UOBKayhian on 27 Aug 2015
FY15F PE (x): 47.6
FY16F PE (x): 38.2
2Q15 net profits were within our expectations, representing 23% of our full-year
estimates. Inpatient admissions update. In Singapore, the 5.5% yoy inpatient increase
was attributed mainly to local patients as well as medical travellers from non-traditional
markets such as the Middle East. In Turkey, inpatient admissions declined by 1.1% yoy
to 32,636 due to the start of the Ramadan period in mid-Jun 15 as compared with the
start of Ramadan period at end-June in 2014. In Malaysia, hospitals saw a marginal
0.5% yoy decrease in inpatient admissions mainly due to a general slowdown in
consumption following the implementation of GST in Apr 15.
Upgrade to HOLD but maintain target price at S$1.77. We note that post a 15.6%
decline in share price from its high in May 15, IHH is currently trading at 38.2x 2016F
PE, slightly higher than the industry’s 31.5x but at a cheaper valuation based on its
2016F PEG ratio of 1.56x vs peers’ 2.2x.
Monday, 31 August 2015
Singapore Telecommunications
UOBKayhian on 27 Aug 2015
FY15F PE (x): 16.5
FY16F PE (x): 15.3
Differentiating with data sharing targeted at families. Optus’ new My Plan Plus allows families to pool separate mobile plans under one bill to share the combined data allowance, and this plan was launched in Apr 15. Typically, 68% of customers use less than 50% of their monthly allowance. Demand for data is asymmetric. Those aged 18- 20 use 2.7 times more data compared with those above 45 years old. Thus, many parents would find My Plan Plus attractive as they can share their unused data with their children. Contribution from Optus hampered by weak Australian dollar. The Australia Consumer business registered growth of 12.8% yoy for operating revenue and 8% yoy for EBITDA in 1QFY16. Unfortunately, contribution from Optus was affected by the 10.6% yoy depreciation of the Australian dollar against the Singapore dollar. Our target price is S$4.72 based on DCF (required rate of return: 5.45%, terminal growth: 1.0%).
FY15F PE (x): 16.5
FY16F PE (x): 15.3
Differentiating with data sharing targeted at families. Optus’ new My Plan Plus allows families to pool separate mobile plans under one bill to share the combined data allowance, and this plan was launched in Apr 15. Typically, 68% of customers use less than 50% of their monthly allowance. Demand for data is asymmetric. Those aged 18- 20 use 2.7 times more data compared with those above 45 years old. Thus, many parents would find My Plan Plus attractive as they can share their unused data with their children. Contribution from Optus hampered by weak Australian dollar. The Australia Consumer business registered growth of 12.8% yoy for operating revenue and 8% yoy for EBITDA in 1QFY16. Unfortunately, contribution from Optus was affected by the 10.6% yoy depreciation of the Australian dollar against the Singapore dollar. Our target price is S$4.72 based on DCF (required rate of return: 5.45%, terminal growth: 1.0%).
Ezra Holdings
UOBKayhian on 28 Aug 2015
FY15F PE (x): 5.1
FY16F PE (x): 5.7
Ezra enters into a 50:50 JV with Chiyoda for US$180m cash consideration. Ezra announced that it has signed a binding MOU with Chiyoda Corporation (Chiyoda is a 33%-owned associate of Mitsubishi Corp) for a 50:50 JV in Ezra’s subsea business EMAS-AMC for a cash consideration of US$180m. EMAS-AMC will be renamed EMAS Chiyoda Subsea (ECS). Chiyoda is a leading Front End Engineering Design (FEED) and Engineering Procurement and Construction (EPC) company in the oil and gas industry. Maintain target price at S$0.176, based on 0.3x FY16F P/B. The four global deepwater subsea peers are currently trading at an average FY16F P/B of 1.3x, skewed by Oceaneering (2.5x). Subsea 7, the second largest subsea player globally, is trading at 0.4x 2016F P/B with an ROE of 3%. While the Ezra-Chiyoda deal is a binding MOU, it is pending a firm agreement. Thus, we keep our P/B valuation at 0.3x, which translates to a target price of S$0.176. Upgrade to BUY. Share price has collapsed 32% since July owing to recent upheavals in the stock markets. With a 54% upside to our target price, and the emergence of a strong JV partner behind the subsea business, we upgrade our call on Ezra from HOLD to a trading BUY.
FY15F PE (x): 5.1
FY16F PE (x): 5.7
Ezra enters into a 50:50 JV with Chiyoda for US$180m cash consideration. Ezra announced that it has signed a binding MOU with Chiyoda Corporation (Chiyoda is a 33%-owned associate of Mitsubishi Corp) for a 50:50 JV in Ezra’s subsea business EMAS-AMC for a cash consideration of US$180m. EMAS-AMC will be renamed EMAS Chiyoda Subsea (ECS). Chiyoda is a leading Front End Engineering Design (FEED) and Engineering Procurement and Construction (EPC) company in the oil and gas industry. Maintain target price at S$0.176, based on 0.3x FY16F P/B. The four global deepwater subsea peers are currently trading at an average FY16F P/B of 1.3x, skewed by Oceaneering (2.5x). Subsea 7, the second largest subsea player globally, is trading at 0.4x 2016F P/B with an ROE of 3%. While the Ezra-Chiyoda deal is a binding MOU, it is pending a firm agreement. Thus, we keep our P/B valuation at 0.3x, which translates to a target price of S$0.176. Upgrade to BUY. Share price has collapsed 32% since July owing to recent upheavals in the stock markets. With a 54% upside to our target price, and the emergence of a strong JV partner behind the subsea business, we upgrade our call on Ezra from HOLD to a trading BUY.
Olam International
UOBKayhian on 31 Aug 2015
FY15F PE (x): 17.4
FY16F PE (x): 15.9
Positive partnership. We are turning more positive on Olam with the entrance of Mitsubishi Corporation (MC) as its new strategic partner with a 20% stake at premium pricing. We are expecting medium-term value enhancement from this new partnership as: a) Olam ability to source and supply sustainable and certified ingredients for MC’s processed food division, and b) MC will be able to provide the processing capability and developed markets access for Olam. This is likely to lead to earnings enhancement and capex saving. Potential synergy. Both parties have different areas of strength in terms of capability and market accesses which both can leverage on in order to create cost and revenue synergies. For example: a) Olam will be able to penetrate into more developed markets with minimum capex by leveraging on MC’s existing processing plants, b) MC owns the world’s largest coffee plantation in Brazil while Olam is one of the top coffee traders, and c) Olam will be able to leverage on MC’s North America edible oil processing plants for its palm oil from Gabon. Management is not ready to share the value of the synergies yet, as they are pending the finalisation of the JV agreement within the next 120 days. Upgrade to BUY, with a higher target price of S$2.30 (previous: S$1.95), which is based on higher PE of 16.2x (10-year mean) on 2016F fully diluted EPS (up from 11.2x PE based on -1SD from mean PE). We like the stock’s medium-term prospects because: a) return of investor confidence with two reputable strategic shareholders, b) volume growth in medium term should be boosted by leveraging on MC’s strengths, and c) the business structuring that has been taking place since two years ago is showing positive results in terms of margins improvement.
FY15F PE (x): 17.4
FY16F PE (x): 15.9
Positive partnership. We are turning more positive on Olam with the entrance of Mitsubishi Corporation (MC) as its new strategic partner with a 20% stake at premium pricing. We are expecting medium-term value enhancement from this new partnership as: a) Olam ability to source and supply sustainable and certified ingredients for MC’s processed food division, and b) MC will be able to provide the processing capability and developed markets access for Olam. This is likely to lead to earnings enhancement and capex saving. Potential synergy. Both parties have different areas of strength in terms of capability and market accesses which both can leverage on in order to create cost and revenue synergies. For example: a) Olam will be able to penetrate into more developed markets with minimum capex by leveraging on MC’s existing processing plants, b) MC owns the world’s largest coffee plantation in Brazil while Olam is one of the top coffee traders, and c) Olam will be able to leverage on MC’s North America edible oil processing plants for its palm oil from Gabon. Management is not ready to share the value of the synergies yet, as they are pending the finalisation of the JV agreement within the next 120 days. Upgrade to BUY, with a higher target price of S$2.30 (previous: S$1.95), which is based on higher PE of 16.2x (10-year mean) on 2016F fully diluted EPS (up from 11.2x PE based on -1SD from mean PE). We like the stock’s medium-term prospects because: a) return of investor confidence with two reputable strategic shareholders, b) volume growth in medium term should be boosted by leveraging on MC’s strengths, and c) the business structuring that has been taking place since two years ago is showing positive results in terms of margins improvement.
Singapore Telcos
OCBC on 28 Aug 2015
For the Jun quarter, the three telcos reported results that were mostly in line with our expectations; they have also kept their previous guidance for the year, supported by the growing data usage. Recently, we have seen the prices of the telcos correcting quite sharply, spooked by concerns of rising interest rates; however, we believe that the sell-down may be overdone, and yields have improved considerably. As we had also recently upgraded StarHub from Hold to BUY, we now have BUY calls on all three telcos; hence, we upgrade our sector recommendation to OVERWEIGHT.
2Q15 earnings mostly in line
For the Jun quarter, the three telcos reported results that were mostly in line with our expectations. Although StarHub’s 2Q15 earnings were also in line, it had a weaker-than-expected 1Q15; but with margins likely to hold up, we think it should do better in 2H15. And as expected, the three telcos have kept their guidance unchanged for the year.
