% of operating revenue (versus 11% in FY12), which includes the payment of the leasehold land and the construction of its cable TV network transmission centre. Separately, StarHub announced that CEO Neil Montefiore will retire by end of Feb; COO Tan Tong Hai will step up to replace him in Mar. Biggest change to our model would be the increased capex guidance, otherwise, we are keeping our FY13 revenue and earnings largely unchanged. However, as we are pushing out DCF valuation to FY13 to FY16, our fair value improves from S$3.75 to S$4.00. But given the limited upside from here, we keep our HOLD rating.

4Q12 results mostly in line
StarHub Ltd posted 4Q12 revenue of S$654.1m (+6.8% YoY, +11.6% QoQ), or 2.9% above our forecast, net profit fell 5.0% YoY and 8.6% QoQ to S$87.9m, but was still 11.1% above our estimate. However, we note that StarHub had a lower-than-usual tax expense (14.1% rate versus 17.7% in 3Q12 and 15.8% in 4Q11). As expected, StarHub has declared a quarterly dividend of S$0.05/share. For the full-year, revenue rose 4.7% to S$2421.6m, or just 0.8% above our figure, while net profit jumped 13.9% to S$359.3m, and 2.5% above our estimate. Full-year dividend came in at S$0.20 as guided.

Higher capex guided for 2013
For FY13, StarHub expects to see single-digit revenue growth, with EBITDA margin on service revenue likely to be about 31% (versus 32.3% in FY12); this may be due to likely rising content cost for its Pay TV business. It has however raised its capex guidance to ~13% of operating revenue (versus 11% in FY12), which includes the payment of the leasehold land and the construction of its cable TV network transmission centre. Lastly, StarHub says it intends to maintain its annual cash dividend of S$0.20/share, or S$0.05 per quarter.

Change of CEO from Mar
Separately, StarHub announced that CEO Neil Montefiore will retire by end of Feb; this comes as a bit of a surprise, given that he only joined them in Jan 2010 (not long after leaving M1 as its CEO). But as current COO Tan Tong Hai will step up as CEO in Mar, we do not expect to see any disruption in its operations nor strategy. 

Raising FV to S$4.00
Biggest change to our model would be the increased capex guidance, otherwise, we are keeping our FY13 revenue and earnings largely unchanged. However, as we are pushing out DCF valuation to FY13 to FY16, our fair value improves from S$3.75 to S$4.00. But given the limited upside from here, we keep our HOLD rating.

Olam International

OCBC on 8 Feb 2013

Olam International (Olam) reported 1HFY13 results which were slightly ahead of our forecast. Revenue grew 24.3% to S$9589.5m, meeting 48.1% of our FY13 projection; while estimated core net profit came in around S$147.6m, also meeting around 48.4% of our FY13 estimate. However, its net gearing increased from 1.95x in 1HFY12 to 2.21x in 1HFY13. Management meanwhile is in the process of recalibrating its operations after the Muddy Waters’ incident. While we see the recalibration exercise as positive, we do not intend to make any changes to our forecasts just yet. But we are pushing our 10x valuation from FY13F EPS to blended FY13F/FY14F EPS and our fair value improves from S$1.44 to S$1.50. Maintain HOLD for now.

1HFY13 results slightly ahead
Olam International Limited (Olam) reported a 24.3% rise in 1HFY13 revenue to S$9589.5m, meeting 48.1% of our FY13 forecast, driven by 71.9% growth in sales volume. Reported net profit climbed 21.3% to S$197.3m; but stripping out biological fair value gains (S$22.1m) and disposal gain of S$27.8m from the sale/lease back of its US almond orchard land, we estimate that core net profit came in around S$147.6m, also meeting around 48.4% of our FY13 estimate. As 1H earnings typically make up 30-40% of its full-year profit, we deem the results to be slightly ahead of our forecast.

Net gearing edges up to 2.2x
On the balance sheet front, Olam increased its borrowings further to S$8.8b as of 31 Dec 2012 from S$7.5b as of 30 Jun 2012, with the increase going towards working capital/M&A projects/capex. As a result, its net gear edged up further from 1.95x in 1HFY12 to 2.21x in 1HFY13. However, Olam notes that Dec quarter typically sees the highest gearing due to seasonality. Again, it stresses that its credit lines remain ample and it is comfortable up to a net gearing of 2.5x.

Recalibration in the works
Nevertheless, Olam recognizes the need for a “recalibration exercise” in the wake of the recent Muddy Waters’ incident; and expects to complete the exercise within the next three months. Olam further notes that there is “no sacred cows” and this may include revising its S$1.7b capex plan for the next two years. It also did not rule out more “asset optimization” in the future. 

Not making any changes now
While we see the recalibration exercise as positive, we do not intend to make any changes to our forecasts just yet. But we are pushing our 10x valuation from FY13F EPS to blended FY13F/FY14F EPS and our fair value improves from S$1.44 to S$1.50. Maintain HOLD for now.