Noble Group

Maybank Kim Eng Research, Oct 30

RESUME coverage with a "hold". Our $1.08 target price is based on 0.9 times P/B, which in turn is based on the Gordon Growth model (9.6 per cent FY2014/15 ROE, 10.2 per cent cost of equity, 1 per cent long-term growth rate).

In our view, the recent increase in Noble's share price (+17 per cent in the past three months) has reflected a rebound in BDI, sugar and coal prices, and optimism over its upcoming Q3 2013 results to be released on Nov 12.

That said, the former has some seasonality attributes such as re-stocking by Chinese steelmakers, higher coal demand in the winter and a soaring sugar price due to Brazil fire. In the long term, we are not excited on both volumes and commodity prices.

Noble is reverting to its original "asset-light" business model by refocusing on its role as a supply-chain manager. This should optimise capital utilisation, lifting ROE.

That said, in our view, it will take time for ROE to breach its cost of equity of 10.2 per cent given the earnings headwinds. Management's ROE target of 20 per cent, last seen in FY2008, looks optimistic and is well above our projections of 7-10 per cent over FY2013-15.

Given our assumption of a flattish asset turnover and limited scope for further gearing up of the balance sheet (considering Noble's current high gearing of 95 per cent), a significant earnings turnaround depends on margin improvement. On this front, there are various earnings headwinds: lower demand from China, strong competition, more stringent regulations and low commodity prices. A quick and structural margin improvement will thus be hard to come by before FY2015.

Admittedly, valuation looks cheap on a P/B basis. In our view, a "buy" rating is unwarranted as ROE is expected to stay depressed relative to its cost of equity till FY2015. As such, a P/B greater than one time would be too generous.

Upside risks: better-than-expected margin recovery, especially in the agri and metals, minerals and ores sectors.

Downside risks: unexpected trading losses due to excessive commodity price volatility.

HOLD

Midas Holdings

CIMB Research, Oct 29

WE raise our FY2014-15 EPS to 17-19 per cent above consensus; the market is likely to follow suit. We believe further high-speed rail (HSR) contract wins could catalyse the stock. We maintain "outperform", with our target price unchanged at $0.74, based on 1.29 times CY2014 P/B (20 per cent discount to average P/B during 2010-11).

To improve connectivity between provinces and cities across China, the government plans to add 11,200 high-speed train cars (from 10,400 currently) and extend the high-speed railway network to 18,000 km by 2015.

To achieve this, it has allocated a 3.3 trillion yuan ($670 billion) budget for railway investments over the current five-year plan period that ends in 2015.

In 2011-12, 1.21 trillion yuan was spent on building railway infrastructure, which leaves a budget of 2.09 trillion yuan for 2013-15.

As the procurement of railway equipment (including train cars) tends to be back-end loaded, there could be an increase in the remaining budget to 2.16 trillion yuan that the market has yet to factor in.

Based on Midas' 60 per cent market share, we estimate that it could win 2.5 billion to 3.2 billion yuan of HSR orders by end-2015.

Midas has built up several competitive advantages over the years:

• Close relationships with its key customers, CNR Changchun, CNR Tangshan and CSR Bombardier Sifang;
• Having the dies to produce a variety of extrusion profiles; and
• A track record of manufacturing quality products.

As a result, we believe Midas can maintain its position as a preferred supplier to its key customers, which will help it to retain its leading market share of 60 per cent and win the bulk of the HSR contracts.

Midas is currently trading at 0.9 times P/B (one standard deviation below mean). We believe its discounted valuations are unjustified, given the strong order momentum that is likely to come in Q4 2013-2015. In the next round of procurement alone, we believe Midas could win 545 million yuan of HSR contracts, an upward revision from our previous estimate of 309 million yuan.

This will provide a further re-rating catalyst for the stock.

OUTPERFORM

Neptune Orient Lines

UOBKayhian on 31 Oct 2013

(NOL SP/BUY/S$1.06/Target: S$1.30)
FY13F PE (x): 95.1
FY14F PE (x): 11.2

Net profit recorded during weak market. Neptune Orient Lines’ (NOL) revenue declined 10% yoy in 3Q13 and 7% yoy in 9M13 to US$2.1b and US$6.5b respectively, due to the lower freight as well as shipping volume. The net profit was US$20m (-60% yoy) in 3Q13 and US$61m in 9M13, vs net loss of US$321m in 9M12.

Maintain BUY and target price of S$1.30. We expect NOL's earnings will improve on its improved efficiency by optimising its AE fleet. Besides, as a premium TP carrier with more than 95% exposure to TP contractual cargo, NOL is relatively defensive until the cycle turns.

Indofood Agri Resources

UOBKayhian on 31 Oct 2013

(IFAR SP/HOLD/S$0.89/Target: S$0.90)
FY13F PE (x): 21.7
FY14F PE (x): 13.7

Weak ASP and higher costs dragged net profit in 9M13. Indofood Agri Resources (IFAR) reported a 66.7% yoy decline in net profit to Rp296b in 9M13. This was due to: a) lower CPO ASP (-12.2% yoy), b) lower edible oils & fats sales volume (-3.9% yoy) but offset by higher sugar sales volume (+14% yoy) and a slight increase in CPO sales volume, c) higher production cost, d) forex loss of Rp93b in 9M13 (9M12: gain of Rp17b), and e) higher corporate tax rate. Net profit was below our and consensus forecasts.