Defensive business in uncertainty economic time
Overall mobile market continues to remain stable, with post-paid subscribers inching up another 0.8% QoQ; monthly post-paid ARPUs were also steady. And with 4G subscribers now making up 68% of all mobile subscribers here, it comes as no surprise that the three telcos are optimistic about rising data usage and further improvements in ARPUs. Hence even in an increasingly uncertainty economic environment, we believe that the main mobile business should do relatively well; although we could see a drop in roaming income.
Interest rate concerns likely overdone
Recently, we have seen the prices of the telcos correcting quite sharply, spooked by concerns of rising interest rates. However, with the recent global market turmoil, coupled with the devaluation of the CNY against the USD, the odds for a rate hike in Sep seem to have dropped; some market watchers also believe that the quantum of hike has also been reduced. As such, we believe that the current yields have reached pretty attractive levels.
Upgrade to OVERWEIGHT
As we had also recently upgraded StarHub from Hold to BUY, we now have BUY calls on all three telcos; hence, we upgrade our sector recommendation to OVERWEIGHT. Key risks include an unexpected spike in interest rates and further depreciation in the regional currencies against the SGD, but this affects mainly Singtel. While there could still be a new entrant coming into the Singapore market, we think that any impact is likely muted and would probably be felt from 2018 onwards.
For the Jun quarter, the three telcos reported results that were mostly in line with our expectations. Although StarHub’s 2Q15 earnings were also in line, it had a weaker-than-expected 1Q15; but with margins likely to hold up, we think it should do better in 2H15. And as expected, the three telcos have kept their guidance unchanged for the year.
Defensive business in uncertainty economic time
Overall mobile market continues to remain stable, with post-paid subscribers inching up another 0.8% QoQ; monthly post-paid ARPUs were also steady. And with 4G subscribers now making up 68% of all mobile subscribers here, it comes as no surprise that the three telcos are optimistic about rising data usage and further improvements in ARPUs. Hence even in an increasingly uncertainty economic environment, we believe that the main mobile business should do relatively well; although we could see a drop in roaming income.
Interest rate concerns likely overdone
Recently, we have seen the prices of the telcos correcting quite sharply, spooked by concerns of rising interest rates. However, with the recent global market turmoil, coupled with the devaluation of the CNY against the USD, the odds for a rate hike in Sep seem to have dropped; some market watchers also believe that the quantum of hike has also been reduced. As such, we believe that the current yields have reached pretty attractive levels.
Upgrade to OVERWEIGHT
As we had also recently upgraded StarHub from Hold to BUY, we now have BUY calls on all three telcos; hence, we upgrade our sector recommendation to OVERWEIGHT. Key risks include an unexpected spike in interest rates and further depreciation in the regional currencies against the SGD, but this affects mainly Singtel. While there could still be a new entrant coming into the Singapore market, we think that any impact is likely muted and would probably be felt from 2018 onwards.
SMRT
OCBC on 27 Aug 2015
Singapore’s Transport Minister announced on 3 Aug a fare reduction of up to 1.9% by end-CY15 effective for a one-year period, affecting public bus and rail fares to reflect the lower energy costs. With the most recent fare hike of 2.8% effective Apr 15, this announcement of fare reduction within the same year came as a surprise to us. With no concrete details announced, we remain conservative and incorporate worst-case scenario assumptions (i.e. 1.9% fare reduction) impacting SMRT’s 1QFY16 and 1QFY17 to 3QFY17 forecasts. Consequently, our FY16/17F PATMI forecasts are reduced by 5%/9%, respectively. We remain positive over the transition to the new rail financing framework (RFF) that will eventually occur but without any concrete confirmation, we prefer to wait and have yet to factor any impact. Updating our forecasts, our DDM-derived FV drops to S$1.45 (prev: S$1.70). Supported by the longer-term positive rail reform catalyst, reiterate BUY as we think the recent fall in share price is most certainly overdone.
Potential fare reduction by end-CY15
Singapore’s Transport Minister announced on 3 Aug reduction in bus and train fares by up to 1.9% effective end-CY15 for a one-year period to reflect the lower energy costs. With the most recent fare hike of 2.8% effective Apr 15, this announcement of fare reduction within the same year came as a surprise to us. With transition to bus government contracting model (GCM) (i.e. no revenue risk since SMRT will receive annual contract fee) only effective 2HCY16 and bus segment only making up ~20% of total revenue, we think the fare reduction is negative on SMRT’s growth in the near-term. With no concrete details announced, we remain conservative and incorporate worst-case scenario assumptions (i.e. 1.9% fare reduction) impacting SMRT’s 1QFY16 and 1QFY17 to 3QFY17 forecasts. Consequently, our FY16/17F PATMI forecasts are reduced by 5%/9%, respectively.
Yet to factor in rail financing framework transition
We remain positive over the transition to the new rail financing framework (RFF) that will eventually occur. There are two perspectives over the timeline of the transition: 1) the recent spate of breakdowns requires SMRT to complete all renewals and upgrade of rail network (i.e. at least two to three years later) before any transition can take place, or 2) because both the LTA and SMRT have a common interest of ensuring minimal rail services disruption going forward, there is a possibility that the transition could be brought forward to an earlier date, as it puts SMRT in a better position (i.e. improved financial ability) to perform the rail network renewal. However, without any concrete confirmation, we prefer to wait and have yet to factor any impact. For more details on RFF, refer to our Land Transport Sector reports dated 3 Dec 14 and 20 May 15.
Decline in share price overdone; reiterate BUY
Updating our forecasts and acknowledging near-term weakness, our DDM-derived (risk-free rate: 2.6%; risk premium: 8.5%) FV drops to S$1.45 (prev: S$1.70). Supported by the longer-term positive rail reform catalyst, reiterate BUY as we think the recent fall in share price is most certainly overdone, and current price level has become attractive with total upside of ~28%.
Singapore’s Transport Minister announced on 3 Aug reduction in bus and train fares by up to 1.9% effective end-CY15 for a one-year period to reflect the lower energy costs. With the most recent fare hike of 2.8% effective Apr 15, this announcement of fare reduction within the same year came as a surprise to us. With transition to bus government contracting model (GCM) (i.e. no revenue risk since SMRT will receive annual contract fee) only effective 2HCY16 and bus segment only making up ~20% of total revenue, we think the fare reduction is negative on SMRT’s growth in the near-term. With no concrete details announced, we remain conservative and incorporate worst-case scenario assumptions (i.e. 1.9% fare reduction) impacting SMRT’s 1QFY16 and 1QFY17 to 3QFY17 forecasts. Consequently, our FY16/17F PATMI forecasts are reduced by 5%/9%, respectively.
Yet to factor in rail financing framework transition
We remain positive over the transition to the new rail financing framework (RFF) that will eventually occur. There are two perspectives over the timeline of the transition: 1) the recent spate of breakdowns requires SMRT to complete all renewals and upgrade of rail network (i.e. at least two to three years later) before any transition can take place, or 2) because both the LTA and SMRT have a common interest of ensuring minimal rail services disruption going forward, there is a possibility that the transition could be brought forward to an earlier date, as it puts SMRT in a better position (i.e. improved financial ability) to perform the rail network renewal. However, without any concrete confirmation, we prefer to wait and have yet to factor any impact. For more details on RFF, refer to our Land Transport Sector reports dated 3 Dec 14 and 20 May 15.
Decline in share price overdone; reiterate BUY
Updating our forecasts and acknowledging near-term weakness, our DDM-derived (risk-free rate: 2.6%; risk premium: 8.5%) FV drops to S$1.45 (prev: S$1.70). Supported by the longer-term positive rail reform catalyst, reiterate BUY as we think the recent fall in share price is most certainly overdone, and current price level has become attractive with total upside of ~28%.
Thursday, 27 August 2015
Singapore Telecommunications
UOBKayhian on 27 Aug 2015
FY15F PE (x): 16.5
FY16F PE (x): 15.3
Differentiating with data sharing targeted at families. Optus’ new My Plan Plus allows families to pool separate mobile plans under one bill to share the combined data allowance, and this plan was launched in Apr 15. Typically, 68% of customers use less than 50% of their monthly allowance. Demand for data is asymmetric. Those aged 18- 20 use 2.7 times more data compared with those above 45 years old. Thus, many parents would find My Plan Plus attractive as they can share their unused data with their children. Contribution from Optus hampered by weak Australian dollar. The Australia Consumer business registered growth of 12.8% yoy for operating revenue and 8% yoy for EBITDA in 1QFY16. Unfortunately, contribution from Optus was affected by the 10.6% yoy depreciation of the Australian dollar against the Singapore dollar. Our target price is S$4.72 based on DCF (required rate of return: 5.45%, terminal growth: 1.0%).
FY15F PE (x): 16.5
FY16F PE (x): 15.3
Differentiating with data sharing targeted at families. Optus’ new My Plan Plus allows families to pool separate mobile plans under one bill to share the combined data allowance, and this plan was launched in Apr 15. Typically, 68% of customers use less than 50% of their monthly allowance. Demand for data is asymmetric. Those aged 18- 20 use 2.7 times more data compared with those above 45 years old. Thus, many parents would find My Plan Plus attractive as they can share their unused data with their children. Contribution from Optus hampered by weak Australian dollar. The Australia Consumer business registered growth of 12.8% yoy for operating revenue and 8% yoy for EBITDA in 1QFY16. Unfortunately, contribution from Optus was affected by the 10.6% yoy depreciation of the Australian dollar against the Singapore dollar. Our target price is S$4.72 based on DCF (required rate of return: 5.45%, terminal growth: 1.0%).
