UOBKayhian on 30 June 2014
FY14F PE (x): 27.1
FY15F PE (x): 24.4
Championing a low-cost e-commerce model. Singapore Post’s (SingPost) fullyintegrated
end-to-end e-commerce solutions provide an avenue for local and global
brands to grow their online businesses easily and quickly. Through SP eCommerce,
the group offers B2B4C solutions that include website development and content
management, logistics solutions and support services. Management believes this
helps customers avoid major capital outlays in technology and delivery infrastructure,
and alleviates the difficulty of navigating local customs requirements and transactionrelated
risks. Regional ramp-up would also be more efficient, given SingPost’s existing
network.
No change to our earnings model. We expect faster growth in e-commerce-related
activities to offset near-term dilution. We project a 3-year net profit CAGR of 9%. We
see more upside from a JV with Alibaba and M&As.
Downgrade to HOLD with target price at S$1.73, based on a 3-stage DCF model.
SingPost is now trading at an implied FY16F PE of 24.4x, between the sector
averages for traditional postal and logistics operators (22.7x) and e-commerce-related
players (29.1x). We think the re-rating is justified and view the stock as fairly valued. At
this juncture, we wait for more clarity on the proposed collaboration with Alibaba. Entry
price is S$1.50.
Monday, 30 June 2014
Overseas Education Ltd
Kim Eng on 30 June 2014
Our checks reveal that the bigger international schools in Singapore still experience high demand. Admissions for the 2014/15 academic year are either full or have limited seats left. Supply of preschool seats is running particularly low. New entrant GEMS still has 900 seats available at its new school in Yishun (to open this August). The other new entrant Dulwich (500 seats), with a more convenient location in Bukit Batok, is filling up fast. With most of the smaller schools showing availability, we believe the new entrants could be drawing students from them and are not threatening the larger and more established schools such as Overseas Education Ltd (OEL).
Iskandar Malaysia not an option for everyone
The two most prominent international schools in the Iskandar region that Singapore-based parents can send their children to are Marlborough College and the upcoming Raffles American School (RAS). The all-in costs to attend Marlborough and RAS are equally if not more expensive than Singapore’s international schools. The travelling time that could consume up to two hours per day is hardly appealing. Students can board at the schools but that is only possible for ninth graders and above. In addition, RAS offers an American curriculum only, which only appeals to someone with
American universities in mind. Seri Omega is the other large international school in Johor and it has a predominantly Malaysian student base (90%), while the rest are small with 60-300 students.
- International schools in Singapore still enjoy tight placements despite two new entrants - Dulwich and GEMS - this year.
- Maintain BUY with DCF-derived TP of SGD1.40.
- We think Dulwich and GEMS are drawing students from smaller schools. The larger schools are not affected.
- The international schools in Iskandar may only appeal to asmall segment given cost and travel constraints.
Our checks reveal that the bigger international schools in Singapore still experience high demand. Admissions for the 2014/15 academic year are either full or have limited seats left. Supply of preschool seats is running particularly low. New entrant GEMS still has 900 seats available at its new school in Yishun (to open this August). The other new entrant Dulwich (500 seats), with a more convenient location in Bukit Batok, is filling up fast. With most of the smaller schools showing availability, we believe the new entrants could be drawing students from them and are not threatening the larger and more established schools such as Overseas Education Ltd (OEL).
Iskandar Malaysia not an option for everyone
The two most prominent international schools in the Iskandar region that Singapore-based parents can send their children to are Marlborough College and the upcoming Raffles American School (RAS). The all-in costs to attend Marlborough and RAS are equally if not more expensive than Singapore’s international schools. The travelling time that could consume up to two hours per day is hardly appealing. Students can board at the schools but that is only possible for ninth graders and above. In addition, RAS offers an American curriculum only, which only appeals to someone with
American universities in mind. Seri Omega is the other large international school in Johor and it has a predominantly Malaysian student base (90%), while the rest are small with 60-300 students.
Friday, 27 June 2014
Yoma Strategic Holdings
OCBC on 27 June 2014
Yoma announced that it would raise S$92.8m (net) through a private placement of 135m new shares at 70 S-cents. These new shares will make up ~10.45% of the enlarged issued and paid-up capital, and Yoma intends to use the proceeds to help fund the growth and expansions of the group’s various businesses. The group has also recently been offered the right to acquire a 70% stake in 10.8m sq ft of land in Pun Hlaing Golf Estate (PHGE), comprising 9.6m sq ft of golf course and country club and 1.2m sq ft of land development rights (LDR). Assuming that this proposed acquisition is approved by shareholders, the recently proposed rights of 1 for every 8 shares at S$0.38 would likely be revised to 1 for every 3 shares. Note that the new placement shares will also eligible for the proposed rights issue ahead. Maintain BUY on Yoma; our fair value dips slightly to S$0.82, from S$0.85 previously, from the effect of dilution after the recent placement.
Private placement of 135m shares at 70 S-cents
Yoma announced that it would raise S$92.8m (net) through a private placement of 135m new shares at 70 S-cents. These new shares will make up ~10.45% of the enlarged issued and paid-up capital, and Yoma intends to use the proceeds to help fund the growth and expansions of the group’s various businesses in real estate, telecommunications, automotive, agriculture and logistics. The price of 70 S-cents represents an 8.4% discount to the VWAP of 76.42 S-cents on 25 Jun 2014. Note that these new placement shares will also eligible for the proposed rights issue ahead.
Right of first refusal to acquire 70% of Pun Hlaing Golf and Land
The group has also recently been offered the right to acquire a 70% stake in 10.8m sq ft of land in Pun Hlaing Golf Estate (PHGE). This comprises 9.6m sq ft of golf course and country club and also 1.2m sq ft of land development rights (LDR). Note that this is separate from the 7.7m sq ft of LDR in PHGE that Yoma acquired in 2006, of which 4.6m sq ft is still unsold. Yoma estimates that the offered land is worth US$100m (100% basis), and will have 30 days to indicate interest and a further 30 days to confirm acceptance. Assuming that this proposed acquisition is approved by shareholders, the recently proposed rights of 1 for every 8 shares at S$0.38 would likely be revised to 1 for every 3 shares.
