UOBKayhian on 28 Mar 2014
FY14F PE (x): 22.5
FY15F PE (x): 22.5
Adspend contraction widens in 2QFY14. Our monthly page monitor of The Straits Times suggests advertising spending (adspend) remains weak, with a contraction of 8% yoy in 2QFY14 (Dec 13 to Feb 14). However, we estimate actual contraction could be less severe, at 5% yoy. Our page monitor had earlier implied an adspend contraction of 5% yoy for 1QFY14. SPH subsequently reported actual adspend contraction of 3% yoy.
2QFY14 results preview. Traditionally, 2QFY13 is a seasonally weak earnings quarter. We estimate a net profit of S$70m for 2QFY14. Overall, FY14-16 net profit is projected to be lower than FY13’s due to the absence of exceptional gains and the 30% minority interest in SPH REIT. We expect interim DPS to be maintained at 7 S cents. Maintain HOLD. We maintain our target price of S$4.00 (ex-div basis) based on sum-ofthe- parts (SOTP) valuation. Our recommended entry price is at S$3.80 and below. Earnings forecast revision pending results. We currently forecast flat print revenue for FY14 before rebounding to a mild 3% for FY15 and FY16. However, we are likely to tweak our earnings forecasts as print revenue for 1HFY14 is likely to be marginally below our expectation. Key earnings risks are a significant weakness in advertising revenue and further de-rating in yield stocks when interest rates resume the uptrend.
Friday, 28 March 2014
BOUSTEAD SINGAPORE
UOBKayhian on 28 Mar 2014
VALUATION
VALUATION
- Downgrade to HOLD with a higher target price of S$2.00 after outperformance.We value Boustead Singapore (Boustead) using a SOTP model and at 16.9x FY15F PE (ex-cash 13.4x). After share price climbed by as much as 18% since Feb 14, the upside to our target price is now less compelling. Nonetheless, we continue to like the group’s business model and see potential catalysts. We raise our FY14-16F net profit forecasts by 7% after tweaking our margin assumptions and imputing some contribution from the water division. Entry price is S$1.74.
- Early signs of a turnaround in water division after wholly-owned Boustead Salcon Water Solutions announced a major contract win recently. We estimate the multi-million dollar project is one of the largest the group has secured since it took a stake in the subsidiary in 2002. This will help the division sustain its breakeven to slightly profitable position after a prolonged restructuring. In our view, another contract win of similar size would provide a more meaningful impact on profitability in the short term.
- S$50m energy boost kick starts FY15 as it brings the group’s total orderbook backlog to over S$450m. The global O&G contracts secured support our investment thesis that the energy division will drive the group’s performance in the near term on the back of a global O&G upcycle. Boustead’s prequalification status for a global list of EPC contractors will allow it to capitalise on rising O&G spending. Management expects orders wins to also be driven by the shale gas boom in the US. We expect the division’s pre-tax margin to be steady at 10-11%.
- Expect a good final quarter to seal FY14 as Boustead’s 9MFY14 performance reflected an outlook that is in line with our own expectations. We continue to like the group’s business model that allows for better cost management, easier scaleability and lower capital intensity. The S$450m orderbook backlog also provides earnings visibility. The group had net cash of S$178m (34 cents/share) as at end-Dec 13.
- Potential catalysts include more contract wins, a definite turnaround in the water division, earnings-accretive M&As and a spin-off of its industrial assets into a REIT. We think new contract wins will likely come from energy and real estate, the latter of which is supported by management’s intent to grow its industrial leasehold portfolio. Additionally, we think there is a high probability of securing the S$150m AEI for TripleOne Somerset, where Boustead has a 5.5% stake in the consortium that intends to acquire the property.
Centurion Corporation
DMG & Partners Research, Mar 27
WE brought a group of fund managers to visit Centurion Corp's two dormitories, namely Toh Guan and Mandai - a joint venture with Lian Beng.
We were pleasantly surprised with the good facilities, comfortable living environment, and provision of welfare and social activities in the dorms which reaffirm Centurion's "managing with a heart" motto and separate them from peers'/factory-converted dorms.
A 100 per cent occupancy level is expected by June 2014. Based on our estimates, Centurion Corp's new block in Toh Guan - which has just started operation early this year - has reached a 50 per cent occupancy rate while its Mandai dormitory has achieved over 90 per cent. According to management, full occupancy will most likely be achieved within the next two to three months.
Potential new projects in Singapore, Penang and Qatar: The Building and Construction Authority and the JTC Corp have just put up two new dormitory land parcels for tender: a six-year 2,000-bed one in Mandai, and a 20-year 9,200-bed one in Tuas. In addition, Centurion is still awaiting the upcoming tender results from a 25,000-bed workers village in Penang, Malaysia and a 20,000-bed workers accommodation in Qatar.
These potential new projects, coupled with any further new land releases by the Singapore government, will provide additional boost to its workers accommodation segment.
We continue to like Centurion's strong operating cash flow generation, growth prospects, and high gross margins of more than 50 per cent. Its core earnings are expected to remain strong with a 54 per cent growth for FY2013-2014, driven by its Mandai dormitory project as well as a more than 4,000-bed expansion for its Toh Guan dormitory, which is on track to obtain full occupancy.
On top of that, Centurion is also expected to rake in a one-off $14.4 million gain from an industrial ramp-up project - M-Space. Therefore, we maintain our "buy" call, with a DCF-backed TP of 82 cents.
BUY
Thursday, 27 March 2014
Sarine Technologies
Kim Eng on 27 Mar 2014
In our view, the long-term investment case for Sarine is fundamentally intact. Its GalaxyTM system is on track to become the leading – and possibly the only – automated inclusion mapping system for the world’s rough diamond industry. Sarine LightTM and Sarine LoupeTM are the new pillars of growth and the company expects substantial contributions from both by FY15E.
What’s Our View
Sarine has a game-changing product, effective marketing strategies and the means with which to entrench its monopoly position in the market, paving the way for future success. While we continue to believe in this success, we are wary that near-term R&D and marketing expenses will creep up. We therefore cut our FY14E/15E earnings by 18%/10%, in part also to temper our previous overly-optimistic forecasts. However, Sarine’s near-term earnings fluctuations should not detract from its huge potential for profit (USD91m annual net profit) as its technologies revolutionise current industry practices.
We switch from a P/E-based to a DCF-based valuation method (discount rate: 9.6%, g: 2%) to better incorporate the underlying earnings potential. Our model yields a new TP of SGD3.09 (previously SGD2.16). Implied FY14E/15E P/Es are 26.3x/19.9x. Sarine has no direct peers but diamond miners and retailers trade at an average 32x/22x FY14E/15E P/E. Near-term risk may arise from stake sale by major shareholders due to a possible breakup of the shareholding structure, but we believe that strong fundamentals will carry the day. Reiterate BUY.
- Rising GalaxyTM penetration and scant competition see Sarine closer to entrenching its monopoly in inclusion mapping.
- New revenue drivers target the highest value-add segment of the diamond industry, ensuring the next leg of growth.
- Switch to DCF-based intrinsic valuation model yields higher TP of SGD3.09. Reiterate BUY.
In our view, the long-term investment case for Sarine is fundamentally intact. Its GalaxyTM system is on track to become the leading – and possibly the only – automated inclusion mapping system for the world’s rough diamond industry. Sarine LightTM and Sarine LoupeTM are the new pillars of growth and the company expects substantial contributions from both by FY15E.
What’s Our View
Sarine has a game-changing product, effective marketing strategies and the means with which to entrench its monopoly position in the market, paving the way for future success. While we continue to believe in this success, we are wary that near-term R&D and marketing expenses will creep up. We therefore cut our FY14E/15E earnings by 18%/10%, in part also to temper our previous overly-optimistic forecasts. However, Sarine’s near-term earnings fluctuations should not detract from its huge potential for profit (USD91m annual net profit) as its technologies revolutionise current industry practices.
We switch from a P/E-based to a DCF-based valuation method (discount rate: 9.6%, g: 2%) to better incorporate the underlying earnings potential. Our model yields a new TP of SGD3.09 (previously SGD2.16). Implied FY14E/15E P/Es are 26.3x/19.9x. Sarine has no direct peers but diamond miners and retailers trade at an average 32x/22x FY14E/15E P/E. Near-term risk may arise from stake sale by major shareholders due to a possible breakup of the shareholding structure, but we believe that strong fundamentals will carry the day. Reiterate BUY.
BreadTalk
Kim Eng on 27 Mar 2014
St James Holdings recently announced a proposed acquisition of assets from Perennial Real Estate Holdings Pte Ltd via a reverse takeover (RTO). Although this exercise does not benefit BreadTalk at this moment, it highlights the latent value of its equity stakes. We believe it will have the option to monetise them in the future.
BreadTalk’s business model favours operating several F&B concepts in one location, which provides bargaining power with mall owners. Though viewed as non-core assets, we believe there is a strategic benefit to owning a stake in selective malls. For one, it secures retail location and hedge against rising rental costs.
What’s Our View
Based on the latest independent valuation as per the RTO document, BreadTalk’s stakes are worth SGD159m or SGD0.56/share, but recognised at a cost of SGD84m on its balance sheet. Applying a 25% discount to this, our SOTP approach to cross-check gives a higher figure of SGD1.65/share (previously SGD1.54/share). We maintain our TP of SGD1.54, pegged to 7x EV/EBITDA. This is below the lowest multiple in our comparison universe and we believe BreadTalk is still significantly undervalued. We estimate an EPS CAGR of 23% over FY14E-FY16E, driven by top-line growth of 18% CAGR and EBIT margin improvement of 0.1-0.3ppt over FY14E-FY16E (2013:4.3%).
