Tiger Airways

OCBC Research on 31 Jan 2012

Tiger Airways (TGR) last night reported a 1% YoY decline in its 3QFY12 revenue to S$168.4m and a net loss of S$17.4m. Management attributed the net loss to high fuel prices and restrictions on its Australia operations imposed by the Australian aviation authorities. In QoQ comparison, revenue grew 53% while net loss narrowed by 65% – a marked improvement from the suspension ravaged 2QFY12. Both TGR’s Australia and Singapore operations also reported improved numbers, albeit still incurring operating losses. Consensus’ estimate of TGR’s FY12 losses will likely have to increase, causing downward pressures on TGR’s share price. We lower our fair value estimate of TGR to S$0.60/share, derived from a P/B multiple of 1.9x, and downgrade it to SELL.

Revenue fell and bigger net loss than expected.
Tiger Airways (TGR) last night reported a 1% YoY decline in its 3QFY12 revenue to S$168.4m and a net loss of S$17.4m, from a net profit of S$22.5m a year ago. Management attributed the loss to high fuel prices and restrictions on its Australia operations imposed by the Civil Aviation Safety Authority of Australia (CASA). In 3QFY12, TGR also made a provision for doubtful receivables of S$7.0m, without which its net loss will be closer to our previous net loss estimate of S$10.6m.

Net loss narrowing but not fast enough.
In QoQ comparison, revenue grew 53% while net loss narrowed by 65% – a marked improvement from the suspension ravaged 2QFY12. Geographically, TGR’s Australia and Singapore operations reported operating losses of S$8.6m and S$4.8m respectively, which are much improved from the operating losses of S$27.2m and S$12.0m in 2QFY12. However, TGR has already accumulated a net loss of S$87.9m in 9MFY12, more than consensus’ full-year net loss estimate of S$75.2m. Furthermore, TGR is unlikely to turn profitable in 4QFY12 because jet fuel prices (JETKSIFC Index) adjusted to SGD have averaged even higher in 4QFY12 than in 3QFY12.

Earnings downgrade expected – downgrade to SELL.
TGR has recently announced positive developments such as its passenger load factor recovering to more than 80% in the month of Dec 2011 and alleviated its overcapacity issue by deploying a recently delivered aircraft to its new joint-venture, a 33%-owned PT Mandala Airlines in Indonesia. However, high jet fuel prices have curtailed TGR’s recovery. Consequently, consensus’ estimate of TGR’s FY12 losses will likely have to increase, causing downward pressures on TGR’s share price. We lower our fair value estimate of TGR to S$0.60/share, derived from a P/B multiple of 1.9x, and downgrade it to SELL.

SingPost

OCBC Research on 31 Jan 2012

Singapore Post (SingPost) reported a 0.6% YoY rise in revenue to S$149.4m but a 5.2% fall in net profit to S$41.6m in 3QFY12. 9MFY12 revenue and net profit were in line with our expectations, both accounting about 75% of our full-year estimates. However, 9MFY12 net profit made up 81.0% of the street’s estimate. Logistics and retail posted improved revenues in 3QFY12, while mail saw lower contributions. Meanwhile, there is still room for additional increase in the group’s net gearing ratio and the amount of share buyback that it can do. In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents/share. Maintain BUY with S$1.14 fair value estimate.

3QFY12 results in line with our expectations. Singapore Post (SingPost) reported a 0.6% YoY rise in revenue to S$149.4m but a 5.2% fall in net profit to S$41.6m in 3QFY12. 9MFY12 revenue and net profit were in line with our expectations, accounting for 75.6% and 74.6% of our full-year estimates, respectively. However, 9MFY12 net profit made up 81.0% of the street’s estimate (Bloomberg consensus: S$137.5m). On a segmental breakdown, the logistics and retail divisions posted improved revenues in 3QFY12, while mail saw lower contributions due to a decline in domestic and international mail volume.

Comfortable with net gearing of 2x. The group’s net gearing has increased from 0.5x as at 31 Mar 2011 to 0.75x as at 31 Dec 2011, but there is still room for further increase as management mentioned that it is comfortable with a level of 2x. The reason behind the higher leverage ratio is not because of higher borrowings, but due to cash deployed for investment purposes (more investments in associates and JVs) and share buybacks (hence more treasury shares and lower equity).

Room for another ~8% in share buyback mandate. According to its share purchase mandate, SingPost may purchase no more than 10% of its issued shares. The group has bought back about 1.78% of its issued share capital (based on 22 Sep 2011 announcement) and has room for about ~8% more. The price paid per share for its last buyback was S$1.04, which is higher than the current stock price.

Maintain BUY.In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents per share that is payable on 29 Feb. The stock price has risen by about 4.8% since we upgraded it from Hold on 5 Jan, but we still see an upside potential of 16.3% (not inclusive of a forecasted dividend yield of 6.4%) based on our fair value estimate of S$1.14. Maintain BUY. 

Olam

Kim Eng on 31 Jan 2012

Olam International (OLAM SP) – Establishing a Russian foothold
Previous day closing price: $2.53
Recommendation –Hold (maintained)
Target price – $2.79 (maintained)

Partnership with RUSMOLCO for dairy and grains farming. Olam announced yesterday a 75:25 partnership with a Russian dairy company to develop large-scale dairy/grain farms in the Penza region of Russia. Olam will invest an initial amount of US$75m for a 75% equity stake in RUSMOLCO through a capital injection and purchase of shares from the current owners, who will retain a 25% stake.

US$75m upfront, first Russian upstream investment. Although Olam has been in Russia since 1993, this is its maiden upstream investment, envisaged to be a two-stage, long-term project reaching a steady state in 2019. According to management, Olam has been looking for an investment opportunity in the country for two years. This structure allows Olam to accelerate the development of an upstream presence in Russia by 3-4 years vis-à-vis a greenfield project, and saves it from undertaking the arduous task of aggregating land.

Favourable investment/financing terms. The debt portion of the investment will be project-financed. Although an additional US$320m in capex has been committed by RUSMOLCO for Phase 1 (to take place over the next 4-5 years), this is expected to be funded by the company’s internal cash flows, as well as support via the Russian government’s capital incentive programme. This means Olam’s risk and commitment is limited to the initial US$75m equity stake.

Why Russia? The country has strong growing domestic demand, but unlike in India and China, large parcels of land are available at comparatively lower cost. There is also more scope for improvements in yields through modern technology. In addition, the government is encouraging investments in the agriculture sector, for example through a zero agricultural tax. Olam has been chosen as a partner mainly due to its financial track record and strong supply chain network.

A very attractive investment on paper. The project is expected to be cashflow positive from the first year, and earnings positive from the second full year of operations, with steady state (2019) equity IRR of 28%. We keep our earnings estimates. We are positive on the investment but maintain our target price of $2.79 (pegged to 15x FY Jun12F) and Hold recommendation for now.

SingPost

Kim Eng on 31 Jan 2012

Strong sequential growth but still falling short. SingPost’s 3Q12 revenue came in flat at $149.4m; underlying net profit dipped 5% YoY but grew 18.5% QoQ to $38.9m. Despite the sequential improvement, profit year-to-date falls short of our expectations. Operating margins will not improve significantly in the near term due to further spending on capabilities. Our FY12F/13F earnings estimates are lowered by 5-6%, and target price reduced to $1.09. Maintain Buy on steady minimum dividend yield of 5% (total return: 16.2%).

Cost pressures still in sight. Operating profit margin, currently at 30.5%, is down 8 ppts from 3Q11 mainly due to lower margins from its transshipment business and rising labour costs. It appears margins are not likely to improve significantly despite cost-cutting measures such as lower provisions for bonuses, as Mr Wolfgang Baier, CEO since October 2011, has committed to investing in capabilities and talents to accelerate SingPost’s regionalisation efforts.

Unattractive yield on regional investments so far. The share of associated companies’ profits surged, from losses in 3Q11 to a $1m profit in 3Q12. Based on SingPost’s investments of around $65m to date, the estimated yield of 6.2% on an annualised basis suggests the risk-reward dynamics of these investments are rather unattractive, especially since its own dividend yield is higher at 6.4%. This also implies there is potential for more share buybacks by the company.

Counting on dividends. Free cash flow for the fiscal year to date has reached around $75m (annualised FCF yield: 5.4%), just sufficient to cover the group’s minimum dividend commitment of 5 cents per share (or $94m in total). SingPost has maintained a dividend payout of 6.25 cents per share since FY08, translating to a regular dividend yield of 6.4%.

Maintain Buy on valuations. We roll forward our target price to end-CY12, using a blended FY12/13F earnings estimate and a historical average PER of 14x. The key risk lies in a potential cut in dividends should management deploy more cash for investments, though chances seem low as management is willing to take on more debt (up to 2x gearing).