Fair value dips to S$0.82 from dilution effect of placement
We were not overly surprised by the placement due to the need for capex on the Landmark site and various businesses ahead, especially since raising cash through presales of Landmark’s residential component will be challenging without a lease extension to a 50+10+10 structure. Maintain BUY on Yoma; our fair value dips slightly to S$0.82, from S$0.85 previously, from the effect of dilution after the recent placement.
Yoma announced that it would raise S$92.8m (net) through a private placement of 135m new shares at 70 S-cents. These new shares will make up ~10.45% of the enlarged issued and paid-up capital, and Yoma intends to use the proceeds to help fund the growth and expansions of the group’s various businesses in real estate, telecommunications, automotive, agriculture and logistics. The price of 70 S-cents represents an 8.4% discount to the VWAP of 76.42 S-cents on 25 Jun 2014. Note that these new placement shares will also eligible for the proposed rights issue ahead.
Right of first refusal to acquire 70% of Pun Hlaing Golf and Land
The group has also recently been offered the right to acquire a 70% stake in 10.8m sq ft of land in Pun Hlaing Golf Estate (PHGE). This comprises 9.6m sq ft of golf course and country club and also 1.2m sq ft of land development rights (LDR). Note that this is separate from the 7.7m sq ft of LDR in PHGE that Yoma acquired in 2006, of which 4.6m sq ft is still unsold. Yoma estimates that the offered land is worth US$100m (100% basis), and will have 30 days to indicate interest and a further 30 days to confirm acceptance. Assuming that this proposed acquisition is approved by shareholders, the recently proposed rights of 1 for every 8 shares at S$0.38 would likely be revised to 1 for every 3 shares.
Fair value dips to S$0.82 from dilution effect of placement
We were not overly surprised by the placement due to the need for capex on the Landmark site and various businesses ahead, especially since raising cash through presales of Landmark’s residential component will be challenging without a lease extension to a 50+10+10 structure. Maintain BUY on Yoma; our fair value dips slightly to S$0.82, from S$0.85 previously, from the effect of dilution after the recent placement.
Ascendas REIT
OCBC on 27 June 2014
Ascendas REIT (A-REIT) yesterday proposed to acquire Hyflux Innovation Centre from Singapore-listed Hyflux Ltd’s subsidiary for S$170.0m. An upfront land premium of S$21.2m will be payable to JTC, thus bringing the total purchase consideration to S$191.2m. At 100% occupancy, the acquisition is expected to generate an initial NPI yield of 6.98% and add an annualised 0.118 S cents to A-REIT’s pro forma FY14 DPU, assuming the acquisition was funded by 40% debt and 60% equity. Apart from being DPU-accretive, we note that the acquisition would improve the portfolio weighted average lease to expiry from 3.85 years to 3.96 years as well as broaden its tenant base – a move that we view positively given the overall lacklustre industrial market. We maintain BUY on A-REIT with unchanged fair value of S$2.45.
Acquisition of high-spec building
Ascendas REIT (A-REIT) yesterday proposed to acquire Hyflux Innovation Centre from Singapore-listed Hyflux Ltd’s subsidiary for S$170.0m. An upfront land premium of S$21.2m will be payable to JTC, thus bringing the total purchase consideration to S$191.2m. Upon completion of the acquisition (expected on 30 Jun 2014), Hyflux and Hydrochem Pte Ltd will collectively lease back ~50% of the property’s GFA for 15 years, with the other existing third-party tenants to be assigned to A-REIT. We note that the property currently has an occupancy rate of 83.9%, and includes tenants such as Hyflux, NEC, Covidien Pte Ltd, American Express and Renesas Electronics Singapore.
Details on the deal
Hyflux Innovation Centre is a 10-storey high-spec building with a basement and surface car park, and is valued at S$197.0m by DTZ Debenham Tie Leung (SEA) Pte Ltd. Located within the Kallang Industrial Estate, the property is within walking distance to Boon Keng MRT station and is also easily accessible to other parts of Singapore via expressways. We understand that Hyflux will provide rental support for the remaining vacant space (16.1%) for three years. At 100% occupancy, the acquisition is expected to generate an initial NPI yield of 6.98%. According to management guidance, the new addition is estimated to add an annualised 0.118 S cents to A-REIT’s pro forma FY14 DPU, assuming the acquisition was funded by 40% debt and 60% equity.
Maintain BUY
Apart from being DPU-accretive, we note that the acquisition would improve the portfolio weighted average lease to expiry from 3.85 years to 3.96 years as well as broaden its tenant base – a move that we view positively given the overall lacklustre industrial market. We now factor in the acquisition into our forecasts and update our model assumptions. Our fair value remains intact at S$2.45. Retain BUY on A-REIT.
Ascendas REIT (A-REIT) yesterday proposed to acquire Hyflux Innovation Centre from Singapore-listed Hyflux Ltd’s subsidiary for S$170.0m. An upfront land premium of S$21.2m will be payable to JTC, thus bringing the total purchase consideration to S$191.2m. Upon completion of the acquisition (expected on 30 Jun 2014), Hyflux and Hydrochem Pte Ltd will collectively lease back ~50% of the property’s GFA for 15 years, with the other existing third-party tenants to be assigned to A-REIT. We note that the property currently has an occupancy rate of 83.9%, and includes tenants such as Hyflux, NEC, Covidien Pte Ltd, American Express and Renesas Electronics Singapore.