Maintain HOLD and target price of S$0.90, or 13.7x 2014F PE, based on SOTP valuation and after a holding company discount of 25%. Entry price is S$0.75

CDL Hospitality Trusts

UOBKayhian on 31 Oct 2013

(CDREIT SP/BUY/S$1.67/Target: S$1.91)
FY13F PE (x): 14.2
FY14F PE (x): 14.8

Results slightly below expectation. CDL Hospitality Trusts (CDREIT) reported 3Q13 DPU of 2.64 cents, bringing 9M13 DPU to 8.05 cents below our (72%) and consensus (72%) full-year forecasts. This implies a payout ratio of 90% (unchanged).

Maintain BUY with a slightly lower target price of S$1.91 (from S$1.93), factoring in slight DPU revisions. Ytd, CDREIT has declined 11%, vs hospitality peers 6% while the STI’s is up 2%. At current levels, the stock implies a RevPAR decline of more than 25% from its recent high, which we believe is unjustified. Key catalysts include yield- accretive acquisitions in Singapore and overseas. Our target price is based on two-stage dividend discount model (required rate of return: 7.8% and terminal growth rate: 2%).

SIA Engineering

UOBKayhian on 30 Oct 2013

(SIE SP/HOLD/S$5.09/Target: S$4.65)
FY14F PE (x): 20.2
FY15F PE (x): 19.1

ST Engineering (STE) gains and SIAEC loses. Jetstar Asia ( Jetstar) signed a three-year line maintenance contract with ST Aerospace for its existing and future fleet of Airbus A320 aircraft. Prior to this, SIA Engineering (SIAEC) handled Jetstar's line maintenance while STE handled most of the heavy maintenance work. Based on Jetstar’s weekly seat capacity, we estimate it could have accounted for at least 6% of 1H13’s flight movements out of Changi and proportionately a higher percentage of line checks by SIAEC. SIAEC’s line maintenance revenue could thus remain flat yoy or register a marginal decline.

Maintain SELL. SIAEC is trading close to its 5-year peak PE valuation and +2SD level. We believe this is excessive, especially given the loss of Jetstar Asia and the potential loss of Qantas Airways as customers. Maintain SELL and target price of S$4.65, based on DDM (COE - 6.9%, terminal growth rate 1%).

SATS

UOBKayhian on 30 Oct 2013

(SATS/HOLD/S$3.45/Target: S$3.32)
FY14F PE (x): 19.0
FY15F PE (x): 17.6

Expecting flat 2QFY14 revenue. We forecast food solutions revenue to decline 3% yoy on a 4% yoy decline in unit meals served. However, revenue from gateway services is expected to rise 7% yoy on the back of
higher unit services.

Maintain HOLD and target price of S$3.32. SATS is currently trading at 18.6x FY14 PE, close to +2SD PE at 19.5x. Given the relatively lofty valuation, we would prefer to buy near +1SD at S$3.10. We still like SATS for its stable cash flows and the potential of a cargo jv in Oman. Our valuation is based on a dividend discount model (required return: 7.0%, terminal growth 1.5%). At our fair value, the stock offers a dividend yield of 4.9%.

CNMC

Voyage Research, Oct 29

CNMC Goldmine Holdings looks set to produce a very strong set of Q3 results, following announcements of record gold dore production of 1,360 oz in July and 3,420 oz in September 2013. In contrast, H1 2013 gold production was only 2,073 oz. CNMC's share price of S$0.235 as at Oct 28, 2013, suggests that the market may yet to have fully priced in the growth in CNMC's production (intrinsic value: S$0.800).

Assuming merely 1,000 oz of gold dore output in August 2013, Q3 FY2013 gold dore output may be more than 5,700 oz (or about 5,200 oz of gold, assuming 90 per cent purity). Such production in turn translates into US$1.5 million to US$2.6 million of net profit for CNMC based on a per ounce net profit of US$300 to US$500. Conversely, CNMC's net profit was US$0.1 million in Q2 FY2013, on 1,388 oz of gold output.

There is some upside risk in the estimation of Q3 net profit as unit costs have most likely been driven lower by economies of scale.

CNMC further reported recently that it produced 1,526 oz of gold dore in a single gold pour in October 2013, suggesting that the strong performance in Q3 is being carried forward into Q4. Our calculations indicate that CNMC need only produce another 3,350 oz of gold in Q4 to meet our full-year forecast of 12,000 oz - an achievable target given recent output levels, but subject to weather considerations.

According to CNMC's announcements, growth was driven by factors such as technical enhancements to the production process, more effective ore selection to yield higher grade ore for leaching and growth in operating leaching capacity.

CNMC's first leach pad of 70,000 tonnes of ore per leach cycle was commissioned on Dec 30, 2012. The second leach pad of 140,000 tonnes of ore per leach cycle commenced production in September 2013. A third leach pad of 70,000 tonnes per cycle is being constructed to achieve estimated leaching capacity of one million tonnes of ore per annum.

INCREASE EXPOSURE

CapitaMalls Asia

OCBC on 30 Oct 2013

CMA reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. CMA’s Chinese portfolio assets continue to put up firm numbers; the overall committed occupancy rate increased to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were also up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic increased 1.5%. We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.