KepCorp

DMG & Partners on 27 Jan 2012

DMG & Partners Research in a Jan 27 research report says: "Keppel’s 4Q11 net profit of $389 million (+10% y-o-y) was 12% ahead of our estimate of $346 million, driven by the completion of several property projects overseas and increase in Singapore trading projects. FY2011 net profit rose +14% y-o-y to $1.49 billion, a new record for Keppel.

 "Proposed 26 cents final dividend lifted full-year dividend payment to 43 cents (+13% y-o-y) and was ahead of our estimate of 40 cents. We raise our FY2012-2013F EPS by 1-4% as we made minor changes to our revenue recognition forecasts and raise target price from $11.40 to $11.80.

 "Oil & gas industry spending is expected to remain strong and we believe share price could continue to re-rate on Petrobras news. Stock is trading at 13x FY12F P/E, well below peak valuation of 25x in the last rig boom, and offers 4% dividend yield. MAINTAIN BUY."

First Reit

OCBC on 30 Jan 2012

First REIT (FREIT) reported its 4Q11 results which were within our expectations. For FY11, gross revenue increased 78.4% to S$54.0m and was just 0.2% higher than our full-year projection. Distributable income to unitholders rose 105.8% to S$43.9m, in line with our forecast of S$41.9m if we exclude a special S$2.2m distribution in 4Q11. DPU for FY11 was 7.01 S cents, versus 6.63 S cents in FY10, and translates into an attractive yield of 9.1%. We believe that FREIT could acquire new hospitals in FY12. This would likely be debt funded given its ample debt headroom. Maintain BUY with a revised RNAV-derived fair value estimate of S$0.89 (previously S$0.84) as we roll forward our valuations and update our terminal capitalisation rates and Indonesian asset discount rates assumptions.

4Q11 results within expectations. First REIT (FREIT) reported its 4Q11 results which were within our expectations. Gross revenue surged 82.0% YoY to S$13.9m while distributable amount to unitholders jumped 122.9% to S$12.1m. This was partly due to a special distribution of S$2.2m arising from FREIT’s recent divestment of the Adam Road property. For FY11, gross revenue increased 78.4% to S$54.0m and was just 0.2% higher than our full-year projection. Distributable income to unitholders rose 105.8% to S$43.9m, in line with our forecast of S$41.9m if we exclude the special S$2.2m distribution in 4Q11. DPU for FY11 was 7.01 S cents, versus 6.63 S cents in FY10 due to additional distributions from the asset divestment as highlighted earlier and a 5-for-4 rights issue in Dec 2010. This translates into an attractive yield of 9.1%. We think that the remaining S$4.4m from the S$8.7m gain on the divestment could be distributed to unitholders in two tranches in 1Q12 and 2Q12, although usage of these funds would be at the full discretion of FREIT’s Manager.

Acquisitions likely in FY12. Management has reiterated its focus on Indonesia, given rising demand for quality healthcare services there and visibility from the strong pipeline of hospitals from its sponsor Lippo Karawaci. We reckon that any acquisitions in the near term are likely to be debt funded, since FREIT’s gearing ratio of 14.8% (end FY11) provides ample debt headroom of S$89.8m-S$143.4m before reaching its comfortable gearing ratio range of 25%-30%.

Maintain BUY. We opine that FREIT has showcased its resilience amid the current volatile economic environment, underpinned by healthy industry fundamentals and its stable master lease structure. Maintain BUY with a revised RNAV-derived fair value estimate of S$0.89 (previously S$0.84) as we roll forward our valuations and lower our terminal capitalisation rate inputs for some of its properties. We also apply a smaller discount rate to its Indonesian assets given improving fundamentals of the country. 

Singapore Telecommunication Sector

Kim Eng on 27 Jan 2012

Fibre user numbers swell but not critical mass yet


Over 100,000 fibre users but not yet time to celebrate. Although thenumber of fibre users in Singapore has doubled from a year ago to100,000 as at the end of last year, we believe local telcos still have along way to go. They need to provide more compelling content and theinstallation bottleneck still needs to be permanently cleared. On theformer, SingTel appears to be leading while M1 is lagging, while on thelatter, we believe there will be more concrete actions by the regulatorthis year as this is a national-level project. We have Buyrecommendations on StarHub and SingTel.


Not critical mass yet. According to media reports, the number of fibre-optic broadband users in Singapore has hit 100,000, more than doublethe figure in mid-last year when the data was first made available and ayear since the new network was commercially launched. The number ofmonthly sign-ups has risen from 3,000 since a year ago to 13,000 bythe end of last year. However, this is a far cry from Telekom Malaysia’sblistering sign-on pace of 18,500 a month in 3Q11, due to the smallermarket size in Singapore and relative lack of compelling content that isneeded to convince users to upgrade.


In need of better content. The vast majority of subscribers currently isreported to be residential, likely early adopters with a need for fasterspeeds or those drawn by the attractive pricing dangled by telcos.However, we understand the telcos are working on more content thatwould appeal to the mainstream market. SingTel currently offers onlineservices such as video-on-demand (Video Store app on SamsungSmart TVs) and subscription-based online gaming (ESC, pronouncedESCape), while M1 is reported to be contemplating doing the same.


Good news is installation bottleneck cannot last. At present, theofficial installer OpenNet is contracted to fulfil 2,400 orders weekly(9,600 monthly). With 13,000 sign-ups monthly, there is obviously abottleneck, resulting in a current waiting time of 2-3 weeks. WhileOpenNet has said it will temporarily increase the number of slots duringtelco promotions to cope with the extra demand, historically the problemhas not been alleviated. Given that this is a national-level project, webelieve the bottleneck impasse will not be allowed to persist, as thegovernment is likely to step in to resolve matters.


Don’t take things at face value. At this point, StarHub would appear tohave the most to lose if all telcos focus on content to lure subscribers, amove that could hollow out its Pay TV subscriber base. However, webelieve the group will be able to hold its own given its already verybroad base of content. Besides, it is operating its own active network aswell as providing retail access and content as a Retail Service Provider,which offers key cost and content advantages. Content-wise, SingTellooks the best-positioned, while M1 has been talking up the contentcard for a while but still needs to play catch-up. 

StarHub (STH SP, Buy, TP $3.27) – StarHub is the second-largest telco and dominant Pay TV operator in Singapore. Itoperates integrated fixed and mobile telecom services, aswell as Internet-related services, mobile solutions and globalmanaged network solutions.


SingTel (ST SP, Buy, TP $3.51) – SingTel is the largesttelecommunication group in Singapore, involved in fixed line,mobile, data and television services. Its wholly-ownedsubsidiary Optus is the second-largest telco in Australia.SingTel has diverse investments in India, Bangladesh, SriLanka, Indonesia, the Philippines, Thailand and Pakistan.


M1 (M1 SP, Hold, TP $2.35) – M1 is the smallest telco inSingapore, involved in mobile voice, mobile broadband andfixed broadband via a reselling agreement with StarHub. Italso operates high speed fixed broadband, fixed voice andother services on the Next Generation Nationwide BroadbandNetwork (NGNBN). 

KepCorp

OCBC Research on 27 Jan 2012

Keppel Corporation (KEP) reported a 10.3% increase in revenue to S$10.1b and a 21.8% rise in net profit to S$1.84b in FY11. Excluding exceptional items comprising mainly of fair value gains on investment properties, core net profit rose 14.1% to S$1.49b, which was 1.4% and 4.1% above ours and the street’s expectations, respectively. The offshore marine division remained the largest contributor to net profit with a 71% share. Though the group’s remaining jack-up options have lapsed, management remains upbeat on the outlook of the offshore market. In line with our expectations, a final dividend of S$0.26/share has been recommended. Maintain BUY with S$12.27 fair value estimate (prev. S$12.02).

FY11 results in line with expectations. Keppel Corporation (KEP) reported a 10.3% increase in revenue to S$10.1b and a 21.8% rise in net profit to S$1.84b in FY11. Excluding exceptional items comprising mainly of fair value gains on investment properties, core net profit rose 14.1% to S$1.49b, which was 1.4% and 4.1% above ours and the street’s expectations, respectively (Bloomberg consensus: S$1.43b).

Offshore marine still the main driver of earnings. The offshore marine division remained the largest contributor to net profit with a 71% share. Property accounted for 20%, infrastructure at 6% and investments at 3%. In infrastructure, the group made provisions for its projects in Qatar; we understand that it is still in the process of finalizing the schedule of certain work with customers.

Cautiously optimistic on the offshore market.KEP’s remaining jack-up options have lapsed, which is not surprising as customers preferred to stay on the sidelines with heightened concerns about the Eurozone and other economies in the later part of last year. Moreover, the options have higher prices tied to them, and it is likely that only customers with ready charters and adequate financing would want to exercise the options during periods of uncertainty. Still, management remains upbeat about the offshore market, as major oil companies have announced increased budgets for exploration and production, while day rates have also been strengthening for certain rigs.

