OCBC on 31 Aug 2012
In Jul, HK retail sales climbed 3.8% YoY by value, significantly lower than the median 9.0% forecast of economists surveyed by Dow Jones Newswires and the YoY increases from Jan-Jun, which varied between 8.7% and 17.1%. A government spokesman attributed Jul's slow growth to the external economic environment and more cautious local consumer sentiment. Retail sales growth could be more moderate in 2H12 than 1H12 and this will reduce the extent of possible rental increases. A new visa policy to be implemented starting 1 Sep will help more mainlanders travel to HK. However, we estimate that mainland arrivals account for only ~19% of HK retail sales, so any increase in retail sales due to the visa policy will likely be moderate. For suburban mall operators like FRT, local consumer sentiment will still be a more important driver for positive rental reversions. We maintain our fair value of HK$5.33 and HOLD rating.
HK Jul retail sales below expectations
In Jul, HK retail sales climbed 3.8% YoY by value, significantly lower than the median 9.0% forecast of five economists surveyed by Dow Jones Newswires and the YoY increases from Jan-Jun, which varied between 8.7% and 17.1%. Jun retail sales had grown 11.0% YoY. A government spokesman attributed Jul's slow growth to the external economic environment and more cautious local consumer sentiment. Retail sales growth could be more moderate in 2H12 than 1H12 and this will reduce the extent of possible rental increases.
New visa policy could increase PRC visitor numbers...
The Chinese government has announced a change in the Individual Visit Scheme, whereby non-residents living in Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin and Chongqing are able to apply for passports and visas to HK, Macau and Taiwan starting from 1 Sep 2012. Currently, people need to return to the area that issued their residency permit (hukou) to apply. The six cities have substantial non-resident populations. Shenzhen reportedly has a non-resident population of 4.1m, of which many are thought to be migrant workers with mass-market consumption patterns - which suits FRT’s positioning.
...but PRC arrivals account for only 19% of retail sales
For the first seven months of the year, overall visitor arrivals to HK climbed 15.2% YoY to 26.7m. In particular, arrivals by visitors residing in the mainland increased 22.6% YoY to 18.8m. Residents of mainland China spent HK$78,792m on shopping in 2011. Based on this, we estimate that mainlanders accounted for only 19.4% of the HK’s total retail sales in 2011, so additional arrivals due to the visa policy will not necessarily be a panacea. For suburban mall operators like FRT, local consumer sentiment will still be a more important driver for positive rental reversions. We calculate that visitor arrivals as a whole accounted for 24.4% of 2011 retail sales.
Maintain HOLD
We maintain our fair value of HK$5.33 and HOLD rating.
Friday, 31 August 2012
Singapore Telcos
OCBC on 31 Aug 2012
All three telcos recently reported 2QCY12 results, but StarHub was the only bright spark. Going forward, SingTel and StarHub have mostly kept their previous guidance of stable outlook, along with possible margin pressures in 2HCY12; but M1 has not reiterated its “stable” top and bottom-line statement. Nevertheless, thanks to their strong cashflow-generative businesses, the telcos have kept their dividend payout guidance. With the exception of StarHub (+23%), the other two stocks have underperformed (M1 +3%, SingTel +7%) versus the STI’s 14% gain YTD. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and still-attractive yields offer a safe harbour for risk-adverse investors. Maintain OVERWEIGHT.
Only StarHub was above
All three telcos recently reported 2QCY12 results, but the only bright spark came from StarHub (even beat our earnings forecast) while both M1 and SingTel turned in quarterly results that were somewhat disappointing. For M1, it attributed the softer showing to accounting treatment for a popular Android phone (where subsidies are expensed upfront), while SingTel cited weaker forex rates (affecting Optus and regional associates) as reason behind for its muted showing.
Review of Singapore mobile operations
For the post-paid mobile market, there was no change to status quo – SingTel continues to dominate with a ~48% share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base here grew by 58k to 4125k, led by SingTel (+45k). We note that some 70% of new signups now take up smartphones, and data as a percentage of ARPU – currently around 37-42% - could increase further.
Mostly stable 2012 outlook
SingTel and StarHub have guided for a stable outlook ahead, although their EBITDA margin outlook continues to be fairly muted; this probably due to rising content cost for their Pay TV businesses. On the other hand, M1 has not reiterated its “stable performance at both top and bottom-line guidance”, given the continued strong interest in Android phones (also possibly expecting higher subsidies for another new iPhone, which should also affect both SingTel and StarHub). Nation-wide LTE roll-out is also on the cards for all three but it remains at best a 2013 story (largely dependent on availability of LTE handsets).
Maintain OVERWEIGHT
Again, StarHub has continued to do well (+23% YTD), while SingTel (+7%) and M1 (+3%) have continued to lag the STI’s 14% gain. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and still-attractive yields offer a safe harbour for risk-adverse investors. Maintain OVERWEIGHT on the sector, with M1 still our preferred pick.
All three telcos recently reported 2QCY12 results, but StarHub was the only bright spark. Going forward, SingTel and StarHub have mostly kept their previous guidance of stable outlook, along with possible margin pressures in 2HCY12; but M1 has not reiterated its “stable” top and bottom-line statement. Nevertheless, thanks to their strong cashflow-generative businesses, the telcos have kept their dividend payout guidance. With the exception of StarHub (+23%), the other two stocks have underperformed (M1 +3%, SingTel +7%) versus the STI’s 14% gain YTD. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and still-attractive yields offer a safe harbour for risk-adverse investors. Maintain OVERWEIGHT.
Only StarHub was above
All three telcos recently reported 2QCY12 results, but the only bright spark came from StarHub (even beat our earnings forecast) while both M1 and SingTel turned in quarterly results that were somewhat disappointing. For M1, it attributed the softer showing to accounting treatment for a popular Android phone (where subsidies are expensed upfront), while SingTel cited weaker forex rates (affecting Optus and regional associates) as reason behind for its muted showing.
Review of Singapore mobile operations
For the post-paid mobile market, there was no change to status quo – SingTel continues to dominate with a ~48% share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base here grew by 58k to 4125k, led by SingTel (+45k). We note that some 70% of new signups now take up smartphones, and data as a percentage of ARPU – currently around 37-42% - could increase further.
Mostly stable 2012 outlook
SingTel and StarHub have guided for a stable outlook ahead, although their EBITDA margin outlook continues to be fairly muted; this probably due to rising content cost for their Pay TV businesses. On the other hand, M1 has not reiterated its “stable performance at both top and bottom-line guidance”, given the continued strong interest in Android phones (also possibly expecting higher subsidies for another new iPhone, which should also affect both SingTel and StarHub). Nation-wide LTE roll-out is also on the cards for all three but it remains at best a 2013 story (largely dependent on availability of LTE handsets).
Maintain OVERWEIGHT
Again, StarHub has continued to do well (+23% YTD), while SingTel (+7%) and M1 (+3%) have continued to lag the STI’s 14% gain. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and still-attractive yields offer a safe harbour for risk-adverse investors. Maintain OVERWEIGHT on the sector, with M1 still our preferred pick.
Tiong Woon Corporation
UOBKayhian on 31 Aug 2012
Valuation
· Tiong Woon is trading at a 50% discount to its book value of 47.8 cents with a dividend yield of 1.7%.
Our View
· We only expect margins to improve in 1HFY13 from an increased in both utilisation rate and rental rates. We believe that operating margin from the Heavy Lift fell from 5.5% in FY11 to 2.7% in FY12 as the group had to cope with depressed rates and rising costs. With the demand from infrastructure projects rising in the region, rental rates have normalised to 85% and utilisation rate is also expected to improve from the current 66% to 80% for FY13.
· Tiong Woon is also actively seeking opportunities in the emerging markets after setting up a representative office in Myanmar and securing one contract to supply heavy equipment for a pipeline-laying project there. For Vietnam, Tiong Woon has a JV with Chi Deh Crane Engineering and Giant Project Service Corp to target steel-related infrastructure projects going forward.
· The Fabrication & Engineering business continued to be in the red of S$5.9m from higher subcontractor and equipment rental costs as well as an impairment loss of S$1.5m on trade receivables. Management revealed that contracts for newbuild of marine vessels are hard to come by due to a lack of track record despite fulfilling many of the specifications. The group is running at an operating cost of S$0.5m per month and is considering of downsizing the 65ha operations in Bintan.
Financials Highlights
· Tiong Woon reported a loss of S$4.8m in FY12 from a profit of S$0.9m last year. This is despite a 41% increase in revenue to S$151.2m, driven by a rise in revenues from all business segments.
· Revenue from Heavy Lift and Haulage grew 34% yoy to S$114.8 million as the group took on larger integrated projects. However, pre-tax profit was only S$0.2m (FY11: S$5.0m) as it had to make provision of S$3.4m for impairment loss on trade receivables. We understand from management that these receivables were mainly from a series of customers in India’s oil & gas sector. Marine Transportation’s revenue jumped 70% yoy to S$16.4m from an increased utilisation rate of its tugboats and barges. Pre-tax profit for the segment was S$1.7m compared to a loss of S$0.2m in FY11 partly due to a contribution of S$0.8m from associated companies.
· The group also generated positive net cash flow from operations of S$35.5m for FY12 and has S$22.8m cash.
Valuation
· Tiong Woon is trading at a 50% discount to its book value of 47.8 cents with a dividend yield of 1.7%.
Our View
· We only expect margins to improve in 1HFY13 from an increased in both utilisation rate and rental rates. We believe that operating margin from the Heavy Lift fell from 5.5% in FY11 to 2.7% in FY12 as the group had to cope with depressed rates and rising costs. With the demand from infrastructure projects rising in the region, rental rates have normalised to 85% and utilisation rate is also expected to improve from the current 66% to 80% for FY13.
· Tiong Woon is also actively seeking opportunities in the emerging markets after setting up a representative office in Myanmar and securing one contract to supply heavy equipment for a pipeline-laying project there. For Vietnam, Tiong Woon has a JV with Chi Deh Crane Engineering and Giant Project Service Corp to target steel-related infrastructure projects going forward.
· The Fabrication & Engineering business continued to be in the red of S$5.9m from higher subcontractor and equipment rental costs as well as an impairment loss of S$1.5m on trade receivables. Management revealed that contracts for newbuild of marine vessels are hard to come by due to a lack of track record despite fulfilling many of the specifications. The group is running at an operating cost of S$0.5m per month and is considering of downsizing the 65ha operations in Bintan.
Financials Highlights
· Tiong Woon reported a loss of S$4.8m in FY12 from a profit of S$0.9m last year. This is despite a 41% increase in revenue to S$151.2m, driven by a rise in revenues from all business segments.
· Revenue from Heavy Lift and Haulage grew 34% yoy to S$114.8 million as the group took on larger integrated projects. However, pre-tax profit was only S$0.2m (FY11: S$5.0m) as it had to make provision of S$3.4m for impairment loss on trade receivables. We understand from management that these receivables were mainly from a series of customers in India’s oil & gas sector. Marine Transportation’s revenue jumped 70% yoy to S$16.4m from an increased utilisation rate of its tugboats and barges. Pre-tax profit for the segment was S$1.7m compared to a loss of S$0.2m in FY11 partly due to a contribution of S$0.8m from associated companies.
· The group also generated positive net cash flow from operations of S$35.5m for FY12 and has S$22.8m cash.
