Noble

OCBC on 29 Feb 2012

Noble Group (Noble) reported better performance in 4Q11, suggesting that the worst is likely over. For FY11, revenue jumped 42% to US$80,732m, or 0.4% above our forecast, while reported net profit slipped 29% to US$431m, it was around 13% above our forecast. However, we note that there could still be a dearth of near-term catalyst. While Noble revealed that it expects some development on the Gloucester-Yancoal merger front next week, management does not expect any deal to take place in 1Q12. Management also did not elaborate much on its planned listing of its Agri-business on SGX other than saying it has a new CEO for that division. While we are increasing our valuation peg from 10.5x (one standard deviation below 5-year mean) to 11.1x (0.5 SD), a lower USD/SGD assumption negates the increase, thus maintaining our fair value at S$1.46. Given the limited upside for now, we maintain our HOLD rating. We would be buyers closer to S$1.30.

Improvement in 4Q11
Noble Group (Noble) reported better 4Q11 results. Reported net profit though fell 57% YoY to US$106m, and it was an improvement from the US$18m net loss in 3Q11. For FY11, revenue jumped 42% to US$80,732m, or 0.4% above our forecast, while reported net profit slipped 29% to US$431m, it was around 13% above our forecast. However, if we strip out the likely one-off items, we estimate that recurring earnings would have slipped 29% to US$288m. Meanwhile, Noble has recommended a final dividend of 1.65 US cents per share, payable in cash or scrip, versus 2.5 US cents last year.

Margins showing slow recovery
Although overall net margin slipped from 1.1% in FY10 to just 0.5% in FY11, its various segments have started to show steady recovery. For Agriculture business, operating margin has improved from 1.2% in 3Q11 to 2.8% in 4Q11, but off 4Q10’s 10.9% margin. For Energy, operating margin has actually surpassed 4Q10’s 1.1% and 3Q11’s 1.3% to hit 1.6%. For its Metals, Minerals and Ores (MMO), operating margin also improved from 3Q11’s 0.6% to 0.7%, but still way below 4Q10’s 2.2%.

Worst is likely over but still lacks catalyst
Based on 4Q11 results, it appears that the worst is likely over. However, we note that there could still be a dearth of near-term catalyst. While Noble revealed that it expects some development on the Gloucester-Yancoal merger front next week, management does not expect any deal to take place in 1Q12. Management also did not elaborate much on its planned listing of its Agri-business on SGX other than saying it has a new CEO for that division.

Maintain HOLD with S$1.46 fair value
While we are increasing our valuation peg from 10.5x (one standard deviation below 5-year mean) to 11.1x (0.5 SD), a lower USD/SGD assumption negates the increase, thus maintaining our fair value at S$1.46. Given the limited upside for now, we maintain our HOLD rating. 

ECS Holdings

OCBC on 29 Feb 2012

ECS Holdings (ECS) reported FY11 results which were in line with expectations. Revenue grew 16.9% to S$3,607.2m, forming 100.6% of our forecast. Estimated core PATMI declined 17.1% to S$36.0m, or 0.5% shy of our projection. This was due to lower gross margin, a sharp spike in finance costs, and disruption caused by the Thailand floods. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast. Nevertheless, a key positive came from ECS’s strengthened balance sheet, which can be attributed to its effective working capital management. Its net gearing ratio was lowered significantly from 73.9% in 3Q11 to 33.8% in 4Q11. Given ECS’s improved financial position and growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS. This raises our fair value estimate from S$0.61 to S$0.69. Maintain BUY.

FY11 results in line with expectations
ECS Holdings (ECS) reported 4Q11 PATMI of S$9.0m (-38.5% YoY; -0.9% QoQ) on the back of a 10.0% YoY increase (-6.8% QoQ) in revenue to S$924.5m. FY11 results were within our expectations, with revenue growing 16.9% to S$3,607.2m, forming 100.6% of our forecast. PATMI dipped 26.0% to S$39.2m due to lower gross margin, a large spike in finance costs and disruption caused by the Thailand floods, which we believe is ECS’s second largest market. Adjusting for forex effects and exceptional items, we estimate that core earnings declined 17.1% to S$36.0m, or 0.5% shy of our projection. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast due to a lower-than-expected payout ratio and translates into a yield of 3.8%.

Executing effectively on its deliverables
One of the key positives from ECS during the quarter was its effective working capital management, which helped increase its net operating cashflows from S$21.3m in 4Q10 to S$128.6m in 4Q11. This also allowed ECS to reverse its negative net operating cashflow position for 9M11, with S$44.7m of net operating cashflows generated in FY11. As such, ECS was able to repay some of its borrowings, and its net gearing ratio now stands at 33.8% as at 31 Dec 2011, versus 73.9% at end 3Q11. Management’s target is not to exceed the 70% mark.

Re-rating plausible; maintain BUY
We tweak our FY12 estimates marginally and introduce our FY13 forecasts. Given ECS’s improved financial position, which was one of our main concerns prior to its 4Q11 results, coupled with growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS, in line with its 5-year average forward PER. This in turn bumps up our fair value estimate from S$0.61 to S$0.69. Maintain BUY.

CSE Global

OCBC on 29 Feb 2012

CSE Global’s FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays in its Middle East projects. It also suffered an operating cash deficit of S$6.9m due to increased working capital requirements. Considering the past issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Maintain HOLD with unchanged fair value estimate of S$0.80.

FY11 net profits of S$28m
CSE Global’s FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Recall that the group had previously warned that its 4Q11 revenue and profit contribution would be adversely affected as several customers were late in providing approvals for its engineering designs. 4Q11 revenue and net profit were S$141m (+9% YoY) and S$9.4m (-20% YoY), respectively. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays. It has proposed a final dividend of 2 Scts.

Middle East difficulties
The group had recorded provision of S$22m for cost over-run in its Middle East projects in 2Q11. In 4Q11, it experienced delays from customers, which affected its financial results. We suspect 2012 may continue to be challenging. Externally, the Middle East region still faces headwinds from rising political tensions (Iran-Israel conflict and Arab Spring) and financing concerns (the pull-back of European banks). Internally, the group had recently replaced its MD for the telco business (after the cost overrun issue) and may need time to manage the leadership transition.

Operating cash deficit
The group suffered an operating cash deficit of S$6.9m for FY11 (FY10: +S$58m operating cashflow) due to increased working capital requirements for its telco business. Net gearing has also increased to 34.3% as at end-Dec 11 (end-Sep 11: 0%). We project an order intake of S$500m in FY12F, and lowered our FY12F revenue and net profit by 10-13%, in line with management’s guidance. Considering the past operational issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Thus, we are keeping our HOLD with unchanged fair value estimate of S$0.80. 

FJ Benjamin Holdings

UOBKayhian on 27 Feb 2012

What’s New

• Upgrade to BUY with target price of S$0.43 (previously S$0.38), implying 28.4% upside from the current price.
• RAOUL label gains traction in the US and Europe. The RAOUL label has started to see strong acceptance in the US and Europe, with net sell-through in 2Q12 estimated to have doubled from the same period last year. The label has also begun to receive a string of celebrity endorsements and active press coverage in New York and London.
• Same-store-sales growth remains resilient. FJ Benjamin Holdings (FJB) continues to see resilient retail spending growth across most of its key operating geographies. In 2Q12, FJB’s revenue grew by 18% yoy, with same-store sales growth contributing 12 ppt to overall sales growth.

Stock Impact

• Creating scalable growth. FJB is set to enter into a new and exciting growth phase, driven by a) the introduction of new mass market fashion labels in the region, b) continued store expansion focusing on key growth markets in Indonesia, and c) the ramp-up of RAOUL sales under a highly scalable wholesale business model.
• Looking to bolster its brand portfolio. It has been five years since FJB last acquired a mass-market fashion label – GAP in 2006, and we believe that the group could take on new brands this year to expand its franchising business in the region. In our view, FJB could be looking to add a highly scalable, mass-market fashion label targeted at the growing Asian middle class.
• Ramping up Asian franchise business. FJB will continue to grow its Asian portfolio organically by increasing its store network by 10-15% every year, focusing on high growth markets in Indonesia. We believe that FJB will be able to grow franchising revenue by S$100m, or 30% in three years through organic store expansion alone, excluding further contribution from the potential growth of RAOUL and new brand additions.
• Proxy to Indonesian spending growth. In our view, FJB is a good proxy to Indonesian retail spending growth with almost half of its current stores being located in Indonesia while we estimate that a quarter of its profits could be generated from the single country by FY13. According to BMI’s estimates, Indonesia’s retail sales will grow from Rp1.55t in 2012 to Rp2.0t by 2016, driven by a fast-growing population, rising per capita incomes as well as increasing access to credit among domestic consumers.
• Highly scalable wholesale business model in the US and Europe. FJB adopts a wholesale business model for RAOUL products in the US and Europe, unlike the use of self operated retail stores in Asia. The wholesale business model is highly scalable as the group is able to penetrate thousands of departmental stores across the US and Europe via its showrooms with minimal capital expenditure. We believe that the RAOUL label could scale up and grow a few folds to become a S$50m business within three years if the brand continues to gain traction in major markets.

Earnings Revision

• Revised earnings forecast. We raise our FY12-13F revenue forecast by 2.6% and 11.8% respectively to account for better than expected same-store-sales growth and sales contribution from new brands in FY13. Correspondingly, we raise our FY12-13F earnings forecast by 4.7% and 0.5% respectively, accounting for higher than expected marketing and staff cost expected to be incurred by RAOUL in FY13.
• Contribution from FJB’s Indonesian operations is accounted for under associate and other income. We expect associate income to grow at 31.8% 2-year CAGR (FY11-13F) to S$2.6m in FY13F.