Wednesday, 26 August 2015
Thai Beverage PLC
OCBC on 25 Aug 2015
Following last week’s fatal explosion in Thailand, there have been concerns over the prospects for the country’s tourism industry. While there would be near-term adverse impact on tourist arrivals, note that the group had previously shown earnings resilience despite lower tourist levels amid political unrest in 2014 for instance. A plausible factor is that Thai Beverage’s (ThaiBev) sales come from all provinces of Thailand, not just from cities popular with tourists. Separately, after the release of its 2Q15 economic data, in a bid to stir positive changes for the economy, Prime Minister Prayuth Chan-ocha had also declared a cabinet reshuffle. Although the economy is expected to grow at a slower rate of 3.0%, ThaiBev’s recent 2Q15 results were in-line with our estimates, and its beer segment has continued to grow with improved profits. Thus while the group's share price has fallen on recent events coupled with the broader stock market rout, we think ThaiBev’s long-term growth remains intact with its generally defensive alcoholic portfolio. Maintain BUY with fair value estimate of S$0.83.
Near-term pressure from concerns over tourism
Last week's fatal explosion in Thailand drove concerns over the prospects for the country’s tourism industry. Local companies in the hospitality and airline industries inevitably saw share price declines, and are reportedly facing some postponement requests as well as cancellations in hotel reservations. This comes after an improvement in tourist arrivals for 1H15, as the number of foreign tourists was 29.5% higher YoY according to data from Bank of Thailand. The uncertainty for a sustained improvement here has raised concern over performance for Thai Beverage as well.
2Q15 GDP data saw similar drags
Thailand’s recently announced 2Q15 GDP growth of 2.8% YoY were slightly short of our OCBC Treasury Research expectations. Drags came from weakening exports and private consumption, with these factors expected to stay for 2H15. In addition to high household debt levels, private consumption was also affected by the severe drought in Thailand as the agriculture sector employs more than 40% of the country’s population. Nonetheless, the economy is seeing some support from growth drivers such as government spending on infrastructure (+24.7% YoY). In a bid to stir positive changes for the economy, Prime Minister Prayuth Chan-ocha had also declared a cabinet reshuffle last Thu with more than 20 positions involved.
Long term growth intact
While there would be near term adverse impact on tourism levels, note that the group had previously shown earnings resilience despite lower tourist levels amid political unrest in 2014 for instance. A plausible factor is that Thai Beverage’s (ThaiBev) sales come from all provinces of Thailand, not just from cities popular with tourists. In addition, although the economy is expected to grow at a slower rate of 3.0%, ThaiBev’s recent 2Q15 results were in-line with our estimates, and its beer segment has continued to grow with improved profits. Thus while the group's share price has fallen on recent events coupled with the broader stock market rout, we think ThaiBev’s long-term growth remains intact with its generally defensive alcoholic portfolio. Maintain BUY with fair value estimate of S$0.83.
Last week's fatal explosion in Thailand drove concerns over the prospects for the country’s tourism industry. Local companies in the hospitality and airline industries inevitably saw share price declines, and are reportedly facing some postponement requests as well as cancellations in hotel reservations. This comes after an improvement in tourist arrivals for 1H15, as the number of foreign tourists was 29.5% higher YoY according to data from Bank of Thailand. The uncertainty for a sustained improvement here has raised concern over performance for Thai Beverage as well.
2Q15 GDP data saw similar drags
Thailand’s recently announced 2Q15 GDP growth of 2.8% YoY were slightly short of our OCBC Treasury Research expectations. Drags came from weakening exports and private consumption, with these factors expected to stay for 2H15. In addition to high household debt levels, private consumption was also affected by the severe drought in Thailand as the agriculture sector employs more than 40% of the country’s population. Nonetheless, the economy is seeing some support from growth drivers such as government spending on infrastructure (+24.7% YoY). In a bid to stir positive changes for the economy, Prime Minister Prayuth Chan-ocha had also declared a cabinet reshuffle last Thu with more than 20 positions involved.
Long term growth intact
While there would be near term adverse impact on tourism levels, note that the group had previously shown earnings resilience despite lower tourist levels amid political unrest in 2014 for instance. A plausible factor is that Thai Beverage’s (ThaiBev) sales come from all provinces of Thailand, not just from cities popular with tourists. In addition, although the economy is expected to grow at a slower rate of 3.0%, ThaiBev’s recent 2Q15 results were in-line with our estimates, and its beer segment has continued to grow with improved profits. Thus while the group's share price has fallen on recent events coupled with the broader stock market rout, we think ThaiBev’s long-term growth remains intact with its generally defensive alcoholic portfolio. Maintain BUY with fair value estimate of S$0.83.
Friday, 21 August 2015
Wing Tai Holdings
OCBC on 21 Aug 2015
While Singapore new home sales in July appeared strong, we believe the outlook for the domestic residential space remains fairly muted. This is particularly so for the high-end segment, and sales at Wing Tai’s luxury projects will likely experience continued headwinds going into 2H15, barring a reversal of the ABSD on foreigners. The group’s FY15 PATMI (ending Jun 15) fell 41% to S$150.3m, mainly due to lower YoY contributions from its development segment and a weaker share of profits from Wing Tai Properties Ltd in Hong Kong, which was overall broadly within market expectations. In order to conserve cash and further buttress its balance sheet, Wing Tai reduced its FY15 dividend to 3.0 S-cents from 6.0 S-cents last year. The group’s net gearing ratio also further strengthened to 10% versus 16% as at end of FY14. We believe the group is well-positioned to ride out the current down-cycle and see significant long term value in its shares, now valued at 43% of its book value. Maintain BUY with an unchanged fair value estimate of S$2.58.
Jump in Singapore new home sales in July likely a blip
Recent URA data show that 1,594 new homes were sold in Singapore over July 2015. This is up 212% YoY and brought YTD total sales to 5,027 units – in line with our expectations for 5.5k to 7.5k new home sales in 2015. We note that July sales were mainly driven by a successful launch at High Park Residences by CEL (1169 units sold over the month) which comprises a significant number of smaller units. The median price of the units sold at High Park was also below the key psychological level of S$1k psf, which drew some bargain hunters into the mix.
Continued headwinds for Wing Tai’s luxury projects
While July numbers were strong, we see sales slowing in the months ahead due to the lunar seventh month and the elections, and the outlook for the domestic residential space remains fairly muted. This is particularly so for the high-end segment, and sales at Wing Tai’s luxury projects will likely experience continued headwinds going into 2H15, barring a reversal of the ABSD on foreigners. The group’s FY15 PATMI (ending Jun 15) fell 41% to S$150.3m, mainly due to lower YoY contributions from its development segment and a weaker share of profits from Wing Tai Properties Ltd in Hong Kong, which was overall broadly within market expectations.
Lowered dividends to buttress balance sheet
In order to conserve cash and further buttress its balance sheet, Wing Tai reduced its FY15 dividend to 3.0 S-cents from 6.0 S-cents last year. The group’s net gearing ratio also further strengthened to 10% versus 16% as at end of FY14. We believe the group is well-positioned to ride out the current down-cycle and see significant long term value in its shares, now valued at 43% of its book value. Maintain BUYwith an unchanged fair value estimate of S$2.58.
Recent URA data show that 1,594 new homes were sold in Singapore over July 2015. This is up 212% YoY and brought YTD total sales to 5,027 units – in line with our expectations for 5.5k to 7.5k new home sales in 2015. We note that July sales were mainly driven by a successful launch at High Park Residences by CEL (1169 units sold over the month) which comprises a significant number of smaller units. The median price of the units sold at High Park was also below the key psychological level of S$1k psf, which drew some bargain hunters into the mix.
Continued headwinds for Wing Tai’s luxury projects
While July numbers were strong, we see sales slowing in the months ahead due to the lunar seventh month and the elections, and the outlook for the domestic residential space remains fairly muted. This is particularly so for the high-end segment, and sales at Wing Tai’s luxury projects will likely experience continued headwinds going into 2H15, barring a reversal of the ABSD on foreigners. The group’s FY15 PATMI (ending Jun 15) fell 41% to S$150.3m, mainly due to lower YoY contributions from its development segment and a weaker share of profits from Wing Tai Properties Ltd in Hong Kong, which was overall broadly within market expectations.
Lowered dividends to buttress balance sheet
In order to conserve cash and further buttress its balance sheet, Wing Tai reduced its FY15 dividend to 3.0 S-cents from 6.0 S-cents last year. The group’s net gearing ratio also further strengthened to 10% versus 16% as at end of FY14. We believe the group is well-positioned to ride out the current down-cycle and see significant long term value in its shares, now valued at 43% of its book value. Maintain BUYwith an unchanged fair value estimate of S$2.58.
First REIT
OCBC on 20 Aug 2015
First REIT’s (FREIT) recent 2Q15 results were within our expectations and exhibited continued stable growth. We project FREIT’s DPU growth to remain steady at 3.0% for FY15 and 1.0% for FY16, and have not factored in any potential acquisitions in our assumptions. Siloam International Hospitals, which is the operator of FREIT’s Indonesian hospitals and a subsidiary of FREIT’s sponsor Lippo Karawaci, recently reported a solid set of 2Q15 results, with gross operating revenue and EBITDA increasing by 24% and 56% YoY to IDR1,011b and IDR152b, respectively. Lippo Karawaci has been actively developing more hospitals in Indonesia and currently has a strong pipeline of 46 hospitals. This represents strong acquisition opportunities for First REIT given that it has a right-of-first-refusal (ROFR) to Lippo Karawaci’s hospital assets. Despite FREIT’s recent share price correction, we believe it is still too early to turn positive on the stock. Maintain HOLD rating and S$1.36 fair value estimate on FREIT.