3Q13 PATMI up 4.0% YoY
CapitaMalls Asia (CMA) reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. In terms of the topline, 3Q13 revenue is S$91.8m – down 10.1% YoY as property management fees from China declined.

Chinese retail segment shows underlying strength
CMA’s Chinese portfolio assets showed a marginal increase in its overall committed occupancy rate to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic also increased 1.5%. In addition, on a 100% basis, same-mall NPI for CMA’s Chinese malls for 9M13 grew 12.0%. The group also opened CapitaMall Jinniu (Phase 2) in Chengdu on 29 Sep 2013 and expects a respectable NPI yield of 7% after the first year of operations. Looking forward we anticipate CMA will open two more malls in FY14, and subsequently eight malls in FY15 and after.

Stable performance in Singapore
We continue to see a stable performance in the group’s Singapore malls. 9M13 tenant sales increased 3.2% and shopper traffic was up 3.6%. Same-mall NPI growth also moved up 3.8%. Execution on its Singapore pipeline remains on track with both Bedok Mall and Westgate due to open in 4Q13 (with by now nearly 100% and 85% committed occupancy, respectively).

Singtel

UOBKayhian on 29 Oct 2013

(ST SP/HOLD/S$3.77/Target: S$3.68)
FY14F PE (x): 17.6
FY15F PE (x): 16.3

Reshaping relationship with customers. Group Digital Life’s role is to broaden SingTel’s services beyond phone calls and text messages into areas like e-commerce transactions, advertisements, social interaction and
other content. SingTel has the critical scale with 476.8m mobile customers on a group-wide basis to launch new digital services. Maintain HOLD. Our sum-of-the-parts valuation is S$3.68.

Sino Grandness

 UOBKayhian on 29 Oct 2013


We hosted Sino Grandness’s VP of Investor Relations to a roadshow in Europe. Most clients were impressed by the company’s strong earnings track record and outlook, coupled with specific share price catalysts, such as its Garden Fresh listing. Other positive developments include the introduction of a new line of snack foods under its non-beverage division, which could be a positive long-term catalyst.

Valuations

• Maintain BUY with a higher target price of S$1.02. Our target price assumes the listing of GF will go through in 2014, and a holding company discount of 20% on its stake in GF and a 5.0x 2015F PE valuation on its remaining businesses. We believe there could be further upside after the re-rating of its close comparable Huiyuan Juice.

Investment highlights

• Roadshow’s positives. Funds that were new to SGF were impressed with its earnings track record of the company and the execution of the growth initiatives for GF. SGF recorded a net profit CAGR of 49.4% in 2008-12, driven by strong sales and improving margins. The company has also evolved from being a pure export OEM producer for overseas hypermarkets to a FMCG bottled juice producer for domestic sales. Funds that have invested in SGF are eagerly waiting for the development of GF’s listing on an approved exchange. We expect the listing of GF by Oct 14, which coincides with the maturity date of the Rmb100m convertible bonds issued in 2011.
• Trade show reinforces our belief in the company. We also visited one of the tradeshows in Wuhan, China and saw no direct competitor to its core loquat juice products. The company also introduced the new packaging for its loquat juices in canned and tetra packs. While SGF has also ventured into snack products such as dried mushrooms, lotus seeds and red dates, we remain conservative and have not factored in any upside from this venture is still very preliminary. Nevertheless, prospects could be interesting if SGF can leverage on its strengthening distribution network to grow the snacks division.
• We now expect earnings to exceed our initial forecast. We have increased our net profit forecasts for 2013 and 2014 by 4.4% and 7.5% respectively, having seen the growth potential of the company as it expands its distribution network, creates new packaging to cater to different markets and improves margins by producing the juices using internal facilities rather than using external OEMs.
• We also raised our target price by 10.9% as we now expect GF’s earnings to exceed Rmb250m for 2013. This would result in SGF’s stake in GF becoming higher due to lower dilution from the conversion of the two outstanding CBs. Currently, the company is still trading at an undemanding valuation of 5.1x 2013F PE, vs Hong Kong-listed peers’ at 30.7x.

Wing Tai Holdings

Maybank Kim Eng Research, Oct 28

WE reiterate our "buy" recommendation on Wing Tai, with a slightly higher target price of S$2.80, pegged to a 30 per cent discount to RNAV.

While Q1 FYJun14 core earnings dipped both q-o-q and y-o-y, we see that as a non-event, with the fairly successful launch of The Tembusu yet to contribute to earnings. Shareholders are still eligible for the 12 cents/share dividend (three cents ordinary, nine cents special) before the stock goes ex-dividend on Nov 5.

Wing Tai's Q1 FYJun14 core profit after tax and minority interests (Patmi) came in at S$24.5 million (-37 per cent q-o-q; -66 per cent y-o-y), mainly due to lower profit recognition, as well as lower associate earnings, mainly from Wing Tai Properties Hong Kong.

Nonetheless, this was largely within expectations. Projects that contributed were mainly Foresque Residences, L'VIV, the additional units sold at Helios Residences, as well as the Jesselton Hills landed property project in Penang, where Phase 1 of over 100 homes were completed in the quarter.