- BreadTalk holds equity stakes in several real estate assets in partnership with Perennial Real Estate Holdings. Recent RTO proposal by St James highlights the value of its assets.
- BreadTalk has the option of monetising these in the future; SGD0.56/share based on latest independent valuation.
- Even after taking a 25% discount, our SOTP approach to cross-check raises value to SGD1.65/share. Reiterate BUY.
St James Holdings recently announced a proposed acquisition of assets from Perennial Real Estate Holdings Pte Ltd via a reverse takeover (RTO). Although this exercise does not benefit BreadTalk at this moment, it highlights the latent value of its equity stakes. We believe it will have the option to monetise them in the future.
BreadTalk’s business model favours operating several F&B concepts in one location, which provides bargaining power with mall owners. Though viewed as non-core assets, we believe there is a strategic benefit to owning a stake in selective malls. For one, it secures retail location and hedge against rising rental costs.
What’s Our View
Based on the latest independent valuation as per the RTO document, BreadTalk’s stakes are worth SGD159m or SGD0.56/share, but recognised at a cost of SGD84m on its balance sheet. Applying a 25% discount to this, our SOTP approach to cross-check gives a higher figure of SGD1.65/share (previously SGD1.54/share). We maintain our TP of SGD1.54, pegged to 7x EV/EBITDA. This is below the lowest multiple in our comparison universe and we believe BreadTalk is still significantly undervalued. We estimate an EPS CAGR of 23% over FY14E-FY16E, driven by top-line growth of 18% CAGR and EBIT margin improvement of 0.1-0.3ppt over FY14E-FY16E (2013:4.3%).
Singapore Post
CIMB Research, Mar 25
WITH its low-cost distribution network and active acquisitions in the region, we believe that SingPost is ready to meet demand for low-cost end-to-end e-commerce logistics solutions in Asia.
We initiate coverage with an "add" rating and discounted cash flow-based target price of $1.55 (weighted average cost of capital 7.3 per cent). Catalysts are expected from e-commerce logistics growth.
The mailman finds a new job: SingPost has all the last-mile assets to deliver mail anywhere in Singapore.
Mail delivery is a sunset industry but SingPost's assets are still good for delivering a variety of goods in the world of e-commerce.
The business only requires tweaks to refine its infrastructure to deliver parcels, in addition to mail, add last-mile delivery capabilities in Asia and add end-to-end e-commerce logistics solutions - all of which SingPost is doing via investments or M&A.
Filling the gap in e-commerce logistics. SingPost's competitive advantage over its postal peers and other 3PL (third-party logistics) players is its ability to provide a full spectrum of e-commerce logistics solutions at low costs.
This is made possible by its access to postal-to-postal rates (governed by the Universal Postal Union, bilateral agreements with other countries and partnerships with low-cost couriers.
It also constantly enhances its capabilities with acquisitions. As no other postal player in Asia has moved into e-commerce (due to government mandates) and 3PL providers do not have access to such low delivery costs, SingPost has a clear advantage in costs and service offerings.
Paid to wait: SingPost used to be one of Singapore's high-yield stocks although it was operating in a sunset industry.
With its new push into e-fulfilment, it will have a unique blend of growth and yield.
The old business will still fund its dividends, while its net cash of $135 million will allow for earnings-accretive acquisitions that can aid its strategic repositioning.
Our estimates have not factored in complementary assets and acquired earnings from its $135 million net cash pile. In the meantime, investors are receiving an attractive dividend yield of 4.7 per cent while waiting for SingPost to turn into a swan.
ADD
CWT Ltd
OCBC on 27 Mar 2014
We met up with CWT’s management recently to better understand their growth drivers and risk management. We think CWT’s commodity trading business is not well-understood and being unfairly penalised by the market for misperceived risks. We understand from management that they do not take open positions on commodity prices while counterparties are mainly state-owned companies and MNCs, thus reducing market and counterparty risks. We also expect FY14 commodity trading core earnings to come in higher (+%64) as energy products make a full-year contribution. In addition, CWT’s logistics business will be boosted by three warehouses that has/will receive TOPs in 2014, increasing total GFA by 38% to 7.2m sq ft. We expect core earnings in Logistics business to increase with CAGR of 16% between FY14-FY15. Maintain BUY with a higher fair value estimate of S$1.87 (previous S$1.68).
Rising fair value estimate to S$1.87
We maintain our BUY but derive a new fair value estimate of S$1.87 (previous S$1.68) via SOTP. The counter is trading at 6.4x FY14F PER, representing a steep discount to its peer Kerry Logistics Network (x19.1 PER). We think this is due to over-estimation of risks in Commodity SCM and lack of clarity on earnings growth ahead. Furthermore, we believe our valuation is conservative on the following counts: 1) each business segment uses a below-average PER, 2) value of warehouse portfolio derived excludes overseas warehouses, and 3) assumed psf price is at 10% discount to similar warehouses.
Misperceived risks about Commodity SCM
We understand from management meeting that CWT fully hedges prices in its Commodity SCM business, rendering the trades back-to-back and eliminating risk of losses through adverse price movements. As CWT makes a fixed premium on a per-weight trading basis, its results are not likely to be correlated to commodity price movements. In addition, we think the sub-1% profit margin is not a concern as the returns are magnified through leverage (10.3x in FY13), yielding a reasonable 7.3% ROE. Nevertheless, volatility in earnings is likely to come from energy products which are opportunistic in nature as compared to non-ferrous which is more towards long-term contracts. In terms of counterparty risk, we think it is reduced, though not eliminated, through dealing with mainly state-owned companies and MNCs. Overall, we think Commodity SCM business is less risky than perceived while we expect FY14 core earnings to come in higher (+%64 to S$34m) as energy products make a full-year contribution. Our estimation is well within management’s guidance that normalised earnings are between S$20m to S$50m.
New and redeveloped warehouses drive to Logistics business’ growth
Three redeveloped/new warehouses will receive TOP in FY14. Collectively, the trio will increase CWT’s portfolio’s total GFA by 38% to 7.2m sq ft, which we estimate to deliver a substantial 16% CAGR in Logistics’ core earnings over FY14-FY15.
We maintain our BUY but derive a new fair value estimate of S$1.87 (previous S$1.68) via SOTP. The counter is trading at 6.4x FY14F PER, representing a steep discount to its peer Kerry Logistics Network (x19.1 PER). We think this is due to over-estimation of risks in Commodity SCM and lack of clarity on earnings growth ahead. Furthermore, we believe our valuation is conservative on the following counts: 1) each business segment uses a below-average PER, 2) value of warehouse portfolio derived excludes overseas warehouses, and 3) assumed psf price is at 10% discount to similar warehouses.
Misperceived risks about Commodity SCM
We understand from management meeting that CWT fully hedges prices in its Commodity SCM business, rendering the trades back-to-back and eliminating risk of losses through adverse price movements. As CWT makes a fixed premium on a per-weight trading basis, its results are not likely to be correlated to commodity price movements. In addition, we think the sub-1% profit margin is not a concern as the returns are magnified through leverage (10.3x in FY13), yielding a reasonable 7.3% ROE. Nevertheless, volatility in earnings is likely to come from energy products which are opportunistic in nature as compared to non-ferrous which is more towards long-term contracts. In terms of counterparty risk, we think it is reduced, though not eliminated, through dealing with mainly state-owned companies and MNCs. Overall, we think Commodity SCM business is less risky than perceived while we expect FY14 core earnings to come in higher (+%64 to S$34m) as energy products make a full-year contribution. Our estimation is well within management’s guidance that normalised earnings are between S$20m to S$50m.
New and redeveloped warehouses drive to Logistics business’ growth
Three redeveloped/new warehouses will receive TOP in FY14. Collectively, the trio will increase CWT’s portfolio’s total GFA by 38% to 7.2m sq ft, which we estimate to deliver a substantial 16% CAGR in Logistics’ core earnings over FY14-FY15.
OUE Commercial REIT
OCBC on 26 Mar 2014
We initiate coverage with a BUY rating and fair value estimate of S$0.88. The Reit offers an estimated forward FY14 yield of 6.9%, and its portfolio consists of two assets: OUE Bayfront, a premium office building in Raffles Place, Singapore, and Lippo Plaza, a Grade-A commercial building in Huaihai Zhong Road, Shanghai. Our investment thesis rests on three key components.
Domestic prime office outlook is positive
First, we are constructive on the prime office outlook in Singapore, which makes up 69% of OUE-CT’s portfolio by asset value. While Grade A rentals declined 13.7% over 3Q11-3Q13, the downtrend reversed in 4Q13 when rentals registered a 2.1% QoQ uptick and core CBD vacancy rate improved 167 bps to 4.8%. In addition, overall office demand remained firm; FY13 island-wide net absorption came in at a healthy 2.1m sq ft - significantly higher than the 10-year average of 1.6m sq ft. We forecast that limited supply and continued steady absorption will drive Grade A rentals up by 10% - 20% over FY14-15. Contributions from OUE Bayfront, now boosted by income support, will likely be sustained at current levels or higher after the support arrangement ceases after FY17.
Ample scope for growth through accretive acquisitions
Second, OUE-CT’s market cap is currently the lowest in its peer group of office S-REITs. Given three large ROFR assets in its potential acquisition pipeline, we see ample scope for meaningful growth ahead; large yield-accretive acquisitions in the future could result in DPU growth, higher trading liquidity as its market cap and assets increases, and unit price appreciation.
Attractive pricing versus peers
Finally, we believe that OUE-CT shows attractive relative value versus peers. Despite providing one of largest exposure to the premium office space in Singapore (only second to Keppel REIT), OUE-CT offers a forward yield of 6.9% - the second highest in its peer group (average: 6.7%). Its price-to-book ratio of 0.76 is also lowest amongst peers.
