Nam Cheong

OCBC on 14 May 2015

Nam Cheong reported a 20% YoY fall in revenue to RM326.3m and a 45% drop in net profit to RM39.3m in 1Q15, such that the latter accounted for 14% of ours and the street’s full year estimates, below expectations. Though shipbuilding gross margin remained healthy at 20%, management has guided for lower levels for the rest of this year. New vessel sales are likely to be substantially lower given the changes in its shipbuilding programme. We like Nam Cheong for its asset-light business model and its operational flexibility as seen from the changes to its shipbuilding programme (no compensation to yards). But as we lower our earnings estimates given the tough environment, we downgrade our rating to SELL based on our lower fair value estimate of S$0.27 (7x FY15/16 earnings) on valuation grounds.

1Q15 results below
Nam Cheong reported a 20% YoY fall in revenue to RM326.3m and a 45% drop in net profit to RM39.3m in 1Q15, such that the latter accounted for 14% of ours and the street’s full year estimates, below expectations. Gross profit margin for the shipbuilding segment was, however, consistent with 1Q14 at 20%, and overall gross profit margin was maintained at 21%. 

Changes to shipbuilding programme
To date, the group has announced only two vessel sales worth about RM212m. In comparison, the group sold 27 vessels last year worth RM1.8b. Given the slow new sales momentum, it is not surprising that the group has rescheduled its shipbuilding programme. Instead of having 35 vessels to be delivered this year (20 sold, 15 unsold), there will now be 24 vessels slated to be delivered this year (15 sold, 8 unsold), with 11 moving into FY16 delivery. This relieves the pressure on the group, as the Chinese yards have agreed to defer deliveries of the vessels. 

Room for lower margins
Looking ahead, management mentioned that shipbuilding margins may be at the lower range of 15-20% for the rest of the year, due the delivery of more build-to-order vessels that have lower margins. Margins for vessel sales this year are also likely to be lower given the challenging environment. 

Downgrade to SELL
As at 31 Mar 2015, the group had an order book of about RM1.6b, of which RM1.2b remains unrecognised (~75% to be booked this year). Meanwhile, net gearing remained healthy at 0.45x in 1Q15. We like Nam Cheong for its asset-light business model and its operational flexibility as seen from the changes to its shipbuilding programme (no compensation to yards). But as we lower our earnings estimates given the tough environment, we downgrade our rating to SELL based on our lower fair value estimate of S$0.27 (7x FY15/16 earnings) on valuation grounds (prev. S$0.30).

Singtel

OCBC on 14 May 2015

Singtel’s FY15 revenue saw a 2.2% increase to S$17,223m, or about 2.5% above our forecast, while reported net profit gained 3.5% to S$3,782m; underlying earnings was up 4.7% at S$3,779m, or about 1.3% above our estimate. Singtel has declared a final dividend of 10.7 S cents, bringing the full-year payout to 17.5 S cents, versus a total of 16.8 S cents in FY14; this represents a payout ratio of 74% of underlying net profit. We have bumped up our FY16 estimates by an average of 3.2% and have also introduced our FY17 forecast, which continues to incorporate modest low to mid single digit growth in revenue and EBITDA. However, our SOTP-based fair value remains at S$4.31, mainly due to lower market values of some of its listed associates. Still, we like the defensive nature of its business and decent forecast yield of 4.1%, and maintain our HOLD rating. We would be buyers closer to S$4.25 or better.

Decent FY15 results 
Singtel reported 4QFY15 revenue of S$4338.9m, +5.1% YoY, while reported net profit climbed 4.5% to S$938.8m; underlying net profit was up 3.3% at S$950.0m. For the full-year, revenue rose 2.2% to S$17,223m, or about 2.5% above our forecast, while reported net profit gained 3.5% to S$3,782m; underlying earnings was up 4.7% at S$3,779m, or about 1.3% above our estimate. Singtel has declared a final dividend of 10.7 S cents, bringing the full-year payout to 17.5 S cents, versus a total of 16.8 S cents in FY14 – this represents a payout ratio of 74% of underlying net profit. 

Guiding for modest growth in FY16
Going forward, Singtel expects consolidated revenue to growth by mid-single digit level and EBITDA to grow at low single digit level. Specifically, Singapore mobile revenue should rise by mid-single digit level; Australia mobile revenue by low single digit; Group ICT revenue to increase by mid-single digit. It also expects Amobee to turn in around S$350-400m of revenue; but Group Digital Life will still incur a negative EBITDA of S$150-180m. Singtel expects to spend around S$2.3b on cash capex and generate around S$1.5b of free cashflow. Dividend from associates should come in around S$1.1b in FY16.

Maintain HOLD with unchanged S$4.31 fair value
To account for the latest guidance, we opt to bump up our FY16 estimates by an average of 3.2% and we have also introduced our FY17 forecast, which continues to incorporate modest low to mid single digit growth in revenue and EBITDA. However, our SOTP-based fair value remains at S$4.31, mainly due to lower market values of some of its listed associates. Still, we like the defensive nature of its business and decent forecast yield of 4.1%, and maintain our HOLD rating. We would be buyers closer to S$4.25 or better.