Valuation

• Upgrade to BUY with target price of S$0.43 (previously S$0.38), implying 28.4% upside from the current price.
• Our target price is pegged to 0.6x FY13 PEG, in line with Hong Kong and Indonesia listed retailing peers. We roll-over our valuation basis to FY13, and using our projected two-year EPS CAGR (FY11-13F) of 21.1%, we apply a 12.7x PE multiple to our forecasted FY13 PE of 3.4 S cents.

Ho Bee Investment

Kim Eng on 29 Feb 2012


Results in line. Ho Bee’s 4Q11 net profit of $67.1m was within our expectations, after excluding the $41.3m fair value gain from its investment properties. Full-year revenue and net profit came in at $341.5m and $202.5m, respectively. In view of the persistent slow sales in Sentosa Cove and the delayed launch of Pinnacle Collection, we keep our Hold recommendation unchanged.

Improved sales. Sales increased slightly in 4Q11, with a total of 16 units sold. Three units at The Orange Grove were sold at an average price of $2,180 psf; two units at Trilight were sold at an average price of $1,740 psf; two units at Seascape were sold at an average price of $2,750 psf and the remaining sales came from industrial units at One Pemimpin. Prices achieved were in line with our ASP assumptions. We understand that most sales were transacted before the Additional Buyer’s Stamp Duty took effect early last December and that there were no sales so far this year.

Unbilled sales. There remains an estimated $505.7m in unbilled sales from its substantially sold uncompleted projects – Trilight (95% sold), Parvis (100% sold) and One Pemimpin (96% sold). We estimate the unbilled sales would translate to approximately $90m in net profit, which will be progressively recognised in the next two years. Construction for its one-north office project, The Metropolis, is progressing as scheduled and will be completed by end-2013. Its low breakeven of $800 psf is cause for comfort, as offices in regional commercial hubs such as Paya Lebar Square are currently selling at $1,600-1,800 psf.

Valuation and recommendation. The RNAV is adjusted to $2.82 after rolling forward our valuations to FY12. Ho Bee declared a final dividend of 4 cents per share, translating to a dividend yield of 3.0%. Net gearing has been reduced to 27% from 45% a year ago. Its latest book value is $2.34/share. Maintain Hold.

Noble

Kim Eng on 29 Feb 2012

In line with expectations. Noble’s fourth-quarter earnings returned to positive territory in a set of eagerly anticipated results. Though the results were only in line with consensus estimates, we expect this to spur a recovery in investor confidence. Net profit for 4Q11 was US$105.7m (US$72.2m excluding profit on supply chain assets). FY11 net profit showed a 29% decline to US$431.3m.

Below usual quarterly run-rate. Profitability for the quarter was below its previous run-rate, as we had expected, largely due to unfavourable macroeconomic factors. The decline in VaR (Value at Risk) since August last year to a historical low of 0.35% in December implied that Noble went into a more cautious mode in the fourth quarter, which was a factor in the lower profitability. With commodity prices exhibiting some stability, this should revert to normal over the next few quarters.

Tonnage growth. Full-year tonnage grew by 18% YoY, implying growth in overall business activities. The 10% YoY drop in overall gross profitability could be traced to the agriculture segment, which declined 37% YoY. Other than the well-documented issues with cotton farmers in the US, soybean crush margins in China remained poor, in line with what competitors like Wilmar have reported. For the sugar division, management shared that the integration of its newly acquired sugar mills in Brazil was smooth. Utilised capacity should increase 30% next year on expanded planting.

Book value increased. As a function of the caution exercised in 4Q11, working capital reversed itself from US$3.5b in December 2010 to US$3.2b, which resulted in adjusted net gearing falling from 50% to 45%. We believe the balance sheet strength would provide a solid platform for Noble to continue investment growth in 2012. Book value per share increased from US67cents to US71cents (estimated US74cents if the Yancoal deal is concluded).

Maintain Buy. With a possible agri business spinoff in the pipeline, a sharp recovery in earnings (which are leveraged to macro factors) and a return in investor confidence, Noble represents an asymmetric bet to a market recovery in 2012. The current price represents 1.45x P/BV, still one standard deviation below its historical mean. We maintain our Buy recommendation with a target price of $1.90 (pegged at 13x FY12).

Hi-P International

DMG & Partners Securities on 27 Feb 2012

Hi-P's Q4 results of $9.4 million profit after tax and minority interests (-73.7 per cent y-o-y) and $442.1 million revenue (+22.8 per cent) are in line with our estimates. Going forward, the group announced an ambitious 2012 capex plan of $180 million to enhance its existing business and to venture into metal casing business. We believe that the increase in revenue contributions from another customer will cover the revenue fall from major customer Research in Motion (RIM). Maintain BUY with an unchanged TP of $1.22.

Hi-P planned to deploy a capex of $180 million in FY2012, which is higher than our initial estimates of $110 million. Within, 30 per cent of the amount will be channelled into developing the new metal casing ($54 million) business while the rest will be used to enhance its existing business. Given a solid net cash balance of $220.3 million ($0.27/share) and healthy operating cash flow of $101.5 million ($0.12/share) as of end FY2011, the group will have little difficulties in funding this ambitious plan.

Management had confirmed that portion of the $65.5 million capex spent in FY2011 was used to purchase Computer Numerical Control (CNC) machines, with the first batch arrived and installed. More shipments are expected to arrive in the next two quarters, getting ready for the new metal casing business commencing in the second half of the year. At an average cost of $100,000 per machine, we now expect the company to possess 700 to 800 CNC machines by then.

The main reason for Hi-P's poorer-than-expected performance is mainly due to its largest customer (over 50 per cent of FY2011 revenue) RIM's lacklustre performance. Moving on, management guided a bullish outlook, expecting another customer to take up RIM's fall in revenue contribution. We continue to believe that this up-and-rising customer will enable the group to achieve a record performance this year.
BUY

Venture Corporation

DBS on 27 Feb 2012

ALL business segments outperformed despite industry-wide weakness in Q4 FY2011. Core profit of $36.8 million (-32 per cent y-o-y, +6 per cent q-o-q) was in line with consensus but much better than our forecast of $31 million. Sales of $632 million (-10 per cent y-o-y, +8 per cent q-o-q) also trumped our estimated $619 million.

Adjusted net margin of 5.8 per cent was a shade better than our 5.5 per cent assumption, although still 10 basis points weaker q-o-q. Printing & Imaging (P&I) (+12 per cent q-o-q) and Computer Peripherals (+25 per cent) surged the most, coming off an exceptionally low base in Q3 FY2011 and with new launches in the quarter. For the full year, revenue dropped 9 per cent while net profit declined 17 per cent. Operating results were more resilient in US dollar terms as sales declined just one per cent y-o-y.

FY2012 recovery may start slow but outlook is notably positive. Besides capturing full year benefit of new P&I models launched towards the end of 2011, several new Industrial and Test & measurement products are also slated to release in H2 FY2012. By and large, Venture has seen better traction with key customers and gained market share. We raised FY2012/13F earnings by 12-14 per cent to factor in better-than-expected sales momentum and slightly better margin.

Upgrade to Buy, TP raised to $9.50, to factor in revised estimates and a re-rating to 15x PE (mean) from 11x (-1 standard deviation). Apart from 22 per cent upside on share price, stock also pays 7 per cent yield.
BUY

Golden Agri-Resources

OCBC on 28 Feb 2012

Golden Agri-Resources (GAR) reported core earnings that missed our forecasts, coming in at US$90.6m, or 41.5% below. For FY11, revenue jumped 69.9% to US$5952.9m, or just 0.2% shy of our forecast; while core earnings climbed 47.6% to US$571.4m, it was 12.3% below our estimate (nearly 10% below consensus). Meanwhile, GAR declared a final cash dividend of 1.84 S cents, versus 0.77 S cent last year; payable on 15 May. In light of the latest results and also using a slightly higher CPO assumption of US$1000/ton (US$950/ton previously), we bump up our FY12 revenue estimate by 2.7%; but cut our earnings by 6.8% (due to lower margin assumptions). Still based on 12.5x FY12F EPS, our fair value eases from S$0.82 to S$0.77. Given the limited upside, we downgrade our call to HOLD; we would be buyers below S$0.70.

4Q11 core earnings disappoints
Golden Agri-Resources (GAR) reported core earnings that missed our forecasts. Although 4Q11 revenue rose 11.7% YoY to US$1327.9m, or 0.9% below our forecast, it fell 15.0% QoQ due to weaker CPO ASPs achieved. And also because of higher fertilizer cost as labour cost, operating profit fell 28.2% YoY and 11.9% QoQ to US$155.0m. As a result, core net profit (excluding bio-asset gains and exceptional items) fell 37.7% YoY and 21.9% QoQ to US$90.6m; it was also 41.5% below our forecast. We understand that GAR also had excess CPO left over in its inventory due to “logistic issues”. For FY11, revenue jumped 69.9% to US$5952.9m, or just 0.2% shy of our forecast; while core earnings climbed 47.6% to US$571.4m, it was 12.3% below our estimate (nearly 10% below consensus). Meanwhile, GAR declared a final cash dividend of 1.84 S cents, versus 0.77 S cent last year; payable on 15 May.