We initiate coverage on OUE Commercial REIT with a BUY rating and fair value estimate of S$0.88. We are constructive on the SG prime office outlook, which makes up 69% of OUE-CT’s portfolio value, and forecast that limited supply and continued steady absorption will drive Grade A rentals up by 10% - 20% over FY14-15. Contributions from OUE Bayfront, now boosted by income support, will likely be sustained at current levels or higher after the support arrangement ceases after FY17. Also, given three large ROFR assets in its potential acquisition pipeline, we see ample scope for meaningful growth ahead; large yield-accretive acquisitions could result in DPU growth, higher trading liquidity and unit price appreciation. Finally, we believe that OUE-CT shows attractive relative value versus peers. Despite providing one of largest exposure to the premium office space in Singapore (only second to Keppel REIT), OUE-CT offers a forward yield of 6.9% - the second highest in its peer group (average: 6.7%). Its price-to-book ratio of 0.76 is also lowest amongst peers.
Initiate with BUY and fair value estimate of S$0.88
We initiate coverage with a BUY rating and fair value estimate of S$0.88. The Reit offers an estimated forward FY14 yield of 6.9%, and its portfolio consists of two assets: OUE Bayfront, a premium office building in Raffles Place, Singapore, and Lippo Plaza, a Grade-A commercial building in Huaihai Zhong Road, Shanghai. Our investment thesis rests on three key components.
Domestic prime office outlook is positive
First, we are constructive on the prime office outlook in Singapore, which makes up 69% of OUE-CT’s portfolio by asset value. While Grade A rentals declined 13.7% over 3Q11-3Q13, the downtrend reversed in 4Q13 when rentals registered a 2.1% QoQ uptick and core CBD vacancy rate improved 167 bps to 4.8%. In addition, overall office demand remained firm; FY13 island-wide net absorption came in at a healthy 2.1m sq ft - significantly higher than the 10-year average of 1.6m sq ft. We forecast that limited supply and continued steady absorption will drive Grade A rentals up by 10% - 20% over FY14-15. Contributions from OUE Bayfront, now boosted by income support, will likely be sustained at current levels or higher after the support arrangement ceases after FY17.
Ample scope for growth through accretive acquisitions
Second, OUE-CT’s market cap is currently the lowest in its peer group of office S-REITs. Given three large ROFR assets in its potential acquisition pipeline, we see ample scope for meaningful growth ahead; large yield-accretive acquisitions in the future could result in DPU growth, higher trading liquidity as its market cap and assets increases, and unit price appreciation.
Attractive pricing versus peers
Finally, we believe that OUE-CT shows attractive relative value versus peers. Despite providing one of largest exposure to the premium office space in Singapore (only second to Keppel REIT), OUE-CT offers a forward yield of 6.9% - the second highest in its peer group (average: 6.7%). Its price-to-book ratio of 0.76 is also lowest amongst peers.
Courts Asia
UOBKayhian on 27 Mar 2014
FY14F PE (x): 12.8
FY15F PE (x): 9.6
Courts Singapore’s 40th anniversary was celebrated with an appreciation luncheon for business partners on 21 March and a big weekend sale for customers on 22-23 March. Besides great deals and giveaways, it hosted a line-up of events that featured personalities such as former Manchester United football player Paul Scholes. Courts also took this opportunity to introduce its newest product category – World of Wellness – which pioneers Singapore’s most complete one-stop wellness destination. World of Wellness (WOW) was launched with over 2,000 products from wearable technology, gym equipment to appliances for the health conscious and many more. WOW products are categorised under Feel Well, Look Well, Train Well and Rest Well. Besides its bestselling line of air purifiers, WOW also carries sports and outdoors goods, such as bikes and apparel, and training supplements. Management has dedicated an atrium at its megastore for WOW and will eventually roll out the concept at its other stores. The first Indonesian megastore will be handed over to Courts in Jun 14, which aims to have it operational by Sep 14 at the latest. The second megastore will follow in six months’ time. Management plans to open 10 stores in Indonesia in the next five years. Maintain HOLD and target price of S$0.62, based on 1.2x P/B, which is at a 30% discount to the blended peer average of 1.7x. While downside may be limited at current levels, the negative outlook on discretionary spending and regulatory risks on consumer financing may continue to weigh on the stock.
FY14F PE (x): 12.8
FY15F PE (x): 9.6
Courts Singapore’s 40th anniversary was celebrated with an appreciation luncheon for business partners on 21 March and a big weekend sale for customers on 22-23 March. Besides great deals and giveaways, it hosted a line-up of events that featured personalities such as former Manchester United football player Paul Scholes. Courts also took this opportunity to introduce its newest product category – World of Wellness – which pioneers Singapore’s most complete one-stop wellness destination. World of Wellness (WOW) was launched with over 2,000 products from wearable technology, gym equipment to appliances for the health conscious and many more. WOW products are categorised under Feel Well, Look Well, Train Well and Rest Well. Besides its bestselling line of air purifiers, WOW also carries sports and outdoors goods, such as bikes and apparel, and training supplements. Management has dedicated an atrium at its megastore for WOW and will eventually roll out the concept at its other stores. The first Indonesian megastore will be handed over to Courts in Jun 14, which aims to have it operational by Sep 14 at the latest. The second megastore will follow in six months’ time. Management plans to open 10 stores in Indonesia in the next five years. Maintain HOLD and target price of S$0.62, based on 1.2x P/B, which is at a 30% discount to the blended peer average of 1.7x. While downside may be limited at current levels, the negative outlook on discretionary spending and regulatory risks on consumer financing may continue to weigh on the stock.
Wednesday, 26 March 2014
DBS Group Holdings
UOBKayhian on 26 Mar 2014
FY14F PB (x): 1.1
FY15F PB (x): 1.0
DBS has utilised trade finance facilities to penetrate corporate customers in China. Asset quality should not be unduly affected as they have short durations averaging six months and are well collateralised. DBS is well positioned to benefit from growth in offshore renminbi due to its established capabilities in treasury and network of corporate customers in China.
Singapore a centre for offshore renminbi. As part of enhanced financial services cooperation under the China-Singapore free trade agreement, People’s Bank of China has appointed ICBC’s Singapore branch as a renminbi-clearing bank on in Feb 13. Since then, renminbi deposits in Singapore have grown 70% to Rmb200b. Singapore benefits from the change in regulation that allowed multinational companies (MNCs) operating in China to hold excess renminbi offshore to centralise cash management. Many MNCs have keen interest in settling renminbi trades and setting up regional treasury centres in Singapore. Singapore accounted for 60% of renminbi trade finance volume outside Hong Kong and China.
In Hong Kong, DBS is already a leading player in offshore Rmb (CNH). It has an estimated share of 10% in the interbank CNH spot market. It is an active market-maker in US$/Rmb non-deliverable forwards, US$/Rmb non-deliverable swaps and renminbi non-deliverable interest rate swaps. The growth from offshore renminbi is encouraging. Renminbi-denominated trade finance facilities were 12% of total trade finance volume in 2012. The proportion has expanded to 25% in 2013, which means that offshore renminbi accounted for 70% of the growth in DBS’ trade finance business. Maintain BUY. Our target price of S$21.90 is based on 1.51x P/B, derived from the Gordon Growth Model (ROE: 11.0%, required return: 7.8% and constant growth: 1.5%).
FY14F PB (x): 1.1
FY15F PB (x): 1.0
DBS has utilised trade finance facilities to penetrate corporate customers in China. Asset quality should not be unduly affected as they have short durations averaging six months and are well collateralised. DBS is well positioned to benefit from growth in offshore renminbi due to its established capabilities in treasury and network of corporate customers in China.
Singapore a centre for offshore renminbi. As part of enhanced financial services cooperation under the China-Singapore free trade agreement, People’s Bank of China has appointed ICBC’s Singapore branch as a renminbi-clearing bank on in Feb 13. Since then, renminbi deposits in Singapore have grown 70% to Rmb200b. Singapore benefits from the change in regulation that allowed multinational companies (MNCs) operating in China to hold excess renminbi offshore to centralise cash management. Many MNCs have keen interest in settling renminbi trades and setting up regional treasury centres in Singapore. Singapore accounted for 60% of renminbi trade finance volume outside Hong Kong and China.
In Hong Kong, DBS is already a leading player in offshore Rmb (CNH). It has an estimated share of 10% in the interbank CNH spot market. It is an active market-maker in US$/Rmb non-deliverable forwards, US$/Rmb non-deliverable swaps and renminbi non-deliverable interest rate swaps. The growth from offshore renminbi is encouraging. Renminbi-denominated trade finance facilities were 12% of total trade finance volume in 2012. The proportion has expanded to 25% in 2013, which means that offshore renminbi accounted for 70% of the growth in DBS’ trade finance business. Maintain BUY. Our target price of S$21.90 is based on 1.51x P/B, derived from the Gordon Growth Model (ROE: 11.0%, required return: 7.8% and constant growth: 1.5%).
Mapletree Industrial Trust
DBS Group Research, March 24
MAPLETREE Industrial Trust (MINT) announced that it has secured a contract to develop a new built-to-suit facility for Hewlett Packard (HP) for a total consideration of $250 million. Upon completion in FY2018, HP will sign a long-term lease of 10.5 years, with two five-year extension options, providing strong income visibility for MINT.
The proposed development is estimated to yield 9 per cent on total cost and is positive for MINT in many ways. Upon completion in FY2018, MINT will benefit from higher property specifications with the property repositioned as a hi-tech property, higher revenues through maximising unutilised plot ratio resulting in about 89 per cent increase in gross floor area, and stronger income visibility through a longer weighted average lease expiry backed by a strong tenant.