BreadTalk

OCBC on 14 May 2015

BreadTalk Group’s 1Q15 revenue came in 8.6% higher YoY to S$152.5m with growth seen across all segments and was within our expectations as it formed 23% of our FY15 forecast. PATMI was up 10.9% YoY to S$2.0m, but only met 16% of our full-year forecast. All segments (Bakery, Food Atrium, Restaurant) saw growth in topline but PATMI results were mixed, with earnings mainly supported by growth in the Restaurant division. However, we reiterate that growth potential will be limited as it can only open DTF in Singapore and Thailand. With 1Q typically being the weakest quarter, our estimates remain unchanged for now. All considered, we are keeping our SELL rating with a fair value estimate of S$1.14 (previous S$1.02) as we roll forward our valuation to FY15/16F. Valuations still seem fairly expensive as the stock is currently trading at 28.3x FY15/16F PER.

1Q15 PATMI lower than expected 
BreadTalk’s 1Q15 revenue came in 8.6% higher YoY to S$152.5m with growth seen across all segments and was within our expectations as it formed 23% of our FY15 forecast. PATMI was up 10.9% YoY to S$2.0m, but only met 16% of our full-year forecast. Expenses as a percentage of revenue stayed largely the same vs. 1Q14, while the group saw a 29.5% YoY increase in other income due to receipts under the Singapore’s Wage Credit Scheme. Without such receipts, PATMI would have been conceivably lower than expected.

Underperforming stores hit profitability
Both the Bakery division and Food Atrium division saw revenue rise by 11.3% and 7.8% YoY respectively. However, the weaker bottom-line performance for the Bakery division was attributable to lower profitability from outlets in Mainland China, underperforming stores in Malaysia and higher operating costs in Singapore. The Food Atrium business was also hit by weaker store performance in Mainland China. In addition, some of the newly opened outlets led to a higher cost structure in terms of rental and labour costs. 

Earnings supported by Restaurant division
Din Tai Fung (DTF) in Singapore and Thailand continued to drive the segment’s revenue growth of 13.2% YoY while Ramen Play contributed lower revenue due to the closure of six non-performing stores last year. We understand that PATMI also ‘improved significantly’, but we reiterate that growth potential will be limited as it can only open DTF in Singapore and Thailand.

Maintain SELL
1Q is typically the weakest quarter. 10 Bakery stores were opened, but there was one outlet closure each for Food Atrium and Restaurant. We continue to see the Food Atrium business as the long-term growth driver, but the longer breakeven period for new outlets as compared to other segments is a dampening factor in the near-term for BreadTalk’s bottom-line. All considered, we are keeping our SELLrating with a fair value estimate of S$1.14 (previous S$1.02) as we roll forward our valuations to FY15/16F. Valuations still seem fairly expensive as the stock is currently trading at 28.3x FY15/16F PER.

ComfortDelGro

OCBC on 14 May 2015

As first quarter’s performance had historically always been the weakest, ComfortDelGro’s (CDG) 1Q15 results were broadly in-line with our expectations as PATMI grew 6.8% YoY to S$67.6m, which formed 22.1% of our FY15 forecast. This was on the back of a 1.3% growth in revenue to S$963.5m, driven mainly by Bus (+2.2%), Rail (+8.1%) and Taxi (+5.2%) segments. Going forward, we expect stable growth to continue as management guided for revenue from Singapore and UK bus, rail and Singapore taxi segments to increase. Over the longer-term, bus restructuring in Singapore will turn core operations profitable from 2H16 onwards. We continue to like CDG for its stability and diversified revenue base. Prudent capital management coupled with steady growth prospects are attractive to us. With in-line 1Q15 results, we keep our forecasts unchanged. Maintain HOLD with an unchanged FV of S$3.07.

Decent start to FY15
As first quarter’s performance had historically been the weakest, ComfortDelGro’s (CDG) 1Q15 results were broadly in-line with our expectations as PATMI grew 6.8% YoY to S$67.6m, which formed 22.1% of our FY15 forecast. This was on the back of a 1.3% growth in revenue to S$963.5m, driven mainly by Bus (+2.2%), Rail (+8.1%) and Taxi (+5.2%) segments but eroded by weaker AUD and GBP. 1Q15 operating expenses grew 1.3% YoY to S$860.4m mainly due to higher staff costs (+5.5%) and higher depreciation and amortisation (+8.1%) but offset by lower fuel and electricity costs (-10.6%) and lower insurance premiums and accident claims (-12.5%). Favourable foreign currency translation of S$7.9m also helped mitigate the increase in operating expenses. For 1Q15, revenue from overseas decreased 1.3ppt YoY to form 38.3% of group’s total revenue while overseas operating profit declined 5.5ppt to form 45.3% of group’s total operating profit.

Stability remains its key characteristic
Going forward, we expect stable growth to continue as management guided for revenue from Singapore and UK bus, rail and Singapore taxi segments to increase. Bus segment growth is still driven by: 1) higher ridership and fares in Singapore, and 2) new routes that started in 1Q15 as well as contract enhancements in the UK. As more trains are added to the North-east Line in FY15, ridership is expected to increase, together with higher fares from the fare adjustment. The Singapore taxi business is expected to grow with more cashless transactions and continuation of fleet renewal in 2015. Over the longer-term, bus restructuring in Singapore will turn core operations profitable from 2H16 onwards. With DTL 2 (12 stations) expected to start from 1Q16 and DTL 3 (16 stations) from 2017 onwards, we can expect further growth in revenue though offset by initial start-up costs.

Forecasts unchanged; maintain HOLD
We continue to like CDG for its stability and diversified revenue base. Prudent capital management coupled with steady growth prospects is attractive to us. With in-line 1Q15 results, we keep our forecasts unchanged. Maintain HOLD with an unchanged FV of S$3.07.