Spending US$500m on capex
For this year, GAR intends to build on its core competitive strengths by expanding its operations both upstream and downstream. To achieve this, GAR intends to spend US$500m as capex, with US$250m going to expand its palm oil plantation by 30k ha (both greenfield and via M&As). Another US$200m will be used to increase its downstream processing capacity in strategic locations, while the remaining US$50m will be used for infrastructure to extend its distribution coverage and logistic facilities to enhance its integrated operations.

Downgrade to HOLD with S$0.77 fair value
In light of the latest results and also using a slightly higher CPO assumption of US$1000/ton (US$950/ton previously), we bump up our FY12 revenue estimate by 2.7%; but cut our earnings by 6.8% (due to lower margin assumptions). Still based on 12.5x FY12F EPS, our fair value eases from S$0.82 to S$0.77. Given the limited upside, we downgrade our call to HOLD; we would be buyers below S$0.70. 

Swiber Holdings

OCBC on 28 Feb 2012


Swiber Holdings (Swiber) reported a 40.5% increase in revenue to US$654.5m but a 14% drop in net profit to US$32.1m in FY11. The latter was significantly below ours and the street’s estimates due to 1) lower other operating income, 2) higher administrative expenses, and 3) a jump in income tax expense in 4Q11. We are confident of the group’s ability to secure projects going forward, given the buoyant industry outlook and its strong foothold in certain geographical areas. However, we are expecting higher administrative costs and tax expenses which will impact core earnings. We are now assuming an US$850m new order win for 2012 after Swiber secured US$216m worth of work (excl. US$38m JV contract) YTD. Although this bumps up our fair value estimate to S$0.70, we maintain our HOLD rating due to limited upside potential.

4Q11 results significantly below

Swiber Holdings (Swiber) reported a 40.5% increase in revenue to US$654.5m but a 14% drop in net profit to US$32.1m in FY11. Revenue was in line with our expectations but bottom-line was significantly below ours and the street’s estimates of US$42m and US$40.2m, respectively. The group had turned in net profit of only US$1.5m in 4Q11 vs. US$8.5m in 4Q10 and US$13.5m in 3Q11; and the reasons for the underperformance were 1) lower other operating income, 2) higher administrative expenses, and 3) a jump in income tax expense.

High taxes in North Asia projects
The group saw a significant increase in income tax expense (US$17.9m in 4Q11 vs. US$3.3m in 3Q11) and management explained that this was due to work executed in India that had withholding tax. Certain projects were taxed based on top-line figures of projects, which can be substantial. As the group typically executes North Asian projects in 1Q and 4Q of each year, next quarter’s results may also be impacted.

Top-line should grow going forward
Swiber has an order book of over US$1b and we are confident of its ability to secure projects going forward, given the buoyant industry outlook and its strong foothold in certain geographical areas. However, we are expecting higher administrative costs and tax expenses which will impact core earnings. As for non-operating items, fair value losses on Swiber’s convertible bonds may also be booked in 1Q12 (given the CB’s price trend), and there are unlikely to be significant vessel disposal gains that will boost earnings this year. The group secured about US$750m worth of contracts last year and we are now assuming an US$850m new order win for 2012 after Swiber secured US$216m worth of work (excl. US$38m JV contract) YTD. Although this bumps up our fair value estimate to S$0.70, we maintain our HOLD rating due to limited upside potential. 

UOL

OCBC on 27 Feb 2012


UOL reported FY11 PATMI of S$664m, down 12% YoY mostly due to lower fair value gains on investments properties of associated companies. Adjusting for one-time gains, FY11 PATMI was S$535m which came in very close to our estimates of S$538m but somewhat below consensus (S$562m). Management also declared total dividends of 15 S-cents (10 cents final, 5 cents special). The group’s outlook is mostly unchanged and our thesis continues to be that its limited land-bank would shelter it from residential uncertainty ahead. However, its share price has appreciated 20% since our last update; we are downgrading to HOLD as our fair value estimate remains intact at S$4.77 (30% discount to RNAV). We expect sales at the Lion City project and accretive land-banking to be key catalysts ahead.

4Q11 results mostly within expectations
UOL reported FY11 PATMI of S$664m, down 12% YoY mostly due to lower fair value gains on investments properties of associated companies. Adjusting for one-time gains, FY11 PATMI was S$535m which came in very close to our estimates of S$538m but somewhat below consensus (S$562m). FY11 topline came in at S$1,960m, up 45% YoY due to higher recognition of projects sold, added contributions from ParkRoyal Serviced Suites in KL from 4Q10 and ParkRoyal Melbourne Airport Hotel (acquired Apr11). The topline came in above our forecast of S$1,858m and that of consensus (S$1,789m). Management also declared dividends of 15 S-cents (10 cents final, 5 cents special).

Holding prices at the Archipelago
Sales at the Archipelago launched in Dec11 continue to be slower than we had hoped with ~160 units out of 577 units sold as of 24 Feb 12. Management indicated that they would be holding prices mostly firm (~S$1,000 psf) in order not to undercut previous buyers – a strategy we agree with but would imply the Archipelago could take longer to sell than we previously projected. Looking ahead, we expect the condominium units at the Lion City project and The Esplanade in Tianjin to launch in 2Q12.

Healthy numbers from hotels
We saw another set of positive results from the hotel segment as revenue increased 10% YoY to S$358m, boosted by contributions from the ParkRoyal Melbourne Airport Hotel (acquired Apr11). Except for North America, REVPAR increased broadly across the hotel portfolio.

Outlook mostly intact
UOL’s outlook is mostly unchanged and our thesis continues to be that its limited land-bank would shelter it from residential uncertainty ahead. Management indicated a cautious view of the market, which is reassuring in our view, and we expect a prudent stance to land acquisitions in FY12. However, its share price has appreciated 20% since our last update; we are downgrading to HOLD as our fair value estimate remains intact at S$4.77 (30% discount to RNAV). We expect sales at the Lion City project and accretive land-banking to be key catalysts ahead.

Ying Li International

Kim Eng on 28 Feb 2012

Maintain Buy. Ying Li’s 4Q11 recurring net profit was largely within our expectations, after excluding the RMB230m gain from the fair value revaluation of its investment properties. Revenue of RMB495.4m (+1,286.1% YoY) was mainly boosted by the recognition of 15,000 sq m of International Financial Centre (IFC) office space, with the remaining 5,000 sq m to be recognised this year. Maintain Buy.

More office space for sale. On the flip side, gross profit margins for 4Q11 and FY11 narrowed by 14.1ppt and 26.7ppt, respectively, to 40.9% and 39.6%. This was due to sales of revalued investment properties yielding lower margins and an absence of consultancy income. To enhance cash flow, management plans to sell another 20,000-25,000 sq m of office space at about RMB25,000 psm.

Balance sheet in comfortable position. Ying Li’s net gearing rose to 56.9%, from 41.1% last year, due to new borrowings for the incremental project cost incurred for IFC and Daping. However, finance costs were lower as interest income received from the buyback portion of its convertible bonds (CB) was offset against the bonds’ interest expense. Moreover, part of the interest expense was capitalised as project cost.

Project execution on track. With the completion of its office building, Ying Li has leased out 22% of the total space to international and domestic clients, including DBS Bank, JCDecaux, Heidrick & Struggles, CBRE and Taikang Insurance. It is also in advanced negotiations with other potential tenants. Management has noted a strong response to the launch of Ying Li International Plaza Phase 1 residential units last December. The project is expected to be fully completed in 2014.

Still has 32% upside potential. Even though Ying Li’s share price has gained 29% since our report last month, we are maintaining our Buy recommendation and target price of $0.50, which is pegged at a 40% discount to the stock’s RNAV per share of $0.83. Our target price still offers 32% upside potential. One positive catalyst is successful refinancing for its early redemption of CB due March 2013.

Wilmar

Kim Eng on 28 Feb 2012

Below par. Wilmar’s stock price has taken quite a beating following the recent release of its FY11 numbers, which came in below market expectations. However, its full-year net profit of US$1.6b was slightly ahead of our forecast of US$1.56b, and slightly below if biological gains and non-operating items were excluded. Net of these, net profit was US$1.52b. With variances in margins the norm going forward, earnings multiples are simply not commensurate with this risk. We maintain our Sell recommendation and target price of $4.50.

Weakness across the board. Volumes across all divisions were hit by weaker demand while ASPs were not appreciably higher. While FY11 turnover was up by 47% YoY, 4Q11 saw specific weakness as revenue marked a 20% QoQ decline. Sales volume for palm & laurics was the worst affected due to lower demand from Europe and India. In terms of pretax earnings, the oilseeds & grains segment posted a spectacular decline – eking out just US$1.7m in 4Q11 versus US$99.7m in 3Q11 – due to weak crush margins and overcapacity in China. For plantations and palm oil mills, Wilmar’s internal production was hurt by lower yields in 4Q11, thus increasing reliance on external CPO purchases at thinner margins. Also sub-par were contributions from the sugar division.

Earnings profile risky. We are leaving our forecasts for Wilmar intact, which implies flat earnings. We have had a negative view on Wilmar since November last year. With earnings volatility clearly evident over several reporting periods, we think Wilmar is not very different from a commodities trader whose earnings and margins get eroded if demand recedes or if it gets squeezed on its purchasing. In our opinion, the market needs to take this factor into consideration.

Maintain Sell. Given the ongoing price risk, the consensus estimate of US$1.74b earnings for FY12 appears risky to us. Our expectation is for earnings to remain flat at US$1.59b. Consequently, Wilmar’s FY12 PER of 17x looks unjustified. We reiterate our Sell recommendation and target price of $4.50, which is based on a more realistic 15x FY12 PER.