Details on the deal
Hyflux Innovation Centre is a 10-storey high-spec building with a basement and surface car park, and is valued at S$197.0m by DTZ Debenham Tie Leung (SEA) Pte Ltd. Located within the Kallang Industrial Estate, the property is within walking distance to Boon Keng MRT station and is also easily accessible to other parts of Singapore via expressways. We understand that Hyflux will provide rental support for the remaining vacant space (16.1%) for three years. At 100% occupancy, the acquisition is expected to generate an initial NPI yield of 6.98%. According to management guidance, the new addition is estimated to add an annualised 0.118 S cents to A-REIT’s pro forma FY14 DPU, assuming the acquisition was funded by 40% debt and 60% equity.
Maintain BUY
Apart from being DPU-accretive, we note that the acquisition would improve the portfolio weighted average lease to expiry from 3.85 years to 3.96 years as well as broaden its tenant base – a move that we view positively given the overall lacklustre industrial market. We now factor in the acquisition into our forecasts and update our model assumptions. Our fair value remains intact at S$2.45. Retain BUY on A-REIT.
Triyards Holdings
UOBKayhian on 27 June 2014
FY14F PE (x): 5.7
FY15F PE (x): 6.5
Advanced negotiations to secure two lift-boat contracts from US-based liftboat players.
Management updated that it is currently in various stages of discussion for 8-10 liftboat
enquiries, of which 2 of them are in advanced negotiations. The liftboat enquiries are
from various geographical markets like the US, Middle East, Malaysia and Singapore.
Of the enquiries, management remains optimistic on securing two orders from leading
US based liftboat operators, who are keen to penetrate into Asian liftboat markets. The
liftboat contracts, if secured, are expected to be worth US$80m-100m (excluding
owner- furnished equipments).
Awaiting contract wins to boost its falling orderbook. Triyards’s current orderbook
stands at US$130m-140m (excluding US$25m for Lewek constellation), down from
US$217m at the beginning of FY14 as contract wins have not kept pace with reducing
orderbook. Management noted that one reason for the delay in contract wins is due to
longer time-frame taken by owner operators to finalise design considerations before
placing orders. Ytd, Triyards has secured US$67m worth of orders lagging our full-year
expectations of US$300m.
Maintain BUY with a lower target price of S$0.82 (previously S$0.86), pegged at 1.0x
FY15F P/B, which is at a 60% discount to the long-term 1-year forward P/B mean of
1.66x for the OSV-shipyard segment of the offshore & marine sector. In our view, a P/B
valuation methodology is more appropriate than PE as Triyards’s current earnings do
not reflect the potential of its proprietary SEU designs.
FY14F PE (x): 5.7
FY15F PE (x): 6.5
Advanced negotiations to secure two lift-boat contracts from US-based liftboat players.
Management updated that it is currently in various stages of discussion for 8-10 liftboat
enquiries, of which 2 of them are in advanced negotiations. The liftboat enquiries are
from various geographical markets like the US, Middle East, Malaysia and Singapore.
Of the enquiries, management remains optimistic on securing two orders from leading
US based liftboat operators, who are keen to penetrate into Asian liftboat markets. The
liftboat contracts, if secured, are expected to be worth US$80m-100m (excluding
owner- furnished equipments).
Awaiting contract wins to boost its falling orderbook. Triyards’s current orderbook
stands at US$130m-140m (excluding US$25m for Lewek constellation), down from
US$217m at the beginning of FY14 as contract wins have not kept pace with reducing
orderbook. Management noted that one reason for the delay in contract wins is due to
longer time-frame taken by owner operators to finalise design considerations before
placing orders. Ytd, Triyards has secured US$67m worth of orders lagging our full-year
expectations of US$300m.
Maintain BUY with a lower target price of S$0.82 (previously S$0.86), pegged at 1.0x
FY15F P/B, which is at a 60% discount to the long-term 1-year forward P/B mean of
1.66x for the OSV-shipyard segment of the offshore & marine sector. In our view, a P/B
valuation methodology is more appropriate than PE as Triyards’s current earnings do
not reflect the potential of its proprietary SEU designs.
OVERSEAS EDUCATION
UOBKayhian on 27 June 2014
VALUATION
VALUATION
- Maintain HOLD and target price of S$0.98, based on DCF model. The implied 2014F PE is 16x, vs peers’ average of 23x. We have adjusted our model to account for capitalised interest costs in 2Q14 until 1H15. Entry price is S$0.85.
- Tuition fees raised 6-10% for school year beginning Aug 14 and prekindergarten fees are raised by as much as 21%, based on our channel checks. We think this will mitigate the rise in personnel cost for fiscal year 2014 (1Q14: +6.9% yoy) mainly due to salary adjustments while growth in staff headcount is likely limited as student capacity utilisation is already maximised. Currently, Overseas Education’s (OEL) school fees are 17-30% below peers’ and we see room for the group to raise fees further.
- Financing costs to be capitalised initially until the new campus opens in 2H15. Thereafter, we estimate the group will recognise S$7.8m in annual interest expense for its 5.2% 5-year bond of S$150m issued in Apr 14. The fund-raising exercise keeps the development of the new campus on track and with this bond, we do not see the likelihood of an equity financing in the near term. The bond issuance translates into a net gearing of 33%, based on the group’s cash position as of end-Mar 14.
- Two new international schools to open in 2H14, namely GEMS World Academy in Yishun and Dulwich College (Singapore) in Bukit Batok. While it is too early to assess the potential impact from the increased competition, we reckon GEMS would pose a bigger threat to OEL, given the similarities in curriculum, educational thrust and size. Nonetheless, GEMS’ fees are 6-24% higher than OEL’s even with a 20% first-year discount, and 32-55% higher assuming regular fees. This supports our view that OEL remains very attractive in terms of pricing and has room for further hikes in tuition fees.
- Demand growth will still outpace capacity growth in the medium term as Singapore’s economic and social attractions remain highly regarded. Frost & Sullivan estimates foreign student population will grow at an 8.1% CAGR from 2011- 12 to 2015-16, or a total of 15,547 students. On the other hand, planned capacity expansion is only estimated at 7,500 students over the next 3-4 years.
