Keppel Corporation

DMG & Partners Research, Sept 19

KEPPEL Corp (KEP) has secured two floating production storage and offloading (FPSO) conversion contracts. This lifts its year-to-date new orders to $4.3 billion, accounting for 72 per cent of our $6 billion order win estimate for FY2013.

The contracts are positive as they reflect the group's strong execution capability and raise its net order book to $14.4 billion. We maintain our EPS estimates, "buy" rating and TP of $12.24.

Conversion project from SBM, a repeat customer. The first contract from SBM Offshore is for the conversion of a FPSO unit that will be used for the Stones ultra deepwater development by Shell in the Gulf of Mexico. The FPSO is designed with a processing capacity of 60,000 barrels of oil per day (bopd) and will be able to store 800,000 barrels of crude oil.

The second contract, awarded by M3nergy, involves the conversion of a FPSO for the Petronas-operated Bukit Tua Field, 35km north of Madura Island in Indonesia. The conversion is expected to be completed in Q2 2014. The FPSO will have a production capacity of 25,000 bopd and a storage capacity of 630,000 barrels. We understand KEP beat other yards to the job, including Malaysia Marine and Heavy Engineering Holdings.

BUY

Soilbuild Business Space REIT

OCBC on 19 Sept 2013

We are initiating coverage on Soilbuild Business Space REIT (Soilbuild REIT) with a BUY rating. Soilbuild REIT currently owns a young portfolio of seven modern business space properties in Singapore and has the largest exposure to the business park segment. We like Soilbuild REIT’s exposure in this space because demand in the local scene has been growing steadily throughout the years. We also believe that Soilbuild REIT is able to leverage on the capabilities of its Sponsor, Soilbuild Group, to grow its income given its track record and expertise. Soilbuild REIT is granted Right of First Refusal (ROFR) by its Sponsor over all its income-producing business space assets in Singapore. The ROFR currently covers four industrial properties, providing Soilbuild REIT with a clear acquisition pipeline. As of the listing date, Soilbuild REIT is sitting at healthy gearing ratio of 29.9%, while 75.0% of its interest rates are fixed. This not only gives Soilbuild REIT ample debt headroom to pursue its growth plans but also limits its exposure to rising interest costs. Our fair value of S$0.82 implies an attractive total expected return of 20.1%. At current price, Soilbuild REIT is also trading at the steepest discount of 8.8% to its book value, compared to its subsector peers. This is unjustified in our view given Soilbuild REIT’s quality portfolio assets, growth potential and respectable FY14F yield of 7.8%.

Initiate coverage with BUY
We are initiating coverage on Soilbuild Business Space REIT (Soilbuild REIT) with a BUY rating. Our fair value of S$0.82 is based on the dividend discount model, and implies an attractive total expected return of 20.1%. At current price, Soilbuild REIT is trading at the steepest discount of 8.8% to its book value, compared to an average P/B of 1.10x seen across its subsector peers. This is unjustified in our view given Soilbuild REIT’s quality portfolio assets, growth potential and respectable FY14F yield of 7.8%.

Singapore-based industrial landlord with quality assets
Soilbuild REIT currently owns a young portfolio of seven modern business space properties in Singapore which enjoy excellent connectivity. In addition, Soilbuild REIT has the largest exposure to the business park segment relative to the other industrial S-REITs. We like Soilbuild REIT’s exposure in this space because demand in the local scene has been growing steadily throughout the years due to its high quality and lower rents relative to traditional office spaces.

Strong sponsorship from Soilbuild Group
The Sponsor for Soilbuild REIT is Soilbuild Group Holdings, a leading integrated property group based in Singapore. It is one of the few Singapore construction companies that are allowed to tender for public sector projects without any value limitations. Given Soilbuild Group’s track record and expertise, we believe Soilbuild REIT is able to leverage on the capabilities of its Sponsor to grow its income.

Clear growth opportunities
Soilbuild REIT is granted Right of First Refusal (ROFR) by its Sponsor over all its income-producing business space assets in Singapore. The ROFR currently covers four industrial properties, providing Soilbuild REIT with a clear acquisition pipeline. In addition, several of its properties have under-utilized plot ratios, and present opportunities for growth. As of the listing date, Soilbuild REIT is sitting at healthy gearing ratio of 29.9%, while 75.0% of its interest rates are fixed. This not only gives Soilbuild REIT ample debt headroom to pursue its growth plans but also limits its exposure to rising interest costs.

BreadTalk

OCBC on 19 Sept 2013

With BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that valuations are stretched at current levels. While the group’s growth proposition appears attractive, realizing future potential takes time, and more importantly, carries significant operating and execution risks. Its operating margins have also remained in the low single-digit region. Furthermore, the group’s valuation is expensive when compared to more established regional peers that compete in the same markets. We maintain our SELL rating with an unchanged fair value at S$0.77, and will look to re-rate the stock only when its margins arrest their decline and operations approach a steady-state. A takeover angle at this juncture is also unlikely as we do not envision MINT launching a takeover bid anytime soon in the coming quarters at current price levels.