First Resources

Kim Eng on 28 Feb 2012

First Resources (FR SP) – Growth engine intact
Previous day closing price: $1.845
Recommendation – Buy (maintained)
Target price – $1.95 (raised)

Record profits. FR’s 2011 net profit of US$196m (+37% YoY) was the highest ever. Setting aside gains on the fair value of biological assets, its core net profit of US$168m (+55% YoY) was within our expectations, but slightly above Street estimates. We raise 2012-14 net profit forecasts by 13-16% pa to reflect higher CPO ASP assumptions and new downstream growth. Reiterate Buy with a higher target price of S$1.95 (+9%) on an unchanged 14x 2013 PER.

Boosted by upstream growth. 2011’s record performance was boosted by (i) higher FFB output (+19% YoY to 1.73m tonnes), (ii) higher CPO ASP ex-mill at US$835/t (+15% YoY), and (iii) a strong turnaround in its downstream business. FR’s all-in cost of production remains one of the lowest among the planters, at US$294/t (+11%).

Upstream expansion ongoing. FR planted 11,421ha of oil palms in 2011 (2007-11 average: +10,500ha pa), short of its initial target of 15,000ha but still high compared to peers. This allows FR to stay “young”, with an average tree age profile of about eight years (as of December 2011). We forecast a three-year FFB CAGR of 9% over 2011-14 (2012: +9%). For 2012, we estimate FR will plant 12,000ha of oil palm trees, although management has set a higher target of 15,000-20,000ha.

Downstream turnaround. FR’s fractionation plant expansion in 2011 was timely, as its downstream division posted a maiden EBITDA of US$27m (2010: loss of US$2m), contributing 9% to group EBITDA. FR plans to take further advantage of the recent change in Indonesia’s export duty structure (which favours downstream players) to increase its refining capacity to 850,000tpa (+240%) by 1Q13.

Still a Buy. We raise our 2012-14 net profit forecasts by 13-16% to reflect our higher CPO ASP assumption of RM2,800/t (previously RM2,600/t) due to poorer South American crop prospects and higher contribution from FR’s new refining capacity from 2013 onwards. We forecast capex for 2012 at US$175m (vs management guidance of US$200m) on slightly lower new planting assumptions. Buy for its growth prospects.

UE E&C

Kim Eng on 27 Feb 2012

The share price of UE E&C, the engineering and construction subsidiary of United Engineers, surged by as much as 22.2% this morning after the company released its FY11 results last Friday. It reported a net profit of $64.5m, which was significantly higher than the $38.1m the market had expected, based on consensus data from Bloomberg, and 130% higher than the previous year. Its revenue grew by 5.6% YoY from $351.1m in 2010 to $370.8m in 2011 due to higher revenue from all segments but mainly from construction work done in UE BizHub EAST and Ascentia Sky in Singapore. Although the revenue increase was marginal, its profitability was boosted by a leap in gross margins from 16.8% in 2010 to 23.3% in 2011, mainly attributable to lower material prices and improved productivity. UE E&C’s latest book value is $0.61. Its current share price of $0.52 implies a 15% discount to its book. Balance-sheet-wise, the company is sitting on net cash of $112.9m, or $0.42 per share. UE E&C has also declared a dividend per share of 6 cents, translating to an attractive dividend yield of 11.5%. Over the next three days, we will see the last batch of results for this reporting season.

Venture Corp

OCBC on 27 Feb 2012

Venture Corp (VMS) reported its 4Q11 results, which came in mostly in line with our estimates. Revenue fell 10.3% YoY but rebounded 8.4% to S$632.5m, or around 5% below our forecast; net profit fell 29.8% YoY but also grew 7.3% QoQ to S$38.0m, or 0.4% above our estimate. And as expected, VMS has declared a final cash dividend of S$0.55/share, unchanged from last year. Going forward, we note that the outlook is not as negative, with VMS expecting to see a better picking from 2H12 onwards. And given that the market is now adopting a more “risk-on” approach, we also raise our valuation peg from 10x to 12.5x, which in turn raises our fair value to S$7.83 (S$6.18 previously). Maintain HOLD given the limited upside.

4Q11 results mostly in line
Venture Corp (VMS) reported its 4Q11 results, which came in mostly in line with our estimates. Revenue fell 10.3% YoY but rebounded 8.4% to S$632.5m, or around 5% below our forecast; net profit fell 29.8% YoY but also grew 7.3% QoQ to S$38.0m, or 0.4% above our estimate. FY11 revenue slipped 9.1% to S$2,432.4m, or just 1.4% below our forecast, while net profit fell 16.8% to S$156.5m, it was 0.7% above our estimate. And as expected, VMS has declared a final cash dividend of S$0.55/share, unchanged from last year; this after ending the year in a net cash position to the tune of S$309.1m.

Outlook not as negative
Going forward, we note that the outlook is not as negative, with VMS expecting to see a better picking from 2H12 onwards; this as it anticipates improved traction with several key customers this year. VMS further adds that it expects to capture full-year revenue from products launched towards the end of 2011; in fact, a number of new products in all business segments are at the threshold of market release. Nevertheless, 1Q12 is traditionally a slow quarter; and management further notes that it is cognizant of the uncertainty in the global economy and the relative weakness in some customers’ business.

Worst like over
The group achieved a net margin of 6.4% in FY11, and with the worst likely over, we expect net margin to improve further to 6.8% this year. However, it is still possible that we may not see much top-line growth, given that VMS may continue to focus on low-volume high-mix business. As such, we are easing our FY12 revenue forecast down by 1% and earnings up by 1%. And given that the market is now adopting a more “risk-on” approach, we also raise our valuation peg from 10x to 12.5x, which in turn raises our fair value to S$7.83 (S$6.18 previously). Maintain HOLD given the limited upside. 

BreadTalk

OCBC on 27 Feb 2012

BreadTalk Group’s (BTG) FY11 earnings came in within expectations: revenue came in slightly under our estimates (-0.6%) at S$365.9m (+20.8%) while net profit of S$11.8m (+5.3%) was 3.2% below. In terms of costs, gross profit margin remained stable at 54.7%. Management also proposed a final dividend of 1 SG cent per share to bring the total dividends declared for the year to 1.5 SG cents versus 1 SG cent last year. Going forward, BTG’s growth prospects will come from continued expansion into Thailand, and in the longer term, will be aided via its investment in Chjimes. With BTG’s results largely in-line, we retain our FY12 growth assumptions and roll our valuation forward to 12x blended FY12F/13F EPS for a higher fair value estimate of S$0.57 (S$0.54 previously). Reaffirm HOLD.

4Q results in-line with expectations
As expected, BreadTalk Group (BTG) turned in its strongest quarterly performance in 4Q11. Revenue grew 20.7% YoY (+4.6% QoQ) to S$100.5m while its bottom line fell 15.4% YoY (+20.5% QoQ) to S$4.4m due to the absence of one-time disposal gains. The Bakery segment retained its status as the main revenue contributor at 53.2% (S$71m), and along with the Restaurant segment (S$22.2) recorded strong QoQ growth of 37% and 12.5% respectively. Despite a traditional dip in takings during 4Q for the Food Court Segment, it managed to buck the trend and turn in a respectable 1.5% QoQ growth to S$24.9m. In terms of FY11 earnings, BTG’s revenue came in slightly under our estimates (-0.6%) at S$365.9m (+20.8%), and net profit of S$11.8m (+5.3%) was 3.2% below. Gross profit margin remained stable at 54.7%. Management proposed a final dividend of 1 SG cent per share to bring the total dividends declared for the year to 1.5 SG cents versus 1 SG cent last year.

Thai expansion and Chjimes investment
BTG’s expansion into Thailand is proceeding well and will continue exploring other food court and restaurant opportunities, which took a backseat during the earlier floods. In addition to its Thai aspirations, BTG invested S$18m in PRE 8 Investments, which bought Chjimes for S$177m. Similar to its Katong Mall investment, BTG will benefit from the asset enhancement of Chjimes as well as allow it to extract additional value via a selection of its F&B offerings at the popular hotspot.

Reaffirm HOLD with higher FV
With BTG’s results largely in-line with expectations, we keep our FY12 revenue growth assumptions of 14.3% unchanged. Furthermore, we retain confidence in management’s ability to control costs as gross profit margins have been stable over the past four years despite fluctuating raw material costs. Reaffirm HOLD at a higher fair value estimate of S$0.57 (S$0.54 previously) after rolling forward our valuation to 12x blended FY12F/13F EPS. 

SC Global Developments

Kim Eng on 27 Feb 2012

Quarterly loss, $25m write-down on Ardmore Park. SC Global reported a net loss of $18.6m for 4Q11, primarily due to a $25m write-down on its Ardmore Park project, which is currently under construction. Excluding the write-down, net profit for 4Q11 was $4.6m, below our expectation as operating expenses were higher owing to higher sales and promotion expenses as well as higher service charges for its completed inventory. Full-year FY11 revenue was $769.1m and net profit was $132.2m. We maintain our Hold recommendation.

Sales remained slow. The luxury segment has seen very little sales since the introduction of the 10% Additional Buyer’s Stamp Duty (ABSD) for foreigner purchases in December last year. The only project that has bucked the trend is The Scotts Tower by Far East Organization, where up to 25 units were sold after the ABSD took effect, at a median price of $3,300 psf. In 4Q11, SC Global sold only a unit from its landbank in Singapore, although that unit at The Marq on Paterson Hill achieved a record price of $6,841 psf. There were no sales last month.