CityDev

OCBC on 14 May 2015

CityDev’s 1Q15 PATMI increased 2.8% YoY to S$123.0m mostly due to stronger results from its property development segment and hotel portfolio, partially offset by higher administrative expenses and operating expenses over the quarter. 1Q15 PATMI now make up 18.6% of our full year forecasts, respectively, and we judge this to be broadly in line with expectations. Existing projects Coco Palms (944 units), Commonwealth Towers (845 units) and Jewel @ Buangkok (616 units) are currently 84%, 44% and 84% sold, respectively, and we expect to see the 638-unit EC at Canberra Drive and 174-unit Gramercy Park launched in 2H15. The South Beach mixed-used project achieved TOP in Feb 2015 and 88% of the 510k sq ft of office space available at the development has been committed. The Conservation Block, comprising 11k sq ft of retail space, is also leased and will open in 3Q15. We update our valuation model with the latest data-points from the 1Q results, and our fair value estimate increases from S$9.37 to S$9.53. Upgrade to HOLD on valuation grounds.

1Q15 results in line with expectations
CityDev’s 1Q15 PATMI increased 2.8% YoY to S$123.0m mostly due to stronger results from its property development segment and hotel portfolio, partially offset by higher administrative expenses and operating expenses over the quarter. 1Q15 revenues came in at S$814.9m, up 11.0% YoY as the group saw increased contributions from the property development segment, including projects such as Coco Palms, D’Nest and Jewel@Buangkok, and the hotel segment which received a boost from new hotels acquired in 2014 and stronger numbers from refurbished assets. 1Q15 PATMI and revenues now make up 18.6% and 22.8% of our full year forecasts, respectively, and we judge this to be broadly in line with expectations. As at end 1Q15, the group’s net gearing remained at a healthy 27%.

South Beach coming online this year
Existing projects Coco Palms (944 units), Commonwealth Towers (845 units) and Jewel @ Buangkok (616 units) are currently 84%, 44% and 84% sold, respectively, and we expect to see the 638-unit EC at Canberra Drive and 174-unit Gramercy Park launched in 2H15. The South Beach mixed-used project achieved TOP in Feb 2015 and 88% of the 510k sq ft of office space available at the development has been committed. The Conservation Block, comprising 11k sq ft of retail space, is also leased and will open in 3Q15. The 654-room hotel component is expected to commence operations in 4Q15. Hotel subsidiary M&C’s global RevPar increased 2.6% due to a 3.2% increase in average room rates, but partially offset by a 0.4% lower occupancy rate. Following the S$1.5b Profit Participation Securities (PPS) which monetized its Quayside Collection assets in Sentosa Cove last year, the group is exploring the potential of structuring more similar deals involving its portfolio assets. We update our valuation model with the latest data-points from the 1Q results, and our fair value estimate increases from S$9.37 to S$9.53. Upgrade to HOLD on valuation grounds.

Vard Holdings

OCBC on 13 May 2015

Vard Holdings reported a 14.6% YoY rise in revenue to NOK 3,063m but saw a 92.7% fall in operating profit to NOK 9m in 1Q15, due to weaker than expected performance at some of its yards. EBITDA margin fell from 6.4% in 1Q14 to 2.1% in 1Q15, and with restructuring cost, the group incurred a net loss of NOK 92m in the quarter vs. NOK 92m PATMI a year ago. We judge this to be below the street’s expectations as consensus net profit for the full year was NOK 379m prior to this results announcement. With weak new order prospects and likely lower yard utilisation ahead, the outlook for Vard seems rather weak. Based on 10x FY15/16F earnings, we derive a fair value estimate of S$0.41 and SELL rating for Vard.

Weak 1Q15 results
Vard Holdings reported a 14.6% YoY rise in revenue to NOK 3,063m but saw a 92.7% fall in operating profit to NOK 9m in 1Q15, due to weaker than expected performance at some of its yards. EBITDA margin fell from 6.4% in 1Q14 to 2.1% in 1Q15, and with restructuring cost, the group incurred a net loss of NOK 92m in the quarter vs. NOK 92m PATMI a year ago. We judge this to be below the street’s expectations as consensus net profit for the full year was NOK 379m prior to this results announcement. 

NOK 15.6b order book, but high run rate
At the end of 1Q15, the order book value amounted to NOK 15.63b, down from NOK 17.74b at the end of 2014 and NOK 21.84b at end 1Q14. Aggregate order value at end 1Q15 was NOK 26.77b, comprising 32 vessels, of which 18 will be of VARD’s own design. The rapid decline in the order book, both in terms of value and number of vessels, reflects the current high pace of revenue recognition stemming from still high activity level at most yards, combined with a very challenging market environment, resulting in no new vessel contracts during the quarter. It also includes the effect of the termination of two contracts during the quarter.

SELL with S$0.41 FV
Meanwhile, new order prospects continue to be weak in the near and medium term, as the OSV industry is suffering from an oversupply issue in most geographical regions; the North Sea has been particularly hard hit. As a result of the shortfall in new orders, Vard expects lower utilization of its shipyards for the 2H15 and in particular in 2016, starting with the yards in Romania and subsequently also affecting operations in Norway and potentially Vietnam.
The Niterói shipyard in Brazil is already in a phase of downsizing, while the new shipyard Vard Promar has secured sufficient work through 2016. Based on 10x FY15/16F earnings, we derive a fair value estimate of S$0.41 and SELL rating for Vard

ST Engineering

OCBC on 13 May 2015

ST Engineering (STE) reported its 1Q15 results this morning, where revenue slipped 2.6% YoY to S$1511.4m, mostly affected by difficulties faced by its US shipbuilding operations. Reported net profit slipped 5.3% to S$130.0m; we estimated that core earnings fell by a smaller 2.2% to S$142.9m. We deem these results to be broadly in line with the company’s guidance as well as our forecast, given that topline met about 23% of our FY15 forecast, while core earnings met 26%. Going forward, STE continues to expect 1H15 revenue to be comparable, while PBT is expected to decline against 1H14; Marine is expected to show lower revenue and PBT; Aerospace and Electronics to see comparable performance; Land Systems to see higher revenue but lower PBT. For the full-year, STE has maintained its comparable guidance for both revenue and PBT. As 1Q results were within expectation, we opt to leave our estimates unchanged. Maintain HOLD with S$3.33 fair value (still based on 19x FY15F EPS).