Maintain BUY.After securing S$9.8b worth of new orders in FY11, our new order target for FY12 is S$5b, excluding Petrobras’ orders. In Brazil, KEP is also moving to build offshore support vessels in anticipation of demand. In line with our expectations, a final dividend of S$0.26/share has been recommended besides an earlier interim dividend of S$0.17/share that has been paid. After updating the market value of the group’s listed entities, as well as the change in Keppel Land’s fair value by our property analyst, our fair value estimate for KEP rises from S$12.02 to S$12.27. Maintain BUY. 

Offshore sector hotting up

Kim Eng on 26 Jan 2012

What a difference a week makes. Last week, we reported onM&A speculation driving the positive price action of Offshore & Marine stocks. Within the week, these stocks have taken a more fundamental tack, with market optimism for a resumption of rig orders driving up shareprices sharply. The major blue-chip outperformer has been Sembcorp Marine (SMM), whose price rose by24% over the past month. Recently, Upstream reported that SMM had secured a drillship order from SeteBrasil. Previously, we noted that Sete was poised to become a major factor in the handling of contracts forPetrobras. To recap, Sete Brasil was established in May 2011 with the mandate to build deep-water rigs forPetrobras' offshore exploration requirements. Its main stakeholders are Brazilian banks and pension funds,which also allows it to access financing. Petrobras itself has less than a 10% stake. Sete in one fell swooptakes the financial burden off Petrobras, as well as provides political cover. Keppel Corp was the firstbeneficiary of Sete’s mandate, with the clinching of a US$809m semisubmersible newbuild contract inDecember. Back then, we pointed out that this was indicative of more to come for the Singapore yards.While yet to be officially confirmed by SMM, we estimate the drillship order could be worth US$650-700m toSMM. Upstream also reported that Sete is on the cusp of awarding a slew of new contracts, and thatPetrobras may be looking for up to 36 new rigs – the value of these alone could be collectively worth morethan US$25bn. The future is looking rosy indeed. Separately, Cosco Corp has also advanced steadily onmarket speculation that it may secure new offshore orders as well. We, however, are less sanguine. The firstline of new orders is likely to go to established offshore yards such as Keppel and SMM. Furthermore, anyjobs that Cosco take on will continue to come at the expense of margins, due to learning curve issues. Insummary - stick to the experts. Keppel has been a relative laggard to SMM, and is our top pick. 

Keppel Corp (KEP SP, $10.61)
Key levelsResistance 2: $11.35Resistance 1: $11.00Support 1: $10.00Support 2: $9.55
Keppel Corp is now overextended and a shortpullback would be healthy. The counter remainstechnically sound holding above the 100- and 200-dayEMA, suggesting the bulls are in control. Theimmediate support level of around $10.00 shouldattract buyers in the event of a pullback.

SembCorp Marine (SMM SP, $4.78)
Key levelsResistance 2: $5.15Resistance 1: $4.75Support 1: $4.50Support 2: $4.00/10

The counter has moved up aggressively over the pastfew weeks. Technical indicators are extremelyoverbought and the counter may need some time torest before another sustainable breakup. The supportarea at around $4.50 would be able to hold on anyweakness. 

Singapore Property Sector

Kim Eng on 26 Jan 2012

Mass market exuberance still reigns


Few signs of demand letting up. Merely a month after the introduction of the Additional Buyer’s Stamp Duty (ABSD), anecdotal evidence suggests that the sense of caution experienced following the implementation was just temporary as both homebuyers and property developers appear to be resuming their activities. In our opinion, such a phenomenon may not last and we remain neutral on the Singaporebased developers, preferring the diversified property plays instead.

Developers still vying for land. From the three residential Government Land Sales tenders that closed after the introduction of the ABSD, it appears that developers are still looking to acquire welllocated sites. While the Mt. Vernon Road tender suggests that developers are pricing in a potential drop in property prices, the two most recent tenders for the sites at Clementi Ave 6 and Simon Road still attracted healthy interest of 8 and 12 bids respectively. We also noted that foreign developers continue to be actively bidding for land, perhaps less daunted by the medium-term uncertainty.

Emboldened by recent launches. Recent launches of mass market projects and Executive Condominiums (ECs) continue to see healthy demand despite growing concerns over the economy. For example, Far East Organization’s The Hillier at Hillview (~$1,200 psf) and Watertown at Punggol Central (~$1,100 psf) have both attracted strong demand. In the near-term, demand for attractive suburban projects may continue to be supported by the benign interest rate environment and our economists are not expecting interest rates to hike up markedly before 2H13. This may have encouraged some developers to continue to acquire sites to meet upgraders’ demand.

Risky bet against time. The developers with mass market projects on their hands may be facing a race against time to launch their recently acquired projects. We estimate that from the sites that have been sold under the GLS which have yet to be launched, the potential supply that may come onto the market over the next 12 months stands at 12,248 condominium units and 2,495 EC units, and counting. Developers could find it harder to find suitable windows of opportunity to launch projects.

ASPs and sales volume set to fall. Faced with a more daunting income/employment outlook due to economic concerns and ample housing options, we believe that upgraders will inadvertently adopt greater caution when reality bites, potentially by mid-2012. That may then lead to the precipitation of mass market prices of up to 20% by end-2013. We also expect primary market sales to be reduced to
11,000 units p.a. for 2012 and 2013.

Remain neutral on Singapore-centric names. Despite our expectations of lower ASPs and sales volume, we remain neutral on the stocks with significant exposure to the Singapore residential market as the downside risks have been priced in. Maintain HOLD on City Developments Limited (TP:$9.38), Wing Tai (TP:$0.97), SC Global (TP:$1.05) and Ho Bee (TP:$1.01), while we prefer the more diversified players like CapitaLand (TP:$3.21) and Keppel Land (TP:$3.30).

Olam

OCBC Research on 26 Jan 2012

Since the start of the year, Olam International Limited’s share price has staged a sharp recovery, rising 24% YTD to hit a recent high of S$2.64. It has also rebounded 28% from its 52-week low of S$2.06, likely driven by liquidity and also hopes of an impending monetary easing in China. But in view of the still uncertain economic outlook, we are not entirely convinced that the worst is behind us. Nevertheless, we recognise that demand for soft commodities, especially the essential food items, will continue to be well supported by population growth in China and the other developing countries. As such, we are bumping up our valuation peg from 14x (1 standard deviation below its 5-year mean) to 18x (0.5 SD below the mean) FY12F EPS, which in turn raises our fair value from S$2.05 to S$2.63. Given the limited upside, we maintain our HOLD rating.

Sharp recovery in share price

Since the start of the year, Olam International Limited’s share price has staged a sharp recovery, rising 24% YTD to hit a recent high of S$2.64. It has also rebounded 28% from its 52-week low of S$2.06, given that it was one of the underperformers last year. We believe that the recent outperformance was most likely driven by both liquidity and talks of an impending monetary easing in China, brought on by specter of weaker-than-expected growth prospects in the world’s second largest economy.

Global economy not out of the woods
And elsewhere in the world, the economic outlook is not much better. In fact, the IMF has just cut its forecast for global economic growth this year to 3.3% from 4.0% (made in Sep 2011), noting that the European debt crisis could threaten to derail the global economy. In its latest revision, the IMF now expects the euro zone to enter into a “mild recession” with growth likely to shrink by 0.5%. Even for China, the IMF now expects its economy to grow by 8.2%, down from an earlier 9.0% forecast. As such, the demand for commodities, especially industrial metals, could remain weak in the near term.

Maintain HOLD with higher S$2.63 fair value
In view of the still uncertain economic outlook, we are not entirely convinced that the worst is behind us. Nevertheless, we recognise that demand for soft commodities, especially the essential food items, will continue to be well supported by population growth in China and the other developing countries. As such, we are bumping up our valuation peg from 14x (1 standard deviation below its 5-year mean) to 18x (0.5 SD below the mean) FY12F EPS, which in turn raises our fair value from S$2.05 to S$2.63. Given the limited upside, we maintain our HOLD rating. 

Keppel Land

DMG & PARTNERS on Jan 25 2012

OFC booster to muted FY11 results: Keppel Land announced FY11 results with a huge booster of one-time gains totalling $1.086 billion mainly from the divestment of Ocean Financial Centre (OFC) and its attributed revaluation surplus, as well as partly from Marina Bay Financial Centre (MBFC) Phase 2 and K-Reit. The results are slightly ahead of expectations, with net profit excluding exceptional gains of $279.7 million at minus 0.6 per cent y-o-y slightly above our expectation of $253.3 million. We have a 'buy' recommendation on Keppel Land, TP of $3.53.

Bumper dividend slightly above expectations: We previously highlighted the possibility of a special dividend for FY11 post-divestment of OFC should capital deployment opportunities remain protracted. Along with FY11 results, total dividend of 20 cents per share (ex-dividend April 26; 7.8 per cent yield) has been proposed which is slightly ahead of our expectations of 18 cents per share.

Near-term focus on commercial segment, Beijing acquisition announced: Post-divestment of OFC, the current balance sheet is healthy at about 0.1x gearing. We gather takeaways from management comments along with the FY11 results and believe KepLand's near-term focus for capital deployment lies in the commercial segment given policy overhang in both Singapore and China markets.