More finished units on hand. With the residential component of Martin No. 38 obtaining TOP in November last year, SC Global has almost fully recognised its outstanding orderbook of pre-sold units, with the exception of Seven Palms, which we estimate has less than $10m in after-tax profits from the 10 units sold. Seven Palms is expected to complete construction by year-end. Earnings going forward will be underpinned by any new sales from its completed projects, The Marq on Paterson Hill, Hilltops and Martin No. 38, with a total of 337 units. Pre-sales in Ardmore Park have not commenced.

Maintain Hold. We maintain our Hold call with an unchanged target price of $1.05, based on a 70% discount to its RNAV of $3.49. SC Global has proposed a final dividend of 2 cents per share, which translates to a yield of 1.8%. We will revisit our assumptions only when sales in the luxury segment start to pick up.

Venture Corp

Kim Eng on 27 Feb 2012


Within expectations, reduce to Hold. Venture reported a 9.1% YoY decline in FY11 revenue to $2,432.4m, while net profit fell by 16.8% YoY to $156.5m. The results were in line with our forecasts and dividends were maintained at an expected 55 cents per share, implying a 7.0% yield. We maintain our target price of $8.45 but reduce our rating to Hold following the 27% run-up in share price YTD.


Dragged down by depreciating US$ and lower margins. The dip in overall revenue was attributed to translation effects of the US$ decline against the S$. Neglecting this effect, revenue would have fallen by a lower 1.0%. Other than the Test & Measurement and the Retail Store Solutions segments, each of the other three segments registered a YoY drop in revenue. Net margin came in lower at 6.4% compared to 7.0% a year ago, but this was still within the company’s targeted margin band of 6-8%. We also note that net margins have trended lower sequentially over the past four quarters.


Still resilient but no significant near-term catalysts. Venture’s business remains relatively resilient despite the challenges in FY11. While uncertainties continue into this year, the company is in the midst of launching several new products and aims to garner additional business from across other divisions of its customers. These could be the few bright spots to watch out for in 2012. Otherwise, we do not see any other significant near-term catalysts and would expect modest growth in FY12.


Firm financial footing. Venture continues to generate strong operating cash flows and maintains a solid balance sheet. Free cash flow for FY11 was $220.3m and net cash position at end-FY11 was $309.1m.
Reduce to Hold. We adjust our FY12F-13F net profit forecasts by 1.2-7.7%. Our target price is maintained at $8.45 based on a targeted yield of 6.5%. We downgrade the stock to a Hold as share price has risen by 27% YTD and is nearing our target price. Attractive dividends also warrant a Hold to wait out for positive signs for re-rating.

Sheng Siong

OCBC on 24 Feb 2012

Sheng Siong Group’s (SSG) FY11 results were broadly in-line with our expectations. Revenue fell 8% YoY to S$578m following the closure of the two key outlets while net profit fell 36.1% to S$27.3m in the absence of trading gains. SSG’s top-line figure exceeded our revenue projections slightly by 2.3% but an unexpected tax charge caused SSG’s net profit to come in under our projected S$31m. A final dividend of 1.77 SG cents per share was declared (90% of net profit as previously committed) for a dividend yield of 3.6%. Going forward, we expect revenue and net profit to pickup strongly in FY12 with the opening of new stores. As SSG’s results were in-line with our expectations, we keep our FY12 assumptions unchanged and roll our valuation forward to FY12, which increases our fair value estimate to S$0.49 from S$0.44 previously. With a committed 90% of net profit payout in FY12, we are expecting an attractive dividend yield of about 5.8%. Maintain HOLD.

FY11 results within expectations
Sheng Siong Group’s (SSG) FY11 results were broadly in-line with our expectations. Revenue fell 8% YoY to S$578m following the closure of the two key outlets while net profit fell 36.1% to S$27.3m in the absence of trading gains. SSG’s top-line figure exceeded our revenue projections slightly by 2.3% but an unexpected tax charge caused SSG’s net profit to come in under our projected S$31m. The increase in tax was related to sale of investments in 2009 and SSG is currently requesting IRAS to review the tax assessment. A final dividend of 1.77 SG cents per share was declared (90% of net profit as previously committed) for a dividend yield of 3.6%.

Pickup in revenue and net profit in 2012
With retail space recovering and now exceeding 2010 levels, we expect revenue to pick up strongly in FY12. FY11 bore the burnt of the initial start-up phases of the four new store locations and should start contributing significantly to SSG’s top-line this year. In addition, four new stores are planned to commence operations by end 2Q2012. In terms of costs, we expect SSG to at least maintain its gross profit margins at current levels of around 22% through cost savings from its new distribution centre (higher rebates and direct sourcing) and through its continued push to maintain a revenue mix of at least 30% fresh produce for each store location, which yields higher gross profit margins.

Maintain HOLD at higher fair value
As SSG’s results were in-line with our expectations, we keep our FY12 assumptions unchanged and roll our valuation forward to FY12, which increases our fair value estimate to S$0.49 from S$0.44 previously. With a committed 90% of net profit payout in FY12, we are expecting an attractive dividend yield of about 5.8%. Maintain HOLD. 

UOB

OCBC on 24 Feb 2012

UOB Group turned in FY11 net earnings of S$2327m, down 14%, and below market expectations of S$2407m (4Q net earnings of S$558m). While Net Interest Income rose 4% to S$3678m, Non-interest Income slipped 11% to S$2020m. Impairment charge went up 10% to $523m, or S$225m in 4Q alone. Net Interest Margin reversed from 1.89% in 3Q11 to 1.95% in 4Q11. We expect corporate banking to continue to do well in FY12 as it grows its regional franchise. We are leaving our FY12 estimates intact, but raising our fair value estimate to S$19.74. Maintain BUY.

Below expectations 4Q

UOB Group turned in FY11 net earnings of S$2327m, down 14%, and below market expectations of S$2407m (4Q net earnings of S$558m). The variance between our forecast and the actual results came mainly from lower Non-interest Income and higher provisions. While Net Interest Income rose 4% to S$3678m, Non-interest Income slipped 11% to S$2020m. This was due to sharply lower Other Income which fell 43% to S$515m. Impairment charge went up 10% to S$523m, or S$225m in 4Q alone. Some of the positives included better Net Interest Margin (NIM), which reversed from 1.89% in 3Q11 to 1.95% in 4Q11. Management is hoping to keep it at this level for the rest of the year. Full-year dividend remained unchanged at last year’s level of 60 cents (final dividend is 40 cents).

Corporate banking set to do well in FY12
While market conditions remained challenging, UOB, like its peers, enjoyed strong double-digit increase in corporate banking contribution in FY11. For this year, we expect this to remain a strong contributor as the consumer/retail segment is likely to still remain challenging and slow. Management is growing its regional corporate banking business and remains positive that it is able to grow the overseas contribution to 50% of the corporate banking pie by 2015 versus 38% in FY11. As a reflection of this, overseas wholesale loans growth was 45% in FY11, almost doubling the group’s overall rate of 26%.

Retain BUY; up fair value to S$19.74
While FY11 results were below the street’s expectations, it was only marginally below our forecast of S$2352m. For FY12, we have left our projections largely intact, projecting net earnings of S$2570m, up 10.4% YoY. The recent re-rating of banking stocks has brought its share price close to our previous fair value estimate. As the outlook is still uncertain for most external economies, we are retaining our valuation at 1.4x book (but rolling to FY12 estimate) and this raises our fair value estimate to S$19.74. With dividend of 60 cents, we are retaining our BUY rating.

ST Engineering

OCBC on 24 Feb 2012


ST Engineering (STE) 4Q11 revenue fell 5% YoY to S$1.5b but PATMI edged 2% higher to S$152m. The 4Q11 PATMI gain was primarily driven by two factors – 1) a total of S$10m of one-off losses in 4Q10 and 2) a lower tax rate of 16% in 4Q11. For the full year, STE’s FY11 revenue remained flat at a tad shy of S$6b while PATMI grew 7% to S$528m, missing consensus revenue and PATMI estimates by 8% and 4% respectively. STE disclosed a robust order book of S$12.3b at end-FY11 and announced a total dividend payout of 12.5 cents/share, made up by a final dividend of 4 cents/share and a special dividend of 8.5 cents/share. We increased our fair value estimate of STE to S$3.32/share, from S$3.01/share previously, and maintain our BUY rating.

Lower revenue but higher PATMI
ST Engineering (STE) 4Q11 revenue fell 5% YoY to S$1.5b but PATMI edged 2% higher to S$152m. The 4Q11 PATMI gain was primarily driven by two factors – 1) a total of S$10m of one-off losses in 4Q10 and 2) a lower tax rate of 16% in 4Q11, compared to the 23% tax rate in 4Q10. For the full year, STE’s FY11 revenue remained flat at a tad shy of S$6b while PATMI grew 7% to S$528m, missing consensus revenue and PATMI estimates by 8% and 4% respectively. On a more positive note, STE disclosed a robust order book of S$12.3b at end-FY11 and announced a total dividend payout of 12.5 cents/share, which represents a 90% dividend payout ratio for FY11. The dividend payout is made up of a final dividend of 4 cents/share and a special dividend of 8.5 cents/share.