Too fast too much too soon
With BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that valuations are looking stretched at current levels. BreadTalk’s growth prospects appear attractive: i) targets emerging consumer markets such as China and Taiwan, ii) owns a high-profile bakery brand and franchise rights to the popular Din Tai Fung restaurant, and iii) operates a chain of domestic food courts. However, realizing future potential takes time, and more importantly, carries significant operating and execution risks. With BreadTalk currently trading at a trailing twelve month (TTM) PE of 22.4x, which is an all-time high for the group since its listing in 2003, it appears that the current price has already priced in the future potential of its business. As a recap, from FY09-12, the group’s operating profit and PATMI only grew by a CAGR of 4.6% and 2.7% respectively, despite revenue increasing by a CAGR of 22.0%. Operating margins also remained in the low single-digit territory, and we expect this trend to continue in the coming quarters.

Valuation is high versus peers
Because of these low operating margins, it is hard to justify BreadTalk’s current valuation against its more established regional peers in the bakery or restaurant segments that compete in the same markets. In our comparison, the average gap can be as wide as 8ppt.

No takeover from MINT; maintain SELL
MINT’s recent addition to its shareholdings notwithstanding, we reiterate our stand that a takeover is unlikely at this point. We maintain our SELL rating with an unchanged fair value at S$0.77, and will look to re-rate the stock only when its margins arrest their decline and its operations approach a steady-state.

Ezra Holdings

OCBC on 18 Sept 2013

The share price of Ezra Holdings has seen an astounding increase of about 40% in the past week. Though Ezra has clarified earlier that it was not aware nor has it been engaged on a takeover by Samsung Heavy Industries, there could possibly be other offers by potential acquirers along the way. Still, there has been no change to the company’s fundamentals since its disappointing 3QFY13 results. Looking ahead, we believe that execution risks are still not over for Ezra, despite an order book of more than US$2b, as this is susceptible to project delays and cost overruns. Without any official offer or significant contract wins, the recent price gain appears overdone. Based on fundamentals, we are retaining our fair value estimates of S$0.99, and at current price, we downgrade our rating to SELL.

Astounding 40% increase over past week
Ezra Holdings’ share price surged 40% since early last week. Prompted by a query from the SGX, it replied that it was not aware of any information that might explain the unusual trading activity. 

No offer by Samsung…
There was market speculation that there may be a potential takeover offer by Samsung Heavy Industries, but Ezra had clarified earlier that it was not aware nor has it been engaged on the subject of a takeover by Samsung. 

… but could this prompt other offers?
However, this does not exclude the possibility that there could be other offers by potential acquirers along the way. The recent episode has drawn market attention to Ezra’s stock, which has been a stark underperformer before the price spike amongst the offshore and marine stocks. Companies looking for strategic partnerships with a long-term view may also be prompted to do more research on Ezra’s capabilities for any acquisition opportunities. 

No offer; share price gains not warranted
On the operations’ side, there has been no perceptible change since it announced a disappointing set of 3QFY13 results in mid Jul. The subsea segment had went into the red again with delays in project execution and additional costs that were previously unexpected by management. We believe execution risks remains, despite an order book of more than US$2b, as this is susceptible to project delays and cost overruns. Without a formal takeover offer or sizeable contract wins, the recent price spike appears overdone at current level. Our fair value estimate of S$0.99 is based on P/B of 0.7x (in line with its peers), although a takeover offer, if it materializes, could be a price driver depending on offer price. Based on fundamentals and at current price, we downgrade our rating to SELL.

Singapore Residential Property

OCBC on 17 Sept 2013

A headline total of 1,468 new private homes (including 726 EC units) were sold in Aug 2013, up 147% MoM and down 5% YoY. Excluding EC and landed-units, however, only 793 units were sold - up 53% MoM and down 47% YoY with a softer take-up rate of 80% (versus 85% in Jul 13). We believe the market is still finding its legs after the TDSR measures which have moved buyers to further focus on issues of availability of credit and affordability. One key impact is that significant demand has moved to the EC segment, which allows for HDB upgraders to access larger amounts of credit versus private property. EC sales were bullish in Aug 13 with 726 units sold – this constituted 49% of the 1,468 headline number and increased a whopping 548% MoM and 515% YoY. Maintain NEUTRAL on the SG residential sector. Our top picks are CapitaLand [BUY, S$3.77], Keppel Land [BUY, S$4.09] and CapitaMalls Asia [BUY, S$2.55].

Headline total of 1,468 units sold - up 147% MoM 
URA reported that a headline total of 1,468 new private homes (including 726 EC units) were sold in Aug 2013, which was up 147% MoM and down 5% YoY. Excluding EC and landed-units, however, only 793 units were sold - up 53% MoM and down 47% YoY with a softer take-up rate of 80% (versus 85% in Jul 13). As a result, the inventory of launched and unsold units (excl. EC/landed) in the market increased by 5% MoM to 5,705 units.

Still mostly mass-market sales with take-up rate lower across all segments 
The majority of sales continue to fall in the mass-market segment (Outside Central Region or "OCR") with 544 units sold, constituting 74% of total sales and up 88% MoM. A key driver of sales over the month was the launch at The Tembusu (337 total units, Tampines Rd) which sold 218 units at a median price of S$1,547 psf. Sales in the mid-tier segment (Rest of Central Region or "RCR") dipped for a third consecutive month, falling to 107 units in Aug-13. This was in part due to an absence of large launches; the largest RCR project launched being 23 RC Suites (45 total units, Race Course Lane) with 4 units sold at a median S$1,698 psf.