- Key risks for OEL this year include: a) higher personnel expenses, b) execution risk, and c) increased competition.
DBS Group Holdings
Deutsche Bank Markets Research, June 25
DBS'S share price has underperformed the index by 4 per cent and its peer UOB by 7 per cent year to date. The underperformance is a reflection of higher uncertainty in mainland China, where DBS has higher exposure.
But the latest Q1-14 result should provide a better comfort level for investors; our recent study of DBS HK also suggests its HK operation remains on course for delivering sustainable growth. DBS remains our top pick among SG banks.
It has been noticeable in recent years that the HK operation has been a consistent earnings contributor to DBS and the transformation has continued to work well. The mortgage book in HK has contracted further to 15 per cent (27 per cent in FY07), with increased focus on trade finance lending (33 per cent versus 18 per cent in FY07). The fee income contribution still ranks the best among HK peers at 36 per cent of NII, with growing focus on the mass affluent/wealth management segment.
A recent consumer survey in HK has shown some banks cutting their branch exposure (including DBS), but we believe the magnitude of the cut to be part of DBS's strategy to transform into a more efficient bank.
Although its network has fallen to 51 (-15 per cent from FY11), profitability per branch has consistently improved to S$17 million/branch in FY13, making for a CAGR or compound annual growth rate of 21 per cent since 2009.
In fact, the profitability per branch is one of the highest among its domestic peers in HK.
Our preference is for DBS over UOB - UOB has its own concerns as well. UOB's NIM (net interest margin) fell 1bp q-o-q (versus a pick-up for DBS and OCBC).
Despite margin tapering in China, the margin outlook should be more resilient in HK and Singapore than in other Asean markets (such as Malaysia, Indonesia and Thailand), where UOB has 22 per cent lending exposure and may face higher vulnerability, with Malaysia and Thailand having among the highest household debt to gross domestic product in the region.
We continue to prefer DBS to UOB (Hold; S$22.42); it has a more compelling valuation (1.2x P/B vs. UOB's 1.4x 2014E P/B), owns the best CASA (current and savings account) franchise in Singapore, and is most positively geared to rising rates. We value DBS on GGM (Gordon growth model). The 12-month price target is S$19.50. Risks include asset quality risk in India and Indonesia or a harsh property price correction.
BUY
Ascendas REIT
Kim Eng on 26 June 2014
Ascendas REIT (AREIT) has just announced the proposed acquisition of Hyflux Innovation Centre for a total price of SGD191.2m (SGD507 psf), including an upfront land premium of SGD21.2m for the remaining 28.8 years land tenure. The transaction is expected to complete by month end. Hyflux will leaseback 50% of the GFA for 15 years and all existing third-party tenants (NEC, Covidien, American Express and Renesas Electronics Singapore) will be assigned to AREIT. As the largest tenant, Hyflux will retain naming rights for the property. The building has an existing occupancy rate of 83.9%. Hyflux will provide rental support for vacant space for the initial three years. Hyflux has stated that the capital gain for its HQ divestment, including rental support, is SGD84m.
Provides a negligible uplift to DPU
With 100% occupancy, the acquisition is expected to generate an NPI yield of 6.98% in the first year which is higher than AREIT’s 6.3% average NPI yield for FY3/14. We forecast an initial average passing rent of SGD3.84 psf/month (including rental support) and assume the acquisition to be fully debt-funded. This will raise A-REIT’s gearing from 30% as of 31 Mar to 31.5%. The acquisition is marginally yield-accretive. Reiterate BUY with an unchanged DDM-derived TP of SGD2.65 (cost of equity = 7%, Tg = 1%).
- Paying SGD191.2m (SGD507 psf), including an upfront land premium of SGD21.2m.
- Hyflux will provide rental support for vacant space for the initial three years.
- Accretion to DPU is negligible. Reiterate BUY with an unchanged TP of SGD2.65.
Ascendas REIT (AREIT) has just announced the proposed acquisition of Hyflux Innovation Centre for a total price of SGD191.2m (SGD507 psf), including an upfront land premium of SGD21.2m for the remaining 28.8 years land tenure. The transaction is expected to complete by month end. Hyflux will leaseback 50% of the GFA for 15 years and all existing third-party tenants (NEC, Covidien, American Express and Renesas Electronics Singapore) will be assigned to AREIT. As the largest tenant, Hyflux will retain naming rights for the property. The building has an existing occupancy rate of 83.9%. Hyflux will provide rental support for vacant space for the initial three years. Hyflux has stated that the capital gain for its HQ divestment, including rental support, is SGD84m.
Provides a negligible uplift to DPU
With 100% occupancy, the acquisition is expected to generate an NPI yield of 6.98% in the first year which is higher than AREIT’s 6.3% average NPI yield for FY3/14. We forecast an initial average passing rent of SGD3.84 psf/month (including rental support) and assume the acquisition to be fully debt-funded. This will raise A-REIT’s gearing from 30% as of 31 Mar to 31.5%. The acquisition is marginally yield-accretive. Reiterate BUY with an unchanged DDM-derived TP of SGD2.65 (cost of equity = 7%, Tg = 1%).
Mapletree Logistics Trust
OCBC on 26 June 2014
Mapletree Logistics Trust (MLT) recently proposed to acquire Daehwa Logistics Centre from vendor Daehwa Logistics Co Ltd. At a purchase consideration of KRW25.5b (~S$31.2m), the asset is expected to generate an initial NPI yield of 8.3%. Based on our projections, the new addition could add an annualized 0.05 S cents to MLT’s DPU. Looking ahead, we believe MLT may turn to the China assets from its sponsor’s pipeline for further growth. However, pending any new development, we only factor in the acquisition of Daehwa Logistics Centre for now. Our fair value remains unchanged at S$1.10. Maintain HOLD on valuation grounds.