Segmental contribution
In terms of revenue contribution from the different segments in 4Q11, Aerospace grew a strong 14% YoY to S$503m, Electronics gained 8% to S$408m, Land Systems remained flat at $465m, while Marine plunged 68% to S$91m. Management clarified that STE’s Marine segment was hit by a one-time S$176m reversal of revenue, which was the result of the termination of a shipbuilding contract for a Ropax ferry with Louis Dreyfus Armateurs announced during 4Q11. Land Systems was the star segment in pre-tax profit growth recording a 27% YoY jump to S$37m, while Marine edged 1% higher to S$38m. However, Aerospace pre-tax profit fell sharply by 19% to S$71m and Electronics eased 2% to S$33m.

Maintain BUY with higher S$3.32 fair value
At last night’s results briefing, management guided for both revenue and pre-tax profit growth in FY12, barring unforeseen circumstances. Compared to our previous fair value estimate of S$3.01/share, based on an 18.5x P/E multiple, we now peg our estimate of STE’s FY12 EPS to its historical average forward P/E multiple of 19x to arrive at a fair value of S$3.32/share. Maintain BUY.

Sembcorp Marine

OCBC on 24 Feb 2012

Sembcorp Marine (SMM) reported a 1.5% YoY rise in revenue to S$997.6m and a 4.3% fall in net profit to S$229m in 4Q11 such that FY11 net profit was 8% higher than our expectations. This was mainly due to foreign exchange gains and substantially lower general and administrative expenses in 4Q11. Besides lower margins going forward, we also note that there are hardly any major catalysts left in the medium term after Petrobras awards its drillships orders. We have tweaked our estimates to take into account our higher new order wins assumption and updated the market value of SMM’s stake in Cosco Corp. As such, our fair value estimate rises from S$5.63 to S$5.70. SMM’s stock price has rallied about 37% YTD vs the STI’s 12% rise and the FTSE Oil and Gas index’s 24% gain. As we now see limited upside potential in the stock price, we downgrade SMM to HOLD.

FY11 net profit slightly above expectations
Sembcorp Marine (SMM) reported a 1.5% YoY rise in revenue to S$997.6m and a 4.3% fall in net profit to S$229m in 4Q11, bringing full year revenue and net profit to S$3.96b and S$751.9m, respectively. FY11 net profit was 8% higher than our expectations, and this was mainly due to foreign exchange gains of S$10.4m in 4Q11 and substantially lower general and administrative expenses (S$34.2m, 50.4% lower YoY) with lower bonus provisions compared to 4Q10.

Expecting lower margins going forward
Management has guided operating margins of 15% or lower for FY12, vs FY11’s 18.6% and FY10’s 20.7%. Margins may also be lower in FY13 when the new Brazilian yard comes into operation as there could be initial teething problems, and it also pays to be prudent to assume conservative margins for SMM’s first drillship in Brazil.

Hardly any major catalysts left after Petrobras
There has been ample coverage on Petrobras’ rig orders and it is quite likely that the market has priced in these expectations in SMM’s stock price by now. We have also highlighted the possibility of new semi-submersible rig orders in our earlier reports with the tightening of the deepwater market. However, these have been reflected in our new order wins estimate of S$8.7b. Hence though there could be a positive knee-jerk reaction in the stock price when the Petrobras orders are awarded, we do not see any other major re-rating catalysts in the near term.

Limited upside; downgrade to HOLD 
We have tweaked our estimates to take into account our higher new order wins assumption and updated the market value of SMM’s stake in Cosco Corp. As such, our fair value estimate rises from S$5.63 to S$5.70. SMM’s stock price has rallied about 37% YTD vs the STI’s 12% rise and the FTSE Oil and Gas index’s 24% gain. As we now see limited upside potential in the stock price, we downgrade SMM to HOLD. 

Hyflux

CIMB Research on 23 Feb 2012

FY2011 core net profit of S$46 million was 30 per cent ahead of our estimate. Despite the gains from the sale of PPE and some effects of the lower tax rate, this set of results came off as good.

Contributions from Hyflux's Tuas II desalination project made up for the lost ground in Q4 2011. FY2011 earnings are a reflection of the near completion of major projects in Mena, impact of Arab Spring and lower divestment activities. The group's work on the S$88 million expansion of six plants in China has added some cheer. The group is also active in bidding for various projects in the Mena region.

Results were good, but we now focus on the sustainability of the share price. We find it hard to remain bullish as volatile earnings and major capex could add to selling pressure; at least until major positive catalysts emerge. Share price has outpaced market. Downgrade to 'trading sell' from 'neutral'. We would turn more positive if we see substantial order wins.

TRADING SELL

CapitaCommercial Trust

DBS Group Research on 23 Feb 2012

CAPITACOMMERCIAL Trust (CCT) is buying 20 Anson Road for S$446.6 million, inclusive of a yield stabilisation amount of S$17.1 million, to be drawn over the next 3.5 years. Excluding the stabilisation amount, the deal works out to be S$2,121 per square foot (psf) or net property income (NPI) yield of 4 per cent based on net property price of S$430 million.

The building has a net lettable area (NLA) of 202,500 sf and is currently 100 per cent occupied.

The price is in line with recent transacted prices of S$2,043- S$3,050 psf. As most of the leases were sealed during the market trough in 2009/2010, average monthly passing rent for 20 Anson Road is S$6.18 psf, which is fairly low compared to the current market rents in the vicinity at S$8.44 psf. We also expect rental market to weaken on the back of a slower economy.

The trust will fund the purchase with about S$100 million debt and about S$353 million cash. This will increase net gearing from 30.2 per cent to 31 per cent. Including Market Street redevelopment and 6 Battery ongoing AEI works, net gearing will be closer to 33.5 per cent.

Maintain 'buy' at a lower TP of S$1.30. We raise our FY2012/2013 distribution per unit (DPU) by 4-7 per cent to account for the additional income. However, discounted cash flow-backed TP is reduced by 4.4 per cent to S$1.30 due to the higher cost of capital versus property yield.
BUY

Rotary Engineering

OCBC on 23 Feb 2012


Rotary Engineering Ltd (Rotary) reported a 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. FY11 revenue of S$531m (down 25%) and net profit of S$31m (down 51%) were within our expectations but below the street’s expectations. Rotary’s current order-book has also decreased to S$690m from S$758m as end-Sep 11. Meanwhile, the group has proposed a 2 S cts final dividend. We maintain HOLD rating but increased our fair value estimate to S$0.72 on 1.3x PBR.

Results within expectations

Rotary Engineering Ltd (Rotary) reported 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. 4Q11 gross profit margin declined to 20% from 30% (4Q10) due to the absence of major project closures. On a full year basis, FY11 revenue of S$531m (down 25%) and net profit of S$31m (down 51%) were within our expectations but below the street’s expectations. FY11 gross margins remained flat at 21% (FY10: 22%), but net margins fell to 5.8% (FY10: 9.1%) on the back of lower revenue. Rotary has also announced a 2 S cts final dividend, bringing its FY11 total dividend to 3 S cts (or a payout ratio of 55%).

A leaner order-book
Rotary’s order-book has declined to S$690m (as of 14 Feb 2011) from S$758m (as of end-Sep 11). The downward trend in its order-book, as seen over the past 12 months, mainly reflects the financial and economic uncertainties in the global environment. However, management is seeing some momentum in project enquires. It continues to participate actively in tenders and hope to capitalize on its presence in Jubail to win further contracts.

Margin pressure persists 
In view of the uncertainties in the operating environment, management has guided for lower gross profit margin of 12-18%, in contrast to the typical 15-20%. There may be some upside from the release of risk contingencies on project completions. In this regard, we believe that the SATORP mega-project (due for completion in end-Dec 12) may provide 2-3% upside. In line with the recent re-rating of the oil-and-gas sector, we are increasing our fair value estimate to S$0.72 (S$0.61 previously) based on 1.3x PBR (1.1x previously). Maintain HOLD.

Super Group

Kim Eng on 24 Feb 2012


Slightly above expectations. Super’s FY11 results were slightly above expectations due to margin expansion as record raw material prices receded. Gross margins reversed their downward trend, recovering from 29% last quarter to 32.5% in 4Q. While long-term fundamentals remain promising, we do not see current valuations as an attractive entry level. This is especially so in the light of possible revenue weakness in Super’s next quarterly results.


Record profits as expected. Super achieved record revenue (up 25% YoY) and profit for the year as expected, aided largely by the ingredients sales segment which has grown exponentially over the past two years. Stripping out one-off gains in both years, recurring net profit for FY11 came in at $51.1m, which is 15% higher than last year.


4Q11 results affected by Thai flood. Despite the distribution disruptions in its biggest branded consumer market, this segment showed only a 3% YoY decline in 4Q. Management attributed this to higher sales achieved in its other markets. Nonetheless, we believe there could be a bigger adverse impact in the upcoming 1Q12 as distributors only start drawing down on stockpiled goods then.


Growth from ingredients sales. This has been an important engine of growth for Super over the past two years, although we expect growth to decelerate going forward. The capacity expansion for its non-dairy creamer plant in Wuxi was completed in 3Q11, bringing capacity to 125,000mtpa from 75,000mtpa.


Brand-building effort in 2012. This will be one of management’s focus areas for the year, as it undergoes brand-building for its main Super brand. The Owl brand has just concluded a similar effort last October. It is hoped that this will improve brand equity and pricing power compared to its main competitor Nestle. The latter is still priced at a 15-25% premium over Super, and the longer-term aim is to narrow this gap.


Maintain Hold. We raise our FY12 earnings estimates by about 4%. Our recurring net profit excludes the deferred gain of $3.1m a year from Super’s 2007 property sale (ending FY13). Our target price of $1.55 is pegged at 15x FY12F, in line with historical average.