Along with FY11 results, KepLand announced the acquisition of a 51 per cent stake in a Beijing commercial site (2.6ha, GFA 100,000 sq m; completion end-2014) which is expected to be developed into three office blocks and retail premises in the Chaoyang district. This may allay some possible market concerns on uncertainty regarding KepLand's currently evolving business model.

Maintain 'buy', TP $3.53: We reduce TP to $3.53 after factoring in a lower consensus TP for K-Reit, partly mitigated by higher asset under management for its fund management arm Alpha Investment Partners with first closing of Alpha Asia Macro Trends Fund (AAMTF) II. Maintain 'buy' on account of

steep discount of 50 per cent to RNAV;

bumper dividend which may provide support to share price in the near term, and

any potential of China policy overhang abating in H2 FY12.
BUY

Ascott Residence Trust

OCBC Research on 20 Jan 2012

Ascott Residence Trust (ART) announced FY11 distributable income of S$96.2m, was up 67% YoY, and was mostly in line with our full year forecast of S$99.1m. In terms of DPU, FY11 DPU came in at 8.53 S-cts versus 7.54 S-cts in FY10 - a 13% YoY increase. Despite solid execution by management and currently healthy performance, we are cognizant of possibly drawn-out macro economic uncertainties in Europe and raise our capitalization rate assumptions marginally by 30-50 bp for ART’s European assets (40.8% of assets as of end 2011, ex. cash). This being so, our fair value estimate is lowered to S$0.98. Including a 12m dividend forecast of 8.4 S-cents, implied 12m total return is 5.9% and hence we downgrade our rating to a HOLD. We would turn buyers at S$0.96. 

FY11 results within expectations

Ascott Residence Trust (ART) announced FY11 distributable income of S$96.2m, which was up 67% YoY. This was mostly in line with our full year forecast of S$99.1m. In terms of DPU, FY11 DPU came in at 8.53 S-cents versus 7.54 S-cents in FY10 - a 13% YoY increase. Full year top-line was S$288.7m, up 39% mostly due to the contributions from the 28 serviced residences acquired Oct 10, partially offset by the Ascott Beijing and Country Woods divestments. A net revaluation gain of S$47.4m was also recognized for properties in the portfolio, with gains from serviced residences in Japan, France, China and Singapore, and lower valuations in Vietnam.

Performance generally healthy across portfolio
We continue to see healthy numbers across the ART’s portfolio, with the exception of Belgium, Vietnam and Japan. In Belgium, we saw the impact of a delay in the renovation of Citadines Sainte-Catherine, while Vietnamese operations were affected by the weakening of the USD against the SGD, reductions in corporate accommodation budgets and an increased supply of serviced residences in that market. In Japan, the Mar 11 earthquake and tsunami had impacted earnings. Average REVPAR for the portfolio increased by 10% from S$130/day to S$143, driven mainly by the performance of the Singapore and UK properties.

European uncertainties to bear; downgrade to HOLD
Despite solid execution by management and currently healthy performance, we are cognizant of possibly drawn-out macro economic uncertainties in Europe and raise our capitalization rate assumptions marginally by 30-50 bp for ART’s European assets (40.8% of assets as of end 2011, ex. cash). This being so, our fair value estimate is lowered to S$0.98. Including a 12m dividend forecast of 8.4 S-cents, implied 12m total return is 5.9% and hence we downgrade our rating to a HOLD. We would turn buyers at S$0.96.

MapletreeLog

OCBC Research on 20 Jan 2012

Mapletree Logistics Trust (MLT) delivered a 9.7% YoY growth in 4QFY12 DPU to 1.70 S cents, in line with both our and consensus expectations. Going forward, management guided that MLT’s organic growth is likely to slow as the portfolio is operating at near full capacity and as the economic climate remains murky in the near term. However, average occupancy rate is expected to remain stable. On the M&A front, MLT revealed that more investment opportunities have resurfaced. Above-than-industry-average leverage of 41.4% remains our key concern, but refinancing risk is a non-issue with MLT’s recent refinancing of its JPY9b loans. Maintain BUY with higher fair value of S$1.10 (S$1.07 previously) after rolling our RNAV valuation to 2012.

Consistent set of results. Mapletree Logistics Trust (MLT) reported its 4QFY12 results last evening. NPI increased by 14.4% YoY to S$61.6m due to contributions from its acquisitions and organic growth (better rental and occupancy rates) from its existing portfolio. Distributable amount similarly grew by 12.2% YoY to S$41.3m, though impacted slightly by higher borrowing costs and other expenses. For the quarter, DPU stood at 1.70 S cents, up 9.7% YoY. This brings the total YTD DPU to 6.54 S cents, representing a yield of 7.6%. The results were within both our and consensus expectations, with YTD DPU forming 103.4%/97.6% of our/consensus DPU estimates.

Healthy portfolio performance. Portfolio operating performance continues to be healthy, in our view. Overall occupancy rate was maintained at a high level of 98.8% (99.0% in 3Q). In addition, positive rental reversions of 16% for renewal/replacement leases were still seen during the quarter (9% rental reversions if conversion of 7 Tai Seng Drive to multi-tenanted building was excluded). As at 31 Dec, the weighted average lease to expiry was steady at ~6 years, with only 12.8% of its leases by NLA due to expire in FY13.

Reiterate BUY. Going forward, management guided that MLT’s organic growth is likely to slow as the portfolio is operating at near full capacity and as the economic climate remains murky in the near term. We also note that there was a mild slowdown in the enquiry level, although average occupancy rate is expected to remain stable. On the M&A front, however, MLT revealed that more investment opportunities have resurfaced. Above-than-industry-average leverage of 41.4% remains our key concern, but refinancing risk is a non-issue with MLT’s recent refinancing of its JPY9b loans. Maintain BUY with higher fair value of S$1.10 (S$1.07 previously) after rolling our RNAV valuation to 2012.

FCT

OCBC Research on 20 Jan 2012

Frasers Centrepoint Trust (FCT) reported NPI of S$24.9m and DPU of 2.2 S cents, in line with our estimates. Going forward, FCT believes that its portfolio performance is expected to remain stable, with positive growth in overall rental reversions likely in the coming months. While Causeway Point (CWP) occupancy is projected to dip slightly from 95.5% to 90% during this phase of work, the impact to rental income is likely to be limited in our view, since it involves mainly the higher levels and mall’s facade. We continue to like FCT for its pure exposure to suburban malls and its growth potential. With the impending completion of the asset enhancement initiatives at CWP, we believe FCT may be more active in seeking investment opportunities to drive growth, possibly asset injection from pipeline or third-party assets. Maintain BUY with unchanged S$1.68 fair value on FCT.

Sturdy results as expected. Frasers Centrepoint Trust (FCT) reported NPI of S$24.9m (+33.6% YoY) and distributable income of S$19.7m (+31.3% YoY) for 1QFY12, supported by strong uplift from Causeway Point (CWP), full-quarter contribution from Bedok Point and positive rental reversions. The results were consistent with our estimates, with headline numbers forming 23.5-26.7% of our full-year forecasts. We note that ~S$1.6m (c.0.2 S cents) will temporarily be retained, resulting in a quarterly DPU of 2.2 S cents (+12.8% YoY). This will be paid on 29 Feb 2012, together with DPU of 0.28 S cents announced in Oct 2011.

Demand for malls still strong. Except for Bedok Point whose occupancy was unchanged at 98.3%, all four other malls in FCT’s portfolio continued to register improvements in their occupancies over the quarter. This brought the overall portfolio occupancy to 97.5%, up from 95.1% in prior quarter. In addition, positive rental reversions of 9.3-11.2% (average 9.6% vs. 7.9% in 4QFY11) were seen across its portfolio properties, reflecting still healthy demand for its malls.

Maintain BUY. Going forward, FCT believes that its portfolio performance is expected to remain stable, with positive growth in overall rental reversions likely in the coming months. Management also guided that the refurbishment works at CWP, now 80% completed, is on track for full completion by Dec 2012. While occupancy is projected to dip slightly from 95.5% to 90% during this phase of work, the impact to rental income is likely to be limited in our view, since it involves mainly the higher levels and mall’s facade. We continue to like FCT for its pure exposure to suburban malls and its growth potential. With the impending completion of the asset enhancement initiatives at CWP, we believe FCT may be more active in seeking investment opportunities to drive growth, possibly asset injection from pipeline or third-party assets. Maintain BUY with unchanged S$1.68 fair value on FCT.

CCT

OCBC Research on 25 Jan 2012

CapitaCommercial Trust (CCT) reported a distributable income of S$212.8m (DPU for 7.52 S-cents) down 3.7% YoY, and in line with our full year forecast of S$211.2m. Note that Grade A office market rents fell 0.5% over 4Q11 and we expect rental levels to continue softening over FY12. However, we continue to like CCT for its valuation (last traded price at ~27% discount to NAV), quality portfolio and strong execution by management. Maintain BUY with a lower fair value estimate of S$1.29, versus S$1.41 previously, to reflect lower capitalization rate assumptions.