1Q15 results mostly in line with forecast
ST Engineering (STE) reported its 1Q15 results this morning, where revenue slipped 2.6% YoY to S$1511.4m, mostly affected by difficulties faced by its US shipbuilding operations. Reported net profit slipped 5.3% to S$130.0m; we estimated that core earnings (excluding forex and other one-off items) fell by a smaller 2.2% to S$142.9m. We deem these results to be broadly in line with the company’s guidance as well as our forecast, given that topline met about 23% of our FY15 forecast, while core earnings met 26%. 

Marine segment fared badly
By segments, most showed YoY revenue declines, with the exception of Land Systems, which grew 6% to S$346m; this was achieved on higher revenue from the Automotive business group on the back of more project deliveries. Marine was the worst hit, slipping 13% to S$280m, mainly due to lower shipbuilding revenue from both local and US operations; but partially offset by higher shiprepair revenue. On the profitability front, only Electronics showed YoY PBT growth of 8% to S$34.9m; Marine saw a 26% tumble to S$23.4m.

Keeping guidance unchanged for now
Going forward, STE continues to expect 1H15 revenue to be comparable, while PBT is expected to decline against 1H14; Marine is expected to show lower revenue and PBT; Aerospace and Electronics to see comparable performance; Land Systems to see higher revenue but lower PBT. And for the full-year, STE has maintained its comparable guidance for both revenue and PBT. STE adds that it currently has an order book of around S$12.2b, of which it will be looking to deliver some S$3.0b in 2015. 

Maintain HOLD with unchanged S$3.33 fair value
As numbers were mostly in line with our expectations, we opt to keep our forecasts for now. Maintain HOLD with an unchanged fair value of S$3.33 (still based on 19x FY15F EPS), supported by an expected dividend yield of 4.1%.

Ezion Holdings

OCBC on 13 May 2015

Ezion Holdings reported a 4.6% YoY fall in revenue to US$90.1m and a 9.4% drop in net profit to US$41.0m in 1Q15, such that the latter accounted for 18.0% and 17.0% of ours and the street’s full year estimate, slightly below our expectations. For the five units up for renewals this year, two have been renewed at the same rate, while a third has enjoyed a 8-9% rate rise as it will be deployed in another geographical area. We lower our FY15/16F earnings estimates by 16% and 12% to take into account the minimal activity in the offshore logistics segment in Australia, as well as delay in start dates for certain units due to modification work. This lowers our fair value estimate to S$1.55, based on 9x FY15/16F earnings. Despite this, Ezion has proven to be relatively resilient versus its peers in terms of earnings, and we expect this to remain so. Maintain BUY.

First YoY decline in 31 consecutive quarters
Ezion Holdings reported a 4.6% YoY fall in revenue to US$90.1m and a 9.4% drop in net profit to US$41.0m in 1Q15, such that the latter accounted for 18.0% and 17.0% of ours and the street’s full year estimates. This represents the first YoY decline after 31 consecutive quarters of rising profit. Though more assets are expected to be deployed in the year, supporting earnings for later quarters, we judge this set of results to be slightly below expectations as the Offshore Logistics segment in Australia saw a greater-than-expected fall in activity. With a challenging operating environment, several of the group’s service rigs have been “made to work at their limits” resulting in more wear and tear and higher maintenance, and additional cost was incurred to further upgrade a few newer units to meet clients’ additional requirements.

More optimistic on rate renewals
Recall that five units are up for rate renewals this year, and as mentioned in our earlier report, we were expecting them to be similar or at most 5% lower. Two have been renewed at the same rate, while a third has enjoyed a 8-9% rate rise as it will be deployed in another geographical area. The remaining two units are also likely to be renewed at the same rate.
In Ezion’s fleet, we estimate that only five rigs (three on JV with Swissco) are used for drilling. The rates for the remaining units are expected to remain supported by ongoing demand. 

Best of the lot
We lower our FY15/16F earnings estimates by 16% and 12% to take into account the minimal activity in the offshore logistics segment in Australia, as well as delay in start dates for certain units due to modification work. This lowers our fair value estimate to S$1.55, based on 9x FY15/16F earnings. Despite this, Ezion has proven to be relatively resilient versus its peers in terms of earnings, and we expect this to remain so. Maintain BUY.

SIA Engineering

OCBC on 13 May 2015

SIA Engineering Company's (SIAEC) FY15 results slightly missed our expectations on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) and Line Maintenance (LM) revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m. Consequently, FY15 PATMI came in slightly below our expectation, recording a 31.0% decrease to S$183.3m, which formed 97.3% of our forecasts. With newer aircraft & engine models designed with maintenance costs as a consideration, we believe the intervals between maintenance checks have increased. Hence, we think SIAEC is and will still be in this cycle of declining workshop visits until the new aircraft & engine models are due for these checks. In our view, rebound is unlikely to happen within FY16. Expecting weak outlook to sustain, we decrease our FY16F PATMI by 10.8% and introduce FY17F numbers. Consequently, our FV lowers from S$3.80 to S$3.45, still based on 20x FY16F PER (3-year historical mean). Maintain SELL.