Expanding footprint in South Korea
Mapletree Logistics Trust (MLT) recently proposed to acquire Daehwa Logistics Centre from vendor Daehwa Logistics Co Ltd. This represents MLT’s investment of the ninth property in South Korea. At a purchase consideration of KRW25.5b (~S$31.2m), the asset is expected to generate an initial NPI yield of 8.3%. MLT intends to fund the acquisition by debt, and expects the transaction to be completed by Jul 2014. Based on our projections, the new addition could add an annualized 0.05 S cents to MLT’s DPU. On the other hand, MLT’s gearing is likely to increase marginally from 33.3% as at 31 Mar to 33.8%.
Details on the new property
Daehwa Logistics Centre is a three-storey Grade A dry warehouse with a GFA of 25,600 sqm located in the prime logistics hub in Seoul. It was completed in Dec 2013, and boasts modern specifications such as a floor-to-ceiling height of 10m, floor loading capacity of 2.7 ton/sqm and direct ramp access to all three floors. At present, the warehouse facility is fully occupied by three quality tenants, namely eBay (one of world’s largest e-commerce companies), Acushnet (global golf equipment company) and vendor Daehwa (fast growing local logistics operator). The leases have a weighted average lease to expiry of 3.5 years with built-in annual rental escalations for 70% of the leased area.
Maintain HOLD
We note that the acquisition is consistent with management’s guidance in Apr that it was performing the due diligence for a potential purchase of a Korea-based property. It is also in line with MLT’s strategy to rebalance its portfolio towards South Korea and other higher growth markets. Looking ahead, we believe MLT may turn to the China assets from its sponsor’s pipeline for further growth. However, pending any new development, we only factor in the acquisition of Daehwa Logistics Centre for now. Our fair value remains unchanged at S$1.10. Maintain HOLD on valuation grounds.
Mapletree Logistics Trust (MLT) recently proposed to acquire Daehwa Logistics Centre from vendor Daehwa Logistics Co Ltd. This represents MLT’s investment of the ninth property in South Korea. At a purchase consideration of KRW25.5b (~S$31.2m), the asset is expected to generate an initial NPI yield of 8.3%. MLT intends to fund the acquisition by debt, and expects the transaction to be completed by Jul 2014. Based on our projections, the new addition could add an annualized 0.05 S cents to MLT’s DPU. On the other hand, MLT’s gearing is likely to increase marginally from 33.3% as at 31 Mar to 33.8%.
Details on the new property
Daehwa Logistics Centre is a three-storey Grade A dry warehouse with a GFA of 25,600 sqm located in the prime logistics hub in Seoul. It was completed in Dec 2013, and boasts modern specifications such as a floor-to-ceiling height of 10m, floor loading capacity of 2.7 ton/sqm and direct ramp access to all three floors. At present, the warehouse facility is fully occupied by three quality tenants, namely eBay (one of world’s largest e-commerce companies), Acushnet (global golf equipment company) and vendor Daehwa (fast growing local logistics operator). The leases have a weighted average lease to expiry of 3.5 years with built-in annual rental escalations for 70% of the leased area.
Maintain HOLD
We note that the acquisition is consistent with management’s guidance in Apr that it was performing the due diligence for a potential purchase of a Korea-based property. It is also in line with MLT’s strategy to rebalance its portfolio towards South Korea and other higher growth markets. Looking ahead, we believe MLT may turn to the China assets from its sponsor’s pipeline for further growth. However, pending any new development, we only factor in the acquisition of Daehwa Logistics Centre for now. Our fair value remains unchanged at S$1.10. Maintain HOLD on valuation grounds.
United Envirotech Ltd
UOBKayhian on 25 June 2014
United Envirotech Ltd (UEL) has just been awarded a MYR45m (~S$17.5m) EPC contract in Johor Bahru, Johor, Malaysia to construct a sewer pipeline and a sewage treatment plant by end 2015. While the award of this sizable contract is noteworthy, we believe that the market is probably keener on UEL’s prospects in China’s WWT (waste-water treatment) industry. The Chinese government is expected to pass a CNY2t (US$320b) water pollution action plan into legalization soon. We expect the move to benefit players with established track record like UEL. In view of the positive development, we bump up our FY15 and FY16 earnings forecasts by 1.5-2.8%. We are also rolling forward our 28x peg to blended FY15/FY16F EPS, thus raising our fair value to S$1.50 from S$1.30. But the recent run-up may have captured most of the good news in its share price, hence we maintain our HOLD rating.
Sizable non-China contract
United Envirotech Ltd (UEL) has just been awarded a MYR45m (~S$17.5m) EPC contract in Johor Bahru, Johor, Malaysia. This is to construct a sewer pipeline and a sewage treatment plant that is expected to commence immediately and be completed by end 2015. According to management, the contract represents the first of three module projects to provide sewer network and treatment system with a capacity of 250k population equivalent. While UEL does not expect the project to have any material impact on its EPS and NTA for FY15 ending Mar 15, we note that the contract value already exceeds its Malaysian subsidiary’s FY14 revenue contribution of MYR40m.
China’s WWT action plan due soon
While the award of this sizable contract is noteworthy, we believe that the market is probably keener on UEL’s prospects in China’s WWT (waste-water treatment) industry. Recall that the Chinese government had earlier proposed a CNY2t (US$320b) action plan to reduce pollution emissions, improve drinking water safety, and promote eco-friendly industries. We understand the draft has been submitted to the State Council for approval and could be put into legalization soon. Industry watchers believe that industrial clients are likely to bear the brunt of the new policies and may see them outsource their treatment processes in order to comply with the tougher standards.
UEL still looking to expand portfolio
And should this happen, we believe that someone with UEL’s expertise and track record in running WWT plants could be a direct beneficiary. Management continues to be on the lookout for good WWT projects to add to its portfolio. The TOT model works best for UEL because it provides the company with an existing plant that it can not only provide immediate cashflow but also offers the opportunity for expansion/upgrades, raising both treatment capacity and tariffs.