Since the launch of the 337-unit The Tembusu in August, sales have been registered for 217 units as of end-September, according to the Urban Redevelopment Authority's (URA) statistics, for a healthy 64 per cent take-up rate.

We estimate that another 10-15 units may have been sold since then, with average selling price (ASP) remaining at around S$1,500-S$1,600 per square foot. Due to the early stages of construction, we expect The Tembusu to begin earnings contribution only in late FYJun14.

Wing Tai's Prince Charles Crescent (PCC) site is expected to be launched in Q4 2013 or Q1 2014. At an estimated breakeven cost of S$1,450 psf, we estimate a ASP of S$1,750 psf.

Meanwhile, SingLand is likely to launch its own 495-unit project nearby called Alex Residences in the coming weeks, with a slightly lower estimated breakeven of S$1,400 psf. The pricing and demand for Alex Residences will provide further benchmarks for Wing Tai to price the PCC project.

Wing Tai's balance sheet remains rock solid with a net gearing of just 0.13 times. We firmly believe that its 0.6 times P/B valuation is unjustified and reiterate our "buy" recommendation with a target price of S$2.80, which implies a 0.77 times P/B and still slightly below its mid-cycle P/B valuation of 0.84 times.

BUY

Ezra Holdings

DBS Group Research, Oct 28

CORE net profit for Q4 FY2013 came in at about US$10.1 million, higher than our estimate of about US$5 million.

The outperformance was mainly driven by higher revenue contribution from the subsea division in a seasonally strong quarter and good performance from associates (EOC and Perisai).

The offshore chartering division's performance improved with utilisation recovering to above 90 per cent as a large part of the fleet was redeployed back to Asia.

While spot rates for OSVs have been recovering, the benefit to the group is likely to be gradual over the next few years as the majority of the fleet is on long-term charters.

Subsea division EMAS AMC turned around in Q4, with gross margins in the mid-teens, a significant improvement over the losses incurred in Q3 2013 (including write-offs related to legacy projects). Subsea orderbook now stands at about US$1.25 billion, about half of which will be delivered in FY2014.

The group is also actively bidding for about US$5 billion-US$6 billion worth of subsea contracts. We maintain our new order win assumption of US$1.5 billion for the subsea division in each of FY2014/ 15.

Upgrade to "hold". Based on Q4 FY2013's performance, we believe execution is improving and the worst seems to be over for the subsea division, with almost all legacy projects completed now. Thus, we raise our FY2014 forecast earnings (after preference dividend) by 33 per cent on better margin assumptions.

Our target price is also raised to S$1.34, as we raise our P/B peg for the core business to 1.15 times (average multiple post- global financial crisis), in anticipation of the near- term recovery trend.

We believe the robust share price performance in recent weeks has priced in some of the expected earnings recovery, but we recommend holding on to the stock in view of improving execution and potential for realising strategic options for the subsea division.

HOLD

Raffles Medical Group

OCBC on 29 Oct 2013

Raffles Medical Group (RMG) reported 3Q13 revenue and PATMI growth of 8.0% and 10.3% YoY to S$85.1m and S$13.9m, such that 9M13 figures formed 72.8% and 68.7% of our full-year estimates, respectively. This was within our expectations. Looking ahead, RMG is seeking to finalise the negotiations for its proposed China hospital expansion plans with its partners; while the completion of sale of its Thong Sia building in 4Q13 would boost its FY13F net cash balance to S$241m (based on our estimates). We incorporate the gain in sale of the property in our forecasts and our FY13 PATMI estimate is bumped up by 35.2% to S$82.1m. Nevertheless, we view this gain as exceptional in nature and our valuation on RMG is also unaffected as it is premised on 29x FY14F EPS. Maintain BUY and fair value estimate of S$3.61 on RMG.

3Q13 results within our expectations 
Raffles Medical Group (RMG) reported its 3Q13 results which were within our expectations. Revenue rose 8.0% YoY to S$85.1m, and this was the first time since 4Q10 in which RMG reported only a single-digit YoY topline increment (average YoY revenue growth was 13.7% from 1Q11 to 2Q13). This was partly due to the absence of the Ministry of Home Affairs’ medical services contract, which expired in end 2012. Excluding this, management highlighted that overall revenue would instead have increased by 12% YoY. PATMI grew 10.3% YoY to S$13.9m, with growth driven largely by a higher patient load and price increment. For 9M13, revenue and PATMI increased 10.7% and 14.0% to S$253.0m and S$41.7m, forming 72.8% and 68.7% of our full-year estimates, respectively. 4Q is traditionally RMG’s strongest quarter and we expect this trend to continue in FY13.

Seeking to finalise its China expansion plans 
Regarding the progress for its China expansion plans, RMG highlighted that it hopes to conclude the negotiations with its Chinese counterparts by the end of the year (one proposed hospital in Shanghai and one in Shenzhen). RMG aims to capture the top 20% and 10% of the population in Shanghai and the Pearl River Delta region, respectively, as its potential market. It is also targeting to own a 70% stake in the hospital partnerships.