FY15 results slightly missed our expectations
SIA Engineering Company Limited (“SIAEC”) reported an 11.3% YoY decline in its 4QFY15 revenue to S$276.0m while 4QFY15 operating expenses fell by only 8.7% YoY to S$252.9m, which resulted in a 2.6ppt decrease in its operating profit margin to 8.4%. This led to a 36.5% YoY drop in 4QFY15 PATMI to S$41.4m. For FY15, SIAEC’s revenue decreased by 4.9% to S$1.12b on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) and Line Maintenance (LM) revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m for FY15 on two main reasons: 1) engine improvement modifications and extension of on-wing life of certain engines, and 2) phasing out of older engine models. Consequently, FY15 PATMI was slightly disappointing as it decreased 31.0% to S$183.3m, which formed 97.3% of our forecasts.

New aircraft/engine types require lesser workshop visits
With newer aircraft & engine models designed with maintenance costs as a consideration, we believe the intervals between maintenance checks have increased. Hence, we think SIAEC is and will still be in this cycle of declining workshop visits until the new aircraft & engine models are due for these checks. In our view, rebound is unlikely to happen within FY16. Hence, to help mitigate decline from its ACS segment, SIAEC is looking to increase its revenue from FMP and LM segments through its wide network of LM stations in 34 airports. Also, management has reiterated tight cost management continues to be the key focus going forward. And in a labour intensive business, SIAEC is using this down-cycle to train its labour force with cross-functional skill sets (i.e. staff specialised in workshop maintenance trained with line maintenance skill sets etc.) to improve workforce allocation efficiency.

Maintain SELL on muted outlook
Expecting the weak outlook to sustain, we decrease our FY16F PATMI by 10.8% and introduce FY17F numbers. Consequently, our FV lowers from S$3.80 to S$3.45, still based on 20x FY16F PER (3-year historical mean). Maintain SELL.

SIA Engineering

UOBKayhian on 14 May 2015

FY15F PE (x): 31.6
 FY16F PE (x): 34.0

Management maintained its cautious stance on repair and overhaul business... Most of the discussion centred around the evolution of the repair and overhaul business. New generation aircraft require less maintenance and airlines are breaking up maintenance checks to include line maintenance. For example, A-checks, which are light checks typically performed on a quarterly basis are now broken down into shorter intervals to encompass line maintenance checks as well. Thus there are less labour hours spent on maintenance and this has been the main reason for the 8.8% decline in repair and overhaul revenue for FY15. Notably, most of the decline in operating revenue came from third-parties, suggesting competitive pressure was also a reason. Maintain SELL and lower our price target by 14% to S$3.00. We revise our valuation methodology slightly by employing a straight DDM versus an average of DDM and PER previously. At our fair value, SIAEC will still be trading at lofty 23x forward earnings, vs historical mean of 16x.

Super Group

UOBKayhian on 14 May 2015

FY15F PE (x): 24.5
FY16F PE (x): 21.9

Below expectations. Adjusted 1Q15 net profit of S$13.0m declined 25% yoy and came in below our and market expectations. Turnover fell 2% yoy on lower branded consumer (BC) sales (-5% yoy), which offset the 4% yoy rise in food ingredient (FI) sales. Whilst there were some bright spots in selective BC markets such as Thailand and Myanmar, we disappointed by the performance of markets such as the Philippines and Malaysia, with the former impacted by the de-listing of non-performing SKUs. Maintain HOLD with a lower target price. The share price has retraced 17% since our downgrade on 27 March but we are inclined to maintain our HOLD rating owing to a mixed outlook, particularly for BC. We have a lower PE-based target price of S$1.25 (previously S$1.43), which is based on its 2016F regional peers valuation. The reduction is mainly on account of the earnings cut following 1Q15 results.

ST Engineering

UOBKayhian on14 May 2015

FY15F PE (x): 22.0
FY16F PE (x): 22.1

Normalised earnings are below expectations. Reported net profit amounted to 23% of consensus’ full-year estimate, which forecasted a 5% yoy growth. We reckon that earnings were below expectations as net profit would have declined by around 16% if we were to strip out incremental wage credits, the absence of air show-related expenses and fair value changes. Orderbook stood at S$12.2b, S$0.3b lower than 4Q14. Operating cash flow rose 160% due to favourable working capital changes. Maintain HOLD. We reduce our target price to S$3.30 and continue to value STE at long term mean multiple of 19.0x on 2015’s earnings. However, with an estimated S$3.2b of order backlog and strong cash flows, we still think that the company is worth holding.

Ezion Holdings

UOBKayhian on 14 May 2015

FY15F PE (x): 6.7
FY16F PE (x): 5.2

No earnings from Australia. Ezion reported a net profit of US$41m for 1Q15, -9.3% yoy. This is 17.4% of our 2016 net profit forecast of US$235m. 1Q15’s soft earnings - as guided by management earlier - were largely expected. The soft earnings were due to the absence of contribution from the marine & offshore logistics business in Australia. The clients did not go into additional trains as originally planned. However, Ezion has maintained ownership of its fleet of 40+ tugs and barges. These vessels are looking for simple jobs, but Ezion intends to dispose of them when opportunities arise. Maintain BUY. Ezion is faring better than most companies in the offshore & marine (O&M) sector. We have tweaked our target price from S$1.58 to S$1.52 which is based on 2016F P/B of 1.01x.