Steady growth path
First REIT’s (FREIT) recent 2Q15 results exhibited continued stable growth, with gross revenue and DPU increasing by 8.5% and 3.5% YoY to S$25.0m and 2.07 S cents, respectively. This was in-line with our expectations, and was driven by both organic growth and contribution from new acquisitions. We project FREIT’s DPU growth to remain steady at 3.0% for FY15 and 1.0% for FY16. We have not factored in any potential acquisitions in our assumptions.
Siloam Hospitals delivering good growth
Siloam International Hospitals, which is the operator of FREIT’s Indonesian hospitals and a subsidiary of FREIT’s sponsor Lippo Karawaci, recently reported a solid set of 2Q15 results. Gross operating revenue jumped 24% YoY to IDR1,011b, while EBITDA accelerated 56% to IDR152b. This was underpinned by the ramp-up of new hospitals and higher inpatient admissions and outpatient visits. The continued weakening of the IDR may also deter Indonesians, especially within the middle-class group, from seeking discretionary medical treatment overseas. This would potentially benefit Siloam’s hospitals.
Strong pipeline of acquisition opportunities
Lippo Karawaci has been actively developing more hospitals in Indonesia and currently has a strong pipeline of 46 hospitals. This represents strong acquisition opportunities for First REIT since it has a right-of-first-refusal (ROFR) to Lippo Karawaci’s hospital assets.
Maintain HOLD
Since we downgraded FREIT to a ‘Hold’ on 21 Jul 2015, its share price has corrected 7.4% to close at S$1.32. Nevertheless, we believe it is still too early to turn positive on the stock, as valuations are not yet attractive, in our view, with the stock trading at a forecasted FY15F and FY16F distribution yield of 6.3%. This is more than one standard deviation below its 5-year average forward yield of 7.3%. Maintain our HOLD rating and S$1.36 fair value estimate on FREIT.
First REIT’s (FREIT) recent 2Q15 results exhibited continued stable growth, with gross revenue and DPU increasing by 8.5% and 3.5% YoY to S$25.0m and 2.07 S cents, respectively. This was in-line with our expectations, and was driven by both organic growth and contribution from new acquisitions. We project FREIT’s DPU growth to remain steady at 3.0% for FY15 and 1.0% for FY16. We have not factored in any potential acquisitions in our assumptions.
Siloam Hospitals delivering good growth
Siloam International Hospitals, which is the operator of FREIT’s Indonesian hospitals and a subsidiary of FREIT’s sponsor Lippo Karawaci, recently reported a solid set of 2Q15 results. Gross operating revenue jumped 24% YoY to IDR1,011b, while EBITDA accelerated 56% to IDR152b. This was underpinned by the ramp-up of new hospitals and higher inpatient admissions and outpatient visits. The continued weakening of the IDR may also deter Indonesians, especially within the middle-class group, from seeking discretionary medical treatment overseas. This would potentially benefit Siloam’s hospitals.
Strong pipeline of acquisition opportunities
Lippo Karawaci has been actively developing more hospitals in Indonesia and currently has a strong pipeline of 46 hospitals. This represents strong acquisition opportunities for First REIT since it has a right-of-first-refusal (ROFR) to Lippo Karawaci’s hospital assets.
Maintain HOLD
Since we downgraded FREIT to a ‘Hold’ on 21 Jul 2015, its share price has corrected 7.4% to close at S$1.32. Nevertheless, we believe it is still too early to turn positive on the stock, as valuations are not yet attractive, in our view, with the stock trading at a forecasted FY15F and FY16F distribution yield of 6.3%. This is more than one standard deviation below its 5-year average forward yield of 7.3%. Maintain our HOLD rating and S$1.36 fair value estimate on FREIT.
Citic Envirotech Ltd
OCBC on 19 Aug 2015
Citic Envirotech Ltd (CEL) recently reported its 2Q15 results (revising FY end from 31 Mar to 31 Dec) – with revenue climbing 26% YoY (+37% QoQ) to S$83.8m; this mainly driven by a sharp increase in treatment revenue to S$36.0m (+76% YoY). Although reported net profit plunged by 85% YoY (-56% QoQ), we note that it was largely due to a one-off expense related to the offer by CKM (Cayman) Company of S$6.5m. Note that FY15 will be nine months and we have adjusted our numbers to reflect that. Another risk is the CNY devaluation, but management is currently looking into the issue and may start to use hedges to mitigate the impact. While still maintaining our 28x FY16F EPS, our revised fair value dips from S$1.78 to S$1.71; maintain HOLD.
Decent Jun quarter results
Citic Envirotech Ltd (CEL) recently reported its 2Q15 results (revising FY end from 31 Mar to 31 Dec) – with revenue climbing 26% YoY (+37% QoQ) to S$83.8m; this mainly driven by a sharp increase in treatment revenue to S$36.0m (+76% YoY). Although reported net profit plunged by 85% YoY (-56% QoQ), we note that it was largely due to a one-off expense related to the offer by CKM (Cayman) Company of S$6.5m. Excluding this item as well as the large one-off gain of S$14.2m in the year-ago quarter, we estimate that core earnings would have come in around S$9.8m (+18% YoY and 30% QoQ). Note that FY15 will be nine months and we have adjusted our numbers to reflect that.
Still upbeat on overall industry, especially membrane sales
Going forward, CEL remains upbeat about its prospects in China, as the government has finally announced the Water Pollution Prevention Plan in Apr 2015, which includes a list of measures to tackle water pollution throughout the country. In particular, CEL is positive about the greater need for membrane-based water treatment solutions for the treatment and recycling of water in China. It has already started to expand its membrane production capacity and should double its output to 10m m2 by early next year. In addition, CEL hopes to leverage on its Citic connection to expand its geographical reach in China.
New VAT in place from 1 Jul 2015
However, we understand that water treatment companies in China would be subject to a 17% VAT from 1 Jul 2015 onwards, which will impact both EPC and treatment income. CEL, like many other water treatment companies, is in talks with the municipal governments to either get a rebate on this tax or improved tariffs to mitigate the impact. For now, CEL expects to feel a potential 5-7% impact on bottom-line from 2H15 onwards.
Maintain HOLD with S$1.71 fair value
Another risk is the CNY devaluation, but management is currently looking into the issue and may start to use hedges to mitigate the impact. While still maintaining our 28x FY16F EPS, our revised fair value dips from S$1.78 to S$1.71; maintain HOLD.
Citic Envirotech Ltd (CEL) recently reported its 2Q15 results (revising FY end from 31 Mar to 31 Dec) – with revenue climbing 26% YoY (+37% QoQ) to S$83.8m; this mainly driven by a sharp increase in treatment revenue to S$36.0m (+76% YoY). Although reported net profit plunged by 85% YoY (-56% QoQ), we note that it was largely due to a one-off expense related to the offer by CKM (Cayman) Company of S$6.5m. Excluding this item as well as the large one-off gain of S$14.2m in the year-ago quarter, we estimate that core earnings would have come in around S$9.8m (+18% YoY and 30% QoQ). Note that FY15 will be nine months and we have adjusted our numbers to reflect that.
Still upbeat on overall industry, especially membrane sales
Going forward, CEL remains upbeat about its prospects in China, as the government has finally announced the Water Pollution Prevention Plan in Apr 2015, which includes a list of measures to tackle water pollution throughout the country. In particular, CEL is positive about the greater need for membrane-based water treatment solutions for the treatment and recycling of water in China. It has already started to expand its membrane production capacity and should double its output to 10m m2 by early next year. In addition, CEL hopes to leverage on its Citic connection to expand its geographical reach in China.
New VAT in place from 1 Jul 2015
However, we understand that water treatment companies in China would be subject to a 17% VAT from 1 Jul 2015 onwards, which will impact both EPC and treatment income. CEL, like many other water treatment companies, is in talks with the municipal governments to either get a rebate on this tax or improved tariffs to mitigate the impact. For now, CEL expects to feel a potential 5-7% impact on bottom-line from 2H15 onwards.
Maintain HOLD with S$1.71 fair value
Another risk is the CNY devaluation, but management is currently looking into the issue and may start to use hedges to mitigate the impact. While still maintaining our 28x FY16F EPS, our revised fair value dips from S$1.78 to S$1.71; maintain HOLD.
Midas Holdings
OCBC on 18 Aug 2015
Midas Holdings Limited’s (Midas) 2Q15 revenue grew 11.3% YoY to RMB374.3m, driven by higher revenue from its Aluminium Alloy Extruded Products division, which grew 13.5% to RMB370.0m. Overall gross margin for 2Q15 improved 2.3ppt YoY to 27.7%. That said, start-up costs continued to drag its performance. However, as a result of a 71.4% plunge in tax expense, 2Q15 PATMI grew 39.4% YoY to RMB11.6m. On similar reasons, 1H15 revenue rose 9.7% to RMB694.9m while PATMI grew 13.4% to RMB 22.5m and formed 46.7% of our FY15 forecast. Midas’ near-term growth outlook remains uncertain, with one of the key risks being the pace and ability to ramp-up of its new business in producing aluminium plates and sheets. Incorporating the weak 2Q15 results and uncertain near-term outlook, we cut our FY15/16F PATMI forecasts and lower our FV from S$0.375 to S$0.31. Maintain HOLD.