CWT

Kim Eng on 24 Feb 2012

Above expectations. CWT’s FY11 results were stellar and above expectations, affirming our Buy recommendation and investment thesis. With contributions from its newly-acquired commodity trading arm MRI kicking in, recurring net profit went beyond the $50m level for the first time in its history, after hovering around $25-30m for the past four years. We believe that this heralds a new era of sustainable profit for CWT. Maintain Buy.

Driven by six-month contribution from MRI. Recurring net profit grew 68% YoY from $29.9m to $50.2m in 2011, driven by a half-year contribution from MRI, which we estimate to be about $15m. While there was also structural growth in its other businesses, profits were dragged down by business development costs during the year, as the group embarked on new business ventures, such as coal trading, to put its war chest to good use after the CACHE REIT spin-off.

Strong operational growth as well. The inclusion of MRI, as well as coal and other commodity trading businesses, in FY11 means that revenue comparison on a YoY basis is not meaningful. Excluding MRI, 4Q11 operating performance was strong, with warehouse occupancy at an all-time high and contribution from the Pandan Logistics Hub, which was commissioned in 3Q11. Construction of the $135m warehouse for AIMS REIT was also started, which boosted profitability.

Look past the headline debt number. While CWT appears to have plunged itself into a net debt position ($181m, 38% net gearing) from its previous balance sheet strength, it is worth noting that these debts are mostly at the MRI subsidiary level with no recourse to the group. The nature of commodity trading is such that gearing is required to fund the substantial working capital, especially if it is a growing business. We believe the level of profitability justifies the taking on of debt.

Maintain Buy. Management announced a full-year dividend of 2.5 cents per share. Our SOTP-based target price is $1.68. A full-year contribution from MRI, as well as the realisation of business synergies in 2012, should bring profitability even higher. Other catalysts include possible warehouse divestment gains in 2012, as well headway in expanding its logistics business presence in Europe.

UOB

Kim Eng on 24 Feb 2012

UOB (UOB SP) – Improved liquidity
Previous day closing price: $18.40
Recommendation –Sell (maintained)
Target price – $14.20 (maintained)

Sell maintained. UOB’s 2011 earnings were broadly within expectations, with core net profit down a marginal 4% YoY to $2.3b. While management remains upbeat about a recovery in margins, we are less sanguine at this stage, on expectations that any NIM recovery in Singapore is likely to be offset by compressions in countries in the region where UOB has a presence. Our overall forecasts are broadly maintained, as is our target price of $14.20 (P/BV of 1x, ROE of 10.9%).

2011 results within expectations. UOB’s 2011 earnings were within expectations, at a marginal 4% below our forecast and in line with consensus. Operating profit expanded a decent 16% QoQ in 4Q, but the overall impact was offset by higher impairment charges during the quarter, resulting in a 3% QoQ decline in pretax profit.

The positives are that a) margins expanded 6bps QoQ due to better yields on interbank lending and securities; b) the group’s liquidity position has improved, with a loan/deposit ratio of 83% at end-December 2011 and a more manageable US$ loan/deposit ratio of 99% (125% in 3Q); and c) NPLs dipped in 4Q11 having ticked up in 3Q.

Management remains upbeat and guides for mid-teens loan growth in 2012 (+25% YoY in 2011). Other targets include sustaining a cost/income ratio of 43% (43% in 2011) and for NIMs to improve on the back of the ability to price in liquidity premiums. Management also hopes to hold loan/deposit ratios at 83-85%. A primary area of focus is in driving contribution from its overseas wholesale business to 50% of group profit by 2015, from 38% presently.

European exposure reduced. Total investment exposure to Europe stood at S$1.58b at end-December (7% of shareholders’ funds), down from S$2.63b at end-June (12% of shareholders’ funds). This was largely achieved through disposals and CDS protection.

Genting SP

OCBC on 23 Feb 2012

Genting Singapore (GS) could see a near-term sell-down as its FY11 earnings of S$1,011.1m (+55%) were 12% below Bloomberg consensus; but were still 9% above our forecast. Market may also be disappointed to learn that GS has again lost market share to Marina Bay Sands, including the VIP market share due to its exceptionally high hold rate in 4Q11; although it has managed to maintain its profitability. Nevertheless, GS believes that quality of the VIP customers are more important than quantity; and expects to attract more high rollers with its newly-opened luxurious Beach Villas. We maintain our BUY call with S$2.02 fair value, given its strong cash-flow generating ability, which increases the odds of a higher dividend this year. As a recap, GS declared an unexpected final dividend of S$0.01 for FY11.

FY11 earnings +55% to S$1,011.1m
Genting Singapore (GS) saw 4Q11 revenue inch up 0.5% YoY (but slipped 2% QoQ) to S$786.3m, with revenue growth coming mainly from its non-gaming segment. Net profit grew 180% YoY and 21% QoQ to S$254.6m. For FY11, revenue climbed 18% to S$3,223.1m, or 2.5% below our estimate, while reported net profit jumped 55% to S$1,011.1m, or 9.4% above our forecast. GS also declared a final dividend of S$0.01 per share.

Still losing market share
On a comparable basis, GS appears to still be losing market share to rival Marina Bay Sands (MBS), which we estimate commanded around 57% of overall gaming market (based on gross gaming revenue) in 2011. We understand GS also lost market share in the VIP segment (rolling chip volume down 26% QoQ) due to its exceptionally high hold rate of 3.9% (versus MBS’ 3.3%). Nevertheless, GS was able to keep up with MBS in terms of adjusted EBITDA margin, which came in around 52.0% versus MBS’ 52.9%.

New West Zone to attract VIP market
However, GS believes that quality of the VIP customers are more important than quality, and is looking to target more high rollers from both Asia and Eastern Europe with its swanky new 172-room Equarius Hotel and the 22 Beach Villas in the West Zone. Meanwhile, GS is also more cautiously optimistic about the high roller market in 2H12 as it expects the EU crisis to exert a smaller impact on the Asian economies. But GS notes that 2012 will be a “transition year” where it will incur a lot of expenses with zero revenue with the opening of new attractions like its Marine Life Park.

Expect near-term sell-down; maintain BUY
FY11 earnings were 12% below Bloomberg consensus, and we could see a near-term sell-down; but we maintain our BUY call with S$2.02 fair value, given its strong cash-flow generating ability, which increases the odds of a higher dividend this year. 

Neptune Orient Lines

OCBC on 23 Feb 2012

Neptune Orient Lines (NOL) surprised the street by turning in a net loss of US$320m in 4Q11, which was even higher than consensus’ full year net loss estimate of US$275m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. Thus far in 1Q12, freight rates have averaged 7% higher but bunker prices have more than kept pace by climbing 8%. Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook.

Magnitude of net loss took street by surprise
Neptune Orient Lines (NOL) turned in a net loss of US$320m in 4Q11, which resulted in a FY11 net loss of US$478m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. The magnitude of NOL’s net loss in 4Q11 is likely to take the street, which was expecting net losses of US$118m and US$275m for 4Q11 and FY11 respectively, by complete surprise. Furthermore, NOL’s net loss in 4Q11 was even higher than any single quarter during the sub-prime crisis back in 2008/09.

1Q12 seems equally challenging
During the month leading to the Chinese New Year, freight rates (SHSPSCFI Index) saw a 15% bounce from the low in mid-Dec 2011, as customers rushed orders before factories in China close for the festive season. The SHSPSCFI has since slid lower for three weeks in a row. Although the SHSPSCFI has averaged 7% higher thus far in 1Q12, bunker prices (BUNKSI38 Index) have more than kept pace by climbing 8%.

Full rate hike is unlikely
Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. At the results briefing, NOL’s management sounded between hopeful and confident of successfully raising freight rates, starting next month. However, overcapacity should mean shipping liners are unlikely to get the full rate hikes they are seeking, short of a mass idling of capacity by the entire shipping community.

Reiterate SELL with new fair value of S1.15
Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook.

Hyflux

OCBC on 23 Feb 2012


Hyflux Ltd posted a much better-than-expected FY11 showing, with revenue of S$482.0m coming 10% and 3% above our and consensus forecast respectively; net profit of S$53.0m was also 7% and 11% above. Hyflux also declared a final dividend of S$0.021, bringing the full-year payout to S$0.0277, down from the S$0.0417 in FY10. Going forward, we expect Hyflux to focus more on Asia, especially Singapore, as the short-term outlook for MENA remains uncertain. In view of the better-than-expected results, we are modestly bumping up our FY12 estimates by 1.4-6.0%. We also raise our fair value from S$1.28 to S$1.55, based on 18x FY12F EPS (versus 15x previously). But given the limited upside, we maintain our HOLD rating.

Better-than-expected FY11 showing
Hyflux Ltd posted a much better-than-expected FY11 showing. Although revenue fell 15% to S$482.0m, following the completion of the mega projects in Algeria, it was still 10% above both our forecast and 3% above consensus. Net profit, down 40% at S$53.0m, was again 7% better than our estimate and also 11% above consensus. But if we strip off the exceptional items, the clean net profit would have been almost spot on our estimate. Hyflux also declared a final dividend of S$0.021, bringing the full-year payout to S$0.0277, down from the S$0.0417 in FY10.

MENA near-term outlook remains soft
According to management, FY11 results reflect the transition of earnings from MENA to Asia, following the completion of its two desalination projects in Algeria. Going forward, Hyflux continues to expect the short-term outlook for the region to remain uncertain although it does see pockets of opportunities. On the other hand, it believes that Asia will continue to be the key region of its growth over the next years. In China, Hyflux is undertaking the expansion and enhancement works at six waste-water treatment plants with an estimated project value of S$88m.