At 9 per cent net property income yield, this development project is expected to be yield enhancing to earnings upon completion. Gearing is estimated to hit about 41 per cent upon completion. Given the phased investment, we believe there is no urging need to raise new equity.
We believe that the positives from this deal will far outweigh the limited impact on earnings in the immediate term. Maintain "buy", with target price raised to $1.50.
BUY
CDL Hospitality Trusts
Maybank Kim Eng Research, March 25
TOURISM growth slows but supply can be absorbed. A total of 8,096 new rooms from known hotel projects will come on-stream between 2014 and 2016, according to commercial real estate services company CBRE.
This constitutes about 15 per cent of available stock. Nonetheless, we expect the balance between supply and demand to stay on an even keel over 2013-2015, growing at 5.7 per cent compounded annual growth rate (CAGR).
Revenue per available room (RevPAR) growth is projected to shrug off the 2 per cent decline in 2013 to rise 3 per cent this year, before sliding by one per cent in 2015 and 2 per cent in 2016. We keep our forecast visitor arrivals intact at 16.4 million in 2014 and 17 million in 2015.
Compared with last year, the biennial events this year include crowd-pullers such as the Singapore Airshow last month, Food & Hotel Asia exhibition next month and the WTA Championships in October. With the US dollar strengthening against the Singapore dollar, we expect corporate bookings to also turn favourable. In addition, there will be a reprieve from new room supply this year - 2,037 versus 3,766 last year.
CDL Hospitality Trusts currently trades at a one per cent discount to its book value, which we believe is due to earlier concerns over hotel room glut and falling RevPAR. With the outlook for the hospitality industry turning more positive this year, we think investors can position themselves for a tactical recovery.
Maintain "buy" with our dividend discount model-based target price unchanged at $1.75 .
BUY
Telecoms Sector
OCBC Investment Research, March 25
BOTH M1 and SingTel reported Q4 CY2013 results that came in within our expectations, while StarHub's results tracked below forecast. M1's core FY2013 earnings were 3.5 per cent above our full-year forecast and SingTel's 9M FY2014 earnings met 73 per cent of our FY2014 estimate.
But due to lower-than-expected Ebitda margin, StarHub's core FY2013 earnings were 5 per cent below our forecast. Interestingly, M1 declared a special dividend, which brought its total payout to 121 per cent of earnings; StarHub kept its payout at $0.20 as guided.
Total post-paid mobile subscribers grew by a stronger-than-expected 2 per cent q-o-q to 4.53 million in the December quarter, led by StarHub, SingTel, then M1.
Meanwhile, the decline in monthly average revenue per use (ARPU) appears to be stabilising; and telcos are optimistic that ARPUs should improve as more subscribers switch over to the new tiered pricing plans with less generous data bundles.
M1 continues to expect moderate single-digit earnings growth, although capital expenditure (capex) will be slightly higher at $130 million. SingTel still sees mid-single digit decline in group revenue and low-single digit fall in Ebitda for FY2014 (ending March 31); but expects lower $2.2 billion capex spend versus $2.5 billion guided previously. StarHub is still guiding for low single-digit revenue growth with 32 per cent Ebitda margin.
Yields are still decent. As before, the spectre of rising interest rates is looming; but the recent pullback in the telcos' share prices is starting to bring dividend yields back towards the 5 per cent handle. Hence we think that these stocks should continue to have a place in any portfolio also for their defensive earnings. Maintain "neutral" on the sector.
Sector - NEUTRAL
Tuesday, 25 March 2014
Courts Asia
Kim Eng on 24 Mar 2014
Following the independent listing of Courts Asia in 2012 we sense that the management team led by Mr Terry O’Connor has been more committed than ever to the company’s success. Our main reservation is the lack of opportunity for it to differentiate itself in electronics retailing. But on this front, we are encouraged that it is headed. For example, the company is launching a brand-new “World of Wellness” concept to tap into rising health awareness. In Malaysia, Courts Asia is primarily a credit business. We believe the company has relaxed its lending rules, which would result in sales recovery in the subsequent quarters. Margins also should be enhanced given that interest income is a big profit driver.
Upgrade to HOLD
Courts Asia currently has a gross credit book of SGD540m. Given its history of prudent credit control and good collection, we believe this sum is largely intact and think value is starting to emerge for the stock. We raise our FY14E-16E earnings estimates by 2-3% and our TP stays at SGD0.60, pegged to 10x FY15E P/E. This is a steep50% discount to the regional retailers but roughly in line with similar credit businesses in Malaysia. Upgrade to HOLD.
- Courts Singapore turns 40 and intends to push ahead with brand building and expansion despite the retail slowdown.
- Stock has underperformed since our SELL call in Dec 2013. But value is starting to emerge, with its credit book value almost equivalent to its market cap.
- We think credit sales in Malaysia are picking up again and margins will improve. Upgrade to HOLD.
Following the independent listing of Courts Asia in 2012 we sense that the management team led by Mr Terry O’Connor has been more committed than ever to the company’s success. Our main reservation is the lack of opportunity for it to differentiate itself in electronics retailing. But on this front, we are encouraged that it is headed. For example, the company is launching a brand-new “World of Wellness” concept to tap into rising health awareness. In Malaysia, Courts Asia is primarily a credit business. We believe the company has relaxed its lending rules, which would result in sales recovery in the subsequent quarters. Margins also should be enhanced given that interest income is a big profit driver.
Upgrade to HOLD
Courts Asia currently has a gross credit book of SGD540m. Given its history of prudent credit control and good collection, we believe this sum is largely intact and think value is starting to emerge for the stock. We raise our FY14E-16E earnings estimates by 2-3% and our TP stays at SGD0.60, pegged to 10x FY15E P/E. This is a steep50% discount to the regional retailers but roughly in line with similar credit businesses in Malaysia. Upgrade to HOLD.
Ascott Residence Trust
OCBC on 24 Mar 2014
ART announced last Friday that it has acquired a 389-unit rental housing property in Fukuoka for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to increase FY13 distribution per unit by 2.1%. This is the second property agreement announced after ART’s rights issue in Dec 2013. In Feb, ART entered into a conditional agreement to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield. Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.
Another Japan rental housing property
ART has acquired a rental housing property in Fukuoka named Infini Garden for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to have increased FY13 DPU by 2.1% from 8.40 S cents to 8.58 S cents. ART acquired the 389-unit Infini Garden from The Ascott Limited (Ascott) and ArcResidential Japan Investments Limited. The master leasee is a third-party and with this acquisition, master lease contribution to total portfolio’s gross profit will grow increase from 32% to 34%. The remaining tenure of master lease is ~4.3 years.
Dalian property agreement announced in Feb
Recall also that in Feb ART entered into a conditional agreement with a third party to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5% from 8.40 S cents to 8.53 S cents. This was the first acquisition announced after ART's rights issue in Dec 2013 which raised S$253.7m. The 195-unit international serviced residence, which commenced operations in 2009, has an average occupancy of about 80%. ART will refurbish the property and it will be managed by Ascott as Somerset Grand Central Dalian when the acquisition is completed, which is expected to be by mid-2014.
Anticipate S$153m more in acquisitions
Before the announcements about the Dalian and Fukuoka properties, we had assume that around S$350m worth of property yielding ~5.5% will be acquired at the start of 2Q14; ART’s leverage will go back up to around 40%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield.
Maintain BUY
Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.
ART has acquired a rental housing property in Fukuoka named Infini Garden for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to have increased FY13 DPU by 2.1% from 8.40 S cents to 8.58 S cents. ART acquired the 389-unit Infini Garden from The Ascott Limited (Ascott) and ArcResidential Japan Investments Limited. The master leasee is a third-party and with this acquisition, master lease contribution to total portfolio’s gross profit will grow increase from 32% to 34%. The remaining tenure of master lease is ~4.3 years.
Dalian property agreement announced in Feb
Recall also that in Feb ART entered into a conditional agreement with a third party to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5% from 8.40 S cents to 8.53 S cents. This was the first acquisition announced after ART's rights issue in Dec 2013 which raised S$253.7m. The 195-unit international serviced residence, which commenced operations in 2009, has an average occupancy of about 80%. ART will refurbish the property and it will be managed by Ascott as Somerset Grand Central Dalian when the acquisition is completed, which is expected to be by mid-2014.
Anticipate S$153m more in acquisitions
Before the announcements about the Dalian and Fukuoka properties, we had assume that around S$350m worth of property yielding ~5.5% will be acquired at the start of 2Q14; ART’s leverage will go back up to around 40%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield.
Maintain BUY
Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.
Consumer Sector
OCBC on 21 Mar 2014
We see three trends among our coverage’s 4QCY13 and CY13 earnings: 1) strong revenue growth, 2) stable margins, and 3) USD-denominated results being hurt by weaker regional currencies. Though the street expects FTSE Consumer Services Index’s EPS to increase by 10.6% to 44.3 in CY14, we maintain UNDERWEIGHT on the sector. We think the trading premium of 1 s.d. above its 2-year historical average could be eroded readily with downturn in market sentiments as seen in Feb-14. Other than strong expected corporate earnings, we are looking for resilience to headwinds in this jittery market. We continue to like Sheng Siong Group [BUY; S$0.68 FV] and Petra Foods [BUY; S$4.08 FV] but not BreadTalk Group [SELL; S$0.85 FV].