Start-up costs still dragging core business
Midas Holdings Limited’s (Midas) 2Q15 revenue grew 11.3% YoY to RMB374.3m, driven by higher revenue from its Aluminium Alloy Extruded Products division, which grew 13.5% to RMB370.0m. Overall gross margin for 2Q15 improved 2.3ppt YoY to 27.7%. That said, start-up costs continued to drag its performance as selling and distribution and administrative expenses grew 35.6% and 5.1% to RMB18.5m and RMB40.7m, respectively. Finance costs also increased 25.5% to RMB38.7m due to interest for borrowings and costs relating to discounted notes receivables. However, as a result of a 71.4% plunge in tax expense, 2Q15 PATMI grew 39.4% YoY to RMB11.6m. On similar reasons, 1H15 revenue rose 9.7% to RMB694.9m while PATMI grew 13.4% to RMB 22.5m and formed 46.7% of our FY15 forecast.
Uncertainty over near-term growth outlook
We believe Midas’ near-term growth outlook remains uncertain: 1) with commercial production to start only in FY16, Midas’ ability to ramp up and achieve steady sales growth for its new business in producing basic materials (an extremely competitive industry) such as metal plates and sheets is still unclear, 2) with its new Luoyang plant (existing business) likely to take at least until end FY15 or even 1H16 to ramp-up its utilization, 3) while investments in China’s railway industry is expected to further increase on strong commitments by the Chinese government to expand high-speed rail network and urban metro system, we think near-term growth for Midas is likely to remain slow since equipment and trains manufacturing spending had historically always been back-end loaded. All said, we think Midas will still be able to tap on partners for growth in overseas export orders, having seen increasing proportion of export business to total revenue.
Lower FV to S$0.31
Incorporating the weak 2Q15 results and uncertain near-term outlook, we cut our FY15/16F PATMI forecasts by 4.8%/1.1%. One of the key risks is the pace and ability to execute the ramp up of its new light alloy business. Based on 0.6x blended FY15/16F NAV, we lower our FV from S$0.375 to S$0.31. Maintain HOLD.
Midas Holdings Limited’s (Midas) 2Q15 revenue grew 11.3% YoY to RMB374.3m, driven by higher revenue from its Aluminium Alloy Extruded Products division, which grew 13.5% to RMB370.0m. Overall gross margin for 2Q15 improved 2.3ppt YoY to 27.7%. That said, start-up costs continued to drag its performance as selling and distribution and administrative expenses grew 35.6% and 5.1% to RMB18.5m and RMB40.7m, respectively. Finance costs also increased 25.5% to RMB38.7m due to interest for borrowings and costs relating to discounted notes receivables. However, as a result of a 71.4% plunge in tax expense, 2Q15 PATMI grew 39.4% YoY to RMB11.6m. On similar reasons, 1H15 revenue rose 9.7% to RMB694.9m while PATMI grew 13.4% to RMB 22.5m and formed 46.7% of our FY15 forecast.
Uncertainty over near-term growth outlook
We believe Midas’ near-term growth outlook remains uncertain: 1) with commercial production to start only in FY16, Midas’ ability to ramp up and achieve steady sales growth for its new business in producing basic materials (an extremely competitive industry) such as metal plates and sheets is still unclear, 2) with its new Luoyang plant (existing business) likely to take at least until end FY15 or even 1H16 to ramp-up its utilization, 3) while investments in China’s railway industry is expected to further increase on strong commitments by the Chinese government to expand high-speed rail network and urban metro system, we think near-term growth for Midas is likely to remain slow since equipment and trains manufacturing spending had historically always been back-end loaded. All said, we think Midas will still be able to tap on partners for growth in overseas export orders, having seen increasing proportion of export business to total revenue.
Lower FV to S$0.31
Incorporating the weak 2Q15 results and uncertain near-term outlook, we cut our FY15/16F PATMI forecasts by 4.8%/1.1%. One of the key risks is the pace and ability to execute the ramp up of its new light alloy business. Based on 0.6x blended FY15/16F NAV, we lower our FV from S$0.375 to S$0.31. Maintain HOLD.
Libra Group
OCBC on 18 Aug 2015
Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. Due to higher expenses, PATMI was 28% lower at S$2.1m. M&E and construction players are in tough times now, and in view of the outlook, we have reduced our estimates, bringing our fair value estimate down from S$0.37 to S$0.27. Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. The group had declared an interim DPS of 0.5 S-cents, similar to last year’s.
Current order book at S$120m
Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. The building and construction solutions division also saw higher contribution at S$7.06m, up from S$0.6m a year ago. We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. The acquisition of Cyber Builders Pte Ltd will potentially help the group achieve B1 contractor license status by the end of FY15, allowing them to tender for public sector projects of up to S$42m.
Gross profit margin similar to 2H14
However, gross profit margin declined from 26.1% to 20.1% as the group strived to gain market share in their manufacturing business and they took up more competitively priced contracts in the M&E segment. We see a similar picture for margins when we compare 1H15 vs. 2H14 (20.6%), and expect margins to stay around this level for the year. As a result of higher expenses, PATMI was 28% lower at S$2.1m.
M&E players in challenging times
The construction sector in Singapore has been deemed challenging. Taking a look at another player involved in M&E, Koyo International [non-rated] saw declines in both revenue (-20%) and bottomline (-36%) for 1H15. We note that Koyo International is currently trading at ~30x FY14 P/E, whereas Libra Group is trading at 3.4x FY14 P/E. As a result of tougher outlook, CEO Mr Chu has expressed interests to diversify into other businesses including hospitality and tourism.
Reduced FV to S$0.27
In view of the above, we have reduced our forecasts, which bring our fair value estimate down from S$0.37 to S$0.27. Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. The group had declared an interim DPS of 0.5 S-cents, similar to last year’s.
Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. The building and construction solutions division also saw higher contribution at S$7.06m, up from S$0.6m a year ago. We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. The acquisition of Cyber Builders Pte Ltd will potentially help the group achieve B1 contractor license status by the end of FY15, allowing them to tender for public sector projects of up to S$42m.
Gross profit margin similar to 2H14
However, gross profit margin declined from 26.1% to 20.1% as the group strived to gain market share in their manufacturing business and they took up more competitively priced contracts in the M&E segment. We see a similar picture for margins when we compare 1H15 vs. 2H14 (20.6%), and expect margins to stay around this level for the year. As a result of higher expenses, PATMI was 28% lower at S$2.1m.
M&E players in challenging times
The construction sector in Singapore has been deemed challenging. Taking a look at another player involved in M&E, Koyo International [non-rated] saw declines in both revenue (-20%) and bottomline (-36%) for 1H15. We note that Koyo International is currently trading at ~30x FY14 P/E, whereas Libra Group is trading at 3.4x FY14 P/E. As a result of tougher outlook, CEO Mr Chu has expressed interests to diversify into other businesses including hospitality and tourism.
Reduced FV to S$0.27
In view of the above, we have reduced our forecasts, which bring our fair value estimate down from S$0.37 to S$0.27. Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. The group had declared an interim DPS of 0.5 S-cents, similar to last year’s.
Olam International
OCBC on 17 Aug 2015
Olam’s 2Q15 revenue eased 16% YoY to S$4811.6; but thanks to improved margins, NPAT jumped 197.6% to S$94.7m. 1H15 revenue was down 14% at S$7516.3, meeting 44% of our full-year forecast, while reported NPAT tumbled 70.6% to S$126.0m; operational NPAT was actually up 48% at S$223.7m, or about 51% of our FY15 forecast. While management maintains that the outlook for food commodities should still be fairly resilient to any economic slowdown, there is no denying that overall commodity prices are likely to remain weak. In view of this, we are easing our valuation peg from 12.5x FY15F EPS to 10x blended FY15/FY16F EPS, which lowers our fair value from S$2.30 to S$1.88. Maintain HOLD.
Decent 2Q15 showing
Olam’s 2Q15 revenue eased 16% YoY to S$4811.6; this on the back of reduced volumes (down 17%) as it continues to restructure lower margin businesses as part of its strategic plan objectives. But thanks to improved margins, NPAT though jumped 197.6% to S$94.7m; excluding one-off items, operational NPAT still grew 96% to S$95.2m. 1H15 revenue was down 14% at S$7516.3, meeting 44% of our full-year forecast, while reported NPAT tumbled 70.6% to S$126.0m; operational NPAT was actually up 48% at S$223.7m, or about 51% of our FY15 forecast. Olam declared an interim dividend of S$0.025/share, versus S$0.075 (S$0.05 final and S$0.025 special) last year.
Weighed by Industrial Raw Material Segment
For its food business, most segments did relatively well. With the exception of Food Staples and Packaged Food, which saw a sharp 44% decline in revenue on the back of a 26% fall in shipments in the quarter; this due to deconsolidation of its grains business in Africa and also the continued underperformance of the dairy operations in Uruguay. But even then, EBITDA actually improved 55%. On the other hand, the Industrial Raw Materials segment not only saw a fall in revenue (down 35%) and shipment (down 24%), but EBITDA also tumbled 39%; this was mainly due to a reduced contribution from the SEZ business.
Commodity prices likely to remain weak
While management maintains that the outlook for food commodities should still be fairly resilient to any economic slowdown, there is no denying that overall commodity prices are likely to remain weak. And because of the new financial year end in Dec, the seasonality of its earnings have also changed; management now guides for 60-70% of earnings to come in during 1H, while 30-40% will be registered in 2H. As such, we see the need to pare our FY15 earnings forecast by 9%; and in line with the weaker outlook for commodity plays, we are easing our valuation peg from 12.5x FY15F EPS to 10x blended FY15/FY16F EPS, which lowers our fair value from S$2.30 to S$1.88. Maintain HOLD.