ComfortDelGro

UOBKayhian on 14 May 2015

FY15F PE (x): 14.9
FY16F PE (x): 16.2

1Q15 net profit was slightly below expectations, at 21% and 21.5% of our and consensus full-year estimates respectively due to lower revenue contribution from the UK/Ireland and Australia bus operations. ComfortDelgro’s (CD) revenue and net profit improved 1.3% and 6.8% yoy respectively as net margin edged up 0.3ppt. Maintain HOLD with a DCF-based target price of S$3.31 (from S$3.30). While fundamentals remain promising, we note that much of the attractiveness has been priced in after a 15% ytd rise in share price. CD is currently trading at 21x 2015F PE, close to its +2SD of 23x PE. Entry price is S$2.90.

City Developments

UOBKayhian on 14 May 2015

FY15F PE (x): 14.9
FY16F PE (x): 12.6

Results below expectations. City Developments (CDL) reported 1Q15 net profit of S$123.0m, up 3% yoy. The property development segment was the largest contributor to PBT (58% of PBT, up 3% yoy), boosted by contributions from property development projects - The Rainfrest, Coco Palms, D’Nest and Jewel @ Buangkok. The strong performance from the hotel segment was primarily due to contributions from the five hotels acquired in 2014, namely The Chelsea Harbour Hotel, Novotel New York Times Square, Grand Hotel Palace Rome, Hotel MyStays Asakusabashi and Hotel MyStays Kamata. The results were below our and consensus expectations, accounting for 18% of our full-year forecast, mainly due to timing differences in recognition of contributions from the property development segment. Maintain HOLD and target price of S$10.84, pegged at a 20% discount to our RNAV of S$13.55/share. Entry price is S$8.70.

Golden Agri-Resources

OCBC on 13 May 2015

Golden Agri-Resources (GAR) reported a very weak set of 1Q15 results, with revenue down 19% YoY at US$1553.3m and reported net profit slipping 83.5% to just US$17.2m; core earnings of US$52.1m (down 48.2%) met only 18.3% of our previous full-year forecast. But management highlighted that there were good sequential improvements, with core earnings actually +13% QoQ even though revenue slipped 15%. Although GAR remains confident of the longer term demand growth for CPO, the near-term outlook is still quite challenging, given the still-sluggish CPO demand (also likely damped by ample supply of substitute vegetable oils). As we see the need to par our FY15 and FY16 estimates further, our fair value slips from S$0.42 to S$0.35, although still based on 13.5x FY15F EPS. Downgrade to SELL.

Core NPAT down 48% 
Golden Agri-Resources (GAR) reported a very weak set of 1Q15 results. Due to lower CPO production as well as soft CPO prices, GAR saw a 19% YoY slide in revenue to US$1553.3m, meeting just 21% of our original FY15 forecast. Also hit by a large forex loss of US$35.0m, reported net profit slipped 83.5% to just US$17.2m; core earnings slipped 48.2% to US$52.1m, meeting only 18.3% of our previous full-year forecast. But management highlighted that there were good sequential improvements, with core earnings actually +13% QoQ even though revenue slipped 15%. 

China situation improving but not out of the woods
By segments, the Oilseed business continued to recover in !Q15, aided by improved business conditions in the Chinese crushing industry; however GAR expects the environment there to remain challenging and it is reviewing its business model and strategy for its China oilseeds business. Separately, Plantations and Palm Oil Mills recorded a 32% YoY fall in revenue and a 41% plunge in EBITDA in 1Q15, mostly due to sharply lower ASPs and to some degree, lower CPO output due to dry weather conditions experienced in certain parts of Indonesia. While management remains upbeat that production should pick up in 2H15, it notes that the overall industry could face adverse weather impact brought on by El Nino in the coming months. However, GAR notes that there is a still a chance that higher CPO prices could mitigate the effect of lower production volumes. 

Downgrade to SELL with lower S$0.35 FV
Although GAR remains confident of the longer term demand growth for CPO, the near-term outlook is still quite challenging, given the still-sluggish CPO demand (also likely damped by ample supply of substitute vegetable oils). As we see the need to par our FY15 and FY16 estimates further, our fair value slips from S$0.42 to S$0.35, although still based on 13.5x FY15F EPS. Downgrade to SELL.

Singapore Post

OCBC on 13 May 2015

Singapore Post (SingPost) reported a 28.7% YoY rise in revenue to S$248.7m and a 51.6% drop in net profit to S$38.5m in 4QFY15, as 4QFY14 was re-stated to include $44.5m of fair value gains on investment properties. Stripping out one-off items, underlying net profit actually increased 14.9% YoY to S$41.1m in 4QFY15, in line with our expectations. Revenue grew 12.0% in FY15 to S$919.6m due to growth in SingPost’s eCommerce and logistics businesses as well as contributions from new acquisitions. Excluding the impact of M&A, revenue only rose 1.1%. Looking ahead, it is likely that the group will continue to direct its cash pile to earnings-accretive acquisitions, along with investments in infrastructure. Meanwhile, the group has declared a final dividend of 2.5 S cents/share, bringing full year dividends to 6.25 S cents/share (~3.3% yield). Maintain BUY with S$2.19 fair value estimate.