Full year results within expectations. CapitaCommercial Trust (CCT) reported a distributable income of S$212.8m for FY11, down 3.7% YoY ,and in line with our full year forecast of S$211.2m. DPU for the full year is 7.52 S-cents. Topline came in at S$361.2m, again tracking closely to our expectations of S$362.7m. This was down 7.8% YoY mostly due to the sale of Robinson Point and StarHub Centre in 2010, the redevelopment of Market St Carpark in 2011.

Bracing for softer rentals ahead. Overall portfolio occupancy stayed flat at 97.2%, which we note is still higher than the industry average of 91.2%. CCT also recorded marginal fair value gains of S$132m across the portfolio, with the majority of revaluation gains from Raffles City, Capital Tower, Six Battery Rd and One George St. As widely anticipated, we saw an inflection point in office rentals over 4Q11 as Grade A office market rents declined by 0.5%. Looking ahead, we expect office rental levels to decline further in FY12; note however that only 7.9% of leases by portfolio gross rental income for CCT is due for renewal in FY12.

Strong execution from management. Asset enhancement initiatives (AEI) and the Market St.redevelopment continues to be on track. Demolition works for the Market St. building were completed in Dec11. For the AEI at Six Battery Rd, 100% of the upgraded space (93,700 sf) has been pre-committed and management will continue enhancements work at that building, timing them according to lease expiries. The occupancy rate at One George St. is currently 93.3%, with new tenants such as The Bank of Fukuoka and Ashmore Investment Management.

Maintain BUY. We continue to like CCT for its quality portfolio and strong execution by management, with the last traded price at ~27% discount to NAV. Maintain BUY with an lower fair value estimate of S$1.29, versus S$1.41 previously, to reflect lower capitalization rate assumptions.

Suntec REIT

OCBC Research on 25 Jan 2012


Suntec REIT’s FY11 DPU of 9.932 S cents were slightly ahead of market expectations, forming 106.6%/102.4% of our/consensus DPU forecasts. Going forward, management said that it will be taking on a proactive approach towards its leasing strategy, in view of the uncertain economic outlook. Management also provided little details on the asset enhancement initiatives (AEI) on Suntec City, but reiterates that it will minimize disruption when the works commence in Jun. We now factor in Suntec City AEI (consequent drop in occupancy and rental income) and the consolidation of Suntec Singapore into our FY12-13 forecasts. Using the DDM valuation model, our fair value now drops from S$1.59 to S$1.10. As the stock appears fairly priced at current level, we maintain our HOLD rating on Suntec REIT.

4QFY11 results exceeded expectations. Suntec REIT reported 4QFY11 NPI of S$52.0m and distributable income of S$55.3m, up 10.1% and 23.1% YoY respectively. The decent results were achieved despite the negative rental reversions in its office portfolio, thanks to higher contribution from MBFC Properties and greater interest savings from prudent capital management. DPU was up by 7.0% YoY to 2.479 S cents, bringing the full-year DPU to 9.932 S cents, or a yield of 8.7%. The results were slightly ahead of market expectations, with FY11 DPU forming 106.6%/102.4% of our/consensus DPU forecasts.

Portfolio metrics remained stable pre Suntec City AEI. Overall office and retail portfolios, we note, also registered marginal improvements in occupancy to 99.2% and 97.5%. Management said that it will be taking on a proactive approach towards its leasing strategy in view of the uncertain economic outlook. We understand that only approximately 10.0% of its office leases by NLA are due to expire in 2012, after management renewed more than 233,000 sq ft of the leases. As at 31 Dec, Suntec REIT’s aggregate leverage was at 39.1%. This is an improvement from its leverage of 41.8% seen in 3Q, helped mainly by a positive S$396.2m revaluation of its investment properties (NAV up by 10.1% YoY to S$1.99).

Maintain HOLD. Management also provided little details on the asset enhancement initiatives (AEI) on Suntec City, but reiterates that it will minimize disruption when the works commence in Jun. We now factor in Suntec City AEI (consequent drop in occupancy and rental income) and the consolidation of Suntec Singapore into our FY12-13 forecasts. Using the DDM valuation model, our fair value now drops from S$1.59 to S$1.10, roughly in line with its three-year average P/B of 0.6x. As the stock appears fairly priced at current level, we maintain our HOLD rating on Suntec REIT.

Keppel Land

OCBC Research on 20 Jan 2012

As anticipated, Keppel Land (KPLD) announced a rich dividend of S$0.20 (7.8% yield on yesterday’s closing price) which would likely be a positive catalyst for the share price in the near term. FY11 PATMI of S$1,366m increased 29.7% YoY mainly due to OFC divestment gains and fair value gains on investment properties. Adjusting for one-time items, we estimate core PATMI at S$279.6m, which was 6% higher than our full year forecast. Maintain BUY with a higher fair value estimate of S$3.32 (35% RNAV discount) versus S$3.21 previously, mainly due to higher prices for K-REIT holdings and realized fair value gains. Including a cash dividend of S$0.20 (book closing - 26 Apr 12), this implies a total 12m return of 37%. 

FY11 results within expectations
As anticipated, Keppel Land (KPLD) announced a rich dividend of S$0.20 (7.8% yield on yesterday’s closing price) which would likely be a positive catalyst for the share price in the near term. FY11 PATMI of S$1,366m (S$0.93 EPS) increased 29.7% YoY mainly due to a S$508m gain from the OFC divestment and S$550m of fair value gains on investment properties. Adjusting for one-time items, we estimate core PATMI at S$279.6m, which was 6% higher than our full year forecast of S$262.6m. Top-line of S$949.0m was 3% lower than our S$977.0m forecast.

Residential segment to face more headwinds
KPLD sold 480 homes in FY11, versus 650 in FY10, with a total sales value of S$729m. In China, we observed a similar slowdown in residential sales in FY11 as KPLD sold ~1,400 units – significantly lower than the 4,100 units sold in FY10. We believe governmental curbs in these two main markets have had significant impact on sales and we expect to see a continued slowdown in the pace of sales over 1H12 at least.

Acquired new commercial site in Beijing
Management also announced yesterday that it had paid S$168m for a 51% stake in a commercial site in Beijing’s CBD between the eastern second and third ring roads. It has a GFA of ~100k sqm and is planned for a development with three office block and retail premises. Management has indicated that they expect rental yields to be ~6-7%, which we feel is realistic. However, given the purchase price, we are fairly neutral about the acquisition and assign no accretion to RNAV at this juncture.

Maintain BUY 
Maintain BUY with a higher fair value estimate of S$3.32 (35% RNAV discount) versus S$3.21 previously, mainly due to higher prices for K-REIT holdings and realized fair value gains. Including a cash dividend of S$0.20 (book closing - 26 Apr 12), this implies a total 12m return of 37%.

Keppel Land

Kim Eng on 20 Jan 2012

Bumper gains from OFC divestment. KepLand reported a record FY11 PATMI of $1.37b, thanks to the divestment of Ocean Financial Centre to K-REIT at the end of FY11. Excluding $591.3m of fair value gains, underlying PATMI was in line with expectations. While no special dividend was announced, KepLand is proposing a bumper final dividend of 20 cts/sh, giving an attractive yield of 7.8%. Maintain BUY.


Expecting soft residential markets. Property trading accounted for nearly 71% of the underlying net profit of $279.7m (excluding OFC divestment). In Singapore, KepLand sold about 480 homes worth $729m in FY11. In China, the Group sold over 1,400 homes worth RMB1.24b with a GFA of 144,200 sqm. Management conceded that both markets could remain soft in 2012. The Group will watch the Chinese market closely for potentially some policy easing in 2H12, and could launch up to 6,652 units this year.


Acquiring 51% stake in prime Beijing property. KepLand also announced that it is acquiring a 51% stake in a project company which will develop a prime commercial property in the heart of Beijing's CBD in Chaoyang district. The project will comprise office and retail with a total GFA of 100,000 sqm. At an estimated all-in cost of RMB2b, or RMB20,000 psm GFA, we estimate a potential 4 ct/sh RNAV accretion assuming the project will eventually be sold at RMB32,000 psm.


Further acquisitions will be selective. Despite having a cash position of $1.9b as of end-2011, KepLand will be selective in making new acquisitions. Potential areas for investment include commercial sites in certain parts of China, retail malls in Vietnam and Indonesia. Myanmar could also present opportunities and the Group already has a presence there via two Sedona hotels.


Entering 2012 in a position of strength. We have trimmed our target price to $3.30 pegged at a 40%-discount to RNAV in view of the economic outlook. KepLand's strong balance sheet provides it with the potential to make more RNAV accretive acquisitions. Maintain BUY.