Maintain BUY 
Meanwhile, RMG expects to complete the sale of its Thong Sia building by 31 Oct 2013. We incorporate the gain in sale of the property in our forecasts and our FY13 PATMI estimate is bumped up by 35.2% to S$82.1m. Nevertheless, we view this gain as exceptional in nature and our valuation on RMG is also unaffected as it is premised on 29x FY14F EPS. RMG’s net cash balance will also balloon to S$241m at end FY13, based on our projections (forming ~14% of its current market capitalisation). Maintain BUY and fair value estimate of S$3.61 on RMG.

Wilmar International

OCBC on 28 Oct 2013

Wilmar International Limited’s (WIL) share price has done very well since we upgraded our rating to Buy on 6 Sep, rising as much as 14% to a recent high of S$3.50. As the current price is also 4% above our S$3.33 fair value (still based on 12.5x blended FY13/FY14F EPS), we downgrade our call to HOLD on valuation grounds. We also do not see any strong near-term catalysts to justify a re-rating before its 3Q13 results due 7 Nov.

Staged 14% rebound since upgrade
Wilmar International Limited’s (WIL) share price has done very well since we upgraded our rating to Buy on 6 Sep, rising as much as 14% to a recent high of S$3.50. The stock is also up as much as 16% from its recent S$3.02 low. As the current price is also 4% above our S$3.33 fair value (still based on 12.5x blended FY13/FY14F EPS), we downgrade our call to HOLD on valuation grounds. We also do not see any strong near-term catalysts to justify a re-rating before its 3Q13 results due 7 Nov. 

Better 2H performance likely priced in
No doubt that WIL tends to perform better in the second half, aided by the seasonality of its sugar business in Australia. This as the outfit will typically reverse from a loss-making position to a highly profitable one. However, we believe that this is largely priced in. Note as well that sugar prices are still somewhat below the prices seen in 3Q12. At best, we are probably looking at comparable YoY performance. While CPO prices are generally off the lows, we note that the average price in 3Q13 is still about 2% lower QoQ and almost down 22% YoY. 

Uncertainties remain in China
Over in China, while industrial production numbers improved somewhat (HSBC’s PMI reading for Oct came in at a 7-month high of 50.9), market watchers remain largely cautious about the sustainability of the growth as structural issues like inflation remain. Concerns that the Chinese government would further tighten liquidity to curb rising price pressures usually does not bode well for WIL as Beijing could also impose caps on prices of essential food items like cooking oil. The recent rise in short-term interest rates could also raise the cost of business for not only for WIL but also its customers.

Ascott Residence Trust

OCBC on 28 Oct 2013

ART announced 3Q13 results that were ahead of ours and the street’s expectations. Revenue climbed 11% YoY to S$86.1m, chiefly due to additional revenue of S$14.1m from the properties acquired in second half last year and on 28 Jun 2013. The increase was partially offset by the decrease in revenue of S$4.7m from the divestment of Somerset Grand Cairnhill in Sep 2012 and lower contribution of S$0.7m from the existing properties, mainly properties in Philippines and Japan. The group achieved a RevPAU of S$133 in 3Q13, a decrease of 10% as compared to 3Q12. The decrease in RevPAU was mainly due to divestment of Somerset Grand Cairnhill Singapore and weaker performance from Philippines and Japan. Gross profit climbed 10% YoY to S$44.8m. Unitholders' distribution increased 17% YoY to S$30.0m. DPU rose 6% YoY to 2.37 S cents, bringing 9M13 DPU to 7.07 S cents, versus full year estimates of ours and the street of 8.9 S cents and 9.0 S cents respectively. Adjusting our assumptions, our FY13F DPU forecast increases from 8.9 S cents to 9.1 S cents and our FV increases to S$1.39 from S$1.37. We maintain our BUY rating on ART.

3Q13 beats expectations
ART announced 3Q13 results that were ahead of ours and the street’s expectations. Revenue climbed 11% YoY to S$86.1m, chiefly due to additional revenue of S$14.1m from the properties acquired in second half last year and on 28 Jun 2013. The increase was partially offset by the decrease in revenue of S$4.7m from the divestment of Somerset Grand Cairnhill in Sep 2012 and lower contribution of S$0.7m from the existing properties, mainly properties in Philippines (lower corporate demand and ongoing renovation of Ascott Makati) and Japan (due to the depreciation of the JPY against SGD). Gross profit climbed 10% YoY to S$44.8m, although on a same store basis gross profit fell S$0.9m YoY. Unitholders' distribution increased 17% YoY to S$30.0m. In 3Q12, unitholders' distribution included a S$2.0m reversal of over-provision of prior years' tax expense. Excluding this, YoY growth would be 27%. DPU rose 6% YoY to 2.37 S cents, bringing 9M13 DPU to 7.07 S cents, versus full year estimates of ours and the street of 8.9 S cents and 9.0 S cents respectively.

Weaker performance in Philippines and Japan 
The group achieved a RevPAU of S$133 in 3Q13, a decrease of 10% as compared to 3Q12. The decrease in RevPAU was mainly due to divestment of Somerset Grand Cairnhill Singapore and weaker performance from Philippines and Japan (due to depreciation of the JPY). 

AEIs progressing according to plan
The first phase of refurbishments at Citadines Toison d’Or Brussels and Somerset Xu Hui Shanghai have been completed as at end 3Q13. Citadines Ramblas Barcelona, Ascott Jakarta, Ascott Makati Philippines, Somerset St Georges Terrace Perth and Citadines Toison d’Or Brussels (Phase two) are undergoing refurbishment.