Main focus on Tuaspring
But over the next few quarters, its focus will be on Tuaspring – the 318.5k m3/day desalination plant. Assuming that 90% of the project will be recognized over the next six quarters, Hyflux should be able to book EPC revenue of some S$112m per quarter; we note that 4Q11 revenue came up to almost S$196m. And based on a conservative 10% net margin, quarterly earnings should be around S$12m. Hence at the very least, Tuaspring should account for S$448m of revenue and S$48m of net profit this year.

Raising fair value to S$1.55
In view of the better-than-expected results, we are modestly bumping up our FY12 estimates by 1.4-6.0%. We also raise our fair value from S$1.28 to S$1.55, based on 18x FY12F EPS (versus 15x previously). But given the limited upside, we maintain our HOLD rating. 

Wilmar

OCBC on 22 Feb 2012

Wilmar International Limited (WIL) reported a pretty muted set of 4Q11 results this morning. For FY11, revenue climbed 47.2% to US$44.7b, or 0.8% shy of our forecast; reported net profit rose 20.9% to US$1.6b; but if we strip away non-operating items and biological assets gains, core earnings would have come in around US$1.52b, or around 9% below our forecast. Going forward, management believes that things should not get worse from here, but it retains a slightly cautious tone, especially towards its Oilseeds & Grains business which is still facing margin pressures in China due to the excess capacity there still. Market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook. In view of the more “risk-on” approach, we have also raised our valuation peg from 12x to 15x FY12F EPS, and this in turns raises our fair value to S$5.15. But given the stock has run way ahead of fundamentals, we downgrade our call to SELL.

Muted 4Q11 results
Wilmar International Limited (WIL) reported a pretty muted set of 4Q11 results this morning. While revenue rose 26.7% YoY to US$11.5b, it fell 12.0% QoQ. Reported net profit jumped 56.9% YoY and 188.3% QoQ to US$500.0m; but excluding non-cash items, core earnings would have come in around US$265.0m. For FY11, revenue climbed 47.2% to US$44.7b, or 0.8% shy of our forecast; reported net profit rose 20.9% to US$1.6b; but core earnings would have come in around US$1.52b, or around 9% below our forecast. WIL declared a final dividend of S$0.031, bringing the total dividend to S$0.061, versus total of S$0.055 last year.

Margins hit QoQ for most segments
Most business segments performed poorly QoQ on the margin front, with the exception of its Consumer Pack segment, which rose 147% QoQ (down 22% YoY) to US$28.1/MT. Profitability for its Palm & Lauric business declined 26% YoY and 31% QoQ to US$20.3/MT, while Oilseeds & Grains fared even worse, down 101% YoY and 98% QoQ to US$0.3/MT. Even sugar saw its Milling margin drop by 47% to US39.5/MT and Processing even showed a loss of US$22.4/MT from US$35.9/MT in 3Q11.

Bottom likely seen but catalysts still lacking
Management believes that things should not get worse from here, but it retains a slightly cautious tone, especially towards its Oilseeds & Grains business which is still facing margin pressures in China due to the excess capacity there. Market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook.

Downgrade to SELL with S$5.15 fair value
We have made minor tweaks to our FY12 forecast. In view of the more “risk-on” approach, we have also raised our valuation peg from 12x to 15x FY12F EPS, and this in turns raises our fair value to S$5.15. But given the stock has run way ahead of fundamentals, we downgrade our call to SELL. We would be buyers around S$5. 

Ezion Holdings

OCBC on 22 Feb 2012

Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Ezion has also clinched its fourth service rig contract worth up to US$118m from a European-based customer, which is likely to be Total S.A. We estimate a decent ROE of 25-30% for this project. Management is optimistic about opportunities in the service rig and logistics segments, and given the amount of potential work that may come up, there is a possibility of a fund raising. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY.

FY11 results in line.Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Revenue was lower on year due to the absence of revenue from marine services (of ad-hoc nature) and also lower on a sequential basis with lower contributions from the liftboat division. Liftboat 4, which is on charter with Pertamina, underwent modification work (~seven weeks) before being deployed in the Java Sea in Dec last year.

Secures yet another service rig contract.Ezion also announced today that it has clinched its fourth service rig contract worth up to US$118m over a three year period from a European-based multinational oil company. The rig will be deployed in the Yadana field in offshore Myanmar before the end of this year, and a quick check shows that Total S.A. and state-owned MOGE (Myanmar Oil & Gas Enterprise) entered into contract to develop the field in 1992. The cost of procurement, refurbishment and upgrade of the rig is approximately US$90m, and conversion work will start in Mar. We estimate a decent ROE of 25-30% for this project.

Fund raising in the pipeline?.
Management is optimistic about opportunities in the service rig and logistics segments. Given the amount of potential work that may come up in the near future, there is a possibility of Ezion undertaking a fund raising via avenues such as a placement. The group may also attempt a preference share issue; recall that it proposed a perpetual capital securities issue in 2H11 but nothing materialized due to market conditions. Should a fund raising occur, there may be a negative knee-jerk reaction once the trading halt is lifted, depending on the terms and conditions. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY. 

CapitaLand

OCBC on 22 Feb 2012


Major new wires reported today that non-local residents in Shanghai can now purchase second homes after holding residence permits for three years, citing the city’s housing regulator through Shanghai Securities News. While too early to tell, we believe this development shifts the odds marginally towards a scenario of fine-tuning and decentralization from centrally-imposed buyer restrictions, given that Shanghai is a touchstone for major policy shifts. In our view, while Chinese monetary easing has gradually reduced the likelihood of a hard-landing scenario, persistent property curbs and slowing residential sales remains the main drag on CAPL’s earnings outlook. With visibility already mostly present for CMA’s strong execution on its mall pipeline and an expected positive launch at Sky Habitat (Bedok) in 2Q12, shifts in market expectations regarding Chinese residential sales would likely be a key price catalyst over the near to mid-term. We raise our fair value estimate to S$3.40 (unchanged RNAV discount of 25%) versus S$3.11 previously, after updating our model for higher valuations of listed holdings and less bearish estimates of Chinese residential ASPs. Maintain BUY.

Higher odds for fine-tuning and decentralization
Major new wires reported today that non-local residents in Shanghai can now purchase second homes after holding residence permits for three years, citing the city’s housing regulator through Shanghai Securities News. Previously, residence permit holders were not allowed to buy second homes in the city. While too early to tell, we believe this development shifts the odds marginally towards a scenario of fine-tuning and decentralization from centrally-imposed buyer restrictions, given that Shanghai is a touchstone for major policy shifts.

It’s about Chinese residential sales
A majority of CAPL’s assets is in China - 38% of assets, ex. cash, as of end 4Q11. Of its Chinese exposure, 38% is in residential projects. In our view, while Chinese monetary easing has gradually reduced the likelihood of a hard-landing scenario, persistent property curbs and slowing sales remains the main drag on earnings outlook. CAPL sold ~1,500 Chinese residential units in FY11 versus 2,920 units in FY10. QoQ sales also slowed (409 units sold 3Q11; 161 units 4Q11). Management had indicated there are 2.4k launched and unsold Chinese units, which is a fairly large inventory to work through. With visibility already mostly present for CMA’s strong execution on its mall pipeline and an expected positive launch at Sky Habitat (Bedok) in 2Q12, shifts in market expectations regarding Chinese residential sales would likely be a key share price catalyst over the near to mid-term.

Maintain BUY at higher fair value estimate of S$3.40
We had highlighted Chinese macro drivers as a likely positive catalyst in an earlier paper “China – wild card” dated 15 Dec 2011 with a Buy call, and note that the CAPL’s share price has appreciated 40% since then. We reiterate our investment thesis and raise our fair value estimate to S$3.40 (unchanged RNAV discount of 25%) versus S$3.11 previously, after updating our model for higher valuations of listed holdings and less bearish estimates of Chinese ASPs. Maintain BUY
.

Overseas Union Enterprise

DMG & Partners Research on 22 Feb 2012

FY2011 revenue of $332.4 million, up 54.2 per cent y-o-y, was mainly driven by acquisitions.

Significant net profit decline of $335.7 million was dragged by lower revaluation gains and higher debt costs in FY2011. A dividend of 11 cents was announced along with FY2011 results. While the stock offers value for quality portfolio, leasing momentum for its office assets would likely be the near-term driver for share price but facing occupancy risks on challenging leasing environment. 'Neutral' maintained with an unchanged TP of $2.36.

We also note for OUE's asset portfolio, generally appraised values are unchanged in FY2011 versus FY2010, which reflects stabilisation. However we are less sanguine moving forward for OUE's office portfolio, and believe asset appraisals are likely to be on a downward trajectory on the back of challenging leasing environment and ample office supply looming.

At DBS Towers, while current signing rents at about $7 psf levels are above current passing rents of $5.62 psf, the impending relocation of DBS to Marina Bay Financial Centre Phase 3 occupying about 55 per cent of leases expiring in FY2012 raises concerns on NPI contraction in FY2013 due to the large space to refill.

One Raffles Place Tower 2 (ORP) and OUE Bayfront are currently about 42 per cent and about 82 per cent committed respectively, with a lack of leasing momentum to date. Large leasing deals are understandably in talks for ORP and DBS Towers, but negotiations are protracted due to dampening effect of macro uncertainties.

Management reaffirmed weak buying interest, especially from foreigners persisting for Twin Peaks due to weakened sentiment from recent additional buyer's stamp duty measures. This reinforces our negative view of the high-end segment.
NEUTRAL