Jittery price actions in sector despite in-line CY13 earnings
FTSE Consumer Services (FSTCS) Index lagged the FSSTI in the beginning of CY14. Global macro factors such as weak Chinese manufacturing data sent regional equity markets down which saw FSTCS Index slumping by as much as 7.0% in early Feb-14. Fundamentals held up well as FSTCS Index’s weighted EPS in CY13 came in at 40.0, which was largely in line with street’s estimate (+1.8%).
Covered counters’ prices and earnings display resilience YTD
Consumer counters under our coverage (BreadTalk Group, Petra Foods and Sheng Siong Group) were relatively less affected by the macro events with a maximum decline of only 4% between Jan and Feb. We see three trends in their 4QCY13 and CY13 earnings: 1) strong revenue growth, 2) stable margins, and 3) USD-denominated results being hurt by weaker regional currencies.
Headwinds ahead; maintain UNDERWEIGHT
We identify three headwinds ahead that could derail growth: 1) possible credit crunch in China, 2) significantly higher labour costs, and 3) political unrest. First, there are growing concerns about a shadow-banking credit crunch in China. Given the tight trade links, a credit crunch will cause financing issues and unemployment beyond China. Second, Asian economies are raising minimum wages to help the lower income, with some raises at above 10%. Third, political unrest in Thailand might escalate again or we might see further alignment of other countries to the two factions in Russia’s annexation of Crimea. We maintain UNDERWEIGHT on the sector. We think the trading premium of 1 s.d. above its 2-year historical average could be eroded readily with downturn in market sentiments as seen in Feb-14.
Prefer resilience to headwinds in jittery market
The street expects FSTCS Index’s EPS to increase by 10.6% to 44.3 in CY14. Other than strong expected corporate earnings, we are looking for resilience to headwinds in this jittery market. We prefer: 1) lesser exposure to higher risk areas, 2) established market leadership, and 3) sustainable growth strategy. First, we think of higher risk areas in terms of susceptibility to the identified headwinds. Second, we believe current market leaders with strong brand recognition will have shorter gestation period for new products or stores, which is important in Asia where consumption pattern are rapidly changing. Third, we look out for sustainable growth strategy that takes into consideration the risks and costs of expansion, particularly so in a rising interest rate environment and a looming credit crunch threat. Based on the above, we continue to like Sheng Siong Group [BUY; S$0.68] and Petra Foods [BUY; S$4.08] but not BreadTalk Group [SELL; S$0.85].
FTSE Consumer Services (FSTCS) Index lagged the FSSTI in the beginning of CY14. Global macro factors such as weak Chinese manufacturing data sent regional equity markets down which saw FSTCS Index slumping by as much as 7.0% in early Feb-14. Fundamentals held up well as FSTCS Index’s weighted EPS in CY13 came in at 40.0, which was largely in line with street’s estimate (+1.8%).
Covered counters’ prices and earnings display resilience YTD
Consumer counters under our coverage (BreadTalk Group, Petra Foods and Sheng Siong Group) were relatively less affected by the macro events with a maximum decline of only 4% between Jan and Feb. We see three trends in their 4QCY13 and CY13 earnings: 1) strong revenue growth, 2) stable margins, and 3) USD-denominated results being hurt by weaker regional currencies.
Headwinds ahead; maintain UNDERWEIGHT
We identify three headwinds ahead that could derail growth: 1) possible credit crunch in China, 2) significantly higher labour costs, and 3) political unrest. First, there are growing concerns about a shadow-banking credit crunch in China. Given the tight trade links, a credit crunch will cause financing issues and unemployment beyond China. Second, Asian economies are raising minimum wages to help the lower income, with some raises at above 10%. Third, political unrest in Thailand might escalate again or we might see further alignment of other countries to the two factions in Russia’s annexation of Crimea. We maintain UNDERWEIGHT on the sector. We think the trading premium of 1 s.d. above its 2-year historical average could be eroded readily with downturn in market sentiments as seen in Feb-14.
Prefer resilience to headwinds in jittery market
The street expects FSTCS Index’s EPS to increase by 10.6% to 44.3 in CY14. Other than strong expected corporate earnings, we are looking for resilience to headwinds in this jittery market. We prefer: 1) lesser exposure to higher risk areas, 2) established market leadership, and 3) sustainable growth strategy. First, we think of higher risk areas in terms of susceptibility to the identified headwinds. Second, we believe current market leaders with strong brand recognition will have shorter gestation period for new products or stores, which is important in Asia where consumption pattern are rapidly changing. Third, we look out for sustainable growth strategy that takes into consideration the risks and costs of expansion, particularly so in a rising interest rate environment and a looming credit crunch threat. Based on the above, we continue to like Sheng Siong Group [BUY; S$0.68] and Petra Foods [BUY; S$4.08] but not BreadTalk Group [SELL; S$0.85].
Friday, 21 March 2014
Sino Grandness Food
UOBKayhian on 21 Mar 2014
(SFGI SP/BUY/S$0.675/Target: S$1.06)
FY13F PE (x): 3.3
FY14F PE (x): 2.6
IPO process updates. Investors are keen to know the timeline of the Garden Fresh listing on an approved exchange as the company looks to raise additional funds for the fast-growth beverage segment as well as unlock value for investors in the subsidiary. By working backwards from October, Garden Fresh would have to submit the documents by June and to get approval by the authorities by September and conduct the IPO bookbuilding in October.
Contingency plans for Garden Fresh if the process gets delayed as the Hong Kong listing process has become stricter. While Garden Fresh can be listed in any exchange, market is already speculating Hong Kong to be the eventual listing place as there are many similar FMCG comparables such as Huiyuan and Tingyi listed on the HKEX. Investors are now concerned with recent news reports that the Hong Kong listing process has become stricter and several other listing candidates’ documents have been rejected and thus delayed. Management and the investment professionals are aware of these stricter listing rules and have already implemented these changes for the IPO.
Although the due diligence process may take longer than expected, the company believes it will be a greater testament to Garden Fresh new investors should the IPO be successful, and may even get a higher valuation post listing. The worst-case scenario is the listing gets delayed beyond Oct 14 due to unforeseen circumstance; the first CB will have the option to extend the redemption for another 8 months to Jun 15.
Maintain BUY with a target price of S$1.06. Our target price assumes that the Garden Fresh’s listing will go through in 2014 with a PE of 16x, and a 20% holding company discount on its eventual stake of GF and a 5.0x 2015F PE valuation on its remaining business. We see potential upgrade in our target price as the Garden Fresh listing gets closer, and if the listing comes with a lower-than-expected dilution or a higher valuation obtained during the book-building process.
(SFGI SP/BUY/S$0.675/Target: S$1.06)
FY13F PE (x): 3.3
FY14F PE (x): 2.6
IPO process updates. Investors are keen to know the timeline of the Garden Fresh listing on an approved exchange as the company looks to raise additional funds for the fast-growth beverage segment as well as unlock value for investors in the subsidiary. By working backwards from October, Garden Fresh would have to submit the documents by June and to get approval by the authorities by September and conduct the IPO bookbuilding in October.
Contingency plans for Garden Fresh if the process gets delayed as the Hong Kong listing process has become stricter. While Garden Fresh can be listed in any exchange, market is already speculating Hong Kong to be the eventual listing place as there are many similar FMCG comparables such as Huiyuan and Tingyi listed on the HKEX. Investors are now concerned with recent news reports that the Hong Kong listing process has become stricter and several other listing candidates’ documents have been rejected and thus delayed. Management and the investment professionals are aware of these stricter listing rules and have already implemented these changes for the IPO.
Although the due diligence process may take longer than expected, the company believes it will be a greater testament to Garden Fresh new investors should the IPO be successful, and may even get a higher valuation post listing. The worst-case scenario is the listing gets delayed beyond Oct 14 due to unforeseen circumstance; the first CB will have the option to extend the redemption for another 8 months to Jun 15.
Maintain BUY with a target price of S$1.06. Our target price assumes that the Garden Fresh’s listing will go through in 2014 with a PE of 16x, and a 20% holding company discount on its eventual stake of GF and a 5.0x 2015F PE valuation on its remaining business. We see potential upgrade in our target price as the Garden Fresh listing gets closer, and if the listing comes with a lower-than-expected dilution or a higher valuation obtained during the book-building process.
OSIM International
UOBKayhian on 21 Mar 2014
FY14F PE (x): 16.6
FY15F PE (x): 14.3
UOB Kay Hian hosted an ASEAN Conference in Taiwan on 18-19 March. New products to drive sales. Going forward, OSIM will be launching new products such as uShape, uAngel 2 and probably a newer version of the high-end chair by the end of the year. Management re-iterated that by segmenting the mid-end entry uAngel chair and the high-end uInifinity chair, it can target first-time users for OSIM products and eventually convert them to trade up for a high-end chair in 3-5 years’ time. According to management, approximately 30% of their current chairs are sold to existing customers either for a trade-in or upgrade to the newer massage chairs. China slowdown will not impact OSIM. Some investors were concerned that the lesser-than-expected growth of stores in China and China’s slowdown could impact retail sales. Management is confident of the resiliency of the business as they are targeting high-end consumers in China who are less affected by an economic slowdown. OSIM will continue to open 20- 30 stores in China annually but will also rationalise those nonperforming stores. Maintain BUY with a higher target price of S$3.15. Our target price is derived from our dividend discounted cash flow model and pegged at its 3-year historical PE of 14.8x to 2014F PE. We increase our growth rate from the initial 7% to 7.5% to account for the strong growth potential of the company. We also expect the company to pay out a dividend of 8 S cents per share, providing investors a yield of 3%. Faster-than-expected store expansion in TWG Tea stores and the launching of new OSIM products. Management highlighted that TWG Tea’s operating margins may even exceed the operating margins of the group once operating efficiency kicks in with a central kitchen set up in every country.