FY15 results in line; FY14 re-stated 
Singapore Post (SingPost) reported a 28.7% YoY rise in revenue to S$248.7m and a 51.6% drop in net profit to S$38.5m in 4QFY15, as 4QFY14 was re-stated to include $44.5m of fair value gains on investment properties. Stripping out one-off items, underlying net profit actually increased 14.9% YoY to S$41.1m in 4QFY15. Net profit in FY15 was S$157.6m (underlying net profit similar at S$157.2m), 2.3% higher than our full year forecast. Revenue grew 12.0% in FY15 to S$919.6m due to growth in SingPost’s eCommerce and logistics businesses as well as contributions from new acquisitions. Excluding the impact of M&A, revenue only rose 1.1%. The mail business remained challenging, as public mail volumes declined 1.7% in the year, while international mail is growing increasingly competitive.

Switching to fair value model from cost model
In FY15, the group’s accounting policy with respect to the measurement of investment properties, subsequent to initial recognition, was changed from the cost model to the fair value model. This was applied retrospectively, hence FY14 numbers were re-stated. With the intention to redevelop the retail mall of the Singapore Post Centre, management has determined that the fair value model will provide more relevant information of the group’s investment properties.

Expecting more investments
In FY15, the group invested S$224.2m in acquisitions to expand its regional network, its new Regional eCommerce Logistics Hub, additional POPStations to strengthen its parcels business, and new mail sorting equipment to improve the service quality of its Singapore mail operations. As of Mar 2015, SingPost had S$584.1m of cash and cash equivalents, along with financial assets of S$34.6m (~63% current, rest non-current). After accounting for its debt, the group is in a net cash position of S$380m. Looking ahead, it is likely that the group will continue to direct its cash pile to earnings-accretive acquisitions, along with investments in infrastructure. Meanwhile, the group has declared a final dividend of 2.5 S cents/share, bringing full year dividends to 6.25 S cents/share (~3.3% yield). Maintain BUYwith S$2.19 fair value estimate.

UOL

OCBC on 13 May 2015

UOL announced that its 1Q15 PATMI decreased 39% YoY to S$74.2m mainly due to the absence of a one-time S$44.3m divestment gain from the sale of a land site at Jalan Conley, Malaysia, which was recognized in 1Q14. Excluding the Jalan Conley gain, 1Q15 adjusted PATMI would have decreased a smaller 3% YoY. Overall, we judge 1Q15 numbers to be within expectations and 1Q15 PATMI now constitute 19% of our full year forecast. The recent launch at the 797-unit condominium project, The Botanique, has been fairly successful, with 302 units sold to date at an average price of S$1290 psf out of the 550 units released. We understand that the development at Prince Charles Crescent would likely be launched in 2H15, and management will continue to be selective in replenishing its land-bank in the uncertain domestic residential market. Maintain HOLD with an unchanged fair value estimate of S$7.97.

1Q15 profit declined YoY due to absence of one-time gain
UOL announced that its 1Q15 PATMI decreased 39% YoY to S$74.2m mainly due to the absence of a one-time S$44.3m divestment gain from the sale of a land site at Jalan Conley, Malaysia, which was recognized in 1Q14, and higher finance costs from unrealized foreign currency losses in 1Q15 from USD borrowings for its Chinese investments. This was partially offset by lower marketing and distribution costs and higher share of profits from JV/associates over the latest quarter. Excluding the gain from Jalan Conley, 1Q15 adjusted PATMI would have decreased a smaller 3% YoY. In terms of the topline, 1Q15 revenues similarly declined 42% YoY to S$238.3m mostly due to the effect of the Jalan Conley divestment, partially offset by increased contributions from the property development segment. Overall, we judge 1Q15 numbers to be within expectations and 1Q15 PATMI now constitute 19% of our full year forecast. 

Firm performance at Botanique condo launch
The recent launch at the 797-unit condominium project, The Botanique, has been fairly successful, with 302 units sold to date at an average price of S$1290 psf out of the 550 units released. We understand that the development at Prince Charles Crescent would likely be launched in 2H15, and the group will continue to be selective in replenishing its land-bank in the uncertain domestic residential market. Management indicates that about 40% and 35%-40% of its office and retail portfolio, respectively, are up for lease renewal over the current year and expects to see positive rental reversions in the single digits. The group’s hotel portfolio faced some headwinds in 1Q15 with Revpar decline in the low single digits, as conditions in key markets remain difficult. Specifically, in Singapore, management indicates that the new supply of hotel rooms and weaker growth in tourist arrivals continue to weigh on performance and 1Q15 Revpar has dipped 8% - 10% YoY. Maintain HOLD with an unchanged fair value estimate of S$7.97.

CSE Global Limited

OCBC on 12 May 2015

CSE Global Limited’s (CSE) 1Q15 PATMI came in flat, just up 0.9% YoY at S$7.6m, while operating profit grew 20.7% to S$11.1m on the back of a 13.2% growth in revenue to S$105.5m. Higher operating expenses as well as higher tax expenses resulted in flat PATMI growth. Even though 1Q15 PATMI only formed 21.4% of our FY15 forecast, we think it is within our expectations on stronger quarters for the rest of FY15 based on its healthy outstanding order book. CSE’s 1Q15 new orders jumped 40.4% YoY to S$103.1m while outstanding order book as at end-1Q15 remains healthy as it grew 21.8% YoY to S$252.5m. We believe CSE should continue to see resilient earnings, especially since it derives more than 50% of its revenue from the recurring brownfield jobs. As we incorporate 1Q15 results, and update with slightly higher tax assumption, our forecast remains largely unchanged. Hence, maintain HOLD with an unchanged FV of S$0.62, supported by a decent FY15 dividend yield of 4.8%.