SPH

OCBC Research on 19 Jan

A 70:30 JV between SPH and United Engineers bid S$328m (S$1,156 psf) for a commercial site at Sengkang West Avenue beside Fernvale LRT station. We expect total development cost (including land) to be ~S$2,450 psf NLA (net leasable area). Assuming rentals of S$15 psf per month (roughly in line with levels seen at Clementi Mall and Bukit Panjang Plaza), this works out to a rental yield of 5.3% which we are fairly neutral about. We are neutral on this acquisition and keep our fair value estimate unchanged. Maintain BUY at fair value estimate of S$3.99 and 12m dividend of S$0.24.

Top bid 20% above 2nd bidder. A 70:30 JV between SPH and United Engineers bid S$328m (S$1,156 psf) for a commercial site at Sengkang West Avenue beside Fernvale LRT station. The site area is 8,790.3 sqm with a maximum GFA of 26,370.9 sqm. SPH’s bid was 20% higher than the 2nd bidder, which was fairly aggressive in our view. The tender attracted 12 bidders with the average bid coming in at S$726 psf, 37% below SPH’s bid. We also note that neither CMT nor CMA were involved in this tender.

Location beside Fernvale LRT. We believe this site is fairly attractive given its location in the midst of the dense Sengkang estate beside Fernvale LRT station, linking it to the Sengkang MRT/LRT Station and the Sengkang Bus Interchange, similar to Bukit Panjang Plaza in the west.

Rental yields of 5.3%. We expect total development cost (including land) to be ~S$2,450 psf NLA (net leasable area). Assuming rentals of S$15 psf per month (roughly in line with levels seen at Clementi Mall and Bukit Panjang Plaza), this works out to a rental yield of 5.3% which we are fairly neutral about. We believe this aggressive bid reflects SPH’s commitment to expand its suburban mall portfolio, building on their Clementi mall acquisition previously.

Fair value estimate unchanged. Given the price paid, we are neutral on this acquisition and keep our fair value estimate unchanged. That said, we note that management had executed well on Clementi Mall and expect them to leverage on that experience for this asset. In addition, we like the further diversification from the core Newspaper and Magazine business into the resilient suburban retail landlord business. Maintain BUY at fair value estimate of S$3.99 and 12m dividend of S$0.24.

OCBC

DMG & Partners Research on Jan 18 2012

OCBC has announced the retirement of David Conner as CEO effective April 14. Succeeding him is Samuel Tsien, who is currently OCBC's head of Global Corporate Bank.

OCBC has also announced the promotion of Ching Wei Hong, currently head of Global Consumer Financial Services, to the newly created position of chief operating officer. The new appointments will be effective April 15.

As the two top appointments are from within the bank, we believe the broad strategy for OCBC growth will remain largely unchanged initially. We believe OCBC's long-term growth remains promising. However, given the global economic uncertainties, we ascribe a target P/B of 1.3x for OCBC, lower than the historical average of 1.54x. This yields a target price of S$8.30, which is unchanged. Maintain 'neutral'.

NEUTRAL

KepCorp

Kim Eng on 19 Jan 2012


Steady performance expected. Keppel Corp will be releasing its full year FY12 results on 26th January. Our full-year forecast stands at $1,480.1m, slightly ahead of consensus. For 4Q11, we expect Keppel to maintain its Offshore & Marine (O&M) earnings and margins. With the demand outlook for offshore rigs still positive over the medium term, we maintain our Buy recommendation at the target price of $12.60.


Massive earnings base. Our FY12 net profit forecast of $1,480.1m represents a 9% YoY decline versus FY10, but an increase of 4.2%, if we were to strip out exceptional items. We are expecting a final dividend of 22cts per share for a full-year dividend of 39 cents, or a yield of 3.7%. This estimate is based on Keppel’s usual historical payout of between 40 and 50% of its earnings.


O&M still going strong. For FY12, we expect to see increasing contributions from orders secured in FY10 and FY11. This is more than enough to sustain it through the current lull. However, margins are expected to decline, as it is at the tail-end of converting orders secured during the 2008 peak, where the pricing environment was more favourable. We expect O&M EBIT margins to decline from 24% to 21%.


Record orderbook in FY11. Keppel secured a record US$7.8b in orders in FY11, comprising mainly jackup newbuilds. While the market for floaters remains slow, Keppel did secure a key US$809m semisubmersible order from Sete Brazil. The order has greater significance as Sete is a proxy for Petrobras that has a US$224b capex budget. We can therefore expect more Petrobras-related orders in the future, although the timing of these potential orders remains sketchy.


Earnings sustainable. We are confident that Keppel can secure a minimum of US$6b in new orders in FY12, excluding Petrobras. Its current orderbook is estimated at US$8b, which will keep it busy over the next two years. With the security of earnings and an expected resumption of rig orders in the coming months, Keppel remains a Buy.

Olam

DMG & Partners Research on 17 Jan 2012


DMG & Partners Research in a Jan 17 research report says: "Olam has a net profit target of US$1 billion by FY2016. The bulk of the target will be achieved via organic SCM business growth (forecast 15-17% pa volume growth) and already-announced projects.


"In addition, management will work on upstream initiatives eg on plantations and fertilizer business as well as selective mid-stream projects to drive its earnings. Management does not foresee any further equity fund raising to enable it to meet the US$1 billion target. Instead, management will look to borrowings, given management’s comfort zone of 2-3x leverage, versus Sep 11’s 1.7x.


"We also like Olam’s sound track record - 33% CAGR net contribution over past 3 years. Target price of $2.98. Olam’s FY12 PE of 12.7x is also lower than historical average of 18x. MAINTAIN BUY."

SGX

CIMB on 17 Jan 2012


CIMB in a Jan 17 research report says: "SGX’s core net profit fell 19.9% y-o-y, and 14.3% q-o-q in a lacklustre quarter.  2Q12 core net profit ($65.4 million) is within our $62.9 million expectation and the street’s $61.4 million estimate. Revenues fell 14% y-o-y and 17% sequentially.


"Operating costs ($68.9 million) declined (-3.9% y-o-y, -7.6% q-o-q) after SGX scaled down staff and technological costs. SGX continued to introduce new ADR listings and derivatives products in the quarter. Efforts to increase retail participation are also underway, as are overall attempts to cut its reliance on securities clearing.


"We adjust our FY2012-2014 forecasts on cost assumption changes. We raise our DDM disc rate from 9.5% to 9.7% to account for valuation-compression risks, lowering our target price to $5.43. UNDERPERFORM."

M1

Phillip Securities on 17 Jan 2012


Phillip Securities Research in a Jan 17 research report says: "M1 reported a decent set of results for FY2011. Revenue increased by 8.8% y-o-y, mainly due to strong growth in handset sales. The results were marginally below our expectations of $170 million.


"Management attributed the strong handset sales to an increase in sales volume and unit selling price. International calling service revenue declined by 3%, despite a 22% increase in international retail minutes recorded. The company also announced a final dividend of 7.9 cents, translating to a full year payout ratio of 80%.


"Following the weaker than expected results and potential margin compression, we revised our earnings estimates down by 1.1-1.6% for the next 2 years and introduce FY2014E estimates. Revised target price of $2.36. DOWNGRADE TO REDUCE."

Noble

DBS Vickers on 17 Jan 2012

DBS Vickers Securities in a Jan 17 research report says: "While 3Q11 earnings were disappointing and there are concerns arising from the outlook for softer global economic growth and uncertainty regarding its next CEO, Noble remains in a strong financial position.

 "We expect Noble to book decent 4Q11 core profit of US$86.8 million (-67% y-o-y) versus a US$17.5 million loss in 3Q11 on recovery of commodity prices and reversal of mark-to-market currency losses.

 "Proposed capital recycling through the divestment of its Agriculture segment and a merger of Gloucester Coal with Yanzhou Australia should crystallise value and contribute towards seed money for Noble for further investments going forward. Target price of $1.45. MAINTAIN BUY.

M1

OCBC Research on 17 Jan 2012

M1 Ltd reported FY11 results, which came in mostly in line; revenue grew 8.8% to S$1064.9m, or around 4% ahead of our estimate; net earnings came in around S$164.1m, or just 0.5% shy of our forecast. M1 declared a final dividend of S$0.079 per share, bringing the total dividend to S$0.145, or 80% of core earnings as guided. For 2012, M1 expects to maintain stable performance at both top and bottom-line; it has also kept its 80% dividend payout ratio and expects to spend some S$110-130m in capex. We are bumping up our FY12 revenue forecast by 4% but are lowering our earnings forecast by 4%. But due to likely lower working capital requirements and capex expenditure in the near future, our DCF-based fair value inches up from S$2.79 to S$2.81. We continue to like M1 for its defensive earnings and greater NBN potential – maintain BUY.

FY11 results mostly in line
M1 Ltd reported FY11 results, which came in mostly in line; revenue grew 8.8% to S$1064.9m, or around 4% ahead of our estimate, boosted by slightly stronger-than-expected handset sales (M1 revealed that it sold a good number of Apple iPhone 4S without contracts). Net earnings came in at around S$164.1m, or just 0.5% shy of our forecast. And as expected, M1 declared a final dividend of S$0.079 per share, bringing the total dividend to S$0.145, or 80% of core earnings as guided.