UE E&C
Kim Eng on 31 Aug 2012
Construction firm with great heritage. UE & C is a local construction and engineering company spun off from its parent, United Engineers (UE) in February 2011. The principal entity is Greatearth Construction, a reputable grade A1 contractor with more than 30 years of history, founded by current UE E&C CEO Mr Chua. Today, it handles a wide range of work including M&E and power solutions.
Why we are highlighting this stock. We see very deep value, with the stock trading below its book value of SGD 59 cents/ share, with a net cash of SGD 39 cents/ share or 81% of its market cap. Working capital
requirements are minimal, as evident from the SGD50m free-cash flow for the past two financial years. We see a good chance of bumper dividend distributions which will help unlock shareholder value.
Reasons why we think this is not a value trap. Even as they generate strong cash flow, many construction companies delve into property development rather than to distribute more dividends. In the case of UE&C, their non-competing agreement with UE restricts them to taking up not more than a 30% stake in development projects. This stake allows UE&C to secure the construction project without a tender as well as an additional design aspect which boosts project margins.
Parent company may be cash-hungry. UE E&C is 68% owned by UE, which is also in property development, water and environmental projects. These are capex-intensive businesses, and they will appreciate dividend streams from UE E&C, especially when the latter is sitting on a cash pile. UE is in turn 20% owned by OCBC, which appears to be in a divestment mode for non-core assets. Given that UE&C is run independently with less than 10% of its projects from UE, a corporate restructuring to unlock value may be on the horizon.
Trading at just ex-cash PER of 2.2x. UE E&C achieved a net profit of SGD10.4m for 1H12, with minimal contribution from property development. We believe its current net orderbook of SGD650m is supportive of at least this run-rate till 2014F. This would translate to an ex-cash PE of just 2.2x and P/B of 0.95x. While there is no dividend policy, management is open to maintaining last year’s dividend of SGD 6 cents/ share, which would work out to a dividend yield of 11%.
Construction firm with great heritage. UE & C is a local construction and engineering company spun off from its parent, United Engineers (UE) in February 2011. The principal entity is Greatearth Construction, a reputable grade A1 contractor with more than 30 years of history, founded by current UE E&C CEO Mr Chua. Today, it handles a wide range of work including M&E and power solutions.
Why we are highlighting this stock. We see very deep value, with the stock trading below its book value of SGD 59 cents/ share, with a net cash of SGD 39 cents/ share or 81% of its market cap. Working capital
requirements are minimal, as evident from the SGD50m free-cash flow for the past two financial years. We see a good chance of bumper dividend distributions which will help unlock shareholder value.
Reasons why we think this is not a value trap. Even as they generate strong cash flow, many construction companies delve into property development rather than to distribute more dividends. In the case of UE&C, their non-competing agreement with UE restricts them to taking up not more than a 30% stake in development projects. This stake allows UE&C to secure the construction project without a tender as well as an additional design aspect which boosts project margins.
Parent company may be cash-hungry. UE E&C is 68% owned by UE, which is also in property development, water and environmental projects. These are capex-intensive businesses, and they will appreciate dividend streams from UE E&C, especially when the latter is sitting on a cash pile. UE is in turn 20% owned by OCBC, which appears to be in a divestment mode for non-core assets. Given that UE&C is run independently with less than 10% of its projects from UE, a corporate restructuring to unlock value may be on the horizon.
Trading at just ex-cash PER of 2.2x. UE E&C achieved a net profit of SGD10.4m for 1H12, with minimal contribution from property development. We believe its current net orderbook of SGD650m is supportive of at least this run-rate till 2014F. This would translate to an ex-cash PE of just 2.2x and P/B of 0.95x. While there is no dividend policy, management is open to maintaining last year’s dividend of SGD 6 cents/ share, which would work out to a dividend yield of 11%.
Mapletree Logistics Trust
Kim Eng on 31 Aug 2012
Capital Recycling. MLT has recently announced that it will be acquiring Hyundai Logistics Centre (HLC) in South Korea at SGD24.3m with an initial NPI yield of 9%. It will also be divesting 30 Woodlands Loop in Singapore (FY3/12 NPI yield-on-cost of 6% according to our estimates) at a sale consideration of SGD15.5m, booking a net disposal again of ~SGD4.96m. Both transactions will complete by 3QFY3/13 and Feb 2013 respectively. Gearing is expected to increase marginally to 37.2% upon completion of both transactions.
Our estimates. HLC is currently leased to E-Land World and ENVICO. We expect the acquisition to complete by Oct 2012 and have factored in modest rental escalations of 1.5% p.a. At existing 1QFY3/13 portfolio yield of 6.5%, we think this acquisition will be yield-accretive. We revise our DPU estimates by 0.3%-0.5% over FY3/13-FY3/16.
Still the highest WALE in the industry. MLT’s assets have increased by almost ninefold since the company listed in July 2005. Given its larger asset base, we expect further scale advantages ahead. MLT also has one of the industry’s highest weighted average lease expiry profiles (six years vis-à-vis AREIT’s four years). Despite having exposure to seven overseas markets, Singapore Japan and South Korea (tier-1 mature markets) constitute 76.3% of revenue and 76.4% of NPI in FY3/13 and 78% of our FY3/13 GAV, which should prove defensive in volatile markets.
Yields can be compressed by another 53bps. From our estimates, the implied cap rate for MLT (based on 1QFY3/13 results) is 6.09%. If we take this cap rate as the floor for FY3/13 DPU yield, we believe yields can still be compressed by another 53 bps from our forecasted FY3/13 DPU of 6.6%. This dovetails neatly with our DDM-derived TP of SGD1.17. We are confident that MLT’s stable assets and rental income resilience will help it navigate the choppy waters ahead. Reiterate BUY.
Capital Recycling. MLT has recently announced that it will be acquiring Hyundai Logistics Centre (HLC) in South Korea at SGD24.3m with an initial NPI yield of 9%. It will also be divesting 30 Woodlands Loop in Singapore (FY3/12 NPI yield-on-cost of 6% according to our estimates) at a sale consideration of SGD15.5m, booking a net disposal again of ~SGD4.96m. Both transactions will complete by 3QFY3/13 and Feb 2013 respectively. Gearing is expected to increase marginally to 37.2% upon completion of both transactions.
Our estimates. HLC is currently leased to E-Land World and ENVICO. We expect the acquisition to complete by Oct 2012 and have factored in modest rental escalations of 1.5% p.a. At existing 1QFY3/13 portfolio yield of 6.5%, we think this acquisition will be yield-accretive. We revise our DPU estimates by 0.3%-0.5% over FY3/13-FY3/16.
Still the highest WALE in the industry. MLT’s assets have increased by almost ninefold since the company listed in July 2005. Given its larger asset base, we expect further scale advantages ahead. MLT also has one of the industry’s highest weighted average lease expiry profiles (six years vis-à-vis AREIT’s four years). Despite having exposure to seven overseas markets, Singapore Japan and South Korea (tier-1 mature markets) constitute 76.3% of revenue and 76.4% of NPI in FY3/13 and 78% of our FY3/13 GAV, which should prove defensive in volatile markets.
Yields can be compressed by another 53bps. From our estimates, the implied cap rate for MLT (based on 1QFY3/13 results) is 6.09%. If we take this cap rate as the floor for FY3/13 DPU yield, we believe yields can still be compressed by another 53 bps from our forecasted FY3/13 DPU of 6.6%. This dovetails neatly with our DDM-derived TP of SGD1.17. We are confident that MLT’s stable assets and rental income resilience will help it navigate the choppy waters ahead. Reiterate BUY.
Thursday, 30 August 2012
Mapletree Logistics Trust
OCBC on 30 Aug 2012
Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. Separately, MLT entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. We understand that the sale proceeds will be redeployed to partially fund the acquisition in South Korea. We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management. The capital recycling initiative and overseas acquisition were also spot on with projections made in our S-REIT sector published a week ago. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19. Maintain BUY.
Acquisition of warehouse in South Korea
Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. The property comprises two blocks of three-storey dry warehouses and has a total GFA of 32,300 sqm. Both the leases to its two key tenants, E-Land World (major apparel and retail company) and Korea Environment & Resources Corp (government corporation) provide for built-in rental escalation. According to management, the initial NPI yield is 9.0% and is expected to be DPU-accretive. We understand that the acquisition is targeted to complete by Dec 2012.
Divestment of 30 Woodlands Loop
Separately, MLT had entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. This represents a significant 50.5% and 40.9% premium to its purchase price of S$10.3m in 2007 and valuation of S$11.0m in Mar 2012 respectively. A net disposal gain of ~S$5.0m is expected. We note that the decision to divest the property came as a result of limited growth potential (building specifications no longer suitable for modern warehousing requirements) and attractive offer on hand. The divestment is expected to be completed by Feb 2013, and the sale proceeds will be redeployed to partially fund the acquisition in South Korea. As the investment is financed by a combination of debt and equity, gearing is only expected to inch up slightly from 37.0% as at 30 Jun to 37.2% upon completion of both transactions.
Maintain BUY
We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management and as the acquisition is likely to strengthen MLT’s market position in South Korea. The capital recycling initiative and overseas acquisition were also spot on with our projections made in our 21 Aug S-REIT sector report. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19. BUY.
Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. Separately, MLT entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. We understand that the sale proceeds will be redeployed to partially fund the acquisition in South Korea. We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management. The capital recycling initiative and overseas acquisition were also spot on with projections made in our S-REIT sector published a week ago. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19. Maintain BUY.
Acquisition of warehouse in South Korea
Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. The property comprises two blocks of three-storey dry warehouses and has a total GFA of 32,300 sqm. Both the leases to its two key tenants, E-Land World (major apparel and retail company) and Korea Environment & Resources Corp (government corporation) provide for built-in rental escalation. According to management, the initial NPI yield is 9.0% and is expected to be DPU-accretive. We understand that the acquisition is targeted to complete by Dec 2012.
Divestment of 30 Woodlands Loop
Separately, MLT had entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. This represents a significant 50.5% and 40.9% premium to its purchase price of S$10.3m in 2007 and valuation of S$11.0m in Mar 2012 respectively. A net disposal gain of ~S$5.0m is expected. We note that the decision to divest the property came as a result of limited growth potential (building specifications no longer suitable for modern warehousing requirements) and attractive offer on hand. The divestment is expected to be completed by Feb 2013, and the sale proceeds will be redeployed to partially fund the acquisition in South Korea. As the investment is financed by a combination of debt and equity, gearing is only expected to inch up slightly from 37.0% as at 30 Jun to 37.2% upon completion of both transactions.
Maintain BUY
We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management and as the acquisition is likely to strengthen MLT’s market position in South Korea. The capital recycling initiative and overseas acquisition were also spot on with our projections made in our 21 Aug S-REIT sector report. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19. BUY.
Olam International
DMG & Partners Research on 29 Aug 2012
OLAM reported Q4 FY2012 net profit of S$110 million, down 14 per cent y-o-y.
If we strip out the effects from biological gains exceeding our forecast, adjusted net profit would be S$71 million, below our S$91 million forecast. This weakness is due to higher expenses.
There was y-o-y earnings weakness from the industrial raw materials space, but food continues to power ahead.
We lowered our FY2013 net profit forecast by 6 per cent to factor in continued cotton and wood weakness and higher costs.
We remain positive on food, which accounted for 87 per cent share of net contribution (NC). Olam trades at a FY2013 forward PE of 10.8 times, which is inexpensive versus FY2013 forward net profit growth of 21 per cent.