1Q15 PATMI came in flat at S$7.6m
CSE Global Limited’s (CSE) 1Q15 PATMI came in flat, just up 0.9% YoY at S$7.6m, while operating profit grew 20.7% to S$11.1m on the back of a 13.2% growth in revenue to S$105.5m. 1Q15 revenue was mainly driven by growth of 28.2% and 22.5% from the Americas and Europe/Middle East/Africa (EMEA) regions, respectively, but offset by a 5.4% decline from the Asia-Pacific region. Due to more brownfield projects, 1Q15 gross margin improved 1.0ppt YoY to 28.5%. However, higher operating expenses as well as higher tax expenses attributable to the write-back of deferred tax and non-recurring tax deductions recorded in 1Q14 resulted in the flat PATMI showing. Even though 1Q15 PATMI only formed 21.4% of our FY15 forecast, we think it is within our expectations as we expect stronger quarters for the rest of FY15 based on its healthy outstanding order book.

Earnings to remain resilient with healthy order book
CSE’s 1Q15 new orders jumped 40.4% YoY to S$103.1m despite headwinds face in Oil & Gas (O&G) industry. Outstanding order book as at end-1Q15 remains healthy as it grew 21.8% YoY to S$252.5m. Management noted optimism over opportunities available for brownfield and smaller greenfield (less than S$5.0m) projects, specifically in the O&G industry. Management also reiterated its strategy is to continue revenue growth without compromising gross margins. Also, IDC recently in Mar-15 highlighted that reductions in IT budgets among O&G companies were lower than expected, which is in-line with CSE’s optimism. Despite uncertain outlook over oil prices, we believe CSE should continue to see resilient earnings, especially since it derives more than 50% of its revenue from the recurring brownfield jobs.

FV unchanged; maintain HOLD
As we incorporate 1Q15 results, and update with slightly higher tax assumption, our forecast remains largely unchanged. While CSE is optimistic on its outlook, we prefer to be cautious and keep our FY16 forecast flat. Supported by a decent FY15 dividend yield of 4.8%, maintain HOLD with an unchanged FV of S$0.62.

Land Transport

OCBC on 11 May 2015

LTA last Friday awarded the contract for Singapore’s first bus package to London-based Tower Transit Group Limited. Recall that TTG’s bid was the third lowest as the incumbents, ComfortDelGro (CDG) and SMRT, were the only ones that put in lower bids than it did. As LTA had stated right from the start that the evaluation process will be based on both quality and price factors, the incumbents not winning the package did not come as a surprise to us. Previously, we reiterated our view that even if the incumbents lost all three bus packages released or to be released for competitive tenders, or that SMRT wins the low bid put in, the net impact from this transition to the new bus government contracting model (GCM) remains positive. The incumbents are likely to benefit from the nine bus packages, which we expect operations to turn profitable on positive margin. Hence, we maintain OVERWEIGHT on the land transport sector, as we reiterate BUY on SMRT [FV: S$1.85] and HOLD on CDG [FV: S$3.07].

Tower Transit Group put in third lowest bid
Singapore Land Transport Authority (LTA) last Friday awarded the contract for Singapore’s first bus package to London-based Tower Transit Group Limited (TTG - refer to page 2 for company details). Recall that TTG’s bid was the third lowest as the incumbents, ComfortDelGro (CDG) and SMRT, were the only ones that put in lower bids than it did. As LTA had stated right from the start that the evaluation process will be based on both quality and price factors, the incumbents not winning the package did not come as a surprise to us. Commencing from 2Q16, the five-year contract will see TTG operates the new Bulim bus depot and 26 bus services from three bus interchanges. TTG will get an estimated total fee of S$556.0m over the contract period, and this excludes any adjustments for inflation, changes in wage levels and fuel costs, service variation and incentive payment.

Net impact of GCM remains positive for incumbents
Previously, we reiterated our view that even if the incumbents (i.e. CDG through its 75% owned SBS Transit and SMRT) do not win all three bus packages to be released for competitive tenders, or that SMRT wins the low bid put in, the net impact from this transition to the new bus government contracting model (GCM) remains positive. Looking at the bigger picture, both incumbents are currently still incurring losses from core bus operations (i.e. negative operating margin) and with the remaining nine packages to remain with the incumbents until 2021, the transition to GCM will see bus operations for both CDG and SMRT turn profitable from 2H16. Hence, in our view, losing these three bus packages was never a concern.

Furthermore, with LTA using the tenders of the first three packages as a price-discovery mechanism, we are encouraged by the first tender outcome. We think it will certainly alleviate the market concern over SMRT’s low bid of potentially driving down the benchmark used by LTA to negotiate with the incumbents for the contract fees of the remaining nine bus packages. Hence, given that the study done by LTA is largely based on the London bus operating model, our assumptions for bus operating margin is still in the region of 7-9% under the GCM which is likely to commence in 2H16 for the incumbents.

Maintain OVERWEIGHT
In light of the outcome of the first bus package, we remain positive on the sector outlook as regulatory changes continue to take place. The incumbents are likely to benefit from the nine bus packages, which we expect operations to turn profitable on positive margin. Hence, we maintain OVERWEIGHT on the land transport sector, as we reiterate BUY on SMRT [FV: S$1.85] and HOLD on CDG [FV: S$3.07]. Also, our forecasts are on the conservative side as we previously assumed that the incumbents do not win any of the first three packages.