FY14F PE (x): 16.6
FY15F PE (x): 14.3
UOB Kay Hian hosted an ASEAN Conference in Taiwan on 18-19 March. New products to drive sales. Going forward, OSIM will be launching new products such as uShape, uAngel 2 and probably a newer version of the high-end chair by the end of the year. Management re-iterated that by segmenting the mid-end entry uAngel chair and the high-end uInifinity chair, it can target first-time users for OSIM products and eventually convert them to trade up for a high-end chair in 3-5 years’ time. According to management, approximately 30% of their current chairs are sold to existing customers either for a trade-in or upgrade to the newer massage chairs. China slowdown will not impact OSIM. Some investors were concerned that the lesser-than-expected growth of stores in China and China’s slowdown could impact retail sales. Management is confident of the resiliency of the business as they are targeting high-end consumers in China who are less affected by an economic slowdown. OSIM will continue to open 20- 30 stores in China annually but will also rationalise those nonperforming stores. Maintain BUY with a higher target price of S$3.15. Our target price is derived from our dividend discounted cash flow model and pegged at its 3-year historical PE of 14.8x to 2014F PE. We increase our growth rate from the initial 7% to 7.5% to account for the strong growth potential of the company. We also expect the company to pay out a dividend of 8 S cents per share, providing investors a yield of 3%. Faster-than-expected store expansion in TWG Tea stores and the launching of new OSIM products. Management highlighted that TWG Tea’s operating margins may even exceed the operating margins of the group once operating efficiency kicks in with a central kitchen set up in every country.
Q&M Dental Group
UOBKayhian on 21 Mar 2014
VALUATION
VALUATION
- Q&M Dental Group Singapore (Q&M) is trading at 2013 PE of 37.4x. This is in comparision to its historical average PE (since it listed in 2009) of 39.1x. and industry-average FY14 PE of 29x. Based on Bloomberg, the consensus 12-month target price for the stock is S$0.45.
- Riding on the growth of CAD/CAM dentistry which involves computer-aided design and computer-aided manufacturing (CAD/CAM) in the fabrication of dental prostheses such as crowns. The technology significantly reduces the length of time needed to design and create a prosthesis (from 1-2 weeks down to an hour), improving convenience and simplicity for practitioners and patients alike. Management estimates higher fees from the use of such technology. A regular crown procedure could go as high as S$800-1,200 with the use of CAD/CAM technology as compared to the usual price of S$600-800.
- MOU to acquire 51% of dental ceramics manufacturer, Qinhuangdao Aidite High Technical Ceramic Co., Ltd (Aidite), in China. Aidite manufactures zirconium oxide (a type of dental ceramic) blocks which are used in CAD/CAM to fabricate prostheses. Management rationalises that a strategic investment in the consummable ensures more stable demand while allowing it to take an indirect exposure to CAD/CAM. The Rmb80m (S$17m) deal comes with an annual profit guarantee of Rmb15m-30m and total dividends of at least Rmb159m (S$33m) over 12 years (2014-25) to the group.
- Proposed acquisition of 100% of a dental clinic, Foo & Associates Pte Ltd, located at Orchard Road, Singapore. Q&M intends to have Dr Foo Mooh Thong, an expert in CAD/CAM technology, spearhead the group’s expansion into this field. The S$5.5m deal includes an annual profit guarantee of at least S$525,000 over 10 years.
- In talks for 6 dental hospitals in China as part of Q&M’s overseas expansion plan. The group intends to take 50-60% stakes in hospitals that are located in tier-2 cities. If successfully completed, we estimate the total investment could amount to Rmb155m (S$31m) with a total profit guarantee of Rmb230m (S$46m) over a 12- year period. The group also continues to increase their clinic count in China through acquisitions and JVs. With the abovementioned transactions in the pipeline, management thinks its net profit in 2014 could reach double-digit figures.
Starhill Global Reit
CIMB RESEARCH, March 19
STARHILL Global Reit (SGReit) just announced that it has successfully divested the Holon L property in Tokyo for 1.026 billion yen (S$12.8 million). The selling price represents a 6 per cent premium over book value, translating into a yield of 4.03 per cent. SGReit's management revealed that the proceeds from the divestment will be used to repay its yen loans as well as for working capital purposes. As a result, its gearing will drop marginally by 0.3 per cent to 28.7 per cent.
In our estimation, Holon is one of the smaller assets that SGReit owns in Japan, accounting for about 9.3 per cent of the NLA (net lettable area) of its Japan portfolio and 0.4 per cent of the Reit's total NLA. In addition, in our estimation, $500,000 of income is lost as a result of this divestment, leading to DPU declines of about 0.2 per cent for FY14 and FY15, respectively. Moreover, as the proceeds from the divestment are used to pay down SGReit's yen loans, the impact of the yen's devaluation on this transaction is minimal. Looking back, this is the second sale of its assets in Japan. We believe that SGReit's management is committed to focusing its strength on a few key markets. There could thus be more portfolio divestments in the offing.
Given that the impact of this sale on SGReit's earnings is minimal, we keep our "hold" rating with an unchanged dividend discount model-based target price of 80 cents.
HOLD
Yangzijiang
DMG & PARTNERS RESEARCH, March 20
YZJ has been accredited a "High/New Technology Enterprise" (HNTE), which will reduce its tax rate from the prevailing 25 per cent corporate rate to a preferential rate of 15 per cent. We had earlier flagged this as a likely development, given YZJ's market-leading position in building 10,000-TEU vessels, offshore assets and eco-friendly vessels, on top of its vessel-design capabilities.
The stock again oversold on margin fears and the chairman's potential retirement in three years. YZJ's stock was sold down after its Q413 results owing to:
- the high tax rates in Q413;
- high-margin vessels having been delivered; and
- indications from chairman Ren Yuanlin that he will retire in three years.
We note that YZJ's margins have consistently outperformed street expectations, and that the currently full utilisation at its yards will enhance margins. Meanwhile, vessel prices have risen 15-20 per cent y-o-y while steel prices have been on a downtrend.
Investors were also concerned about the default risks in Chinese property companies, to which YZJ lends 44 per cent of its held-to-maturity (HTM) portfolio. We see two risk-mitigation factors:
- Sixty four per cent of its overall collateral is in land and only 9 per cent in shares (which may not be shares in property developers); and u the coverage ratio for land is 3.2 times.
We believe that the company can easily recover its principal plus interest via sale of the land at a more than 50 per cent discount.
We continue to like YZJ for being the strongest shipbuilder in China in a recovering industry.
Other near-term catalysts are:
- exercising options for 10,000-TEU containerships, which will boost utilisation and support margins; and
- receipt of deposits for two semi-submersible rigs, making the contracts effective.
Maintain "buy", with higher $1.58 target price (from $1.55), raising the shipbuilding multiple to 9.5 times versus nine times in our sum-of-parts valuation.
BUY
Land Transport Sector
Kim Eng on 21 Mar 2014
Details on transition lacking, SMRT more exposed
Other than the operating assets of the North South East West Line, which are owned by SMRT, all other rail assets are held on LTA’s balance sheet. Under the old regime, rail operators are required to
purchase them from the LTA in the future. We estimate these assets to be worth SGD2.4–3.1b as of 31 Mar 2013.
While the transition to a sustainable operating model is a positive move for the industry, the devil is in the details. The lack of clarity on the transition details convinces us that it is highly speculative to conclude that the terms will be favourable to shareholders. In particular, the treatment of rail assets owned and asset purchase obligations of the operators will have a profound impact on their profitability. In our view, the price at which assets are to be sold to LTA and future licensing charges are two key parameters to watch. As the largest rail operator, SMRT is highly exposed to the uncertainty surrounding the transition terms. We are less worried about ComfortDelGro (CDG), as its exposure is limited to its stake in SBS Transit or SBST (7% of market cap). Besides, SBST’s exposure is smaller because 1) DTL is already on the NRF framework, and 2) its purchase obligations are likely to be lower due to accumulated depreciation since 2003. Maintain SELL on SMRT and BUY on CDG.
- Imminent move to a sustainable rail operating model but details on transition terms lacking.
- Treatment of rail assets owned and operators’ asset purchase obligations are key obstacles to the transition in our view.
- Maintain SELL on SMRT; retain BUY on ComfortDelGro.
Details on transition lacking, SMRT more exposed
Other than the operating assets of the North South East West Line, which are owned by SMRT, all other rail assets are held on LTA’s balance sheet. Under the old regime, rail operators are required to
purchase them from the LTA in the future. We estimate these assets to be worth SGD2.4–3.1b as of 31 Mar 2013.
While the transition to a sustainable operating model is a positive move for the industry, the devil is in the details. The lack of clarity on the transition details convinces us that it is highly speculative to conclude that the terms will be favourable to shareholders. In particular, the treatment of rail assets owned and asset purchase obligations of the operators will have a profound impact on their profitability. In our view, the price at which assets are to be sold to LTA and future licensing charges are two key parameters to watch. As the largest rail operator, SMRT is highly exposed to the uncertainty surrounding the transition terms. We are less worried about ComfortDelGro (CDG), as its exposure is limited to its stake in SBS Transit or SBST (7% of market cap). Besides, SBST’s exposure is smaller because 1) DTL is already on the NRF framework, and 2) its purchase obligations are likely to be lower due to accumulated depreciation since 2003. Maintain SELL on SMRT and BUY on CDG.