Maintain "buy" with an unchanged target price (TP) of S$2.56, derived from a three-stage discounted-cash-flow valuation model. Our TP translates into a FY2013 PE of 13.9 times, which is lower than the historical average of 17 times.
The three food segments collectively recorded FY2012 NC growth of 32 per cent.
In contrast, the industrial raw materials suffered a 41 per cent plunge in NC, with cotton origination affected by extreme market volatility, demand illiquidity and declining volumes.
As the food segments account for 87 per cent share of NC, overall NC still recorded a respectable 13 per cent growth.
Olam has made cumulative capital expenditure of S$4.4 billion thus far, and has already committed another S$1.7 billion, the bulk of which will be utilised in FY2013 and FY2014.
Olam plans to achieve its FY2016 target US$1 billion profit after tax without raising fresh equity.
Olam will use the debt capital market to source for funding for its investments. Olam's lower gearing also provides scope for more debt to drive its acquisitions.
BUY
BUY
Sembcorp Marine
Credit Suisse Research on 29 Aug 2012
SEMBCORP Marine has secured a contract worth US$674 million from Petrobras for the fabrication and integration of topside modules on the FPSO P-68 and P-71.
Petrobras has an option for a similar contract to be exercised within 18 months of contract signing.
This is in line with the reported contract structure of having each of three bidders secure two FPSOs (floating production, storage and offloading units) each, with the final two split between the best-performing initial winners.
We note that the contract value of US$674 million is smaller than Keppel's contract of US$950 million, as well as Brazilian yard OSX's contract of US$900 million, for the fabrication and integration of modules for two FPSOs each.
We believe the difference in contract value is due to the different job scope involved.
Sembcorp Marine will only be fabricating and integrating four topside modules per FPSO, while Keppel's contract includes the fabrication and integration of seven topside modules per FPSO.
The FPSOs are scheduled for completion in 60 months (2017), and we expect the contract to contribute to earnings only from 2014.
The fabrication and integration of the topsides will be carried out in Sembcorp Marine's new yard in Brazil, which is scheduled for full completion in 2014.
However, fabrication of the modules is expected to start at its workshop in 2013.
The FPSOs are likely to be the third and sixth of eight replicant FPSOs to start up from 2016 onwards.
The hulls are being constructed by Brazilian company Engevix at the Rio Grande Naval Pole in the state of Rio Grande do Sul.
At 2012 PE of 16.8 times, it is trading above its historical average of 16 times. We maintain our "neutral" rating and target price of S$4.40.
NEUTRAL
NEUTRAL
Karin Technology
OCBC on 30 Aug 2012
Karin Technology (Karin) reported a 35.3% YoY surge in revenue to HK$1,712.9m and a 22.0% jump in PATMI to HK$36.9m for 2HFY12. After adjusting for exceptional items, we estimate that core PATMI would instead have declined 12.1% YoY to HK$21.4m, which was below our expectations. For FY12, revenue of HK$3,232.3m (+49.1%) was 1.8% above our forecast; while estimated core PATMI of HK$46.9m (-7.2%) was 14.1% below our projections. A final dividend of 7.1 HK cents/share was declared, bringing total FY12 dividends to 14.1 HK cents/share, or a yield of ~8.4%. Looking ahead, we believe that Karin’s Consumer Electronics Products segment would remain as its main revenue driver given its license to sell the full range of Apple products at its retail stores. We raise our FY13 revenue forecast by 6.9% but lower our core PATMI estimate by 7.6% on lower margin assumptions. Maintain HOLD, with a lower fair value estimate of S$0.25 (previously S$0.265).
2HFY12 core earnings below expectations
Karin Technology’s (Karin) 2HFY12 revenue was within our expectations but core PATMI missed. Revenue jumped 35.3% YoY and 12.7% HoH to HK$1,712.9m, while reported PATMI surged 22.0% YoY and 61.3% HoH to HK$36.9m. But after adjusting for forex effects and other exceptional items, we estimate that core PATMI would instead have declined 12.1% YoY and 16.2% HoH to HK$21.4m. For FY12, revenue accelerated by 49.1% to HK$3,232.3m, or 1.8% above our forecast. This growth was driven largely by its Consumer Electronics Products (CEP) segment (now separated from the IT Infrastructure segment for reporting purposes), which entails the selling of the full range of Apple products through Karin’s retail stores. The group also experienced an increase in demand for network security and enterprise software products. Reported PATMI for FY12 grew 15.7% to HK$59.7m. However, we estimate that core PATMI fell 7.2% to HK$46.9m, which was 14.1% below our projections.
Growth in declared dividends for FY12
On a positive note, a final dividend of 7.1 HK cents/share was declared, bringing total FY12 dividends to 14.1 HK cents/share, or a yield of ~8.4%. This is in line with our forecast and compares favourably to FY11’s DPS of 12 HK cents.
Maintain HOLD
Looking ahead, we believe that Karin’s CEP segment would remain as its main revenue driver, given market talk of the launch of Apple’s iPad Mini and iPhone 5, possibly in Sep/Oct this year. We expect Karin to be a key beneficiary of Apple’s dominant position in the tablet and smartphone space, although we believe that margins for its retail stores are relatively lower as compared to its IT Infrastructure segment. Another key area of focus would be on higher margin network security products and solutions which are increasingly deployed in the cloud computing space. We raise our FY13 revenue forecast by 6.9% but lower our core PATMI estimate by 7.6% on lower margin assumptions. Our FY14 projections are also introduced. Maintain HOLD, but with a lower fair value estimate of S$0.25 (previously S$0.265) as we roll forward our valuation to 6x FY13F core EPS.
Karin Technology (Karin) reported a 35.3% YoY surge in revenue to HK$1,712.9m and a 22.0% jump in PATMI to HK$36.9m for 2HFY12. After adjusting for exceptional items, we estimate that core PATMI would instead have declined 12.1% YoY to HK$21.4m, which was below our expectations. For FY12, revenue of HK$3,232.3m (+49.1%) was 1.8% above our forecast; while estimated core PATMI of HK$46.9m (-7.2%) was 14.1% below our projections. A final dividend of 7.1 HK cents/share was declared, bringing total FY12 dividends to 14.1 HK cents/share, or a yield of ~8.4%. Looking ahead, we believe that Karin’s Consumer Electronics Products segment would remain as its main revenue driver given its license to sell the full range of Apple products at its retail stores. We raise our FY13 revenue forecast by 6.9% but lower our core PATMI estimate by 7.6% on lower margin assumptions. Maintain HOLD, with a lower fair value estimate of S$0.25 (previously S$0.265).
2HFY12 core earnings below expectations
Karin Technology’s (Karin) 2HFY12 revenue was within our expectations but core PATMI missed. Revenue jumped 35.3% YoY and 12.7% HoH to HK$1,712.9m, while reported PATMI surged 22.0% YoY and 61.3% HoH to HK$36.9m. But after adjusting for forex effects and other exceptional items, we estimate that core PATMI would instead have declined 12.1% YoY and 16.2% HoH to HK$21.4m. For FY12, revenue accelerated by 49.1% to HK$3,232.3m, or 1.8% above our forecast. This growth was driven largely by its Consumer Electronics Products (CEP) segment (now separated from the IT Infrastructure segment for reporting purposes), which entails the selling of the full range of Apple products through Karin’s retail stores. The group also experienced an increase in demand for network security and enterprise software products. Reported PATMI for FY12 grew 15.7% to HK$59.7m. However, we estimate that core PATMI fell 7.2% to HK$46.9m, which was 14.1% below our projections.
Growth in declared dividends for FY12
On a positive note, a final dividend of 7.1 HK cents/share was declared, bringing total FY12 dividends to 14.1 HK cents/share, or a yield of ~8.4%. This is in line with our forecast and compares favourably to FY11’s DPS of 12 HK cents.
Maintain HOLD
Looking ahead, we believe that Karin’s CEP segment would remain as its main revenue driver, given market talk of the launch of Apple’s iPad Mini and iPhone 5, possibly in Sep/Oct this year. We expect Karin to be a key beneficiary of Apple’s dominant position in the tablet and smartphone space, although we believe that margins for its retail stores are relatively lower as compared to its IT Infrastructure segment. Another key area of focus would be on higher margin network security products and solutions which are increasingly deployed in the cloud computing space. We raise our FY13 revenue forecast by 6.9% but lower our core PATMI estimate by 7.6% on lower margin assumptions. Our FY14 projections are also introduced. Maintain HOLD, but with a lower fair value estimate of S$0.25 (previously S$0.265) as we roll forward our valuation to 6x FY13F core EPS.
Olam International Limited
OCBC on 29 Aug 2012
Olam International Limited (Olam) saw FY12 revenue rising 8.2% to S$17.1b, but reported net profit fell 13.7% to S$370.9m, which missed our forecast. It also declared a lower dividend of S$0.04 (versus S$0.05 in FY11). Going forward, Olam expects to see some uncertainty and volatility in the near term, but remains positive on the Agri-industry prospects. In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.2%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.
Uninspiring FY12 showing
Olam International Limited (Olam) saw FY12 revenue coming in around S$17.1b, up 8.2%, but was around 9.2% shy of our forecast; this despite a 26.3% jump in sales volume to 10.7m MT. While Olam reported net profit fell 13.7% to S$370.9m, it noted that operational net profit (excluding one-off items and non-operating biological asset gains) was down 4.6% at S$355.5m. However, our estimate of S$356.1m did not include any biological asset gains. Olam declared a final dividend of S$0.04/share, down from S$0.05 a year ago.
Cautious outlook for FY13
While Olam continues to view its Food business as largely resilient to the global economic slowdown, it notes that near-term market and industry dynamics could have a drag on margins and profits. Olam is less sanguine about its Industrial segment where it is likely to see slower recovery due to continued customer pessimism and slowing growth in the emerging markets like China and India.
Focused execution and extracting value
Nevertheless, Olam stresses that it is well diversified in its sourcing and is well positioned to respond to potential short-term volatility in specific segments; it adds that it has a strong balance sheet in place to handle potential macro economic shocks and will not need to tap the equity market to support both current and future investments. Last but not least, its priority is now on focused execution and extracting full value for investments already made or committed.
Maintain HOLD with new S$1.80 fair value
In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.0%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.
Olam International Limited (Olam) saw FY12 revenue rising 8.2% to S$17.1b, but reported net profit fell 13.7% to S$370.9m, which missed our forecast. It also declared a lower dividend of S$0.04 (versus S$0.05 in FY11). Going forward, Olam expects to see some uncertainty and volatility in the near term, but remains positive on the Agri-industry prospects. In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.2%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.
Uninspiring FY12 showing
Olam International Limited (Olam) saw FY12 revenue coming in around S$17.1b, up 8.2%, but was around 9.2% shy of our forecast; this despite a 26.3% jump in sales volume to 10.7m MT. While Olam reported net profit fell 13.7% to S$370.9m, it noted that operational net profit (excluding one-off items and non-operating biological asset gains) was down 4.6% at S$355.5m. However, our estimate of S$356.1m did not include any biological asset gains. Olam declared a final dividend of S$0.04/share, down from S$0.05 a year ago.
Cautious outlook for FY13
While Olam continues to view its Food business as largely resilient to the global economic slowdown, it notes that near-term market and industry dynamics could have a drag on margins and profits. Olam is less sanguine about its Industrial segment where it is likely to see slower recovery due to continued customer pessimism and slowing growth in the emerging markets like China and India.