Olam’s 2Q15 revenue eased 16% YoY to S$4811.6; this on the back of reduced volumes (down 17%) as it continues to restructure lower margin businesses as part of its strategic plan objectives. But thanks to improved margins, NPAT though jumped 197.6% to S$94.7m; excluding one-off items, operational NPAT still grew 96% to S$95.2m. 1H15 revenue was down 14% at S$7516.3, meeting 44% of our full-year forecast, while reported NPAT tumbled 70.6% to S$126.0m; operational NPAT was actually up 48% at S$223.7m, or about 51% of our FY15 forecast. Olam declared an interim dividend of S$0.025/share, versus S$0.075 (S$0.05 final and S$0.025 special) last year.
Weighed by Industrial Raw Material Segment
For its food business, most segments did relatively well. With the exception of Food Staples and Packaged Food, which saw a sharp 44% decline in revenue on the back of a 26% fall in shipments in the quarter; this due to deconsolidation of its grains business in Africa and also the continued underperformance of the dairy operations in Uruguay. But even then, EBITDA actually improved 55%. On the other hand, the Industrial Raw Materials segment not only saw a fall in revenue (down 35%) and shipment (down 24%), but EBITDA also tumbled 39%; this was mainly due to a reduced contribution from the SEZ business.
Commodity prices likely to remain weak
While management maintains that the outlook for food commodities should still be fairly resilient to any economic slowdown, there is no denying that overall commodity prices are likely to remain weak. And because of the new financial year end in Dec, the seasonality of its earnings have also changed; management now guides for 60-70% of earnings to come in during 1H, while 30-40% will be registered in 2H. As such, we see the need to pare our FY15 earnings forecast by 9%; and in line with the weaker outlook for commodity plays, we are easing our valuation peg from 12.5x FY15F EPS to 10x blended FY15/FY16F EPS, which lowers our fair value from S$2.30 to S$1.88. Maintain HOLD.
Thai Beverage
OCBC on 17 Aug 2015
Thai Beverage PLC’s (ThaiBev) 2Q15 results were in line with our expectations amid uncertainties over economic growth in Thailand. Revenue fell 2.6% YoY to THB39.0b, which met 23% of our FY15F. PATMI rose 6.2% to THB5.9b, meeting 25% of our full-year estimates. Recall that there was increased stockpiling by agents prior to the tax implementation, which drove volume growth for the alcoholic segments seen in 1Q. Thus with agents destocking in 2Q, Spirits’ revenue fell 4.7% while beer sales were steady on higher ASP. Helped by lower material costs, Beer’s net profit was up 95% to THB158b. On the broader economy, while Thailand’s finance ministry is now expecting a slower growth rate of 3.0%, ThaiBev sees support from higher tourism levels this year, as well as strong government spending and investment. We are keeping our estimates unchanged for now. Maintain BUY with fair value estimate of S$0.83.
2Q15 results within expectations
Thai Beverage PLC’s (ThaiBev) 2Q15 results were in line with our expectations amid uncertainties over economic growth in Thailand. Revenue was down 2.6% YoY to THB39.0b, which met 23% of our FY15F, as sales from all segments grew except for Spirits. There were also improvements in overall margins, as EBITDA margin gained 1.5ppt to 21.5% and net profit margin was 1.6ppt up to 15.3%. PATMI rose 6.2% to THB5.9b, meeting 25% of our full-year estimates.
Beer continues to grow
Recall that there was increased stockpiling by agents prior to the tax implementation, which drove volume growth for the alcoholic segments seen in 1Q. In 2Q, Spirits’ revenue fell 4.7% to THB24.1b, due to agents destocking post implementation of the new tax from 27 Mar-15. This segment did maintain its gross profit margin (“GPM”) at 33.8%, but with higher staff costs and A&P expenses, net profit was down 6% to THB4.6b. Beer’s revenue was steady at THB8.8b albeit volume was 4% lower. GPM was also maintained at 1Q15 level of ~20% vs. FY14 of ~18% due to lower material costs, and net profit was up 95% to THB158b.
A&P remains high with non-al beverages
The NAB business continued to incur high A&P expenses due to new products launches. There was a one-time gain on sales of THB446m as Sermsuk sold and transferred ownership on the plot of land and building to a related company, without which, the NAB business would have recorded a 63% higher net loss of THB608m.
Maintain BUY
On the broader economy, Thailand’s finance ministry is now expecting a slower growth rate of 3.0%, mainly due to a drag in export growth. The familiar household debt level issue also keeps its weight on private consumption. Nonetheless, ThaiBev sees support from higher tourism levels this year as well as strong government spending and investment. We are keeping our estimates unchanged for now. Maintain BUY with fair value estimate of S$0.83.
Thai Beverage PLC’s (ThaiBev) 2Q15 results were in line with our expectations amid uncertainties over economic growth in Thailand. Revenue was down 2.6% YoY to THB39.0b, which met 23% of our FY15F, as sales from all segments grew except for Spirits. There were also improvements in overall margins, as EBITDA margin gained 1.5ppt to 21.5% and net profit margin was 1.6ppt up to 15.3%. PATMI rose 6.2% to THB5.9b, meeting 25% of our full-year estimates.
Beer continues to grow
Recall that there was increased stockpiling by agents prior to the tax implementation, which drove volume growth for the alcoholic segments seen in 1Q. In 2Q, Spirits’ revenue fell 4.7% to THB24.1b, due to agents destocking post implementation of the new tax from 27 Mar-15. This segment did maintain its gross profit margin (“GPM”) at 33.8%, but with higher staff costs and A&P expenses, net profit was down 6% to THB4.6b. Beer’s revenue was steady at THB8.8b albeit volume was 4% lower. GPM was also maintained at 1Q15 level of ~20% vs. FY14 of ~18% due to lower material costs, and net profit was up 95% to THB158b.
A&P remains high with non-al beverages
The NAB business continued to incur high A&P expenses due to new products launches. There was a one-time gain on sales of THB446m as Sermsuk sold and transferred ownership on the plot of land and building to a related company, without which, the NAB business would have recorded a 63% higher net loss of THB608m.
Maintain BUY
On the broader economy, Thailand’s finance ministry is now expecting a slower growth rate of 3.0%, mainly due to a drag in export growth. The familiar household debt level issue also keeps its weight on private consumption. Nonetheless, ThaiBev sees support from higher tourism levels this year as well as strong government spending and investment. We are keeping our estimates unchanged for now. Maintain BUY with fair value estimate of S$0.83.
Petra Foods
OCBC on 17 Aug 2015
Petra Foods' 2Q15 revenue was down 12.7% YoY at US$115.1m and formed 24% of our FY15 forecast. PATMI was 40% lower at US$7.4m, and constituted about 15-16% of ours and the street’s FY15 projections. The sustained decline in underlying performance was mainly attributable to the poor economic environment in its core market Indonesia. The latest consumer confidence data for July showed a decline although it was during the Ramadan festive period. Meanwhile, management has decided to raise prices for certain products along with product rightsizing since Jul. Given the cloudy outlook, we have also reduced our FY15/16 PATMI estimates by 28%/20% to more reasonable levels, thus bringing our FV estimate from S$3.61 to S$2.74, based on an unchanged 30x blended FY15/16 EPS. Maintain SELL.
Another weak quarter
Petra Foods' 2Q15 results were largely similar to 1Q. 2Q15 revenue was down 12.7% YoY at US$115.1m and formed 24% of our FY15 forecast. Sales this quarter was about 8% higher QoQ due to the run-up to the Muslim Lebaran festivities. PATMI was 40% lower at US$7.4m, and constituted about 15-16% of ours and the street’s FY15 projections. In constant currency terms, both revenue and PATMI also saw a YoY decline of 3% and 29.2% respectively. The underlying performance has continued to weaken, mainly attributable to the poor economic environment in its core market Indonesia, which resulted in a slowdown in consumption. Thus trade customers have reduced their inventory levels and adversely impacted the group’s sales.
In tough times
Recent 2Q economic data on Indonesia stayed subdued with GDP growth at another low of 4.7%. OCBC Treasury Research noted some room for pick-up in growth in 2H and 2016 but did not deem prospects to be bright yet. Management agreed that there are no clear signs of a turnaround in sentiments. Due to current uncertainty over unemployment, there was a decline in the latest consumer confidence data for July although it was during the Ramadan festive period.
Adjusting prices and product rightsizing
Despite a slowdown in consumption in Indonesia, management has decided to raise prices for certain products slightly since Jul along with product rightsizing, due to the higher costs of cocoa butter. Then again, Petra seems to have room to increase their prices, since their non-ASEAN peers are likely to raise prices following the import tariff hikes on non-FTA partners that was implemented with effect from late Jul.
Estimate and FV cut to S$2.74
An interim DPS of 2.86 S-cents was declared. Meanwhile, given the cloudy outlook and on the view that margins will likely remain similar to 1H15, we have reduced our FY15/16 PATMI estimates by 27%/20% to more reasonable levels. This lowers our FV estimate from S$3.61 to S$2.74, based on unchanged 30x blended FY15/16 EPS. Maintain SELL.
Petra Foods' 2Q15 results were largely similar to 1Q. 2Q15 revenue was down 12.7% YoY at US$115.1m and formed 24% of our FY15 forecast. Sales this quarter was about 8% higher QoQ due to the run-up to the Muslim Lebaran festivities. PATMI was 40% lower at US$7.4m, and constituted about 15-16% of ours and the street’s FY15 projections. In constant currency terms, both revenue and PATMI also saw a YoY decline of 3% and 29.2% respectively. The underlying performance has continued to weaken, mainly attributable to the poor economic environment in its core market Indonesia, which resulted in a slowdown in consumption. Thus trade customers have reduced their inventory levels and adversely impacted the group’s sales.