Margin erosion likely seasonal
While its service EBITDA margin was steady at 39.2% in 4Q11 (41.4% in 4Q10, 42.1% in 3Q11), we note that its overall EBITDA margin slipped to 23.3% (29.6% and 32.4% over the same period). M1 explained that it was due to the strong demand for the new iPhone 4S and seasonal promotion for other smartphones. This also caused acquisition cost to shoot up to S$423/post-paid user (S$368 in 4Q10). However, management expects the cost to start easing in the coming quarters. Post-paid (adjusted) ARPU was stable at S$53 in 4Q11 versus S$53.9 in 3Q11. Data ARPU rose slightly to S$23.1 from S$22.2 in 3Q11; and this could improve further as M1 is looking at new strategies to re-price its data plans using LTE.

Stable financial guidance for 2012
For 2012, M1 expects to maintain stable performance at both top and bottom-line, citing the more uncertain global economic outlook and its potential impact on roaming revenue. It has also kept its 80% dividend payout ratio and expects to spend some S$110-130m in capex. To account for its outlook and results, we are bumping up our FY12 revenue forecast by 4% but are lowering our earnings forecast by 4%. But due to likely lower working capital requirements and capex expenditure in the near future, our DCF-based fair value inches up from S$2.79 to S$2.81. We continue to like M1 for its defensive earnings and greater NBN potential – maintain BUY. 

SGX

Kim Eng on 17 Jan 2012

2Q11 results in line with expectations. Despite the significant decline in profitability, this set of results should be seen in the context of a very challenging quarter in terms of market conditions. We believe SGX’s efforts to diversify its income over the past 24 months is evident in this set of numbers, helping to cushion profitability.

Decent profitability despite challenging conditions. Net profit came in at S$65.4m, down 12% qoq and down 25% yoy. SDAV (Securities Daily Average trading Value) during this quarter was just S$1.1b, a 37% decline yoy and almost comparable to the S$0.9b low in Jan-Mar 2009. Securities revenue was down 35% yoy as a result. Other major sources of revenue such as derivatives and depository services, however, held steady or grew, which helped cushion the overall fall in revenue.

Proactive approach. Management shared that they will continue being proactive in improving trading volume. One area of focus will be to improve retail penetration, which at 10% compares unfavorably to Hong Kong’s 30% or Australia’s 20%. The use of more market makers to improve liquidity is also currently being studied.

SDAV bottoming out in our view. The current quarter’s numbers (EPS: SG6.1 cents) therefore gives us a good gauge of SGX’s base profitability. Even in a worst-case scenario where SDAV continues to drudge along at the same levels, one would still expect full-year EPS of SG 24.4 cents, almost all of which we expect SGX is able to pay out as dividends. This translates to a decent dividend yield of 4% at current prices.

Maintain Buy. We keep our estimates and SDAV assumptions largely unchanged (FY12F: S$1.4b, FY13F: S$1.5b), around the premise that market conditions will improve in the second half of this calendar year. Our target price of S$6.90 remains pegged at 25x FYJun12F PER, implying a dividend yield of 4%. Maintain Buy.

SIA

OCBC Research on 17 Jan 2012

Singapore Airlines (SIA) reported its Dec 2011 operating statistics. The parent airline’s passenger capacity (ASK) increased by 3.2% YoY while its passenger traffic (RPK) gained a smaller 1.8% YoY, resulting in passenger load factor (PLF) falling to 79.6%, compared to 80.7% in Dec 2010. With its ASK already up 3.3% YoY in 3QFY12, SIA is unlikely to achieve management guidance of 2HFY12 ASK similar to that of 1HFY12. We maintain our fair value estimate of S$10.85/share, which has already factored in the challenging times the aviation sector is currently facing, and HOLD rating on SIA.

December 2011 operating statistics.
Singapore Airlines (SIA) last night reported its Dec 2011 operating statistics. The parent airline’s passenger capacity (ASK) increased by 3.2% YoY while its passenger traffic (RPK) gained a smaller 1.8% YoY. As a result, it recorded a passenger load factor (PLF) of 79.6%, compared to 80.7% a year ago. SilkAir’s RPK again gained a strong 7.6% YoY but it recorded an even faster ASK growth of 9.3% YoY. Thus, SilkAir’s PLF also fell to 83.1%, lower than the 84.5% in Dec 2010. SIA Cargo’s freight capacity (AFTK) grew 1.3% YoY and its freight traffic (FTK) edged ahead by 1.5% YoY. SIA Cargo’s freight load factor (FLF) improved marginally to 63.6%, from 63.5% in Dec 2010.

Falling passenger load factor caused by faster capacity growth.
At the 2QFY12 results briefing, management guided that SIA’s ASK in 2HFY12 should be similar to that of 1HFY12. This can be achieved if ASK does not grow more than 1.5% YoY in 2HFY12 but it is looking unlikely since ASK is already up 3.3% YoY in 3QFY12. At this point, SIA needs reduce the parent airline’s ASK by 0.5% YoY in 4QFY12 in order to achieve management’s guidance.

Persistently high jet fuel prices mean depressed margin.
In 3QFY12, jet fuel prices (JETKSIFC Index) adjusted to SGD averaged 4% higher than in 2QFY12. Since fuel cost is the single largest contributing factor to total operating expenses, persistently high jet fuel prices are likely to continue depressing the parent airline’s profit margin, especially when PLFs have been falling YoY since Aug 2010.

Maintain fair value of S$10.85 and HOLD.
We maintain our fair value estimate of S$10.85/share, which has already factored in the challenging times the aviation sector is currently facing, and HOLD rating on SIA.

Wilmar

DBS on 13 Jan 2012

DBS Vickers Securities in a Jan 13 research report says: "As part of its US$5.0 billion Medium Term Note (MTN programme, Wilmar announced its pricing for $250 million 3.5% Notes due 2017 and $100 million 4.1% Notes due 2019. Both 5-year and 7-year Notes will be issued on Jan 25.


 "The proceeds will be used for general corporate purposes. Based on its balance sheet as at Sep 30, 2011, Wilmar had US$12,261.1 million net debts, of which US$6,869 million was liquid working capital (including Readily Marketable Inventories). Excluding liquid working capital, net gearing was hence calculated at 42.1% (not including non-controlling interest).


 "The new Notes will raise Wilmar's net gearing slightly to 44.2% - which we believe is manageable for the group (i.e. no significant impact on interest cover). Target price of $5.40 remain unchanged. HOLD"

M1

Kim Eng on 17 Jan 2012

Below expectations. M1 reported full-year net profit of $164.3m, up 4.5% YoY, but below our forecast of $166.5m and consensus of $168m. In line with the trend in the past years, 4Q11 net profit of $37.5m was down 9% QoQ due mainly to seasonal factors. Dividends disappointed. Final DPS of $0.079 was higher than 2010’s $0.077 but M1 refrained from repeating 2010’s special dividend of $0.035 due to macroeconomic concerns.

Margins pressured by iPhone 4S. Strong demand for the new iPhone and other seasonal promotions depressed EBITDA margin to 39.1% in 4Q11, down 2.2ppt YoY and 3ppt QoQ. Subscriber acquisition costs (SAC) soared to $423 per postpaid customer, up 15% YoY and 48% QoQ. Arguably, 3Q11 SAC was depressed by anticipation of the new iPhone, ie, higher mix of lower subsidy non-iPhone models. However, management does not expect SAC to stay high going into 1Q12.

Expect stable results in 2012 but lower dividends. We have cut our FY12 forecast by 8% and pushed back growth assumptions by a year on the premise that there will be a recession in 2012. Similarly, dividend expectations are now more muted than before. Although net debt/EBITDA target is still 1-1.5x (4Q11: 0.9x), the lower end of the range is more likely. Capex was also guided up to $110-130m but the wide range makes it a likely conservative estimate. There may be scope for savings.

Roaming already falling, NGNBN benefits overstated. M1 has already started to experience declining roaming revenue in 4Q11 as travellers become more cost conscious. The economic slowdown and exit from the Vodafone roaming partnership from this month could also cost it. Although NGNBN should reach 95% coverage by mid-2012 and fibre adoption should continue to gain pace, M1 is handicapped by the lack of LTE handsets and its limited reach into homes and businesses.

Downgrade to Hold. At 14x FY12F PER, M1 is not expensive and yield of 5.6% is still relatively supportive. However, the lack of growth, lower dividend expectations and more muted NGNBN benefits suggest a lack of catalysts. Our revised target price of $2.35 is based on 13x FY12 forecast, in line with its long-term mean. Prefer StarHub.