Dogged by impact of TDSR
The market is still finding its legs after the TDSR measures which have pushed buyers to further focus on issues of availability of credit and affordability. One key impact is that significant demand has moved to the EC segment, which allows for HDB upgraders to access larger amounts of credit versus private property. EC sales were bullish in Aug 13 with 726 units sold – this constituted 49% of the 1,468 headline number and increased a whopping 548% MoM and 515% YoY. EC projects launched in Aug 13 showed strong take-up rates, with Ecopolitan (512 total units, Punggol Walk) selling 335 units at a median S$793 psf and Lush Acres (380 total units, Sengkang West Way) selling 311 units at a median S$790 psf

Maintain NEUTRAL on sector
We prefer diversified developers with strong balance sheets and regional exposure. Our top picks are CapitaLand [BUY, S$3.77], Keppel Land [BUY, S$4.09] and CapitaMalls Asia [BUY, S$2.55].

Golden Agri-Resources

UOBKayhian on 17 Sept 2013

Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, is likely to feel the negative impact of further pullback in CPO (crude palm oil) prices, especially after the recent rebounds in prices of CPO and GAR shares. With demand from both China and India – two of the world’s largest import markets for CPO – likely to remain soft, we believe that the worst is not over yet for the upstream players. Hence we maintain our SELL rating and S$0.465 fair value (still based on 11x blended FY13/FY14F EPS).

CPO outlook remains weak
The outlook for CPO (crude palm oil) prices is likely to remain weak as market watchers continue to expect further weakness in 2H13, weighed by expectations of higher CPO production and also increased supply from vegetable substitutes like soy and corn oils. According to Dorab Mistry, director at Godrej International Ltd, “the rally in CPO prices has just about run its course and will face downward pressure from here”. Mistry now expects to see new lows in vegetable oil and particularly in palm and lauric oil in early Jan . 

Upstream players to feel negative impact most
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, is likely to feel the negative impact the most. Over the past three years, GAR share price has shown a strong 0.8 correlation to CPO prices. And in wake of the recent rebound in CPO prices and the corresponding rebound in GAR share price, we suspect that any pullback could come quite swiftly. Nevertheless, management continues to remain upbeat about the long-term prospects of the palm oil industry, and will continue to increase its production of sustainable palm oil, improve operating efficiency and also optimise its downstream value chain opportunities. 

Maintain SELL with S$0.465 fair value
But in the short term, the prospects for GAR remain more negative. We also note that import of vegetable oils into India has fallen by nearly 17% MoM in Aug, led by crude soy oil (down 46%) and RBD palm olein (down 33%). We note that Fitch has recently warned that CPO plantation companies in Asia could face slower demand from both China and India – two of its largest import markets . As such, we do not believe that the worst is over yet and hence we maintain our SELL rating and S$0.465 fair value (still based on 11x blended FY13/FY14F EPS).

Raffles Medical

UOBKayhian on 18 Sept 2013

FY13F PE (x): 26.3
FY14F PE (x): 22.8

Resilient business from foreign patients. Contrary to the decline in foreign patients’ admission seen by IHH in 2Q13, Raffles Medical Group (RMG) continues to enjoy rising admissions. Year-to-date, we understand
RMG’s foreign patients’ admission rose by a low single-digit. In our view, the resilience is due to its undemanding pricing structure vs competitors’ where comparable treatments are priced at a premium of 15-16%. Foreign patients account for a third of patients at RMG’s hospitals and management tries to limit country concentration risks by targeting new markets (such as Myanmar). Currently, Indonesians account for 20-21% of RMG’s total foreign patients.

Maintain Buy. RMG remains a BUY for it its visible earnings growth and reasonable valuations. Our DCF-based target price of S$3.78 implies 27.3x 2014F PE, close to +1SD to its mean PE of 28.6x. We think it deserves the valuation given its strong cash flow generation and healthy financial position, which could fund potential M&A or other investments. Its 2013-15F ROE of 15.8-16.9% are also higher than its long-term average ROE of 11.0% (1997-2012).

Singapore Airlines

CIMB Research, Sept 16

WE leave our target price and estimates unchanged and maintain our "neutral" rating. We base our CY2014 target price of $10.50 on a trough multiple of 4.2x CY2014 EV/Ebitdar to reflect the long-term de-rating that we believe SIA is undergoing due to competition from Middle East airlines and low-cost carriers.

NEUTRAL

Soilbuild Business Space Reit

AmFraser Securities, Sept 17

WE initiate coverage on Soilbuild Business Space Reit (Soilbuild Reit) with a "buy" recommendation and a target price of $0.83.

Soilbuild Reit is a Singapore real estate investment trust that comprises two business park assets and five light industrial properties.

Distributions are on a quarterly basis and the first distribution per unit (DPU) is expected on or before Feb 27, 2014.

A best-in-class business space portfolio. Characterised by excellent connectivity to major transport nodes, longest weighted average leasehold term (Wale) for the underlying land of 50.6 years (versus industry average of 40 years) as well as its relatively young age, Soilbuild Reit clearly boasts a quality portfolio.