Focused execution and extracting value
Nevertheless, Olam stresses that it is well diversified in its sourcing and is well positioned to respond to potential short-term volatility in specific segments; it adds that it has a strong balance sheet in place to handle potential macro economic shocks and will not need to tap the equity market to support both current and future investments. Last but not least, its priority is now on focused execution and extracting full value for investments already made or committed.
Maintain HOLD with new S$1.80 fair value
In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.0%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.
Micro-Mechanics Holdings
OCBC on 29 Aug 2012
Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, while net profit fell slightly by 0.4% YoY to S$1.4m, such that FY12 revenue and net profit of S$38.8m (-14.4%) and S$4.2m (-38.2%) exceeded our estimates by 2.8% and 7.3%, respectively. A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. Looking ahead, sentiment within the semiconductor industry remains cautious, while cost pressures are also apparent. MMH is seeking to mitigate this via the implementation of more automated processes to improve its efficiency and lead time. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.
4QFY12 results exceeds our expectations
Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, but was 8.1% higher than our forecast. Net profit inched marginally lower by 0.4% to S$1.4m, but compared favourably to our S$1.1m projection. This was due largely to better-than-estimated revenue and gross margin. Sequentially, revenue and net profit showed encouraging signs with strong incremental growth of 10.6% and 55.5%, respectively. For FY12, topline fell 14.4% to S$38.8m, while bottomline slumped 38.2% to S$4.2m; but were 2.8% and 7.3% above our full-year estimates, respectively.
Healthy FY12 dividend yield of 7.7%
A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. MMH generated S$9.0m of net operating cashflows in FY12, versus S$8.7m in FY11. However, its cash and cash equivalents declined to S$6.0m (FY11: S$7.5m). Nevertheless, we continue to retain our 3 S cents DPS forecast for FY13, as MMH has guided for capex of just S$2.5m (FY12: S$6.5m) in FY13. Approximately 70% of this would be invested in ancillary equipment to enhance its productivity. We project MMH to generate S$6.8m and S$5.5m of free cashflows for FY13 and FY14, respectively.
Conditions still challenging, maintain HOLD
While there are positive signs from MMH’s 4QFY12 results, such as the YoY and QoQ boost in gross margins for both its Semiconductor Tooling and Custom Machining & Assembly divisions as well as a return to profitability for its Thailand plant, sentiment within the semiconductor industry remains cautious. Moreover cost pressures are also apparent given the increase in minimum wages in several of its operating locations in Asia. MMH is seeking to mitigate this via the implementation of more automated processes and controlling its headcount. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.
Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, while net profit fell slightly by 0.4% YoY to S$1.4m, such that FY12 revenue and net profit of S$38.8m (-14.4%) and S$4.2m (-38.2%) exceeded our estimates by 2.8% and 7.3%, respectively. A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. Looking ahead, sentiment within the semiconductor industry remains cautious, while cost pressures are also apparent. MMH is seeking to mitigate this via the implementation of more automated processes to improve its efficiency and lead time. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.
4QFY12 results exceeds our expectations
Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, but was 8.1% higher than our forecast. Net profit inched marginally lower by 0.4% to S$1.4m, but compared favourably to our S$1.1m projection. This was due largely to better-than-estimated revenue and gross margin. Sequentially, revenue and net profit showed encouraging signs with strong incremental growth of 10.6% and 55.5%, respectively. For FY12, topline fell 14.4% to S$38.8m, while bottomline slumped 38.2% to S$4.2m; but were 2.8% and 7.3% above our full-year estimates, respectively.
Healthy FY12 dividend yield of 7.7%
A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. MMH generated S$9.0m of net operating cashflows in FY12, versus S$8.7m in FY11. However, its cash and cash equivalents declined to S$6.0m (FY11: S$7.5m). Nevertheless, we continue to retain our 3 S cents DPS forecast for FY13, as MMH has guided for capex of just S$2.5m (FY12: S$6.5m) in FY13. Approximately 70% of this would be invested in ancillary equipment to enhance its productivity. We project MMH to generate S$6.8m and S$5.5m of free cashflows for FY13 and FY14, respectively.
Conditions still challenging, maintain HOLD
While there are positive signs from MMH’s 4QFY12 results, such as the YoY and QoQ boost in gross margins for both its Semiconductor Tooling and Custom Machining & Assembly divisions as well as a return to profitability for its Thailand plant, sentiment within the semiconductor industry remains cautious. Moreover cost pressures are also apparent given the increase in minimum wages in several of its operating locations in Asia. MMH is seeking to mitigate this via the implementation of more automated processes and controlling its headcount. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.
Biosensors International
Kim Eng on 30 Aug 2012
Price cut concerns overdone, Reiterate BUY. Biosensors’ share price has underperformed the STI by 25% on a YTD basis. The chief reason has been the concern over potential price cuts of drug-eluting stents (DES) in China and Japan. While the concern is real, we believe that Biosensors has been overly penalised. Trading at 12x FY3/13F PER, we think that the negatives have been priced in and valuations are looking cheap. Reiterate BUY with target price of SGD1.42.
Volume growth could mitigate price decline. The BioMatrix DES is the first-to-market biodegradable DES and is ahead of competitors in terms of clinical trial history, a critical factor for medical products. According to an industry report by TechNavio, China’s DES market is expected to grow at a CAGR of 25.5% over 2011–2015, backed by rising incidence of cardiovascular diseases. Declining prices could be mitigated by volume growth and we think that Biosensors is in a prime position to capture this growth.
Distribution channel a strong advantage. Biosensors is still awaiting approval for sale of its flagship BioMatrix Flex DES in China. We believe that once approved, Biosensors would have an edge over other foreign competitors given JWMS’ strong distribution network. Distribution is one of the key challenges for foreign competition as they have to go through various layers which increase cost and inadvertently have to price their products higher.
At an early-growth stage. Biosensors has communicated its goal to transform itself into a multi-product medical equipment company. With Shandong Weigao as its major shareholder, we expect to see some corporate actions that would move the company towards this goal.
Maintain BUY, TP SGD1.42. We lowered FY3/13F forecast by about 13% as we expect Biosensors to incur higher operating expenses to support its revenue growth and for development of future products. Our target price is reduced to SGD1.42 which implies FY3/13F PER of 14x. With negatives priced in, the stock still offers a potential upside of 15%.
Price cut concerns overdone, Reiterate BUY. Biosensors’ share price has underperformed the STI by 25% on a YTD basis. The chief reason has been the concern over potential price cuts of drug-eluting stents (DES) in China and Japan. While the concern is real, we believe that Biosensors has been overly penalised. Trading at 12x FY3/13F PER, we think that the negatives have been priced in and valuations are looking cheap. Reiterate BUY with target price of SGD1.42.
Volume growth could mitigate price decline. The BioMatrix DES is the first-to-market biodegradable DES and is ahead of competitors in terms of clinical trial history, a critical factor for medical products. According to an industry report by TechNavio, China’s DES market is expected to grow at a CAGR of 25.5% over 2011–2015, backed by rising incidence of cardiovascular diseases. Declining prices could be mitigated by volume growth and we think that Biosensors is in a prime position to capture this growth.
Distribution channel a strong advantage. Biosensors is still awaiting approval for sale of its flagship BioMatrix Flex DES in China. We believe that once approved, Biosensors would have an edge over other foreign competitors given JWMS’ strong distribution network. Distribution is one of the key challenges for foreign competition as they have to go through various layers which increase cost and inadvertently have to price their products higher.
At an early-growth stage. Biosensors has communicated its goal to transform itself into a multi-product medical equipment company. With Shandong Weigao as its major shareholder, we expect to see some corporate actions that would move the company towards this goal.
Maintain BUY, TP SGD1.42. We lowered FY3/13F forecast by about 13% as we expect Biosensors to incur higher operating expenses to support its revenue growth and for development of future products. Our target price is reduced to SGD1.42 which implies FY3/13F PER of 14x. With negatives priced in, the stock still offers a potential upside of 15%.
Wednesday, 29 August 2012
Sakari Resources Limited
OCBC on 28 Aug 2012
Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. As the offer is also some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.
Cash offer at S$1.90/share
Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. The PTT group, which already owns some 46.43% of SRL, says its offer is in line with its strategy to increase its presence in the minerals and energy sector and further diversify its resource base and income streams.
Conditional on PTTM owning >50% of SRL
The offer is conditional on PTTM receiving valid acceptances, when taken together with its current stake that will see it owning more than 50% of the maximum potential issued shares in SRL. And in the event that the free-float of SRL falls below 10% as at the close of the offer, PTTM does not intend to maintain the listing status of SRL. However, PTTM reserves the right to re-evaluate its position, depending on the ultimate level of acceptances received and the prevailing market conditions.
Attractive premium of 39% to 1-month VWAP
The offer price of S$1.90 represents a premium of 27.5% to its 24 Aug close; 34.9% to the 1-month volume weighted average price (VWAP); 39.1% to 3-month VWAP; and 23.1% to 6-month WAP. We note that the last time SRL’s share price was around S$1.90 was on 8 May 2012; since then, it has fallen 39% to a low of S$1.16, likely spooked by uncertain outlook for global coal prices.
Accept the offer
As the offer is some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.
Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. As the offer is also some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.
Cash offer at S$1.90/share
Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. The PTT group, which already owns some 46.43% of SRL, says its offer is in line with its strategy to increase its presence in the minerals and energy sector and further diversify its resource base and income streams.
Conditional on PTTM owning >50% of SRL
The offer is conditional on PTTM receiving valid acceptances, when taken together with its current stake that will see it owning more than 50% of the maximum potential issued shares in SRL. And in the event that the free-float of SRL falls below 10% as at the close of the offer, PTTM does not intend to maintain the listing status of SRL. However, PTTM reserves the right to re-evaluate its position, depending on the ultimate level of acceptances received and the prevailing market conditions.
Attractive premium of 39% to 1-month VWAP
The offer price of S$1.90 represents a premium of 27.5% to its 24 Aug close; 34.9% to the 1-month volume weighted average price (VWAP); 39.1% to 3-month VWAP; and 23.1% to 6-month WAP. We note that the last time SRL’s share price was around S$1.90 was on 8 May 2012; since then, it has fallen 39% to a low of S$1.16, likely spooked by uncertain outlook for global coal prices.
Accept the offer
As the offer is some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.
Olam International
Kim Eng on 29 Aug 2012
In-line with expectations. FY12 results were broadly in-line with expectations, with recurring net profit coming in at SGD355.5m. However, this was helped by a positive tax during the 4th quarter, as well as a SGD11m contribution from commodity financial services; notwithstanding which numbers would have been weaker. It does round up an underwhelming year, with Olam registering a first ever profit decline of 5%. Seen in the light of the equity raising/ aggressive M&A approach, this would have been more negative, with an 18% yoy decline in recurring EPS.
Profit weakness from Industrial Raw Materials. On a segmental basis, IRM was the main drag this year, especially in 2HFY12. Net contribution declined 48% despite volume increase. Other than Cotton, we may continue to see some weakness in the coming quarters if economic conditions remain stagnant. The tomato business in the US also had a poor 4th quarter due to oversupply, as we understand some inventories were liquidated. Most other businesses were on track according to management.