Maintain HOLD
In view of the positive development, we bump up our FY15 and FY16 earnings forecasts by 1.5-2.8%. We are also rolling forward our 28x peg to blended FY15/FY16F EPS, thus raising our fair value to S$1.50 from S$1.30. But the recent run-up may have captured most of the good news in its share price, hence we maintain our HOLD rating.
United Envirotech Ltd (UEL) has just been awarded a MYR45m (~S$17.5m) EPC contract in Johor Bahru, Johor, Malaysia. This is to construct a sewer pipeline and a sewage treatment plant that is expected to commence immediately and be completed by end 2015. According to management, the contract represents the first of three module projects to provide sewer network and treatment system with a capacity of 250k population equivalent. While UEL does not expect the project to have any material impact on its EPS and NTA for FY15 ending Mar 15, we note that the contract value already exceeds its Malaysian subsidiary’s FY14 revenue contribution of MYR40m.
China’s WWT action plan due soon
While the award of this sizable contract is noteworthy, we believe that the market is probably keener on UEL’s prospects in China’s WWT (waste-water treatment) industry. Recall that the Chinese government had earlier proposed a CNY2t (US$320b) action plan to reduce pollution emissions, improve drinking water safety, and promote eco-friendly industries. We understand the draft has been submitted to the State Council for approval and could be put into legalization soon. Industry watchers believe that industrial clients are likely to bear the brunt of the new policies and may see them outsource their treatment processes in order to comply with the tougher standards.
UEL still looking to expand portfolio
And should this happen, we believe that someone with UEL’s expertise and track record in running WWT plants could be a direct beneficiary. Management continues to be on the lookout for good WWT projects to add to its portfolio. The TOT model works best for UEL because it provides the company with an existing plant that it can not only provide immediate cashflow but also offers the opportunity for expansion/upgrades, raising both treatment capacity and tariffs.
Maintain HOLD
In view of the positive development, we bump up our FY15 and FY16 earnings forecasts by 1.5-2.8%. We are also rolling forward our 28x peg to blended FY15/FY16F EPS, thus raising our fair value to S$1.50 from S$1.30. But the recent run-up may have captured most of the good news in its share price, hence we maintain our HOLD rating.
Thursday, 26 June 2014
Keppel Corp
DMG Research, June 25
KEPPEL has signed a conditional contract with Golar LNG (GLNG US, NR) to perform the world's first conversion of an existing Moss liquefied natural gas (LNG) carrier, the Hilli, into a floating liquefaction vessel (FLNGV).
We expect this conversion to be worth about S$750 million, according to media sources. Golar LNG expects the construction period to be 31 months.
Thus, this unit could be delivered as early as December 2016. Payment terms appear to be in line with past conversion projects. According to Golar LNG's management, the payment terms include "two larger payments on the front and back ends with progress payments as well".
Golar LNG has just successfully priced its follow-on offering of 110 million shares of common stock at US$54.00/share, raising about US$6 billion to: (i) fully fund initial milestone payments under a conditional agreement with Keppel, and (ii) partly fund future scheduled payments.
With financing now in place, the lights have turned green for the converting of two additional vessels - the Gimi and the Gandria, which appear to be sister vessels to the Hilli - into FLNGVs.
Golar LNG is a repeat customer. Keppel has successfully worked on three floating storage regasification units (FSRUs) for Golar LNG in the past, making it a repeat customer for floating natural gas vessels. This gives us confidence that the next two units might go to Keppel as well.
Keppel has won S$1.9 billion in contracts year-to-date, and these three FLNGVs could be worth another S$2.25 billion. Its offshore and marine division should maintain operational strength, although headwinds persist for its property and infrastructure arms.
We maintain BUY and S$12.45 TP. The 2014F 4.5 per cent dividend yield is a key attraction.
BUY
CWT Ltd
DBS Group Research, Equity, June 25
CWT'S core logistics business goes from strength to strength. Broad-based revenue growth and higher rate renewals drove top line improvement and better margins in Q1-14, which should continue for the rest of 2014.
Additionally, with CWT Cold Hub's TOP (temporary occupation permit) this quarter and CWT Pandan Logistics Centre's TOP in Q4, this additional 1.4 million sq ft of owned warehouse space will boost the segment's prospects further.
Meanwhile, revenue from financial services has grown exponentially from $8 million in Q1-13 and $9 million in Q2-13 to $34 million in Q4-13 and $48 million in Q1-14.
We now project this segment to contribute $220 million (+237 per cent y-o-y) in revenue in 2014F, with a conservative 15 per cent growth estimate in 2015.
Granted a Capital Markets Service Licence by MAS recently, CWT's financial services segment's growth should be further enhanced in the longer term as well.
CWT is still trading at attractive valuations of 1.3 times FY14 P/B against 16.7 per cent ROE and less than 9 times FY14 PE, versus 17 times PE for Logistics peers and 15 times PE for commodity trading companies. Reiterate BUY.
BUY
Singapore Telecommunications
UOBKayhian on 26 June 2014
FY15F PE (x): 16.1
FY16F PE (x): 14.8
Special dividend contingent on divestments of non-core assets. SingTel owns 494m shares or a 26.1% stake in SingPost, the dominant provider of domestic and international postal services in Singapore. The stock has rallied 33.2% ytd to S$1.765, benefitting from the collaboration with Alibaba Group to build an e-commerce logistics platform for Southeast Asia. SingTel considers SingPost a non-core asset and would consider divesting if it receives an offer from potential investors. SingTel would be able to dish out a special dividend of 5.5 cents/share if it can divest its stake in SingPost for S$872m, or S$1.765 per share. SingTel’s other non-core assets include wholly-owned NetLink Trust and a 45% stake in Pacific Bangladesh Telecom.