In tough times
Recent 2Q economic data on Indonesia stayed subdued with GDP growth at another low of 4.7%. OCBC Treasury Research noted some room for pick-up in growth in 2H and 2016 but did not deem prospects to be bright yet. Management agreed that there are no clear signs of a turnaround in sentiments. Due to current uncertainty over unemployment, there was a decline in the latest consumer confidence data for July although it was during the Ramadan festive period.
Adjusting prices and product rightsizing
Despite a slowdown in consumption in Indonesia, management has decided to raise prices for certain products slightly since Jul along with product rightsizing, due to the higher costs of cocoa butter. Then again, Petra seems to have room to increase their prices, since their non-ASEAN peers are likely to raise prices following the import tariff hikes on non-FTA partners that was implemented with effect from late Jul.
Estimate and FV cut to S$2.74
An interim DPS of 2.86 S-cents was declared. Meanwhile, given the cloudy outlook and on the view that margins will likely remain similar to 1H15, we have reduced our FY15/16 PATMI estimates by 27%/20% to more reasonable levels. This lowers our FV estimate from S$3.61 to S$2.74, based on unchanged 30x blended FY15/16 EPS. Maintain SELL.
Dyna-Mac Holdings
OCBC on 17 Aug 2015
Dyna-Mac Holdings reported a 62.5% YoY fall in revenue to S$36.5m and a gross loss of S$3.1m in 2Q15, leading to a net loss of S$5.3m in the quarter. Lower revenue was recognized as progress in construction was slow, due to delays in receiving engineering drawings and free-issued materials from current customers. Coupled with fixed direct overheads carried by idle facilities in its yards, the group saw its first loss-making and worst set of results since its IPO in 2011. 3Q15 is likely to see some recovery, but given the dim earnings visibility, we switch our valuation to 1.0x P/B, and lower our fair value estimate to S$0.18 (prev. S$0.27). Maintain HOLD.
Net loss of S$5.3m in 2Q15
Dyna-Mac Holdings reported a 62.5% YoY fall in revenue to S$36.5m and a gross loss of S$3.1m in 2Q15, leading to a net loss of S$5.3m in the quarter. Lower revenue was recognized as progress in construction was slow, due to delays in receiving engineering drawings and free-issued materials from current customers. Coupled with fixed direct overheads carried by idle facilities in its yards, the group saw its first loss-making and worst set of results since its IPO in 2011.
Waiting for new orders
Dyna-Mac has secured new orders worth S$149m YTD, comprising S$89m for 10 FPSO topside modules for the Catcher oil fields in the UK and $60m for six units of modules for offshore Angola. Looking ahead, the group has a net order book of S$312.5m with completion and deliveries till 2016, in which we estimate that most of the work should be completed by the end of 1Q16. Should market sentiment remain weak and new orders remain unforthcoming, there could be a gap in activity levels that the group may find hard to fill. Also, with the oil price rout, there could be margin pressure for new orders as oil and gas companies seek to negotiate for lower-priced contracts.
3Q15 may be sequentially better
Recall that we had earlier mentioned that 1Q15 also saw relatively low revenue due to the timing in revenue recognition of projects in the Dyna-Mac’s yards in Singapore as well as the lower activity levels in the group’s overseas yards with most projects still in the initial stage of production. We were expecting some recovery in 3Q, and keep to this expectation. Still, given the dim earnings visibility, we switch our valuation to 1.0x P/B, and lower our fair value estimate to S$0.18 (prev. S$0.27). Maintain HOLD.
Dyna-Mac Holdings reported a 62.5% YoY fall in revenue to S$36.5m and a gross loss of S$3.1m in 2Q15, leading to a net loss of S$5.3m in the quarter. Lower revenue was recognized as progress in construction was slow, due to delays in receiving engineering drawings and free-issued materials from current customers. Coupled with fixed direct overheads carried by idle facilities in its yards, the group saw its first loss-making and worst set of results since its IPO in 2011.
Waiting for new orders
Dyna-Mac has secured new orders worth S$149m YTD, comprising S$89m for 10 FPSO topside modules for the Catcher oil fields in the UK and $60m for six units of modules for offshore Angola. Looking ahead, the group has a net order book of S$312.5m with completion and deliveries till 2016, in which we estimate that most of the work should be completed by the end of 1Q16. Should market sentiment remain weak and new orders remain unforthcoming, there could be a gap in activity levels that the group may find hard to fill. Also, with the oil price rout, there could be margin pressure for new orders as oil and gas companies seek to negotiate for lower-priced contracts.
3Q15 may be sequentially better
Recall that we had earlier mentioned that 1Q15 also saw relatively low revenue due to the timing in revenue recognition of projects in the Dyna-Mac’s yards in Singapore as well as the lower activity levels in the group’s overseas yards with most projects still in the initial stage of production. We were expecting some recovery in 3Q, and keep to this expectation. Still, given the dim earnings visibility, we switch our valuation to 1.0x P/B, and lower our fair value estimate to S$0.18 (prev. S$0.27). Maintain HOLD.
Ezion Holdings
OCBC on 14 Aug 2015
Ezion Holdings reported a 2.8% YoY decline in revenue to US$90.0m and a 36.3% drop in net profit to US$29.0m in 2Q15, such that 1H15 net profit accounted for 37% and 34% of ours and the street’s full year estimates, respectively. Results were below expectations as 1) there was the absence of contribution from the marine and offshore logistics support services segment as projects in Queensland, Australia did not go into additional trains as originally expected, 2) the group inter-changed a few of its service rigs among its existing clients, 3) modification and repair work also led to extra costs and delay in deployment of units – this not only reduced margins but also deferred the start date of revenue contribution. Taking into account the above factors, we cut our FY15/16 earnings by 12-33%. Due to the recent leg down in oil price, valuations across the sector have also fallen, and we lower our P/E from 9x to 7x blended FY15/16 earnings, such that our fair value estimate falls from S$1.55 to S$1.05. Given the upside of about 42%, we maintain our BUY rating on the stock.
2Q15 results below expectations
Ezion Holdings reported a 2.8% YoY decline in revenue to US$90.0m and a 36.3% drop in net profit to US$29.0m in 2Q15, such that 1H15 net profit accounted for 37% and 34% of ours and the street’s full year estimates, respectively. Results were below expectations; gross profit margin was 35% vs. 51% a year ago, and 46% in 1Q15. Revenue was lower as: 1) there was the absence of contribution from the marine and offshore logistics support services segment as projects in Queensland, Australia did not go into additional trains as originally expected, 2) the group inter-changed a few of its service rigs among its existing clients, 3) modification and repair work also led to extra costs and delay in deployment of units – this not only reduced margins but also deferred the start date of revenue contribution.
Lower utilisation of fleet; rates remain strong
Due to the above factors, fleet utilisation (number of working rigs over the total number of rigs delivered) declined from 81% in 1Q15 to 75% in 2Q15. There were 25 units that have already been delivered in 2Q15, compared to 22 in 1Q15. Meanwhile, recall that five units are up for rate renewals this year, and four have been renewed at similar rates, illustrating the resilience in demand for the group’s units.
Not immune to the negative sentiment
Taking into account the above factors, we lower our revenue and margin assumptions for FY15/16F, such that our earnings estimates drop by 12-33%. Due to the recent leg down in oil price, valuations across the sector have also fallen, and we lower our P/E from 9x to 7x blended FY15/16 earnings, such that our fair value estimate falls from S$1.55 to S$1.05. Given the upside of about 42%, we maintain our BUYrating on the stock.
Ezion Holdings reported a 2.8% YoY decline in revenue to US$90.0m and a 36.3% drop in net profit to US$29.0m in 2Q15, such that 1H15 net profit accounted for 37% and 34% of ours and the street’s full year estimates, respectively. Results were below expectations; gross profit margin was 35% vs. 51% a year ago, and 46% in 1Q15. Revenue was lower as: 1) there was the absence of contribution from the marine and offshore logistics support services segment as projects in Queensland, Australia did not go into additional trains as originally expected, 2) the group inter-changed a few of its service rigs among its existing clients, 3) modification and repair work also led to extra costs and delay in deployment of units – this not only reduced margins but also deferred the start date of revenue contribution.
Lower utilisation of fleet; rates remain strong
Due to the above factors, fleet utilisation (number of working rigs over the total number of rigs delivered) declined from 81% in 1Q15 to 75% in 2Q15. There were 25 units that have already been delivered in 2Q15, compared to 22 in 1Q15. Meanwhile, recall that five units are up for rate renewals this year, and four have been renewed at similar rates, illustrating the resilience in demand for the group’s units.
Not immune to the negative sentiment
Taking into account the above factors, we lower our revenue and margin assumptions for FY15/16F, such that our earnings estimates drop by 12-33%. Due to the recent leg down in oil price, valuations across the sector have also fallen, and we lower our P/E from 9x to 7x blended FY15/16 earnings, such that our fair value estimate falls from S$1.55 to S$1.05. Given the upside of about 42%, we maintain our BUYrating on the stock.