More was paid to banks than shareholders. For FY12, net contribution, a key matrix used by Olam was up 13% while recurring net profit was down 5%. The difference between these two figures mostly relates to overhead costs, depreciation and finance costs. The divergence this year implies that these related costs from its aggressive M&A investments have actually been a drag this year. For example, finance costs increased 27% yoy, and were actually higher than profit to shareholders.
Cash cycle has improved this quarter. Cash-to-cash cycle has improved on a qoq basis from 142 days to 119 days, contributing to a lower adjusted net-gearing of 37% (net debt-equity 189%). However, inventory levels at its IRM segment remains high (from SGD724m in FY11 to SGD1023m in FY12) which we still deem a risk should economic conditions not improve.
Maintain SELL. We think earnings headwind could continue for at least 1-2 more quarters, especially from the IRM segment. We maintain SELL, with a TP of SGD1.75, pegged to 1.2x P/B, given the lack of earnings visibility at the moment.
In-line with expectations. FY12 results were broadly in-line with expectations, with recurring net profit coming in at SGD355.5m. However, this was helped by a positive tax during the 4th quarter, as well as a SGD11m contribution from commodity financial services; notwithstanding which numbers would have been weaker. It does round up an underwhelming year, with Olam registering a first ever profit decline of 5%. Seen in the light of the equity raising/ aggressive M&A approach, this would have been more negative, with an 18% yoy decline in recurring EPS.
Profit weakness from Industrial Raw Materials. On a segmental basis, IRM was the main drag this year, especially in 2HFY12. Net contribution declined 48% despite volume increase. Other than Cotton, we may continue to see some weakness in the coming quarters if economic conditions remain stagnant. The tomato business in the US also had a poor 4th quarter due to oversupply, as we understand some inventories were liquidated. Most other businesses were on track according to management.
More was paid to banks than shareholders. For FY12, net contribution, a key matrix used by Olam was up 13% while recurring net profit was down 5%. The difference between these two figures mostly relates to overhead costs, depreciation and finance costs. The divergence this year implies that these related costs from its aggressive M&A investments have actually been a drag this year. For example, finance costs increased 27% yoy, and were actually higher than profit to shareholders.
Cash cycle has improved this quarter. Cash-to-cash cycle has improved on a qoq basis from 142 days to 119 days, contributing to a lower adjusted net-gearing of 37% (net debt-equity 189%). However, inventory levels at its IRM segment remains high (from SGD724m in FY11 to SGD1023m in FY12) which we still deem a risk should economic conditions not improve.
Maintain SELL. We think earnings headwind could continue for at least 1-2 more quarters, especially from the IRM segment. We maintain SELL, with a TP of SGD1.75, pegged to 1.2x P/B, given the lack of earnings visibility at the moment.
Aspial Corporation
Kim Eng on 29 Aug 2012
Positive moves. Aspial Corporation has instituted some positive changes in the company: 1) The spin-off of Maxi-Cash allowed the group to realize its potential value. 2) Its original jewellery business was adversely affected by high operating costs — rent and staff; through consolidation, a more apparent turnaround is likely. Its property segment has continued to perform well: Aspial holds an attributable landbank GFA of almost 500,000 sq ft, which will be launched in 2H12.
Gems and property do go together. Aspial Corporation, also known as Lee-Hwa Jewellery, was founded in 1970 by the Koh family. When the family entered the property and hotel business in the 1990s, the older brother, James Koh Wee Meng, separated from the Group to form the Fragrance Group in 2005. The younger brother, Koh Wee Seng, now runs Aspial on his own. However, he has frequently collaborated with his brother in property development JVs.
Back in the spotlight. Aspial was thrown into the spotlight this June, when it listed its pawn-broking business, Maxi-Cash Financial Services, with a market cap of SGD88.8m, on Catalyst at SGD0.30 a share. It is one of the best-performing IPOs of 2012, with a 38% gain YTD. Aspial retains an 81.2% interest in its subsidiary.
Turning around. Aspial has turned around its jewellery business. In FY11, it closed seven non-performing stores and added two in better locations. As a result, earnings have returned after two years of losses. In addition, the newly-listed pawnbroking business has achieved exceptional growth, now accounting for 20% of sales. The Group has also recently acquired a plot of land on Tanah Merah Kechil Road through a JV with the Fragrance Group. The group’s landbank holds two more plots in KeyPoint and Tai Keng Court, which will be launched in 2H12.
Raising interim dividends. The management has proposed to increase its interim dividend from 0.5cts to 0.75cts in 1H12. The group has also issued SGD150m in medium term notes to support its capex and working capital.
Positive moves. Aspial Corporation has instituted some positive changes in the company: 1) The spin-off of Maxi-Cash allowed the group to realize its potential value. 2) Its original jewellery business was adversely affected by high operating costs — rent and staff; through consolidation, a more apparent turnaround is likely. Its property segment has continued to perform well: Aspial holds an attributable landbank GFA of almost 500,000 sq ft, which will be launched in 2H12.
Gems and property do go together. Aspial Corporation, also known as Lee-Hwa Jewellery, was founded in 1970 by the Koh family. When the family entered the property and hotel business in the 1990s, the older brother, James Koh Wee Meng, separated from the Group to form the Fragrance Group in 2005. The younger brother, Koh Wee Seng, now runs Aspial on his own. However, he has frequently collaborated with his brother in property development JVs.
Back in the spotlight. Aspial was thrown into the spotlight this June, when it listed its pawn-broking business, Maxi-Cash Financial Services, with a market cap of SGD88.8m, on Catalyst at SGD0.30 a share. It is one of the best-performing IPOs of 2012, with a 38% gain YTD. Aspial retains an 81.2% interest in its subsidiary.
Turning around. Aspial has turned around its jewellery business. In FY11, it closed seven non-performing stores and added two in better locations. As a result, earnings have returned after two years of losses. In addition, the newly-listed pawnbroking business has achieved exceptional growth, now accounting for 20% of sales. The Group has also recently acquired a plot of land on Tanah Merah Kechil Road through a JV with the Fragrance Group. The group’s landbank holds two more plots in KeyPoint and Tai Keng Court, which will be launched in 2H12.
Raising interim dividends. The management has proposed to increase its interim dividend from 0.5cts to 0.75cts in 1H12. The group has also issued SGD150m in medium term notes to support its capex and working capital.
Tuesday, 28 August 2012
Sakari Resources
CIMB Research on 27 Aug 2012
Major shareholder PTT has launched an offer for Sakari Resources (SAR) at S$1.90 per share. We deem this an attractive exit opportunity for shareholders as weak earnings prospects imply prolonged share price sluggishness if not for this offer.
The offer price is attractive, representing a 28 per cent premium over Friday's close and 9 per cent premium over SAR's 52-week volume weighted average price.
We advocate accepting the offer and expect the share price to rise to S$1.90 once trading resumes.
We align our target price to the offer price as we do not anticipate a competing bid. Maintain "underperform".
PTT Mining (a wholly owned subsidiary of PTT International, a Thai energy conglomerate) which owns 45 per cent of SAR, has offered to buy the outstanding shares of SAR for S$1.90 per share.
PTT plans to delist SAR if it can successfully acquire at least 90 per cent of free float.
The offer price is fair, translating into 15x CY2012 PE vs the stock's 14x historical average since its 2006 listing.
The offer price is also generous compared to our previous S$1.00 target price (9x CY2013 P/E, one standard deviation below its three-year mean).
We deem this an attractive exit opportunity as poor earnings prospects imply few re-rating catalysts in the medium term if not for this offer.
Faced with falling average selling prices and persistent cost pressure, SAR's profits and dividends are expected to decline in FY2013. The share price has already fallen 44 per cent over the last six months, reflecting poor fundamentals.
Accept the offer. The offer presents an attractive exit opportunity in the absence of fundamentally-driven catalysts. We do not foresee a competing bid given that PTT already owns 45 per cent of SAR.
UNDERPERFORM
Nam Cheong
DMG & Partners Research on 27 Aug 2012
WE initiate coverage with a "buy" rating and TP of S$0.290.
Nam Cheong is the dominant Offshore Support Vessel (OSV) builder in Malaysia with a market share of 75 per cent last year. It is bouncing off its FY2011 earnings trough, with EPS jumping 58 per cent this year and 24 per cent in FY2013 on the back of strong vessel sales amid a booming oil industry backdrop. At 5.4x FY2012F-2013F blended EPS, this is a steal. We see Nam Cheong being a strong candidate to double in 2-3 years.
We see Nam Cheong's net profit doubling over the next two years on the back of strong vessel sales since the bottom in 2009.
The growth will be driven by increasing vessel deliveries from 13 to 19 per year as well as building higher-value vessels.
"Letter of Authorisation" system for Malaysian builders allows Nam Cheong's customers to bid for contracts using its unsold vessels, and upon contract award to immediately purchase the vessel.
With a short time to delivery because of its build-to-stock model, Nam Cheong is a preferred OSV builder even among competing charterers.
An 80 per cent increase in Petronas capex forms a solid industry backdrop. Petronas has budgeted RM300 billion (S$120.7 billion) for capital expenditure over the next five years, a full 80 per cent increase over the previous five, in response to its falling oil production.
This provides a massive stimulus package to the entire Malaysian oil & gas industry.
Our target price of 29 cents is based on a P/E of 8.5x on blended FY2012F/2013F EPS, which is an undemanding multiple for the industry leader in Malaysia.
On the current growth profile, the same multiple on FY2014F EPS of 4.2 Singapore cents will result in the share price doubling to $0.360.
Key risks include a higher risk business model as well as lumpy results between quarters based on vessel sale dates.
BUY
Fraser and Neave
DBS Group Research on 27 Aug 2012
FRASER and Neave's (FNN) board announced that it intends to distribute about S$4 billion of the cash proceeds to shareholders if and after the proposed sale of its effective stake in APB is approved and completed.
This equates to about 84 per cent of the disposal gain of S$4.8 billion (net of transaction costs) and about 72 per cent of the aggregate sale proceeds of S$5.59 billion.
The remaining amount of about S$1.6 billion will be used to repay existing debt.
The distribution will take place via a capital reduction exercise where one in three shares will be cancelled, and shareholders will receive S$8.50 a share for every share cancelled.
After the sale of its stake in Asia Pacific Breweries (APB) and the capital reduction, FNN's NAV per share and EPS (proforma as of June 12) will increase by 68.2 per cent and 9.8 per cent, respectively.
We believe this move will be beneficial to shareholders, providing commitment and certainty on the use of funds in relation to the sale proceeds from the proposed sale of APB.
The proposal could also signal management's confidence in the cashflow generating ability of the group, ex-brewery.
Pro forma gearing after the transaction and capital reduction would be 0.12x, down from 0.3x, as of 9M FY2012; and this will allow the group to gear up for expansion should any opportunities arise.
A maximum debt-equity ratio of about 0.8x provides an additional debt headroom of up to about S$5 billion.
We retain our "hold" recommendation given limited upside to our TP of S$8.99 (based on 15 per cent discount to our RNAV).
HOLD
Tiong Seng Holdings
UOBKayhian on 28 Aug 2012
Valuation
· Tiong Seng Holdings (Tiong Seng) is trading at 5.8x 2011 earnings with a dividend yield of 4.9%. Based on Bloomberg’s consensus estimate, the stock has a 12-month target price of S$0.29 and is set to report S$26.3m of earnings in 2012. Investors should also note that the stock is trading at a 27% discount to its book value of 28.0 S cents.