Defensiveness underpins yield sustainability. Soilbuild Reit is able to effectively capture rental upside at its multi-tenanted properties while enjoying rent stability through its master leases, which comprise 30 per cent of its IPO portfolio by net lettable area (NLA).

The defensiveness of Soilbuild Reit is further enhanced by a diversified trade presence and lease expiry schedule.

Having built-in rental step-ups of 2-3 per cent per annum incorporated into its master leases provides Soilbuild Reit with greater income visibility and underpins the sustainability of its payouts.

Harnessing the increasing appeal of business parks. A key differentiating point of Soilbuild Reit from its industrial S-Reit peers is its stronger exposure to the business park market, a compelling alternative to traditional office space.

Business parks comprise 43.2 per cent of Soilbuild Reit's portfolio valuation (versus peer average of 15.7 per cent).

Initiate "buy" with FV $0.83. Our valuation is derived from a dividend discount model, which incorporates an assumed cost of equity of 7.8 per cent.

Current projected yield of 8.3 per cent is highest among the industrial S-Reits and represents an attractive yield spread of 570 basis points over the risk-free rate.

BUY

Nam Cheong

DMG & Partners Research, Sept 17

WE showcased Nam Cheong Limited (NCL) at our Hong Kong Asean Corporate Day last Thursday. Investors warmed up to the company's business model, growth prospects and low valuations, which struck a chord with value- and growth-oriented funds.

Meanwhile, the recovery of commercial shipbuilding in China is a strong support to vessel prices.

Maintain "buy" with $0.37 TP. Business model finds favour. Investors especially liked Nam Cheong's strong customer base in Malaysia, which effectively mitigates the build-to-stock model risk.

The company's RM1.4 billion-strong orderbook, consistent profitability during the financial crisis and solid prospects of securing more orders found fans among a diverse group of investors.

"Why can't customers bypass NCL and order directly from Chinese yards?" The answers are: as Chinese state-owned yards are not allowed to build-to-stock, any vessel ordered will need an 18- to 24-month lead time; financing is an issue for smaller private yards; operators do not have the required shipbuilding expertise to supervise the construction process, and NCL's large orders allow yards to achieve economies of scale, thus making NCL a preferred customer.

Treating customers as partners: Management said the only time when vessels were cancelled was in 2009, when bank financing dried up. The vessels were resold at even higher prices because of the shorter time to delivery. As a gesture of goodwill, NCL returned the deposits to the customers, who reciprocated with more orders.

Potential blockbuster product: Management said NCL is looking at creating a different product range that can "dominate the market in the next few years" while remaining understandably coy about the details. We expect more information in mid-FY2014 on this.

Maintain "buy", $0.37 TP. As the recovery in commercial shipbuilding may reduce pressure on offshore asset prices, we upgraded the oil-and-gas sector to "overweight". As a global industry leader at low valuations, NCL is one of our top picks.

BUY

Singapore Airlines

UOBKayhian on 17 Sept 2013

FY13F PE (x): 23.2
FY14F PE (x): 19.2

The best traffic growth in 2013 ... Pax traffic (RPK) growth of 8.6% yoy was SIA’s highest in 2013 and SIA attributed the improvement to strong leisure demand during the Hari Raya period as well as the return of the
summer holiday travels. The number of pax carried rose 11.7% yoy, higher than RPK growth, which implies that passengers were on average travelling for shorter distances.

... with broad-based improvement in load factor. Pax load factor rose 4.1ppt, again registering the biggest increase for the year. Most notable was the 6.3ppt increase in loads to Europe. At 88.1%, this was the best
load since 2008, suggesting an economic recovery in the region. North America, another key market, saw loads of 88.9%, marginally lower than Cathay Pacific's 92.7%. The improvement in long-haul loads holds scope for better front-end loads, leading to overall improvement in yields.

Maintain HOLD and increase our target price to S$11.50 (from S$10.80), valuing the stock at 0.8x forward book value (ex-SIAEC) and adjusting for its fair value stake in SIA Engineering. The higher valuation reflects better-than-expected traffic growth, particularly in Europe routes. Our target price reflects 1x FY14F book value.

Singapore Oil & Gas Services

DMG & Partners Research, Sept 16

WE upgrade to "overweight" Singapore's rig builders, which have underperformed the Straits Times Index (STI) due to concerns over rising competition and consensus earnings downgrades.

We turn positive as the potential recovery in shipbuilding orders and tightening credit may ease competition for offshore orders, the risk of EPS downgrades declines and valuations look appealing as we roll forward to FY2014 earnings. We prefer Sembcorp Marine (SMM) over Keppel Corporation (KEP) and Sembcorp Industries (SCI).

Data from Clarksons indicate that newbuild prices and new orders are improving. We are of the view that the revival of shipbuilding orders will divert the attention of South Korean and Chinese mega yards towards seeking ship orders rather than offshore orders, thus bringing some relief to the intense competition in the offshore market.

Dalian Shipyard has secured orders for nine jackups year-to-date, of which eight are from Seadrill and one from PT Apexindo. These are due to be delivered between Q2 2015 and Q3 2016. We believe Dalian has largely filled its near-term slots. As other Chinese yards jostle to win the confidence of blue chip customers and credit conditions imposed on weaker yards tighten, we believe the pricing power of Singapore shipyards may improve.