Re-iterate BUY. SingTel has been a laggard with share price increasing at a 10-year CAGR of 4.5% vs 6.4% for the FSSTI. We anticipate investor interest in SingTel to return as: a) the resilient growth in the US economy will have a positive impact on growth in emerging markets and SingTel’s regional mobile associates, and b) Bharti Airtel picks up after being affected by intense price competition in India and an ill-fated expansion into Africa. We raise our target price from S$4.10 to S$4.30, based on DCF (required rate of return: 5.95%, terminal growth: 1.0%).
FY15F PE (x): 16.1
FY16F PE (x): 14.8
Special dividend contingent on divestments of non-core assets. SingTel owns 494m shares or a 26.1% stake in SingPost, the dominant provider of domestic and international postal services in Singapore. The stock has rallied 33.2% ytd to S$1.765, benefitting from the collaboration with Alibaba Group to build an e-commerce logistics platform for Southeast Asia. SingTel considers SingPost a non-core asset and would consider divesting if it receives an offer from potential investors. SingTel would be able to dish out a special dividend of 5.5 cents/share if it can divest its stake in SingPost for S$872m, or S$1.765 per share. SingTel’s other non-core assets include wholly-owned NetLink Trust and a 45% stake in Pacific Bangladesh Telecom.
Re-iterate BUY. SingTel has been a laggard with share price increasing at a 10-year CAGR of 4.5% vs 6.4% for the FSSTI. We anticipate investor interest in SingTel to return as: a) the resilient growth in the US economy will have a positive impact on growth in emerging markets and SingTel’s regional mobile associates, and b) Bharti Airtel picks up after being affected by intense price competition in India and an ill-fated expansion into Africa. We raise our target price from S$4.10 to S$4.30, based on DCF (required rate of return: 5.95%, terminal growth: 1.0%).
TRITECH GROUP LTD
UOBKayhian on 26 June 2014
VALUATION
VALUATION
- The company is currently trading at 2.0x FY13 P/B. Tritech reported FY14 revenue of S$55.7m (+9.3% yoy) driven by higher revenue from specialist engineering services as well as its water business. However, the company slipped into a loss of S$8.7m mainly attributable to a S$7.6m fair value loss on convertible bond and increase in administrative expenses due to professional fees related to the preparation work for the proposed spin-off listing of its resource segment.
- Tritech has three main business segments. The specialist engineering service division provides geotechnical services, instrument and design for major customers including JTC Corporation, Land Transport Authority and Public Utilities Board. As at 30 May 14, this segment had an orderbook of S$115.1m.
- The second business segment is in the resource business where the company owns a high-grade marble quarry in Kelantan, Malaysia. After realising the marble was predominantly grade A, the company has proposed to spin off this business segment and eventually list on it on an exchange.
- Its third business segment is in the water-related services such as water treatment, water supply and seawater desalination projects. In 2009, the company ventured into Qingdao, China to construct a membrane production base with five plants. The five plants are able to produce fibre membranes and membrane modules, bottled water and water purifiers, and membrane-related and water monitoring products.
- The company has also announced that they have entered into a non-binding MOU to acquire a 49% stake in Jining Zhongshan Public Utilities Water company. This company has four water supply plants (daily capacity of 300,000m3 ) and one water treatment plant (daily treatment output of 200,000m3).
- While the most recent MOU completes the value-chain of providing one-stop solution for the water-related service industry, the fund raised may carry a high cost for the acquisition. Tritech has proposed to issue S$42m worth of convertible loan with an indicative interest rate of 12% p.a. and the repayment will be via allotment of new shares priced at 10% discount to weighted average share price in the last seven trading days with a minimum price of S$0.200 and maximum price of S$0.280.
- In the longer term, we think that Tritech will benefit from the anti-pollution and environmental protection policies from the Chinese government if they are able to integrate and create synergistic benefits between the different water-related assets.
Singapore Banks
Kim Eng on 26 June 2014
A framework for domestic systemically important banks (D-SIBs) is currently in the works. The immediate implication is foreign banks with a large retail presence in Singapore will have to locally incorporate their retail units. Standard Chartered Bank incorporated its Singapore consumer banking operation in 2012, after Citigroup (2005). Unlike Malaysia that requires all banks to be locally incorporated, many foreign banks in Singapore operate under a universal banking model. A bank is deemed to have a significant retail presence if its market share of resident non-bank deposits is 3% and above, plus it has at least 150,000 depositors with accounts of less than or equal to SGD250,000.
Little impact for now but competition could intensify
Locally-incorporated foreign banks are subjected to higher capital – 2ppts of capital above Basel 3’s stipulation - and liquidity requirements that are also applied to local banks. A foreign bank that is deemed a SIB in Singapore will also have to meet the prescribed liquidity coverage ratio, which requires banks to hold sufficient high-quality liquid assets to meet their net cash outflows over a 30-day period.
The retail operations of both HSBC and Maybank may be required to be locally incorporated with a minimum of SGD1.5b in paid-up capital. While this may level the playing field, foreign banks may
go up the risk curve in search of higher returns to commensurate with higher capital requirements. This could exert greater competitive pressure on the local banks. Maintain Overweight on banks. For exposure, DBS is our top pick as it is best positioned to take advantage of a rising interest rate environment. We would remain cautious towards OCBC.
- The implication of a new framework for D-SIBs is foreign banks with a large retail presence in Singapore will have to locally incorporate their retail units.
- They will be subjected to higher capital and liquidity standards which are also applied to local banks.
- The change could lead to greater competition from foreign banks in search of higher returns; DBS is our top sector pick.
A framework for domestic systemically important banks (D-SIBs) is currently in the works. The immediate implication is foreign banks with a large retail presence in Singapore will have to locally incorporate their retail units. Standard Chartered Bank incorporated its Singapore consumer banking operation in 2012, after Citigroup (2005). Unlike Malaysia that requires all banks to be locally incorporated, many foreign banks in Singapore operate under a universal banking model. A bank is deemed to have a significant retail presence if its market share of resident non-bank deposits is 3% and above, plus it has at least 150,000 depositors with accounts of less than or equal to SGD250,000.