Investment Highlights
· Tiong Seng recently reported a 5.9% increase in 2Q12 net profit to S$9.7m on strong revenue growth though this was partially eroded by higher construction costs.
· Last week, the company secured a S$137m construction contract for Singapore Institute of Management’s (SIM) campus extension of a four-story Multi-purpose Hall and nine-storey extension to Linear building. This increased its total orderbook to S$1.43b to be completed in the next 12 to 30 months.
· In order to reduce cost and foreign workers reliance, Tiong Seng has started operations of the S$36m Prefab Hub in May with a production capacity of more than 100,000cu m annually. According to management, using pre-cast components can reduce labour requirement by 50-70%.
· As for the property development business in China, the group is in the midst of the construction and sales of a few projects including the Xu Shu Guan project in Suzhou, Equinox, Zizhulin Commercial development and Tianjin Eco-city in Tianjin and lastly Sunny International in Cangzhou.
2Q12 Financial Results
· Revenue grew by 54.9% yoy to S$130.0m as the group was engaged with work on The Wharf Residences, The Volari and NUS Staff Housing at Kent Vale. Tiong Seng also managed to record higher sales of Cobiax products of S$2.6m (+27% yoy) in the quarter.
· However, gross profit slumped 22.3% yoy to S$12.9m with gross profit margins declining almost 10% to 9.9%. This is due to higher construction costs and as the group had recorded no sales from higher-margin development properties. Management also shared that the group has revenue of S$32.8m from newly commenced projects in Singapore to be recognised in the next quarter.
Our View
· According to the Building and Construction Authority, construction demand in 2012 is projected to be between S$21b-S$27b, albeit lower than the S$32b in 2011. In the next two years, the industry is projecting an average construction demand of between S$19b to S$27b p.a..
· However management expects the operating environment to remain challenging in the next two quarters as the industry faces rising material costs, foreign workers’ levies and the influx of competition from foreign contractors.
Valuation
· Tiong Seng Holdings (Tiong Seng) is trading at 5.8x 2011 earnings with a dividend yield of 4.9%. Based on Bloomberg’s consensus estimate, the stock has a 12-month target price of S$0.29 and is set to report S$26.3m of earnings in 2012. Investors should also note that the stock is trading at a 27% discount to its book value of 28.0 S cents.
Investment Highlights
· Tiong Seng recently reported a 5.9% increase in 2Q12 net profit to S$9.7m on strong revenue growth though this was partially eroded by higher construction costs.
· Last week, the company secured a S$137m construction contract for Singapore Institute of Management’s (SIM) campus extension of a four-story Multi-purpose Hall and nine-storey extension to Linear building. This increased its total orderbook to S$1.43b to be completed in the next 12 to 30 months.
· In order to reduce cost and foreign workers reliance, Tiong Seng has started operations of the S$36m Prefab Hub in May with a production capacity of more than 100,000cu m annually. According to management, using pre-cast components can reduce labour requirement by 50-70%.
· As for the property development business in China, the group is in the midst of the construction and sales of a few projects including the Xu Shu Guan project in Suzhou, Equinox, Zizhulin Commercial development and Tianjin Eco-city in Tianjin and lastly Sunny International in Cangzhou.
2Q12 Financial Results
· Revenue grew by 54.9% yoy to S$130.0m as the group was engaged with work on The Wharf Residences, The Volari and NUS Staff Housing at Kent Vale. Tiong Seng also managed to record higher sales of Cobiax products of S$2.6m (+27% yoy) in the quarter.
· However, gross profit slumped 22.3% yoy to S$12.9m with gross profit margins declining almost 10% to 9.9%. This is due to higher construction costs and as the group had recorded no sales from higher-margin development properties. Management also shared that the group has revenue of S$32.8m from newly commenced projects in Singapore to be recognised in the next quarter.
Our View
· According to the Building and Construction Authority, construction demand in 2012 is projected to be between S$21b-S$27b, albeit lower than the S$32b in 2011. In the next two years, the industry is projecting an average construction demand of between S$19b to S$27b p.a..
· However management expects the operating environment to remain challenging in the next two quarters as the industry faces rising material costs, foreign workers’ levies and the influx of competition from foreign contractors.
Goodpack Ltd
OCBC on 14 Aug 2012
Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m on the back of higher demand from the Synthetic Rubber segment while PATMI climbed higher by 4.6% YoY to US$45.2m. Its results were in line with our projections, coming in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively). Entering FY13, we forecast a 10% increase in revenue on the back of sustained growth in the Synthetic Rubber segment as well as increasing penetration in the automotive space. While margin pressures from higher logistic costs and IBC leasing charges will remain, we still anticipate overall bottom-line growth for the company. Rolling our projections forward to FY13/14, our fair value estimate rises from S$1.70 to S$1.85. Maintain HOLD.
FY12 results in line
Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m while PATMI climbed higher by 4.6% YoY to US$45.2m, which came in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. Strong growth from the Synthetic Rubber segment – 11% YoY to US$94.7 – boosted its top-line while cost saving initiatives via headcount reductions in its sales division helped to cushion the corresponding increases in logistic and handling costs. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively).
Strong growth to continue
Entering FY13, management expects revenue growth to persist on its strong growth tract on the back of increasing market share in the Synthetic Rubber (SR) segment and the procurement of additional contracts in the automotive space. With the opening of more SR plants in Singapore (two by the end of the year) and given general stability in the automotive industry, we deem a 10% increase in revenue for FY13/14 to be reasonable and raise our projections accordingly (previously 8%).
Although margins may remain depressed
While Goodpack’s cost savings initiatives had yielded some improvements, its logistic and handling costs remained higher on a YoY basis (+14% YoY to US$68.4m). Coupled with the increase in IBC leasing expenses, operating and EBITDA margins came in lower by 1 ppt and 2.2ppt respectively to 33.8% and 43% respectively. With a significant pickup in IBC demand likely to come in 2H13, we could see operating and EBITDA margins remaining depressed on the back of higher leasing costs. Furthermore, any moves by Goodpack to switch to a more cost efficient global logistic handler will take time to assimilate and adjust and cost savings may not be apparent in the near-term. Nonetheless, our FY13 PATMI still calls for a 2.2% YoY increase.
Maintain HOLD at higher FV
As we roll forward our projections to FY13/14, our DCF-derived fair value increases to S$1.85 from S$1.70 previously. Maintain HOLD.
Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m on the back of higher demand from the Synthetic Rubber segment while PATMI climbed higher by 4.6% YoY to US$45.2m. Its results were in line with our projections, coming in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively). Entering FY13, we forecast a 10% increase in revenue on the back of sustained growth in the Synthetic Rubber segment as well as increasing penetration in the automotive space. While margin pressures from higher logistic costs and IBC leasing charges will remain, we still anticipate overall bottom-line growth for the company. Rolling our projections forward to FY13/14, our fair value estimate rises from S$1.70 to S$1.85. Maintain HOLD.
FY12 results in line
Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m while PATMI climbed higher by 4.6% YoY to US$45.2m, which came in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. Strong growth from the Synthetic Rubber segment – 11% YoY to US$94.7 – boosted its top-line while cost saving initiatives via headcount reductions in its sales division helped to cushion the corresponding increases in logistic and handling costs. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively).
Strong growth to continue
Entering FY13, management expects revenue growth to persist on its strong growth tract on the back of increasing market share in the Synthetic Rubber (SR) segment and the procurement of additional contracts in the automotive space. With the opening of more SR plants in Singapore (two by the end of the year) and given general stability in the automotive industry, we deem a 10% increase in revenue for FY13/14 to be reasonable and raise our projections accordingly (previously 8%).
Although margins may remain depressed
While Goodpack’s cost savings initiatives had yielded some improvements, its logistic and handling costs remained higher on a YoY basis (+14% YoY to US$68.4m). Coupled with the increase in IBC leasing expenses, operating and EBITDA margins came in lower by 1 ppt and 2.2ppt respectively to 33.8% and 43% respectively. With a significant pickup in IBC demand likely to come in 2H13, we could see operating and EBITDA margins remaining depressed on the back of higher leasing costs. Furthermore, any moves by Goodpack to switch to a more cost efficient global logistic handler will take time to assimilate and adjust and cost savings may not be apparent in the near-term. Nonetheless, our FY13 PATMI still calls for a 2.2% YoY increase.
Maintain HOLD at higher FV
As we roll forward our projections to FY13/14, our DCF-derived fair value increases to S$1.85 from S$1.70 previously. Maintain HOLD.
Viz Branz
OCBC on 28 Aug 2012
Viz Branz (VB) reported a strong set of FY12 results, with revenue gaining 4.3% YoY to S$172.7m following increases in demand across all business segments while declines in raw material costs and operating expenses over the course of the year aided significant margin improvements, which saw PATMI climbing higher by 47.6% YoY to S$17m. Management has yet to declare a final dividend but dividends declared thus far totaled 3.3 S cents, which is already greater than last year’s 2.5 S cents. With demand from China and raw material prices likely to remain stable in the coming year, we leave our gross profit margin projections unchanged but raise our operating margin forecasts slightly to account for the continued easing of VB’s cost structure. Upgrade to BUY at a revised fair value estimate of S$0.74.
FY12 ends strongly as expected
As expected, Viz Branz (VB) reported a strong set of FY12 results, which met our FY top and bottom-line forecasts by -5% and 3% respectively. Its revenue rose 4.3% YoY to S$172.7m following increases in demand across all business segments while declines in raw material costs and operating expenses over the course of the year aided significant margin improvements (gross profit margins +2.4ppt to 34.1%; operating profit margins +3.6ppt to 14.6%). As a result, PATMI climbed higher by 47.6% YoY to S$17m. Management has yet to declare a final dividend but dividends declared thus far totaled 3.3 S cents, which is already greater than last year’s 2.5 S cents.
Growth in key market to continue
Revenue by geographical segment saw strong growth of 12% YoY in China to S$93.6m, which helped to offset declines of 3.2% YoY in South-East Asia and Indochina and 12% YoY in other export markets. While there has been talk of a slowdown in domestic consumption in Asian markets, we draw strength in the relative affordability of VB’s products and demand stability exhibited during the previous downturn, and leave our revenue projections of between 8-9% over the next three years unchanged.
Margins to remain stable
Robusta coffee bean prices – a main component for VB – have crept up slowly as consumers (especially those in Europe) switch away from the more expensive Arabica beans. However, a strong spike in prices is unlikely given the preference for gourmet coffees i.e. Arabica beans in Europe, the global leader in per-capita coffee consumption. Therefore, we forecast stable gross profit margins at around 33% for the coming year.
No updates on share sale
While management is unable to provide any updates on the third party (offeror) approach for a substantial stake in the company, it maintains that negotiations are still ongoing. With no updates in this round of results, we could expect to see some selling pressure from impatient, speculative investors.
Upgrade to BUY
Given VB’s encouraging set of results and efficiencies in cost savings, we raise our operating margin projections by 2 ppt to 14%. Upgrade to BUY at a higher fair value estimate of S$0.74.
Viz Branz (VB) reported a strong set of FY12 results, with revenue gaining 4.3% YoY to S$172.7m following increases in demand across all business segments while declines in raw material costs and operating expenses over the course of the year aided significant margin improvements, which saw PATMI climbing higher by 47.6% YoY to S$17m. Management has yet to declare a final dividend but dividends declared thus far totaled 3.3 S cents, which is already greater than last year’s 2.5 S cents. With demand from China and raw material prices likely to remain stable in the coming year, we leave our gross profit margin projections unchanged but raise our operating margin forecasts slightly to account for the continued easing of VB’s cost structure. Upgrade to BUY at a revised fair value estimate of S$0.74.