Thursday, 20 March 2014
United Overseas Bank
UOBKayhian on 20 Mar 2014
FY12 PB (x): 1.4
FY13 PB (x): 1.3
UOB Indonesia was formed through the merger of UOB Indonesia and UOB Buana in 2010. UOB Indonesia is well known for its focus on SMEs. It also has a corporate banking business, which offers treasury and cash management services. It specialises in providing trade-related products and services for its SME and corporate customers. A premier SME bank. UOB Indonesia derives 87.5% of its total loans from the Corporate & Institutional Banking segment. Segmentation for Corporate & Institutional Banking is granular. SMEs with loan quantum of below Rp1.5t are classified under Business Banking. SMEs with loan quantum from Rp1.5t to Rp5t are classified under Commercial Banking. SMEs accounted for 76.2% of loans for Corporate & Institutional Banking. UOB Indonesia’s personal banking business is small and comprises mainly mortgages (72.1% of personal banking loans). It partners prominent developers, such as Alam Sutera, Ciputra Group, Summarecon Agung, Agung Podomoro Land and Keppel Land, to provide mortgages to home buyers.
Working to improve productivity at branches. UOB Indonesia has 213 branches (41 branches and 172 sub-branches) and 173 ATMs across 30 cities. There are no plans to increase the number of branches. Management intends to rationalise and reposition its branch network to improve productivity. It is interesting to note that the limited number of ATMs indicates that some branches do not have ATMs. Cost-to-income ratio (CIR) was largely unchanged over the past five years and stood at 60.8% in 2013. Net interest income accounted for 70.2% of total income in 2013 (OCBC NISP: 78.1%) due to attractive net interest margin (NIM) of 4.7%. UOB Indonesia has higher NIM (OCBC NISP: 4.1%) due to its focus on SMEs. According to management, the bulk of non-interest income comes from loans, trade finance and treasury products. Weak deposit franchise. Blended loan-to-deposit ratio (LDR) has improved from 95.6% to 89.8%, with customer deposits expanding 23.6% in 2013. Unfortunately, UOB Indonesia’s CASA (low-cost funds) ratio was only 26% (OCBC NISP: 45%). It plans to invest in a cash management system and internet banking to gather current accounts from SME and corporate customers, thus improving its CASA ratio. Pressure on margins. UOB Indonesia has experienced margin pressure over the past six months as interest rates rise. NIM has compressed by 60bp to 4.69% in 2013 as deposit rates rose faster than lending rates. UOB Indonesia targets to achieve loan growth of 21% in 2014, driven by SMEs. Management expects NIM to be lower but foresees a slight improvement in CIR.
Stable contribution from Indonesia. Contribution from UOB Indonesia has stayed relatively unchanged at 5% of group pre-tax profit over the past five years. UOB Indonesia achieved 5-year compounded annual loan growth of 11.8% but CIR remained elevated 60.8%. Singapore is the mainstay, contributing 60.9% of group pretax profit in 2013.
FY12 PB (x): 1.4
FY13 PB (x): 1.3
UOB Indonesia was formed through the merger of UOB Indonesia and UOB Buana in 2010. UOB Indonesia is well known for its focus on SMEs. It also has a corporate banking business, which offers treasury and cash management services. It specialises in providing trade-related products and services for its SME and corporate customers. A premier SME bank. UOB Indonesia derives 87.5% of its total loans from the Corporate & Institutional Banking segment. Segmentation for Corporate & Institutional Banking is granular. SMEs with loan quantum of below Rp1.5t are classified under Business Banking. SMEs with loan quantum from Rp1.5t to Rp5t are classified under Commercial Banking. SMEs accounted for 76.2% of loans for Corporate & Institutional Banking. UOB Indonesia’s personal banking business is small and comprises mainly mortgages (72.1% of personal banking loans). It partners prominent developers, such as Alam Sutera, Ciputra Group, Summarecon Agung, Agung Podomoro Land and Keppel Land, to provide mortgages to home buyers.
Working to improve productivity at branches. UOB Indonesia has 213 branches (41 branches and 172 sub-branches) and 173 ATMs across 30 cities. There are no plans to increase the number of branches. Management intends to rationalise and reposition its branch network to improve productivity. It is interesting to note that the limited number of ATMs indicates that some branches do not have ATMs. Cost-to-income ratio (CIR) was largely unchanged over the past five years and stood at 60.8% in 2013. Net interest income accounted for 70.2% of total income in 2013 (OCBC NISP: 78.1%) due to attractive net interest margin (NIM) of 4.7%. UOB Indonesia has higher NIM (OCBC NISP: 4.1%) due to its focus on SMEs. According to management, the bulk of non-interest income comes from loans, trade finance and treasury products. Weak deposit franchise. Blended loan-to-deposit ratio (LDR) has improved from 95.6% to 89.8%, with customer deposits expanding 23.6% in 2013. Unfortunately, UOB Indonesia’s CASA (low-cost funds) ratio was only 26% (OCBC NISP: 45%). It plans to invest in a cash management system and internet banking to gather current accounts from SME and corporate customers, thus improving its CASA ratio. Pressure on margins. UOB Indonesia has experienced margin pressure over the past six months as interest rates rise. NIM has compressed by 60bp to 4.69% in 2013 as deposit rates rose faster than lending rates. UOB Indonesia targets to achieve loan growth of 21% in 2014, driven by SMEs. Management expects NIM to be lower but foresees a slight improvement in CIR.
Stable contribution from Indonesia. Contribution from UOB Indonesia has stayed relatively unchanged at 5% of group pre-tax profit over the past five years. UOB Indonesia achieved 5-year compounded annual loan growth of 11.8% but CIR remained elevated 60.8%. Singapore is the mainstay, contributing 60.9% of group pretax profit in 2013.
Suntec Reit
OCBC on 20 Mar 2014
Suntec REIT announced yesterday that it will be issuing 218.1m new units at S$1.605 apiece via a private placement. The move came as a surprise to us as Suntec REIT had explicitly expressed that it has sufficient resources to fund its growth plans just a quarter ago, and that it was trading at a 21% discount to book value. According to management, the current intention is to use the proceeds to repay its existing debt, which is likely to reduce its debt burden and aggregate leverage. However, given the change in stance, we believe that Suntec REIT may possibly be beefing up its financial strength for potential growth opportunities in the near term. We maintain BUY with a revised fair value of S$1.85 (S$1.90 previously) on Suntec REIT.
Private placement of 218.1m new units
Suntec REIT announced yesterday that it will be issuing 218.1m new units at S$1.605 apiece following the close of the private placement to institutional and other investors. The issue price is nearer to the upper end of the range of S$1.575-S$1.615 proposed during the launch of placement, and represents a discount of 4.7% to the VWAP on 18 Mar (before placement announcement). ~S$341.4m in net proceeds will be raised, after deducting the expenses relating to the cash call, while the unit base is expected to increase by 9.6% with the issue of new units (expected on 27 Mar).
Strengthen balance sheet and position for growth
The move came as a surprise to us as Suntec REIT had explicitly expressed that it has sufficient resources to fund its growth plans just a quarter ago, and that it was trading at a 21% discount to book value. According to management, the current intention is to use the proceeds to repay its existing debt, which is likely to reduce its debt burden and aggregate leverage from 39.1% as at 31 Dec 2013 to 35.0%. However, given the change in stance, we believe that Suntec REIT may possibly be beefing up its financial strength for potential growth opportunities in the near term. In any case, we note that Suntec REIT will no longer have any refinancing needs until 2015 after the completion of the placement and refinancing of the loan due in Jun 2014, and that the weighted average debt duration will improve from 2.4 years to 3.6 years.
Maintain BUY with lower fair value of S$1.85
In connection with the placement, Suntec REIT also intends to make an advanced distribution of ~2.096 S cents/unit for the period from 1 Jan to 26 Mar 2014 (being the day prior to the issue of new units). With just five days to the quarter close, this seems to show that Suntec REIT’s performance is only moderately affected by the concurrent close of Phases 2 and 3 spaces of Suntec City in 1Q14. We lower our fair value slightly from S$1.90 to S$1.85 after factoring the enlarged unit base and lower finance costs due to debt repayment. Maintain BUY on Suntec REIT as upside potential remains attractive.
Suntec REIT announced yesterday that it will be issuing 218.1m new units at S$1.605 apiece following the close of the private placement to institutional and other investors. The issue price is nearer to the upper end of the range of S$1.575-S$1.615 proposed during the launch of placement, and represents a discount of 4.7% to the VWAP on 18 Mar (before placement announcement). ~S$341.4m in net proceeds will be raised, after deducting the expenses relating to the cash call, while the unit base is expected to increase by 9.6% with the issue of new units (expected on 27 Mar).
Strengthen balance sheet and position for growth
The move came as a surprise to us as Suntec REIT had explicitly expressed that it has sufficient resources to fund its growth plans just a quarter ago, and that it was trading at a 21% discount to book value. According to management, the current intention is to use the proceeds to repay its existing debt, which is likely to reduce its debt burden and aggregate leverage from 39.1% as at 31 Dec 2013 to 35.0%. However, given the change in stance, we believe that Suntec REIT may possibly be beefing up its financial strength for potential growth opportunities in the near term. In any case, we note that Suntec REIT will no longer have any refinancing needs until 2015 after the completion of the placement and refinancing of the loan due in Jun 2014, and that the weighted average debt duration will improve from 2.4 years to 3.6 years.
Maintain BUY with lower fair value of S$1.85
In connection with the placement, Suntec REIT also intends to make an advanced distribution of ~2.096 S cents/unit for the period from 1 Jan to 26 Mar 2014 (being the day prior to the issue of new units). With just five days to the quarter close, this seems to show that Suntec REIT’s performance is only moderately affected by the concurrent close of Phases 2 and 3 spaces of Suntec City in 1Q14. We lower our fair value slightly from S$1.90 to S$1.85 after factoring the enlarged unit base and lower finance costs due to debt repayment. Maintain BUY on Suntec REIT as upside potential remains attractive.