Maintain BUY
Adjusting our assumptions, our FY13F DPU forecast increases from 8.9 S cents to 9.1 S cents and our FV increases to S$1.39 from S$1.37. We maintain our BUY rating on ART.

ISOTeam

UOBKayhian on 28 Oct 2013

Valuation/Recommendation

• Maintain BUY and target price of S$0.55. ISO is trading at 5.9x 2014F PE.

What’s New

• New contract wins as order winning momentum continues. With its latest contract wins of S$19.1m, ISO now boasts a robust orderbook of S$100.1m with earnings visibility till FY16. As the industry market leader, ISO has enjoyed a strong order winning momentum, securing S$29.9m worth of contracts since its IPO in Jul 13.
•  Repeat sales continue to flow from major customers. ISO continues to secure contracts from repeat customers like SKK, which have contributed to ISO’s revenue for the past four FYs. With its established track record and strategic relations with customers, ISO has been enjoying high repeat sales of more than 70% from major customers in the last three FYs.
•  Successful breakthrough into new market. Of note, ISO’s new contract wins include repair and redecoration (R&R) works in three private sector projects. A satisfactory delivery may see ISO establish a presence in the private sector and provide a new source of revenue for the company. At present, the private sector R&R market is estimated to be worth about S$80m (40% of the public sector market).

Investment Highlights

• 50% of earnings are defensive and of recurring nature. Supported by regulations to repaint buildings at least every five years, the R&R industry is relatively defensive. For the last three FYs, the R&R segment contributes to about 50% of ISO’s net profits.
• Growing market, growing profits. Earlier in August, MND unveiled plans for three New Towns - Bidadari, Tampines North and PunggolMatilda, which will add 40,000 new public housing units. As part of thegovernment’s plan to build 700,000 new homes by 2030, this bodes well for ISO with a growing market for both its R&R and Addition and Alternation (A&A) segments. Gross profit from R&R and A&A recorded a 3-year CAGR of 6.4% and 13.2% respectively from FY10 to FY13.
• Strong earnings growth and visibility. Underpinned by the strongearnings visibility from its orderbook, positive operating dynamics and expansion plans into the private sector, we expect core earnings of ISO to increase by 129.7% to S$6.3m in FY14.

First REIT

OCBC on 28 Oct 2013

First REIT (FREIT) reported 3Q13 revenue of S$22.8m and DPU of S$0.0196, representing an increase of 60.7% and 16.7% YoY, respectively. For 9M13, revenue jumped 43.1% to S$60.4m and was within our expectations. However, DPU of S$0.0555 (+14.2% after excluding exceptional distributions) was below due to higher-than-estimated expenses. Looking ahead, FREIT will continue to seek opportunities at expanding its footprint in Indonesia, given her growing healthcare market and the strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci. We maintain our revenue estimates but tweak our DPU forecasts for FY13 and FY14 downwards by 4.4% and 1.9%, respectively. This correspondingly lowers our DDM-derived fair value estimate from S$1.20 to S$1.18. Given a decent FY14F dividend yield of 7.5%, we maintain our BUY rating for FREIT.

Revenue in-line but DPU came in below expectations
First REIT (FREIT) reported 3Q13 revenue of S$22.8m, representing an increase of 60.7% YoY. This was driven by contribution from four new Indonesian properties, of which two were acquired in Nov 2012 and the remaining two in May 2013. DPU rose 16.7% YoY to S$0.0196, and is payable on 29 Nov 2013. For 9M13, revenue jumped 43.1% to S$60.4m and was within our expectations (72.6% of our FY13 projection). After stripping out exceptional distributions paid out in 1Q12 and 2Q12, distributable amount to unitholders and DPU rose 24.6% and 14.2% to S$38.1m and S$0.0555, respectively, with the latter forming 70.4% of our full-year forecast. We view this as below our expectations due to higher-than-estimated expenses. On a positive note, FREIT’s financial performance was largely unaffected by the recent weakening of the IDR, given that the base rental for its ten Indonesian properties are denominated in SGD.

Will continue to seek quality asset acquisitions
FREIT highlighted that it will continue to seek opportunities at expanding its footprint in Indonesia, given her growing healthcare market and the strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci. Following Siloam International Hospital’s successful IPO recently in Sep 2013, we believe proceeds raised would allow it to embark on a more aggressive hospital development programme, thus further providing FREIT with assets that may be purchased in the medium to long term horizon. FREIT will also look out for healthcare assets in other parts of Asia to expand its portfolio. 

Maintain BUY
We maintain our revenue estimates but tweak our DPU forecasts for FY13 and FY14 downwards by 4.4% and 1.9%, respectively. This correspondingly lowers our DDM-derived fair value estimate from S$1.20 to S$1.18. Given a decent FY14F dividend yield of 7.5%, we maintain our BUY rating for FREIT.