FY12 ends strongly as expected
As expected, Viz Branz (VB) reported a strong set of FY12 results, which met our FY top and bottom-line forecasts by -5% and 3% respectively. Its revenue rose 4.3% YoY to S$172.7m following increases in demand across all business segments while declines in raw material costs and operating expenses over the course of the year aided significant margin improvements (gross profit margins +2.4ppt to 34.1%; operating profit margins +3.6ppt to 14.6%). As a result, PATMI climbed higher by 47.6% YoY to S$17m. Management has yet to declare a final dividend but dividends declared thus far totaled 3.3 S cents, which is already greater than last year’s 2.5 S cents.
Growth in key market to continue
Revenue by geographical segment saw strong growth of 12% YoY in China to S$93.6m, which helped to offset declines of 3.2% YoY in South-East Asia and Indochina and 12% YoY in other export markets. While there has been talk of a slowdown in domestic consumption in Asian markets, we draw strength in the relative affordability of VB’s products and demand stability exhibited during the previous downturn, and leave our revenue projections of between 8-9% over the next three years unchanged.
Margins to remain stable
Robusta coffee bean prices – a main component for VB – have crept up slowly as consumers (especially those in Europe) switch away from the more expensive Arabica beans. However, a strong spike in prices is unlikely given the preference for gourmet coffees i.e. Arabica beans in Europe, the global leader in per-capita coffee consumption. Therefore, we forecast stable gross profit margins at around 33% for the coming year.
No updates on share sale
While management is unable to provide any updates on the third party (offeror) approach for a substantial stake in the company, it maintains that negotiations are still ongoing. With no updates in this round of results, we could expect to see some selling pressure from impatient, speculative investors.
Upgrade to BUY
Given VB’s encouraging set of results and efficiencies in cost savings, we raise our operating margin projections by 2 ppt to 14%. Upgrade to BUY at a higher fair value estimate of S$0.74.
China Minzhong
Kim Eng on 28 Aug 2012
Results better than expected. Minzhong announced its FY6/12 results on 27 Aug, which is better than expected. Full year revenue came in at RMB2.6b, up 33.2% yoy while net profit grew by 19.9% yoy to RMB679.6m. We maintain our positive view on the company and BUY recommendation with target price of SGD1.16.
Domestic cultivation business drove the growth. Minzhong’s FY12 results reaffirmed our view that Minzhong would gradually achieve a more balanced business model as its domestic cultivation business grew faster than its export business. For FY12, domestic cultivation revenue increased by 64.5% vs 19.1% growth in export business. Gross profit of domestic business also registered higher growth of 50.7% yoy vs only 2.5% for export business.
Account receivables should not be a big issue. A sharp increase in account receivables was a concern before the results. However, the situation is better than expected. Although account receivables remained high at RMB967m in FY12, Minzhong actually has managed to collect around RMB220m since end FY12 and we do not think there is any material default risk associated with the remaining receivables.
Expecting higher yield even without adding more farmland. Yield per mu increased significantly in FY12, mainly because the farmland that Minzhong acquired two years ago is approaching optimum yield. Thus, we expect higher production volume going forward even without adding more farmland.
Positive free cash flow and dividends this year? We expect higher operating cash flow and less Capex in FY13, thus the first positive free cash flow in three years. We cannot rule out the possibility that Minzhong will pay dividends or buy back shares in FY13. Although we have not put in any dividends payments or share buyback forecast as our base case, we believe such actions will boost the valuation if they eventuate. We maintain our BUY call with unchanged target price of SGD1.16 pegged to 4.35x FY13 PE.
Results better than expected. Minzhong announced its FY6/12 results on 27 Aug, which is better than expected. Full year revenue came in at RMB2.6b, up 33.2% yoy while net profit grew by 19.9% yoy to RMB679.6m. We maintain our positive view on the company and BUY recommendation with target price of SGD1.16.
Domestic cultivation business drove the growth. Minzhong’s FY12 results reaffirmed our view that Minzhong would gradually achieve a more balanced business model as its domestic cultivation business grew faster than its export business. For FY12, domestic cultivation revenue increased by 64.5% vs 19.1% growth in export business. Gross profit of domestic business also registered higher growth of 50.7% yoy vs only 2.5% for export business.
Account receivables should not be a big issue. A sharp increase in account receivables was a concern before the results. However, the situation is better than expected. Although account receivables remained high at RMB967m in FY12, Minzhong actually has managed to collect around RMB220m since end FY12 and we do not think there is any material default risk associated with the remaining receivables.
Expecting higher yield even without adding more farmland. Yield per mu increased significantly in FY12, mainly because the farmland that Minzhong acquired two years ago is approaching optimum yield. Thus, we expect higher production volume going forward even without adding more farmland.
Positive free cash flow and dividends this year? We expect higher operating cash flow and less Capex in FY13, thus the first positive free cash flow in three years. We cannot rule out the possibility that Minzhong will pay dividends or buy back shares in FY13. Although we have not put in any dividends payments or share buyback forecast as our base case, we believe such actions will boost the valuation if they eventuate. We maintain our BUY call with unchanged target price of SGD1.16 pegged to 4.35x FY13 PE.
Goodpack Ltd
Kim Eng on 28 Aug 2012
In-line with expectations. As expected, revenue weakness, which was evident during the 3rd quarter continued into the 4th, summing up an unexciting set of FY12 results. There is, however a silver lining, with a total dividend of SGD 5 cents/ share declared (SGD 2 cents final, SGD 3 cents special). This is an increase from last year’s SGD 3 cents/ share.
A tale of two halves in FY12. For the first half, revenue grew 22% yoy. However, with the global uncertainty setting in, 2HJune FY12 revenue grew just 3% yoy. This resulted in a full-year growth of 12% yoy. Given its
business model, a lower utilization (56% for FY12) also has a negative impact on margins. As a result, FY12 net profit grew just 5% yoy to USD 45.2m. As of June, its IBC fleet stands at about 2.7m, implying an increase of about 200-250k, which is below its usual expansion rate.
Slowed by tyres. With 85% of its revenue coming from synthetic and natural rubber, Goodpack is invariably affected by the global economic slowdown, with factories in China and Europe slowing down production. Goodpack typically increases its fleet only with new contracts on hand, hence the lower expansion rate in the 2H.
Defensively positioned. We see Goodpack as being very defensively positioned at the moment, with net gearing going down to just 0.1%. With continued strong free-cash flow from its business, it should be in a healthy net cash position for next year and able to start building out its fleet organically again. With several new synthetic rubber factories to be completed in Asia over the next two years, (7 in Singapore alone), management remains bullish about prospects in FY13. Other initiatives include building out its own cleaning depots, which may help reduce cost in the longer-run.
Earnings usually come back stronger. Possible share price weakness is a good opportunity to accumulate for the longer-term. FY09 was the previous instance of earnings weakness, which subsequently grew almost 30% CAGR over the next two years. Key catalyst remains traction on the auto-sector front. We understand a few auto-contracts are at the requestfor- quotation stage while the GM contract is in the midst of expansion. We trim our FY13-FY14F by 6-11% and introduce FY15 estimates. Maintain BUY with a TP of SGD2.07, now pegged to 17.5x PER (5-year average).
In-line with expectations. As expected, revenue weakness, which was evident during the 3rd quarter continued into the 4th, summing up an unexciting set of FY12 results. There is, however a silver lining, with a total dividend of SGD 5 cents/ share declared (SGD 2 cents final, SGD 3 cents special). This is an increase from last year’s SGD 3 cents/ share.
A tale of two halves in FY12. For the first half, revenue grew 22% yoy. However, with the global uncertainty setting in, 2HJune FY12 revenue grew just 3% yoy. This resulted in a full-year growth of 12% yoy. Given its
business model, a lower utilization (56% for FY12) also has a negative impact on margins. As a result, FY12 net profit grew just 5% yoy to USD 45.2m. As of June, its IBC fleet stands at about 2.7m, implying an increase of about 200-250k, which is below its usual expansion rate.
Slowed by tyres. With 85% of its revenue coming from synthetic and natural rubber, Goodpack is invariably affected by the global economic slowdown, with factories in China and Europe slowing down production. Goodpack typically increases its fleet only with new contracts on hand, hence the lower expansion rate in the 2H.
Defensively positioned. We see Goodpack as being very defensively positioned at the moment, with net gearing going down to just 0.1%. With continued strong free-cash flow from its business, it should be in a healthy net cash position for next year and able to start building out its fleet organically again. With several new synthetic rubber factories to be completed in Asia over the next two years, (7 in Singapore alone), management remains bullish about prospects in FY13. Other initiatives include building out its own cleaning depots, which may help reduce cost in the longer-run.
Earnings usually come back stronger. Possible share price weakness is a good opportunity to accumulate for the longer-term. FY09 was the previous instance of earnings weakness, which subsequently grew almost 30% CAGR over the next two years. Key catalyst remains traction on the auto-sector front. We understand a few auto-contracts are at the requestfor- quotation stage while the GM contract is in the midst of expansion. We trim our FY13-FY14F by 6-11% and introduce FY15 estimates. Maintain BUY with a TP of SGD2.07, now pegged to 17.5x PER (5-year average).
Monday, 27 August 2012
CDL Hospitality Trusts
OCBC on 27 Aug 2012
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. But a decline would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. CDLHT’s hotels are best characterized as being in the Mid-tier and Upscale categories, and should perform at least in line with the general market. The prospects of CDLHT are still favorable in the longer term. We calculate that the hotel room supply for Mid-tier and Upscale categories as a whole is expected to grow at 4.6% p.a. for 2012-2014. This compares favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
Possibly soft 3Q12 for Singapore hotels
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. For example, a 5-star hotel may be charging S$250++ while they may have charged S$300++ a year ago. In percentage terms, the decline might be less pronounced for higher-end hotels. CDLHT’s hotels are best characterized as being in the two middle tiers (Mid-tier and Upscale) based on their historical RevPAR figures, and should perform at least in line with the general market.
3Q11 was particularly strong
But a YoY decline for the hospitality sector would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. Pickup among hotels for the period of the F1 (21st-23rd Sep) has apparently been poor so far except for hotels in the Marina Bay area. The pricing power of the hotels relative to walk-in customers and corporates may have declined because of reduced booking visibility but this may be buffered by increased pricing power versus certain travel agents.
Demand to surpass supply
According to CBRE, hotel room supply in Singapore is estimated to grow at 4.6% p.a. for 2012-2014 from 49,719 rooms in 309 hotels as of end 2011. CBRE estimates that the spread of hotel rooms by categories as of end 2011 was 14% Economy, 29% Mid-tier, 46% Upscale and 11% Luxury. Based on this, we calculate that the 2012-2014 growth rates of hotel room supplies by tiers are as follows: Economy (7.2% p.a.), Mid-tier (6.4% p.a.), Upscale (3.4% p.a.), Luxury (1.6% p.a.). As a whole, the Mid-tier and Upscale categories are expected to grow at 4.6% p.a., in line with the general market and comparing favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015.