We previously argued that street EPS expectations for FY2013 and FY2014 had been too bullish and may lead to downward revisions. Since November 2012, consensus has cut EPS estimates for KEP, SMM and SCI by 5 per cent, 23 per cent and 13 per cent respectively. As we believe the earnings downgrades for rig builders are close to the bottom, their downside risks are now lower.

Rig builders saw earnings decline in H1 2013 as operating margins normalised. We expect their earnings momentum to swing back to positive growth in FY2014.

We believe SMM is a more leveraged play to the positive outlook. The key risks to our view are expansion in rig building capacity by Chinese state-owned yards, a steep drop in crude oil prices and execution risks in Brazil.

Sector - OVERWEIGHT

First REIT

OCBC on 16 Sept 2013

We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. Meanwhile, FREIT recently lowered its floating rate exposure from 72% to 46% of its total debt following a refinancing exercise. Its next refinancing need will only come in 2016. We believe that FREIT’s sharp share price correction has been overdone, as it has minimal exposure to the volatility in the IDR thanks to its lease structure. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14.

Indonesian properties visit
We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. This included its Siloam Hospitals TB Simatupang (SHTS), which is located in South Jakarta and acquired by FREIT only in May this year. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. For example, SHTS, Siloam Hospitals Lippo Village (SHLV) and Mochtar Riady Comprehensive Cancer Centre (MRCCC) all offer the 3-tesla magnetic resonance imaging (MRI) machines, which we consider as advanced in today’s medical field. 

Floating rate exposure reduced following refinancing exercise
FREIT announced on 28 Aug 2013 that it had successfully refinanced S$92m of its floating rate debt to a 4-year fixed-rate secured Transferable Term Loan Facility (all-in cost of borrowing of ~3.7%). We estimate that this would lower FREIT’s floating rate exposure from 72% to 46% of its total debt. Following this successful refinancing exercise, FREIT’s next refinancing need will only come in 2016.

Share price correction overdone; upgrade to BUY
Concerns over Indonesia’s easing economic growth, high inflation and sharp depreciation in the IDR have adversely impacted stocks with large exposure to Indonesia, such as FREIT. Coupled with QE tapering fears, FREIT’s share price has dipped 28% since mid-May this year. However, FREIT has minimal exposure to the IDR volatility, in our view. This is because the base rental for its Indonesian properties is denominated in SGD, while the variable rental component is pegged to a fixed SGD/IDR rate throughout the entire lease tenure. We had also previously taken into account the spike in the Singapore government 10-year bond yield in our risk-free rate assumption (2.6% used in our model). We believe that the correction in FREIT’s share price is overdone. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14.

OUE Hospitality Trust

OCBC on 13 Sept 2013

Summary: OUE Hospitality Trust (OUEHT) is a stapled group consisting of OUE Hospitality Real Estate Investment Trust (OUE H-REIT), a REIT under which the initial portfolio is held, and OUE Hospitality Business Trust (OUE H-BT), a dormant business trust. The initial portfolio of OUE H-REIT comprises Orchard Road area’s largest hotel, the 1,051-room Mandarin Orchard Singapore (MOS) and the 196,336 sq ft GFA Mandarin Gallery (MG). These assets make OUEHT the only pure Orchard Road play in the REITs/Business Trust space. This initial portfolio has an aggregate value range of S$1,705m-S$1,756m, based on independent valuation estimates. Approximately 69% of the valuation is from MOS. The current oversupply situation in the Singapore hospitality sector is a known concern. Given this, we are pleased to note that MOS clocked 3.3% RevPAR growth for pro forma 1Q13. It is also worthwhile noting that 46.7% of MG’s leases by NLA have attractive step-up rental increases of 5.5% p.a., with only 20.7% of all leases by NLA expiring in FY13 and FY14. Based on a dividend discount model, we arrive at a fair value of S$0.94 for OUE Hospitality Trust and initiate our coverage with a BUY.

Two landmarks in a premier location
OUE Hospitality Trust (OUEHT) is a stapled group consisting of OUE Hospitality Real Estate Investment Trust (OUE H-REIT), a REIT under which the initial portfolio is held, and OUE Hospitality Business Trust (OUE H-BT), a dormant business trust. The initial portfolio of OUE H-REIT comprises Orchard Road area’s largest hotel, the 1,051-room Mandarin Orchard Singapore (MOS) and the 196,336 sq ft GFA Mandarin Gallery (MG). MOS is a prominent, upscale hotel located along Orchard Road while MG is a notable landmark with 152 metres of prime Orchard Road frontage. These assets make OUEHT the only pure Orchard Road play in the REITs/Business Trust space. This initial portfolio has an aggregate value range of S$1,705m-S$1,756m, based on independent valuation estimates. Approximately 69% of the valuation is from MOS. 

Some headwinds for hospitality, but largely in the price
The current oversupply situation in the Singapore hospitality sector is a known concern. Given this, we are pleased to note that MOS clocked 3.3% RevPAR growth for pro forma 1Q13. It is also worthwhile noting that 46.7% of MG’s leases by NLA have attractive step-up rental increases of 5.5% p.a., with only 20.7% of all leases by NLA expiring in FY13 and FY14.