Starhill Global REIT

OCBC on 28 Oct 2013

Starhill Global REIT (SGREIT) reported 3Q13 DPU of 1.21 S cents, up 9.0% YoY. This brings the 9M13 DPU to 3.77 S cents, in line with our expectations. SGREIT’s Singapore portfolio continued to benefit from Wisma Atria (WA) redevelopment and upward rent reviews at Ngee Ann City (NAC). For its overseas properties, Australia portfolio was the key performer, raking up a 25.7% increase in NPI due to incremental income from Plaza Arcade. This more than offset the lower contributions from the other overseas properties due to unfavourable forex movements and increased competition. On the capital management front, we note that SGREIT has completed the drawdown of new unsecured loan facilities to refinance its debts due in 2013, leaving it with no refinancing needs until Jun 2015. As at 30 Sep, gearing stood largely unchanged at 30.6%, while the fixed/hedged debt ratio improved to 94.0% from 81.0% seen in 2Q. We maintain BUY and S$0.95 fair value on SGREIT as we continue to like its clear growth drivers, robust financial standing and compelling valuation

.

3Q13 results within view
Starhill Global REIT (SGREIT) reported 3Q13 NPI of S$38.0m and distributable income of S$27.1m, up 4.4% and 9.7% YoY respectively. DPU similarly increased by 9.0% YoY to 1.21 S cents, after retaining S$0.7m (c. 0.03 S cents) in distribution amount. For 9M13, NPI and distributable income were up 7.3% and 17.2% to S$119.0m and S$83.6m respectively. 9M13 DPU came in at 3.77 S cents, translating to a robust growth of 15.6%. This is in line with expectations, given that the DPU has met 76.6%/76.9% of our/consensus FY13F DPU.

Further improvement in operational performance
SGREIT’s Singapore portfolio continued to benefit from Wisma Atria (WA) redevelopment and upward rent reviews at Ngee Ann City (NAC). Over the quarter, WA saw its retail NPI grow by 5.9% YoY as a result of ongoing asset repositioning and higher rentals. Tenant sales at WA, we note, improved 11.8% YoY, giving rise to a better sales efficiency of S$134 psf. At NAC’s retail segment, NPI also registered a strong 14.5% growth following the 6.7% rental uplift from Toshin master lease. In addition, the office segment at Singapore portfolio achieved 11.2% NPI growth on the back of positive rental reversions of 13.7% for leases committed between Oct 2012 and Sep 2013. More notably, Singapore portfolio occupancy reached 100%, up from 99.7% in 2Q. For its overseas properties, Australia portfolio was the key performer, raking up a 25.7% increase in NPI due to incremental income from Plaza Arcade. As a result, this more than offset the lower contributions from the other overseas properties due to unfavourable forex movements and increased competition. 

Maintain BUY
On the capital management front, we note that SGREIT has completed the drawdown of new unsecured loan facilities to refinance its debts due in 2013, leaving it with no refinancing needs until Jun 2015. As at 30 Sep, gearing stood largely unchanged at 30.6% (30.3% in 2Q), while the fixed/hedged debt ratio improved to 94.0% from 81.0% seen in 2Q. We continue to like SGREIT for its clear growth drivers, robust financial standing and compelling valuation. Maintain BUY and S$0.95 fair value on SGREIT.

Ezra Holdings

OCBC on 25 Oct 2013

Ezra Holdings reported a 28% YoY rise in revenue to US$419.2m and a 20% increase in net profit to US$10.0m in 4QFY13, bringing full year revenue and net profit to US$1.26b and US$53.6m, respectively. Stripping out one-off items such as gain on disposal of Ezion shares and other assets, we estimate a core net loss of about US$37m in FY13, vs. our full year estimate of negative US$39.7m. As of end FY13, Ezra’s total order backlog is in excess of US$2b. We have a positive outlook on the group in the long term, but with uncertain earnings growth in the near term, net gearing of 1.02x, low ROE and net profit margins of less than 5% for FY13 and 14, we think there are currently better opportunities for investors with a more favourable risk-reward ratio. Maintain SELL with S$0.99 fair value estimate, based on 0.9x FY14F NTA/share.

No surprises in 4QFY13 results
Ezra Holdings reported a 28% YoY rise in revenue to US$419.2m and a 20% increase in net profit to US$10.0m in 4QFY13, bringing full year revenue and net profit to US$1.26b and US$53.6m, respectively. Stripping out one-off items such as gain on disposal of Ezion shares and other assets, we estimate a core net loss of about US$37m in FY13, vs. our full year estimate of negative US$39.7m. 

Waiting to see more earnings sustainability
Though gross profit margin was 18% in 4QFY13 compared to 22% in 4QFY12, it at least recovered from the low of 1% in 3QFY13. This was mainly due to a normalization in operating activity in the subsea and offshore support business with higher vessel utilisation rates. We understand that utilisation rates in the offshore support segment was around 94% in 4QFY13, though gross profit margin remained in the 20% region. As the subsea division executed more projects in 4QFY13, which is a seasonally better quarter, the segment recovered from a net loss in 3QFY13 to an estimated US$7-8m net profit in 4QFY13; gross profit margin was in the mid-teens. However, we believe execution risk remains, despite a sizeable order book, as this is susceptible to project delays and cost overruns.

New CFO appointed
Meanwhile, the group has appointed Mr. Eugene Cheng (joined as GM for Finance in Oct 2012) to take on the role of CFO with effect from 1 Nov 2013. Mr. Tay Chin Kwang, the current Finance Director, will be re-designated as an Executive Director of Ezra. 