Golden Agri-Resources

OCBC Research on 16 Jan 

Golden Agri-Resources (GAR) is likely to end off 2011 on a pretty strong note, aided by a fairly resilient CPO (crude palm oil) prices. With CPO prices remaining relatively stable at an average of US$959/MT in 4Q11 versus US$964/MT in 3Q11, GAR should put in a pretty strong last quarter. On the outlook for CPO prices, we are still pricing in a gradual slide to US$950/MT this year, down slightly from an average of US$1030 in 2011, in view of a potential slowdown in the global economy, particularly in China. On the other hand, drier-than-expected weather in South America could affect soy bean crop yields and could continue to support CPO prices, at least in the near term. Leaving our estimates unchanged for now; but due to a higher USD assumption for 2012, our fair value inches up from S$0.80 to S$0.82, still based on 12.5x FY12F EPS. Maintain BUY.

Likely strong finish to 2011
Golden Agri-Resources (GAR) is likely to end off 2011 on a pretty strong note, aided by a fairly resilient CPO (crude palm oil) prices. As a recap, GAR posted a 100% increase in its 9M11 revenue to US$4625m, while net profit jumped 105% to US$520m; this following a 41% jump in CPO FOB price to US$1117/MT. With CPO prices remaining relatively stable at an average of US$959/MT in 4Q11 versus US$964/MT in 3Q11, GAR should put in a pretty strong last quarter. We understand that GAR would also be expecting deferred revenue recognition for some 34k MT of CPO from a delayed delivery during 3Q11.

CPO prices could remain relatively firm
On the outlook for CPO prices, we are still pricing in a gradual slide to US$950/MT this year, down slightly from an average of US$1030 in 2011, in view of a potential slowdown in the global economy, particularly in China. We also note that CPO production is still expected to increase this year, with GAR still looking to achieve an increase of 5% this year after an expected increase of >10% in 2011. On the other hand, drier-than-expected weather in South America could affect soy bean crop yields and could continue to support CPO prices, at least in the near term (Refer to Exhibit 1).

BUY with higher S$0.82 fair value
And on the increased uncertainty over the global economy, we believe that GAR, aided by its experienced management team, is in good shape to weather any storm. Its cash cost of production has never exceeded US$300/ton – and this should afford the group a sizeable margin to cushion any pull-back in CPO prices. We note that even during the last financial crisis, CPO prices did not fall below US$500/ton. Leaving our estimates unchanged for now; but due to a higher USD assumption for 2012, our fair value inches up from S$0.80 to S$0.82, still based on 12.5x FY12F EPS. Maintain BUY.

Sembmar

OCBC Research on 16 Jan

With the positive sentiment on oil and gas stocks recently, Sembcorp Marine (SMM) has been a key beneficiary, rising by about 17.8% YTD compared to the FTSE Oil and Gas index’s 8.3% and the STI’s 5.5% gain. And during a period of bullishness on the sector, we further expect the stock to outperform its closest peer, Keppel Corporation. Meanwhile, we are also optimistic about SMM’s new order pipeline across a range of assets; the group is tendering for various work which may include construction of the world’s largest jack-up. Maintain BUY with S$5.63 fair value estimate.

Key beneficiary from positive sentiment. With the positive sentiment on oil and gas stocks recently, Sembcorp Marine (SMM) has been a key beneficiary, rising by about 17.8% YTD compared to the FTSE Oil and Gas index’s 8.3% and the STI’s 5.5% gain. During a period of bullishness on oil and gas plays, SMM’s stock is likely to outperform its closest peer, Keppel Corporation (KEP) as 1) SMM only has offshore marine operations while KEP also has property and infrastructure arms, and 2) SMM is likely to be able to take in more rig orders for earlier delivery compared to KEP due to higher yard capacity – recall KEP secured new orders totaling S$10b with deliveries extending to 2015 last year while SMM clinched work worth about S$4b last year.

Tendering for new orders – may build largest jack-up yet? According to Upstream , Jurong Shipyard is one of three bidders who submitted offers early this year to Petrobras for the conversion of four FPSO units which will be used in the Santos basin in Brazil. Jurong is also one of four yards expected to tender for the construction of up to four super-sized jack-ups for Statoil in May . Coined as Category J rigs, they will be used for development drilling in the North Sea. According to market talk, the Gusto MSC CJ80 is likely to be the rig design – recall that the CJ70 is the largest jack-up built to date. Sembcorp Marine secured a CJ70 jack-up rig order from Seadrill in Mar last year for US$450m while Keppel Corp won an order for two similar units from Maersk in Feb last year for US$1b, giving a rough idea of the quantum of the Cat-J programme.

Optimistic about order pipeline. Our new order win assumption for SMM this year is S$4b (excluding Petrobras rig orders), and we are optimistic on the orderflow across a range of assets (jack-ups, semi-subs and production platforms; drillships to depend on Petrobras). Maintain BUY with S$5.63 fair value estimate. 

Starhub

Kim Eng on 16 Jan 2012

Hold on despite possible 4Q miss. StarHub is slated to release its full-year FY11 results on 2 February. We would not be surprised to see a lower-than-forecast net profit, given the stronger-than-expected demand for iPhone 4S. On the bright side, competition is easing and we expect content costs to remain subdued while its low gearing suggests the potential for dividends to be maintained and even enhanced this year when economic headwinds die down. Maintain Buy.

Expect subdued margins. Our full-year revenue forecast of $302.7m suggests a 4Q11 net profit of $79.8m and EBITDA margin on service revenue of 31%. While this is in line with management’s full-year guidance of “about 30%” (9M11 margin was 30.4%), we would not be surprised by a lower-than-forecast EBITDA margin in 4Q11 due to the robust demand for iPhone 4S.

Good and bad of strong iPhone 4S demand. Despite the slight difference between iPhone 4 and iPhone 4S, the demand for the latter has been unusually strong since its launch last October, and is likely to last into 1Q12. While bad from a subsidy perspective, the robust sales were good in that they suggest data usage by iPhone 4S users is twice that of iPhone 4 users and three times more than 3GS users, likely due to Siri. Better data monetisation in future should bring benefits to ARPU.

Competition easing, content costs under control. On the bright side, competition in broadband and Pay TV appear to have been tamed, and content costs should remain subdued, as challenger SingTel is likely to hold back from making aggressive moves now that the cross-carriage law is in effect. For example, it did not push aggressively for the World Cup or Fox International Channels.

Dividend likely maintained, with scope for a raise. StarHub will likely keep its DPS at 20 cents in 2012. It could even pay more, as competition has eased and gearing has fallen. Net debt/EBITDA hit 0.69x in 3Q11, giving it ample headroom to its target of 1.5x. Assuming a range of 1-1.2x, StarHub could pay 6-15 cents more on top of the regular dividend. The last time it did a capital reduction was in 1Q07 (25.6 cents a share) when gearing fell to 0.7x. Reiterate Buy.

ST Engg

Phillip Securities Research on a Jan 11

Phillip Securities Research in a Jan 11 research report says: "Being one of the largest players in the industry, we opine that STE would be able to ride on the long term growth in demand for MRO work. STE would also benefit from the shift in MRO work towards lower cost bases.

"While the Aviation MRO industry could experience some near term headwinds, we expect STE to sail through comfortably with its exposure to the less cyclical defence business and strong order book of $11 billion. Long term Aerospace contracts worth at least $3.7 billion, by our estimates, would provide future revenue visibility.

"At the current price, STE is trading below its historical average P/E multiple of 20X and only slightly above levels reached during the past 2 crisis levels of 15X. The stock would also yield >5% on our forecasted dividends, which looks favourable against a paltry 10yr SGS bond yield of 1.6%. Target price of $3.13. ACCUMULATE."

SPH

CIMB on 11 Jan 2012


Weaker investment income

1Q12 ad revenue slowed as expected though investment income fell more than anticipated. Its share price could remain supported by decent yields of 6% but we see this balanced by receding ad growth and investment income.

1Q12 core profit is in line at 25% of our FY11 estimate and consensus. Stronger property earnings and lower finance costs made up for weaker print and investment income. We keep our EPS estimates and SOP target price. Maintain Neutral.

Slowdown in ad growth 

We expect slower ad revenue in FY12 because of a weakening economy. The slowdown had already been apparent in 1Q12 when newspaper ad revenue fell 4% yoy on weaker display (-3% yoy) and classified (-4% yoy), albeit from a high base in 1Q11. While SPH tried to keep a tight lid on costs (staff and newsprint costs were up 2% and 4% respectively), this was not sufficient. We expect sustained topline weakness and a slight cost reprieve from softening newsprint prices and variable staff costs in the coming quarters.

Investment income succumbed 

While risks to its investment portfolio were to be expected given market volatility, SPH surprised with a 90% yoy fall in investment income due to unrealised FX losses on investments. We understand that these were mainly related to forward hedging contracts for both investments and newsprint exposure, stemming from a stronger US$. With continued market volatility and possibly unabated US$ strength, risks remain.

Property only performer 

Property was the sole performer as rental revenue grew 27% yoy with the aid of Clementi Mall which had commenced operations in 2QFY11 and higher rental rates at Paragon (+3% yoy). Both are fully leased.