Right of First Refusal (ROFR) for several assets
OUEHT’s sponsor is Overseas Union Enterprise Ltd, a well-established RE owner, developer and operator. There are currently three sponsor-granted ROFR properties, Crowne Plaza Changi Airport, Meritus Mandarin Haikou China and Meritus Mandarin Shantou China. These properties could provide some medium-term growth for OUEHT, potentially more than doubling the number of hotel rooms to 2,233. 

Initiate with a BUY
Based on a dividend discount model, we arrive at a fair value of S$0.94 for OUE Hospitality Trust and initiate our coverage with a BUY.

Yangzijiang Shipbuilding

DMG Research, Sept 12

WE upgrade Yangzijiang Shipbuilding (YZJ) from "neutral" to "buy", with a higher target price of $1.31 versus $1.00 previously. In our view, the shipbuilding capacity cut in China and the recovery of ship orders in the dry bulk sector arising from improved supply and demand will drive the stock's re-rating.

The Baltic Dry Index (BDI) jumped 120 per cent YTD and 54 per cent in the past month due to slower supply growth while demand remains steady. Ship prices have risen by 5-12 per cent from the bottom six months ago, and seasoned shipping players are expanding their fleets aggressively.

Our analysis shows that global dry bulk demand will start outpacing supply by early 2014. We believe the recovery in ship orders and closure of inefficient yards in China will benefit YZJ.

BUY

ComfortDelGro

Maybank Kim Eng Research, Sept 12

THE New South Wales (NSW) transport minister recently announced the award of new metropolitan bus service contracts. ComfortDelGro's (CDG) Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions.

This effectively removes investors' earlier fears that CDG could lose the service contract to this route, which constitutes a third of its bus operations in Australia and involves around 500 buses.

Sydney Metropolitan's bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBOs). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76 per cent of the passenger journeys clocked in FY2012. With the majority of the bus transport services still managed by the state, we believe there is significant scope for the privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus ...

The NSW government has also stressed the importance of Sydney's bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with the expansion of the bus service market, we see room for CDG to increase its presence in the region.

Following the recent market correction, valuations for CDG are now below its historical average multiples of 16 times PE. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock's valuation to trade higher and keep our target price unchanged at $2.33, pegged at 18 times FY2014 forecast PE. Maintain "buy".

BUY

Singapore Banks

CIMB Research, Sept 11

THE Monetary Authority of Singapore's (MAS) refined rules on credit cards and unsecured credit are clearly designed to rein in debt in certain segments. Together with the recent mortgage debt-servicing limits and car financing rules, they indicate MAS' concerns of over-leveraging in some households.

We see them as pre-emptive moves by MAS before rates start to rise; we do not believe they indicate any major stress in household or individual debt servicing. We maintain our "neutral" rating on the banks, with DBS staying as our top pick.

MAS issued further policy changes on credit card and unsecured credit. They include requiring financial institutions (FIs) to: 1) review a borrower's total debt and credit limits before granting a new credit card or unsecured credit facility; 2) disclose the cost of rollover debt to individuals who roll over credit card debt; 3) get a borrower's consent before any credit limit increase; 4) not grant further credit to individuals whose debts are 60 days past due; and 5) not grant further credit when cumulative unsecured debt across FIs exceeds 12 months of income.

Coming after June's Total Debt Servicing Ratio (TDSR) framework, MAS' comments that 5-10 per cent of households have breached the 60 per cent TDSR limits and car financing rules, it is clear that the regulators are worried about the household segments who are stretched beyond their means. With interest rates low versus history and long-end rates rising, the risk is clearly on a segment of households that have taken on too much debt on the back of overly-optimistic assumptions of financing cost and unemployment.

We do not see this as a reflection of a systemic household debt problem but a tweaking of rules to rein in certain segments. Looking at data, credit card charge-off rates have been rising recently and might have been the trigger for the latest rules. We deem these measures healthy for the local banking system and inconsequential for loan growth.

The new credit card and unsecured cards rules do not change our view on the sector, nor our order of preference, being: DBS, UOB, OCBC.

Sector - NEUTRAL

Singapore Press Holdings

UOBKayhian on 12 Sept 2013

FY13F PE (x): 18.9
FY14F PE (x): 21.7

SPH REIT is listed and SPH is ex of one-off special dividend. We lower our earnings and DPS forecasts for FY13-15 to reflect a higher minority interest as Singapore Press Holdings (SPH) now holds reduced stakes in its retail malls though 70%-owned SPH REIT (previously it owned 100% of Paragon Mall and 60% of Clementi Mall). We also lower our target price as SPH’s share price is now ex of one-off special DPS of 18 S cents.

4QFY13 results preview. SPH posted a net profit of S$358.3m for 9MFY13. Excluding an exceptional pre-tax gain of S$85.2m, adjusted net profit was S$263m (3QFY13: S$100.5m). We expect SPH to report a net profit of about S$80m for 4QFY13 and a final DPS of 14 cents (or 3.5% yield). 4Q is usually weaker than 3Q as the latter is usually the strongest quarter in its financial year.

Maintain HOLD and we lower target price to S$4.07 from S$4.25 as share price has gone ex of special DPS. Our recommended entry price is at S$3.80 and below.