Maintain HOLD
We keep our fair value of S$2.06 on CDLHT. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. But a decline would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. CDLHT’s hotels are best characterized as being in the Mid-tier and Upscale categories, and should perform at least in line with the general market. The prospects of CDLHT are still favorable in the longer term. We calculate that the hotel room supply for Mid-tier and Upscale categories as a whole is expected to grow at 4.6% p.a. for 2012-2014. This compares favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
Possibly soft 3Q12 for Singapore hotels
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. For example, a 5-star hotel may be charging S$250++ while they may have charged S$300++ a year ago. In percentage terms, the decline might be less pronounced for higher-end hotels. CDLHT’s hotels are best characterized as being in the two middle tiers (Mid-tier and Upscale) based on their historical RevPAR figures, and should perform at least in line with the general market.
3Q11 was particularly strong
But a YoY decline for the hospitality sector would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. Pickup among hotels for the period of the F1 (21st-23rd Sep) has apparently been poor so far except for hotels in the Marina Bay area. The pricing power of the hotels relative to walk-in customers and corporates may have declined because of reduced booking visibility but this may be buffered by increased pricing power versus certain travel agents.
Demand to surpass supply
According to CBRE, hotel room supply in Singapore is estimated to grow at 4.6% p.a. for 2012-2014 from 49,719 rooms in 309 hotels as of end 2011. CBRE estimates that the spread of hotel rooms by categories as of end 2011 was 14% Economy, 29% Mid-tier, 46% Upscale and 11% Luxury. Based on this, we calculate that the 2012-2014 growth rates of hotel room supplies by tiers are as follows: Economy (7.2% p.a.), Mid-tier (6.4% p.a.), Upscale (3.4% p.a.), Luxury (1.6% p.a.). As a whole, the Mid-tier and Upscale categories are expected to grow at 4.6% p.a., in line with the general market and comparing favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015.
Maintain HOLD
We keep our fair value of S$2.06 on CDLHT. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
PEC Ltd
OCBC on 27 Aug 2012
PEC Ltd (PEC) reported an improved set of 4QFY12 results, with net profit jumping by 30% YoY to S$4.6m, mainly due to increased contribution from the maintenance services in Singapore and project works in Middle East and Malaysia. In the quarter, it also had a net write-off of S$6.2m on its problematic Rotterdam project. With this closure, we believe management could focus its energies on growing its business, especially in the Middle East and the Southeast Asia regions. Its order-book remains healthy at S$258m, but margins may remain depressed over the near term. Maintain HOLD with unchanged S$0.64 fair value estimate.
4QFY12 results above our expectations
PEC Ltd (PEC) reported an improved set of 4QFY12 results, with net profit jumping by 30% YoY to S$4.6m, such that FY12 net profit came in at S$11.4m and ahead of ours and the street’s expectations. The improvement in 4Q was mainly due to increased contribution from the maintenance services in Singapore and project works in Middle East and Malaysia. Nonetheless, FY12 net profit was still down 64% YoY, due to (i) stiffer pricing competition and cost pressures, which resulted in lower gross margin of 19% (FY11: 30%), and (ii) write-offs on its Rotterdam project. Separately, the group also announced 2.5 S cents final dividend.
Rotterdam issues finally over
During the quarter, PEC wrote back S$11.1m of losses related to its JV, Verwater-Audex B.V., on the extinguishment of the group’s financial obligations to the latter. In conjunction, it also made an allowance of S$17.3m for debt against Verwater-Audex B.V. After adjusting for provision made in FY11 and currency fluctuations, the net impact of the write-off was S$12.1m in FY12. With this, we believe the group has finally reached a closure on the Rotterdam project and we do not expect further write-offs.
Sharp increase in contracts-in-progress
Meanwhile, PEC’s contracts-in-progress jumped by 164% QoQ to S$62.1m. Management explained that it did more work in the latest quarter (revenue for 3Q12: S$106.7m; 4Q12: S$140.7m) and progress billing was based on agreed milestone completion. However, this could also imply a longer billing cycle, and possibly higher credit risk from its clients.
Maintain HOLD with unchanged S$0.64 fair value estimate
With the conclusion of the Rotterdam JV, we believe management could focus its energies on growing its business, especially in the Middle East and the Southeast Asia regions. Its order-book remains healthy at S$258m, but margins may remain depressed over the near term. Maintain HOLD with unchanged S$0.64 fair value estimate.
PEC Ltd (PEC) reported an improved set of 4QFY12 results, with net profit jumping by 30% YoY to S$4.6m, mainly due to increased contribution from the maintenance services in Singapore and project works in Middle East and Malaysia. In the quarter, it also had a net write-off of S$6.2m on its problematic Rotterdam project. With this closure, we believe management could focus its energies on growing its business, especially in the Middle East and the Southeast Asia regions. Its order-book remains healthy at S$258m, but margins may remain depressed over the near term. Maintain HOLD with unchanged S$0.64 fair value estimate.
4QFY12 results above our expectations
PEC Ltd (PEC) reported an improved set of 4QFY12 results, with net profit jumping by 30% YoY to S$4.6m, such that FY12 net profit came in at S$11.4m and ahead of ours and the street’s expectations. The improvement in 4Q was mainly due to increased contribution from the maintenance services in Singapore and project works in Middle East and Malaysia. Nonetheless, FY12 net profit was still down 64% YoY, due to (i) stiffer pricing competition and cost pressures, which resulted in lower gross margin of 19% (FY11: 30%), and (ii) write-offs on its Rotterdam project. Separately, the group also announced 2.5 S cents final dividend.
Rotterdam issues finally over
During the quarter, PEC wrote back S$11.1m of losses related to its JV, Verwater-Audex B.V., on the extinguishment of the group’s financial obligations to the latter. In conjunction, it also made an allowance of S$17.3m for debt against Verwater-Audex B.V. After adjusting for provision made in FY11 and currency fluctuations, the net impact of the write-off was S$12.1m in FY12. With this, we believe the group has finally reached a closure on the Rotterdam project and we do not expect further write-offs.
Sharp increase in contracts-in-progress
Meanwhile, PEC’s contracts-in-progress jumped by 164% QoQ to S$62.1m. Management explained that it did more work in the latest quarter (revenue for 3Q12: S$106.7m; 4Q12: S$140.7m) and progress billing was based on agreed milestone completion. However, this could also imply a longer billing cycle, and possibly higher credit risk from its clients.
Maintain HOLD with unchanged S$0.64 fair value estimate
With the conclusion of the Rotterdam JV, we believe management could focus its energies on growing its business, especially in the Middle East and the Southeast Asia regions. Its order-book remains healthy at S$258m, but margins may remain depressed over the near term. Maintain HOLD with unchanged S$0.64 fair value estimate.
Hoe Leong
24 Aug 2012
Hoe Leong Corp (HOE) reported a disappointing set of 2Q12 results with net loss of S$1.7m. 2Q revenue and gross profit jumped by 2.0% and 15.9% YoY to S$20.7m and S$6.1m respectively, but the gains were completely wiped out by losses from its associates and JVs of S$2.8m. For 1H12, HOE recorded a net loss of S$2.6m, mainly due to hefty losses from associates and JVs of S$6.1m. The main culprit for the poor performance was HOE’s associate, Semua Group, which continues to be adversely impacted by high bunker prices. There is also a risk that Semua’s financials may be consolidated into HOE, resulting in a material change in HOE’s profitability and balance sheet ratios. Due to a reallocation of resources, we have decided to CEASE COVERAGE on HOE.
Dismal 2Q results
Hoe Leong Corp (HOE) reported a disappointing 2Q12 results with net loss of S$1.7m. 2Q revenue and gross profit jumped by 2.0% and 15.9% YoY to S$20.7m and S$6.1m respectively, but the gains were completely wiped out by losses from its associates and JVs of S$2.8m. For 1H12, HOE recorded a net loss of S$2.6m, also due to hefty losses from associates and JVs of S$6.1m.
Semua Group hit by high bunker prices
The main culprit for the poor performance was HOE’s associate, Semua Group, which accounted for losses of S$2.7m for 2Q12 and S$6.9m for 1H12. Recall that HOE had purchased a 49% stake in Semua from Malaysia-listed Sumatec Group in Sep 2010 to diversify its business. However, the operating environment has since worsened and Semua continues to be adversely impacted by high bunker prices.
Possible consolidation of financials
Another key concern is the clawback feature in HOE’s purchase agreement with Sumatec. Since Semua had not met the guaranteed MYR31m profit for FY11, HOE could seek compensation either through (i) an issuance of new Sumatec shares, (ii) a transfer of Semua shares held by Sumatec to HOE, or (iii) a combination of the two options. HOE is still considering its options, and depending on the increase of its effective stake on Semua, there is a risk that Semua’s financial could be consolidated into HOE in the future. More importantly, this could have a material impact on HOE’s profitability and balance sheet ratios.
Cease coverage
Besides the above-mentioned, we also noted the low trading volume of HOE’s shares (which has dropped to a daily average volume of 17k since mid-May and the stock was rarely traded for the large part of the last three months). Due to a reallocation of resources, we have decided to CEASE COVERAGE on HOE.
Hoe Leong Corp (HOE) reported a disappointing set of 2Q12 results with net loss of S$1.7m. 2Q revenue and gross profit jumped by 2.0% and 15.9% YoY to S$20.7m and S$6.1m respectively, but the gains were completely wiped out by losses from its associates and JVs of S$2.8m. For 1H12, HOE recorded a net loss of S$2.6m, mainly due to hefty losses from associates and JVs of S$6.1m. The main culprit for the poor performance was HOE’s associate, Semua Group, which continues to be adversely impacted by high bunker prices. There is also a risk that Semua’s financials may be consolidated into HOE, resulting in a material change in HOE’s profitability and balance sheet ratios. Due to a reallocation of resources, we have decided to CEASE COVERAGE on HOE.
Dismal 2Q results
Hoe Leong Corp (HOE) reported a disappointing 2Q12 results with net loss of S$1.7m. 2Q revenue and gross profit jumped by 2.0% and 15.9% YoY to S$20.7m and S$6.1m respectively, but the gains were completely wiped out by losses from its associates and JVs of S$2.8m. For 1H12, HOE recorded a net loss of S$2.6m, also due to hefty losses from associates and JVs of S$6.1m.
Semua Group hit by high bunker prices
The main culprit for the poor performance was HOE’s associate, Semua Group, which accounted for losses of S$2.7m for 2Q12 and S$6.9m for 1H12. Recall that HOE had purchased a 49% stake in Semua from Malaysia-listed Sumatec Group in Sep 2010 to diversify its business. However, the operating environment has since worsened and Semua continues to be adversely impacted by high bunker prices.
Possible consolidation of financials
Another key concern is the clawback feature in HOE’s purchase agreement with Sumatec. Since Semua had not met the guaranteed MYR31m profit for FY11, HOE could seek compensation either through (i) an issuance of new Sumatec shares, (ii) a transfer of Semua shares held by Sumatec to HOE, or (iii) a combination of the two options. HOE is still considering its options, and depending on the increase of its effective stake on Semua, there is a risk that Semua’s financial could be consolidated into HOE in the future. More importantly, this could have a material impact on HOE’s profitability and balance sheet ratios.
Cease coverage
Besides the above-mentioned, we also noted the low trading volume of HOE’s shares (which has dropped to a daily average volume of 17k since mid-May and the stock was rarely traded for the large part of the last three months). Due to a reallocation of resources, we have decided to CEASE COVERAGE on HOE.
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