Singtel
OCBC on 19 Mar 2014
SingTel has recently won the 2014 FIFA World Cup Brazil broadcast rights on an exclusive basis, meaning it will have to cross carry the content of the month-long tournament with rival StarHub. The standalone pricing for the World Cup 2014 will be S$105 (before GST) for both mio TV and StarHub customers. But SingTel will offer the World Cup for free to customers who either sign up or recontract with mio TV for mio Stadium+ or Gold Pack packages (with a two-year lock-in period). We understand that StarHub customers with existing BPL contracts are also eligible for the free offer if they extend their contracts. In any case, we do not expect the event to have much of an impact on SingTel’s FY14 performance. For now, we continue to maintain our BUY rating on the stock with an unchanged fair value of S$3.74.
Secures 2014 FIFA World Cup on exclusive basis
SingTel has recently won the 2014 FIFA World Cup Brazil broadcast rights on an exclusive basis. This means that it will have to cross carry the content of the month-long tournament with rival StarHub. SingTel said it has also finalized a deal to share the World Cup through free-to-air coverage for key matches (opening, both semi-finals, and the final). SingTel said it is working with the People’s Association (PA) to bring the matches to community centres and is still working out the number of matches.
Prices package at S$105 before GST
The standalone pricing for the World Cup 2014 will be S$105 (before GST) for both mio TV and StarHub customers. Recall that way back in 2006, StarHub offered the World Cup package at S$15.75 (Sports Group customers) and S$26.25 (for those not on Sports Group). And when both SingTel and StarHub jointly won the bid in 2008, the subscription was S$88. Not surprisingly, the hefty increase has drawn some outcry from football fans.
“Free” for those extending contracts
But SingTel will offer the World Cup for free to customers who either sign up or recontract with mio TV for mio Stadium+ or Gold Pack packages (with a two-year lock-in period). We understand that StarHub customers with existing BPL contracts are also eligible for the free offer if they extend their contracts. However, StarHub has questioned the move, saying that the offer “sets a precedent for operators to acquire exclusive content at high prices to lock customers into extended contracts, which runs counter to the cross-carriage regime's objectives."
Maintain BUY with S$3.74 FV
In any case, we do not expect the event to have much of an impact on SingTel’s FY14 performance. For now, we continue to maintain our BUY rating on the stock with an unchanged fair value of S$3.74.
SingTel has recently won the 2014 FIFA World Cup Brazil broadcast rights on an exclusive basis. This means that it will have to cross carry the content of the month-long tournament with rival StarHub. SingTel said it has also finalized a deal to share the World Cup through free-to-air coverage for key matches (opening, both semi-finals, and the final). SingTel said it is working with the People’s Association (PA) to bring the matches to community centres and is still working out the number of matches.
Prices package at S$105 before GST
The standalone pricing for the World Cup 2014 will be S$105 (before GST) for both mio TV and StarHub customers. Recall that way back in 2006, StarHub offered the World Cup package at S$15.75 (Sports Group customers) and S$26.25 (for those not on Sports Group). And when both SingTel and StarHub jointly won the bid in 2008, the subscription was S$88. Not surprisingly, the hefty increase has drawn some outcry from football fans.
“Free” for those extending contracts
But SingTel will offer the World Cup for free to customers who either sign up or recontract with mio TV for mio Stadium+ or Gold Pack packages (with a two-year lock-in period). We understand that StarHub customers with existing BPL contracts are also eligible for the free offer if they extend their contracts. However, StarHub has questioned the move, saying that the offer “sets a precedent for operators to acquire exclusive content at high prices to lock customers into extended contracts, which runs counter to the cross-carriage regime's objectives."
Maintain BUY with S$3.74 FV
In any case, we do not expect the event to have much of an impact on SingTel’s FY14 performance. For now, we continue to maintain our BUY rating on the stock with an unchanged fair value of S$3.74.
Ezion Holdings
Kim Eng on 20 Mar 2014
Gulf Marine Services’ (GMS) recent listing in London suggests Ezion is still attractively priced. Given the infancy of liftboat adoption in Asia and the Middle East, where penetration rate is still low, we believe worries about the prospect of competition are unfounded. Ezion, as the first mover into the market and the largest player in Southeast Asia, has been creating its own demand and would continue to do so as it expands its sphere of influence.
What’s Our View
We see an increase in penetration rate as one of the key drivers of growth in regional liftboat demand. Our analysis shows that every 1ppt rise in penetration rate in 2020 would result in incremental demand for five more liftboats. This is on top of the 36 units that would be required from 2013 to 2020 as a result of organic growth in offshore oil platforms, assuming a conservative and fixed penetration rate of 24%. In our view, more entrants into the liftboat market would induce wider adoption, providing net benefits for Ezion.
Recently listed Abu Dhabi-based liftboat player, GMS, last traded at implied valuations of about 11.7x FY14E P/E and 2.5x FY14E P/BV. Ezion still looks relatively more attractive in comparison. And with the latter’s share price at 13% off its high of SGD2.43 on 22 Jan 2014, we think the time is ripe to accumulate the stock. We adjust our FY14E/15E net profit by -3%/+6% on changes to contract start dates and introduce FY16E forecasts. Reiterate BUY with a lower TP of SGD2.90 (from SGD3.00), pegged at 13x FY14E P/E.
- Listing of Gulf Marine Services further affirms attractiveness of Ezion’s valuation. Reiterate BUY with TP trimmed to SGD2.90 on contract schedule adjustments.
- Liftboat market remains underpenetrated outside the Gulf of Mexico, especially in Southeast Asia.
- New entrants and competition would induce higher liftboat adoption rate, providing net benefits for Ezion.
Gulf Marine Services’ (GMS) recent listing in London suggests Ezion is still attractively priced. Given the infancy of liftboat adoption in Asia and the Middle East, where penetration rate is still low, we believe worries about the prospect of competition are unfounded. Ezion, as the first mover into the market and the largest player in Southeast Asia, has been creating its own demand and would continue to do so as it expands its sphere of influence.
What’s Our View
We see an increase in penetration rate as one of the key drivers of growth in regional liftboat demand. Our analysis shows that every 1ppt rise in penetration rate in 2020 would result in incremental demand for five more liftboats. This is on top of the 36 units that would be required from 2013 to 2020 as a result of organic growth in offshore oil platforms, assuming a conservative and fixed penetration rate of 24%. In our view, more entrants into the liftboat market would induce wider adoption, providing net benefits for Ezion.
Recently listed Abu Dhabi-based liftboat player, GMS, last traded at implied valuations of about 11.7x FY14E P/E and 2.5x FY14E P/BV. Ezion still looks relatively more attractive in comparison. And with the latter’s share price at 13% off its high of SGD2.43 on 22 Jan 2014, we think the time is ripe to accumulate the stock. We adjust our FY14E/15E net profit by -3%/+6% on changes to contract start dates and introduce FY16E forecasts. Reiterate BUY with a lower TP of SGD2.90 (from SGD3.00), pegged at 13x FY14E P/E.
Wednesday, 19 March 2014
Suntec REIT
UOBKayhian on 19 Mar 2014
FY14F DPU (S$ cent): 9.8
FY15F DPU (S$ cent): 10.7
Private placement to raise S$350m. Suntec REIT has announced a private placement of 216.7m -222.2m new units at an issue price of S$1.575-1.615 per new unit to raise gross proceeds of S$350m. Net proceeds will amount to S$341m after fees, based on the maximum price. Lead managers and underwriters are DBS Bank, Standard Chartered and HSBC. Issue price at 4.1-6.5% discount to the VWAP of S$1.6839 per unit on 18 March. The new units will increase the number of units in issue by at least 9.6% from 2,270.5m units in issue as at 31 Dec 13. Management has also indicated that there is also an option to further upsize the placement. Estimated advanced distribution of 2.096 S cents for current unitholders for the period from 1 Jan 14 to 26 Mar 14, prior to the issue of new units. The next distribution will comprise Suntec REIT's distributable income from 27 Mar 2014 to 31 Mar 2014.
Maintain BUY with an unchanged target price of S$2.12 based on DDM (required rate of return: 7.1%, terminal growth: 2.2%). We maintain our estimates pending further details on the placement and acquisitions. Key risk would be DPU dilution (3.9-4.9%) from the additional units in issue if acquisitions are delayed.
FY14F DPU (S$ cent): 9.8
FY15F DPU (S$ cent): 10.7
Private placement to raise S$350m. Suntec REIT has announced a private placement of 216.7m -222.2m new units at an issue price of S$1.575-1.615 per new unit to raise gross proceeds of S$350m. Net proceeds will amount to S$341m after fees, based on the maximum price. Lead managers and underwriters are DBS Bank, Standard Chartered and HSBC. Issue price at 4.1-6.5% discount to the VWAP of S$1.6839 per unit on 18 March. The new units will increase the number of units in issue by at least 9.6% from 2,270.5m units in issue as at 31 Dec 13. Management has also indicated that there is also an option to further upsize the placement. Estimated advanced distribution of 2.096 S cents for current unitholders for the period from 1 Jan 14 to 26 Mar 14, prior to the issue of new units. The next distribution will comprise Suntec REIT's distributable income from 27 Mar 2014 to 31 Mar 2014.
Maintain BUY with an unchanged target price of S$2.12 based on DDM (required rate of return: 7.1%, terminal growth: 2.2%). We maintain our estimates pending further details on the placement and acquisitions. Key risk would be DPU dilution (3.9-4.9%) from the additional units in issue if acquisitions are delayed.
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