Better investment opportunities out there
As of end FY13, Ezra’s total order backlog is in excess of US$2b, of which subsea accounts for about US$1.25b. We have a positive outlook on Ezra in the long term, but meanwhile time will be needed for Ezra’s subsea business to achieve a stronger footing. With uncertain earnings growth in the near term, net gearing of 1.02x, low ROE and net profit margins of less than 5% for FY13 and 14, we think there are currently better opportunities for investors with a more favourable risk-reward ratio. Maintain SELL with S$0.99 fair value estimate, based on 0.9x FY14F NTA/share.

Cache Logistics Trust

DBS Vickers, Oct 24

CACHE Logistics Trust (Cache)'s Q3-13 topline and net property income grew by 8 per cent and 4 per cent y-o-y to S$20.7 million and S$19.6 million, respectively. This was due to contribution from an expanded portfolio from Precise Two warehouse, and supported by increased rental income from annual step-ups.

Interest cost was 4 per cent lower y-o-y to S$2.7 million after refinancing of its loans at an all-in rate of 3.45 per cent. As a result, distributable income came in 10 per cent higher y-o-y at S$16.5 million.

However, DPU was marginally lower by 0.8 per cent y-o-y at 2.126 Scts due to an expanded share base due to the placement exercise in Q1-13.

With minimal renewals in FY14F, Cache offers strong income visibility. A majority of its income will only be expiring in FY15/16F; these are mainly the master-leased IPO properties, of which the Manager is actively engaging with the master lessee (CWT and C&P Limited) for the renewal of this lease.

Growth is likely to be driven by acquisitions. With a conservative gearing ratio of 29.2 per cent (below management's long-term optimal level of 35-40 per cent) and a visible pipeline from sponsors CWT/C&P, we believe that acquisitions will likely feature, albeit at a more moderate rate than before.

Yields of close to 7.3 per cent are one of the highest amongst peers. Maintain "buy" and S$1.33 TP for a total return of 17 per cent. Risk to our forecast is slower than anticipated rate of acquisitions which will mean that DPU is likely to dip given the expanded share base.

BUY

CapitaMall Trust

CIMB Research, Oct 23

CMT's 9M13 DPU was in line at 73 per cent of our full-year estimate (Q3-13 at 25 per cent) and consensus. We roll over our valuation to FY15 estimates and raise our dividend discount model-based target price (7.3 per cent discount rate) by 3 per cent. We lower our DPU estimates by 1.4 per cent in FY13 and 0.6 per cent in FY14, but raise DPU by 2.2 per cent in FY15, based on tweaks to our model and higher rent from Tampines Mall.

The completion of AEIs at Bugis+ and The Atrium, as well as the completion of J-Cube contributed the bulk of the 12.9 per cent y-o-y growth in Q3-13 NPI. Q3-13 DPU rose 9.7 per cent y-o-y as a result.

For CMT's remaining portfolio, NPI growth was flatter, at 4.6 per cent y-o-y due to the 6.3 per cent positive rental reversion for new leases/renewals achieved three years ago (2.1 per cent p.a.). Its portfolio occupancy remains robust at 99.5 per cent but overall tenant sales growth YTD slowed to 2.8 per cent yoy.

FY14 will see sales/earnings contributions from Phase 1 of Bugis Junction AEI (95 per cent preleased, expected completion in Q4-13) and the completion of Westgate retail mall (70 per cent pre-leased).

The commencement of Bugis Junction phase 2 AEI is expected in Q1-14 and completion by FY15.

CMT also announced that it will convert around 25k-30k sf of rooftop space in Tampines Mall, which is expected to return 8 per cent on the S$36 million capex or S$3.4 million to CMT's revenue. This is slated for completion in FY15.

CMT's portfolio remains defensive but at a P/BV of 1.2x and compressed FY15 yield of 5.7 per cent (against a rising interest rate environment), we believe that positive surprises in retail sales and accretive acquisitions are needed to re-rate the stock from current levels.

NEUTRAL

Sheng Siong Group

DMG & Partners, Oct 24

SHENG Siong's (SSG) Q3-13 revenue grew 5 per cent y-o-y to S$178 million (our estimate: S$174m), as a S$13 million maiden contribution from its new stores was partially offset by a S$5 million decline in revenue at its existing stores.

In Q3-13, competition was keen while traffic flow at its Bedok Central and The Verge stores continued to be affected by construction activities.

SSG's same-store sales growth was estimated to have dipped 2.7 per cent, although this was likely an improvement from Q2-13's 5 per cent contraction. The group currently has 33 stores with 400,000 sq ft of retail area (Q3-12: 31 stores with 391,000 sq ft).

The wider gross profit margin was driven mainly by operating efficiencies following the commencement of its distribution centre in mid-2011.

For Q4, we expect earnings to grow slightly by 7 per cent y-o-y to S$8.5 million.

The stock offers dividend yields of above 4 per cent on an average 14 per cent earnings growth over the next two years.

Despite having distributed some S$41 million in dividends so far this year, SSG's net cash remains high at S$108 million, leaving room for possible special dividends to be dished out. We lift our risk-free rate assumption to 3 per cent from 2.5 per cent. This lowers our TP to S$0.74, which implies a 24 times FY14F PE with a projected dividend yield of 3.9 per cent.

BUY