Cordlife Group

Maybank Kim Eng Research, Sept 11

JUST a few months after acquiring access into the Philippines, Indonesia and India, Cordlife has acquired 19.9 per cent of Stemlife Bhd for RM30 million (S$11.7 million). Stemlife is the largest publicly-listed cord blood bank in Malaysia. It also holds a 40 per cent stake in Stemlife Thailand. The acquisition will be made either fully in cash or 10 per cent cash and eight million new shares at S$1.30 per share.

Cordlife bought its stake from Stemlife's founders and key management - CEO Sharon Low (who has already been on sabbatical for a year) and Christina Lim, her aunt. This is essentially a control stake as they will be ceding management to Cordlife. Berjaya Group's Vincent Tan owns 12.1 per cent.

First, margins can be enhanced significantly as Stemlife can do in-house sample testing, which Cordlife currently outsources to an external lab at a higher cost. Second, it brings two new underpenetrated markets - Malaysia and Thailand - with much higher birth rates than Singapore. Third, Stemlife has tonnes of cash and undervalued property assets. Lastly, Cordlife now has a low cost platform to fight off price-oriented competitors.

On the surface, Cordlife paid a high price (40x annualised PE) but they will gain a lot that cannot be quantified. On an EV (enterprise value)/Ebitda basis, the deal is actually favourable (Cordlife 24x vs Stemlife 6x) due to the RM76 million of cash and undervalued properties that have been kept at depreciated book value in Stemlife's balance sheet since 2006. If sold, we estimate the properties (freehold commercial assets in Klang Valley) could bring in a 50 per cent extraordinary gain. Short-term earnings boost, however, is small.

On another front, however, convertible bonds (CBs) issued by 10 per cent associate China Cord Blood (CCB) could present a tricky situation. Under IFRS standards, the CBs have to be separated into debt and equity, and the fair value (either loss or gain) of the equity portion has to be recognised. As CCB's share price has spiked, a fair value loss is expected in the current quarter. As this does not impact cashflow or core profits, we would urge investors to look beyond this issue.

We still like Cordlife in the long term as it continues to pursue a strategically-sound expansion plan. We keep a "buy" on the stock but caution that the fair value treatment for China Cord Blood's convertible bonds could introduce some volatility to earnings. Our TP of S$1.44 (down slightly on dilution from the acquisition) implies 25x FY14 forecast, which is one point above its global peers and 16 per cent discount to its local peers.

BUY

Midas Holdings

OCBC on 11 Sept 2013

The recent public tender for 91 high-speed train sets by China Railway Corporation (CRC) was awarded to CSR Qingdao Sifang, which we believe is a disappointment for Midas Holdings since Midas is not its major supplier. However, we believe that Midas will still be able to secure high-speed contracts in 4Q13, as our channel checks reveal that CRC will also be awarding contracts for 51 high-speed train sets to China CNR via a competitive negotiation. Midas is a key supplier of aluminium alloy extrusion profiles for high-speed trains to China CNR. We estimate potential addressable market size of CNY153m for Midas for this round of procurement. We understand that there may also be another round of procurement by CRC by year end, while 2014 will likely see the bulk of high-speed train car purchases by CRC under China’s 12th Five-Year Plan (2011-2015). Maintain BUY and S$0.65 fair estimate on Midas.

Short-term setback…
According to the China Railway Corporation (CRC) website, the results of its public tender for 91 high-speed train sets (speeds of 250 km/h) were released on 6 Sep 2013. CSR Qingdao Sifang, a subsidiary of Hong Kong listed CSR Corp, clinched all the orders. This is a welcome relief to the railway industry as it is the first high-speed train car tender by CRC (formerly Ministry of Railways) after a hiatus of more than two years. However, we believe this news is disappointing for Midas Holdings, as it has only managed to supply small quantities of aluminium alloy extrusion profiles to CSR Qingdao Sifang in the past. Hence we expect Midas to miss out on this tender. Nevertheless, Midas is actively engaging them and we believe Midas may be able to penetrate into their supply chain in the future.

But more contracts that can be won
Besides this open tender, we understand that CRC also carries out competitive negotiations with train manufacturers directly, and results of these negotiations may not be published on CRC’s website. According to our channel checks, there are 68 other train sets (speeds of 350 km/h) which will be procured by CRC under this format. In total, 108 out of the 159 train set orders will be awarded to CSR Corp, with the remainder going to China CNR. As Midas is a key supplier to CNR Tangshan and CNR Changchun (both subsidiaries of China CNR), we expect Midas to still secure high-speed contracts in 4Q13. Assuming each 350 km/h train set costs CNY200m and the value of the train car body forms 1.5% of total train set value, we estimate potential addressable market size of CNY153m for Midas for this round of procurement (based on 51 train sets). We understand that there may also be another round of procurement by CRC by year end, while 2014 will likely see the bulk of purchases by CRC under China’s 12th Five-Year Plan from 2011 to 2015.

Maintain BUY
In light of the aforementioned factors, we expect order wins to be a re-rating catalyst for Midas’ share price. Hence we maintain our BUY rating and fair estimate of S$0.65 on Midas, which is pegged to 1.3x blended FY13/14F P/B.