ST Engineering
OCBC on 14 Aug 2015
STE saw 2Q15 revenue slipping 2.6% YoY to S$1545.1m, mainly due to lower Marine revenue; but mitigated by higher revenue from Electronics and Land Systems sector. Reported net profit fell 6.1% to S$125.0m, but we estimate that core earnings (excluding forex and other one-off items) fell by a smaller 4.9% to S$135.3m. STE declared an interim dividend of S$0.05/share (ex-date: 19 Aug) versus S$0.04 the same period last year. Going forward, STE expects 2H15 revenue and PBT to be higher than 1H15 and FY15 revenue and PBT to be comparable to FY14. As we also expect pretty flat earnings growth in FY16, our fair value remains unchanged at S$3.33 even as we roll forward our 19x peg to blended FY15/FY16F EPS. Maintain HOLD, supported by a pretty decent 4.6% dividend yield.
2Q15 results within forecast
STE saw 2Q15 revenue slipping 2.6% YoY to S$1545.1m, mainly due to lower Marine revenue, but mitigated by higher revenue from Electronics and Land Systems sector. Reported net profit fell 6.1% to S$125.0m, but we estimated that core earnings (excluding forex and other one-off items) fell by a smaller 4.9% to S$135.3m. 1H15 revenue also fell 2.6% to S$3056.5m, meeting 46% of our full-year forecast, while reported net profit was down 5.7% at S$255.0m, meeting 47% of our FY15 forecast. STE declared an interim dividend of S$0.05/share (ex-date: 19 Aug), versus S$0.04 the same period last year.
PBT improvement in Marine sector
The Marine sector continued to see lower revenue in 2Q15, dropping by a larger 27% YoY (also down 9% QoQ) to S$253.9m, mainly due to lower Shipbuilding revenue from both local and US operations and lower Engineering revenue. But its PBT actually improved by 20% YoY (+27% QoQ) to S$29.6m, due to higher gross profit from better shipbuilding performance. On the other hand, Land Systems saw its PBT drop 11% YoY (flat QoQ) to S$16.3m, mainly affected by higher allowance for inventory obsolescence and goodwill impairment, despite the 8% YoY (-8% QoQ) rise in revenue.
Keeping FY guidance unchanged for now
Going forward, STE expects 2H15 revenue and PBT to be higher than 1H15. Specifically, Aerospace should see comparable 2H15 revenue and PBT versus 1H15; Electronics revenue and PBT to be higher HoH; Land Systems should see higher revenue but comparable PBT; Marine revenue and PBT are both likely to be lower HoH. But for the full year, STE still expects revenue and PBT to be comparable to FY14. This is not surprising given its current order book of S$12.4b (as of end Jun), of which it expects to deliver about S$2.3b in the remaining months of 2015.
Maintain HOLD with S$3.33 fair value
As we also expect pretty flat earnings growth in FY16, our fair value remains unchanged at S$3.33 even as we roll forward our 19x peg to blended FY15/FY16F EPS. Maintain HOLD, supported by a pretty decent 4.6% dividend yield.
STE saw 2Q15 revenue slipping 2.6% YoY to S$1545.1m, mainly due to lower Marine revenue, but mitigated by higher revenue from Electronics and Land Systems sector. Reported net profit fell 6.1% to S$125.0m, but we estimated that core earnings (excluding forex and other one-off items) fell by a smaller 4.9% to S$135.3m. 1H15 revenue also fell 2.6% to S$3056.5m, meeting 46% of our full-year forecast, while reported net profit was down 5.7% at S$255.0m, meeting 47% of our FY15 forecast. STE declared an interim dividend of S$0.05/share (ex-date: 19 Aug), versus S$0.04 the same period last year.
PBT improvement in Marine sector
The Marine sector continued to see lower revenue in 2Q15, dropping by a larger 27% YoY (also down 9% QoQ) to S$253.9m, mainly due to lower Shipbuilding revenue from both local and US operations and lower Engineering revenue. But its PBT actually improved by 20% YoY (+27% QoQ) to S$29.6m, due to higher gross profit from better shipbuilding performance. On the other hand, Land Systems saw its PBT drop 11% YoY (flat QoQ) to S$16.3m, mainly affected by higher allowance for inventory obsolescence and goodwill impairment, despite the 8% YoY (-8% QoQ) rise in revenue.
Keeping FY guidance unchanged for now
Going forward, STE expects 2H15 revenue and PBT to be higher than 1H15. Specifically, Aerospace should see comparable 2H15 revenue and PBT versus 1H15; Electronics revenue and PBT to be higher HoH; Land Systems should see higher revenue but comparable PBT; Marine revenue and PBT are both likely to be lower HoH. But for the full year, STE still expects revenue and PBT to be comparable to FY14. This is not surprising given its current order book of S$12.4b (as of end Jun), of which it expects to deliver about S$2.3b in the remaining months of 2015.
Maintain HOLD with S$3.33 fair value
As we also expect pretty flat earnings growth in FY16, our fair value remains unchanged at S$3.33 even as we roll forward our 19x peg to blended FY15/FY16F EPS. Maintain HOLD, supported by a pretty decent 4.6% dividend yield.
Genting Singapore
OCBC on 14 Aug 2015
Genting Singapore (GS) saw 2Q15 revenue slipping 23% YoY (-10% QoQ) to S$578.1m, after its gaming revenue fell 28% YoY (-13% QoQ) to S$428.3m; coupled with a fair value loss of S$95.0m, GS posted a net loss (after perpetuals) of S$16.9m versus S$102.3m profit in 2Q14. Still, on a theoretical normalized hold basis and excluding the one-off tax refund, adjusted EBITDA came in around S$270m, which is an 18% QoQ improvement. For the first half, revenue also fell 23% to S$1217.4m, meeting 49% of our full-year estimate, while reported net profit tumbled 86% to S$45.7m; core earnings would have come in around S$120.8m, or about 34% of our FY15 forecast. As such, we are paring our FY15 core earnings estimate down by 18% (FY16 by 10%). Also incorporating a higher risk-free rate in our DCF model, our fair value slips from S$0.95 to S$0.81. Maintain HOLD on the stock.
Registered a net loss in 2Q15
Genting Singapore (GS) saw 2Q15 revenue slipping 23% YoY (-10% QoQ) to S$578.1m, after its gaming revenue fell 28% YoY (-13% QoQ) to S$428.3m; this due to unfavourable global VIP premium business and rolling win percentage (2.1% versus 2.6-2.7% theoretical hold rate). And as guided earlier, GS registered a fair value loss of S$95.0m in the quarter; it had also sold S$212.0m worth of financial derivatives. And also because of a large forex loss of S$84.0m, GS posted a net loss (after perpetuals) of S$16.9m versus S$102.3m profit in 2Q14; and earnings would have been worse if not for a tax refund of some S$102.7m. Still, on a theoretical normalized hold basis and excluding the one-off tax refund, adjusted EBITDA came in around S$270m, which is an 18% QoQ improvement. For the first half, revenue also fell 23% to S$1217.4m, meeting 49% of our full-year estimate, while reported net profit tumbled 86% to S$45.7m; core earnings would have come in around S$120.8m, or about 34% of our FY15 forecast.
Outlook remains challenging
Expecting the gaming industry to remain weak, management will maintain its cautious approach in granting credit to VIP players and also beefed up its collection process. GS says it will continue to focus on foreign premium mass and mass market segments in the region; but notes that the weakening regional currencies, especially the MYR and IDR, could weigh on growth in these segments. Further afield, GS notes that the construction of the IR in Jeju, Korea, is progressing as scheduled; building works should commence early next year. Over in Japan, GS is hopeful that the IR Promotion Bill can be passed by the end of the year.
Dropping fair value to S$0.81
In view of the latest results, we are paring our FY15 core earnings estimate down by 18% (FY16 by 10%). Also incorporating a higher risk-free rate in our DCF model, our fair value slips from S$0.95 to S$0.81. Maintain HOLD on the stock.
Genting Singapore (GS) saw 2Q15 revenue slipping 23% YoY (-10% QoQ) to S$578.1m, after its gaming revenue fell 28% YoY (-13% QoQ) to S$428.3m; this due to unfavourable global VIP premium business and rolling win percentage (2.1% versus 2.6-2.7% theoretical hold rate). And as guided earlier, GS registered a fair value loss of S$95.0m in the quarter; it had also sold S$212.0m worth of financial derivatives. And also because of a large forex loss of S$84.0m, GS posted a net loss (after perpetuals) of S$16.9m versus S$102.3m profit in 2Q14; and earnings would have been worse if not for a tax refund of some S$102.7m. Still, on a theoretical normalized hold basis and excluding the one-off tax refund, adjusted EBITDA came in around S$270m, which is an 18% QoQ improvement. For the first half, revenue also fell 23% to S$1217.4m, meeting 49% of our full-year estimate, while reported net profit tumbled 86% to S$45.7m; core earnings would have come in around S$120.8m, or about 34% of our FY15 forecast.
Outlook remains challenging
Expecting the gaming industry to remain weak, management will maintain its cautious approach in granting credit to VIP players and also beefed up its collection process. GS says it will continue to focus on foreign premium mass and mass market segments in the region; but notes that the weakening regional currencies, especially the MYR and IDR, could weigh on growth in these segments. Further afield, GS notes that the construction of the IR in Jeju, Korea, is progressing as scheduled; building works should commence early next year. Over in Japan, GS is hopeful that the IR Promotion Bill can be passed by the end of the year.
Dropping fair value to S$0.81
In view of the latest results, we are paring our FY15 core earnings estimate down by 18% (FY16 by 10%). Also incorporating a higher risk-free rate in our DCF model, our fair value slips from S$0.95 to S$0.81. Maintain HOLD on the stock.
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