UOB

OCBC on 11 Sept 2013

UOB’s core Thailand management team is generally positive on its business and growth in Thailand, supported by rising regional trades, higher transactional banking activities and higher affluence. Profit before tax grew from THB1845m in 2010 to THB2927m in 2012 or a CAGR of 26% (FY10-12). Despite this growth, its NPL ratio edged lower from 4.98% in 2010 to 2.12% in 2012. In terms of its loans breakdown, Personal Financial Services (PFS) accounted for the bulk at 45% as of Jun 2013. Some of the key areas of business emphasis include PFS (growing its market share for deposits, credit cards, personal loans, housing loans, etc), Corporates and SMEs. We are maintaining our fair value estimates of S$22.97, but as the share price has recently corrected to S$20.36, we are upgrading to a BUY. 

 

Positive about Thailand
Recently, we met with UOB’s core Thailand management team at its Corporate Day. Management were generally positive on UOB’s business, presence and growth in Thailand. This optimism is supported by rising regional trades (trade financing), transactional banking activities and the trend of more Thai corporates and SMEs growing outside of the domestic market. UOB Thailand (UOBT) currently has about 156 branches, 358 ATMs and employing about 4200 people as of Jun 2013. 

Optimism tempered with prudence
The emphasis on quality new clients and its prudent credit criterions have enabled its Thai operation to enjoy reasonable margin and volume, both from retail and SME clients. The main products are consumer loans, SME loans, trade-related products/services, cross border transactions advisory/structuring services, etc. Profit before tax grew from THB1845m in 2010 to THB2927m in 2012, giving a CAGR of 26% (FY10-12). Despite this growth, its NPL ratio edged lower from 4.98% in 2010 to 3.10% in 2011 and 2.12% in 2012. In terms of its loans breakdown, Personal Financial Services (PFS) accounted for the bulk at 45% as of Jun 2013. This is followed by Commercial (26%), Corporate (17%) and Business Banking (12%).

Aspiration to become a medium-sized Thai bank
Management intends to be a medium-sized bank in Thailand. Some of the key areas of emphasis include PFS (growing its market share for deposits, credit cards, personal loans, housing loans, etc), Corporates and SMEs. The former is also seen in the rise in the number of privilege banking clients - 11,462 with AUM of THB115.3b in FY12 to 12,996 with AUM of THB121.3b in 1H13. The SME market is dominated by family businesses doing domestic businesses, and could benefit from imports/exports growth and higher trade activities. 

Upgrade to BUY
We are maintaining our fair value estimates of S$22.97, but as the share price has recently corrected, we are upgrading to a BUY

Singapore Hospitality

Uobkayhian on 11 Sept 2013

CDL Hospitality Trusts (CDREIT SP/BUY/Target: S$1.93).
Ascott Residence Trust (ART SP/HOLD/Target: S$1.43).

Visitor arrivals remained healthy; strong Singapore dollar could pose near-term headwinds. The Singapore Tourism Board (STB) data shows July visitor arrivals grew 8% yoy to 1.39m, bringing 7M13 arrivals to 9m,
+7.6% yoy. However, there could be some near-term headwinds to tourism revenue growth and to a lesser extent, on visitor arrivals, from the recent appreciation of the S$ vs four of the five top-5 visitor arrival markets - Indonesia, Malaysia, Australia and India - which account for 40% of total arrivals. Anecdotal evidence suggests visitors tend to tighten their shopping and entertainment budgets (40% of overall) compared with that for accommodation and sight-seeing. Despite near-term headwinds, we expect visitor arrivals to meet our 6% growth expectation in 2013-14.

Room rates dragged down by new supply. In 7M13, overall hotel occupancy remained steady at 86% (-0.4ppt) while average room rates (ARR) fell 2.5% yoy to S$252. By segment, the upscale and economy witnessed the highest ARR decline of 13.5% yoy and 7% yoy segments respectively while the luxury segment rose 5% yoy. Our channel checks indicate that the fall in room rates is due to two main reasons: a) promotional rates offered by new entrants to gain market share, and b) tighter corporate budgets and delayed bookings resulted in hoteliers replacing some of the higher-yielding corporate bookings with slightly lower-yielding leisure travelers.

While the strong Singapore dollar and concerns of new supply could weigh on share prices in the near term, we see value emerging in hospitality REITs amid the recent S-REIT sell-down on concerns of the US tapering and a rise in interest rates. CDL Hospitality Trust is our top pick in the hospitality sector.

Midas Holdings

MAYBANK KIM ENG, Sept 10

LAST weekend, China Railway Corp (CRC) announced the result of its first high-speed train tender in the past two years.

A total of 159 train sets order have been split between CSR (108 train sets) and CNR (51 train sets). We believe this is just the beginning of a new train purchase cycle by the Chinese government.

As one of the key suppliers to CSR and CNR, we expect Midas to win around RMB250-300 million contracts in the high-speed train sector this year and RMB1 billion each year in FY14/15.

We continue to like Midas as we expect positive news flow and contract wins to continue to drive the share price up.

Maintain "buy" and target price S$0.75, pegged to 1.5x P/B. We believe short-term share price drivers for Midas will continue to be news flow and contract wins before earnings delivery in H2 FY14.

Historically Midas' P/B closely followed its order book, which makes us believe that currently undemanding P/B multiples deserve a rerating if order book could be substantially boosted to RMB1 billion or above.

BUY