Little impact for now but competition could intensify
Locally-incorporated foreign banks are subjected to higher capital – 2ppts of capital above Basel 3’s stipulation - and liquidity requirements that are also applied to local banks. A foreign bank that is deemed a SIB in Singapore will also have to meet the prescribed liquidity coverage ratio, which requires banks to hold sufficient high-quality liquid assets to meet their net cash outflows over a 30-day period.
The retail operations of both HSBC and Maybank may be required to be locally incorporated with a minimum of SGD1.5b in paid-up capital. While this may level the playing field, foreign banks may
go up the risk curve in search of higher returns to commensurate with higher capital requirements. This could exert greater competitive pressure on the local banks. Maintain Overweight on banks. For exposure, DBS is our top pick as it is best positioned to take advantage of a rising interest rate environment. We would remain cautious towards OCBC.
Overseas Education Ltd
Kim Eng on 26 June 2014
The successful raising of the final SGD150m cash to build its new SGD271m campus has eliminated the overhang on the stock which once faced severe growth constraints. With this issue now behind them, Overseas Education Ltd (OEL) – an international school operator - will embark on a stronger earnings growth trajectory of 16.1% over FY14E-16E (+13.6% CAGR in FY09-13). At 16x FY14E P/E, OEL is attractively priced vs sector peers’ 27.5x. Our DCF-based TP of SGD1.40 (5.5% WACC, 1% Tg) provides a strong 47% upside.
Why we like OEL
Deep-pocketed clientele. By targeting the children of high-income foreign professionals in Singapore, OEL commands strong pricing power at a time when demand still outstrips supply. Tighter immigration policies should not have any impact on its business.
Demand outpaces supply = pricing power.
As the new campus commences next August, we expect OEL to close the 15% gap between its tuition fees and competitors’. The competitive dynamics are expected to stay favourable: 8% pa demand growth for school places vs less than 4% pa supply growth until 2015/16. No more growth constraints. While growth in recent years was decent, it was hampered by space constraints at its old campus. This is set to change as the new campus increases its capacity by 22% and allows OEL to hike its tuition fees by 5.5% pa in FY15E-16E and 3-4% pa thereafter, based on our estimates.
- Initiate with BUY and DCF-based TP of SGD1.40. Stock overhang eliminated post-bond issue, paving the way for further re-rating.
- Growth constraints a thing of the past with the new campus coming on-stream next August. EPS growth to accelerate to 15%/17% in FY15E/16E from 7% in FY14E.
- Catalysts: Higher-than-expected hikes in tuition fee and regional expansion. Risks: Competition and rising staff costs.
The successful raising of the final SGD150m cash to build its new SGD271m campus has eliminated the overhang on the stock which once faced severe growth constraints. With this issue now behind them, Overseas Education Ltd (OEL) – an international school operator - will embark on a stronger earnings growth trajectory of 16.1% over FY14E-16E (+13.6% CAGR in FY09-13). At 16x FY14E P/E, OEL is attractively priced vs sector peers’ 27.5x. Our DCF-based TP of SGD1.40 (5.5% WACC, 1% Tg) provides a strong 47% upside.
Why we like OEL
Deep-pocketed clientele. By targeting the children of high-income foreign professionals in Singapore, OEL commands strong pricing power at a time when demand still outstrips supply. Tighter immigration policies should not have any impact on its business.
Demand outpaces supply = pricing power.
As the new campus commences next August, we expect OEL to close the 15% gap between its tuition fees and competitors’. The competitive dynamics are expected to stay favourable: 8% pa demand growth for school places vs less than 4% pa supply growth until 2015/16. No more growth constraints. While growth in recent years was decent, it was hampered by space constraints at its old campus. This is set to change as the new campus increases its capacity by 22% and allows OEL to hike its tuition fees by 5.5% pa in FY15E-16E and 3-4% pa thereafter, based on our estimates.
Keppel Land
Kim Eng on 26 June 2014
Equity Plaza sits on a 99-year leasehold site, with a remaining tenure of 74 years. Floor plates are 10,000 sq ft per floor, which is not a Grade A specification.
The buyer is a consortium comprising Sam Goi's listed entity GSH Corp, TYJ Group (private vehicle of Sam Goi) and Vibrant Group (formerly known as Freight Links). The consortium said the purchase is both for rental returns and capital gains from an expected subsequent sale of the property on a strata-titled basis. The price works out to SGD2,181 psf, which is 62.8% higher than our previous estimate of SGD1,340 psf. It is an attractive selling price for the vendors. Based on an estimated monthly passing rent of SGD7.50 psf, this translates to an NPI yield of barely ~3%. The sale would raise our RNAV estimates for Keppel Land by SGD0.09 per share to SGD6.22.
Sale of MBFC Tower 3 next in line
We are positive on the sale as Equity Plaza is a non-core asset and allows Keppel Land to book a net gain of SGD59.5m and receive net proceeds of SGD195.3m. On the heels of Keppel REIT’s (KREIT) recent sale on Prudential Tower for SGD512m, we believe that it is highly likely that Keppel Land will next divest its one-third stake in MBFC Tower 3 (valued at SGD1.1b) to KREIT in 2H14. Reiterate BUY. We keep our forecasts and TP of SGD4.60 unchanged, for now.
- Divesting Equity Plaza, a 22-year-old office building at Raffles Place for an attractive sum of SGD550m or SGD2,181 psf.
- A positive move as the building is a non-core asset. The sale would lift our RNAV estimates by 9 SGD cts to SGD6.22.
- Reiterate BUY. Forecasts and TP of SGD4.60 stay unchanged.
Equity Plaza sits on a 99-year leasehold site, with a remaining tenure of 74 years. Floor plates are 10,000 sq ft per floor, which is not a Grade A specification.
The buyer is a consortium comprising Sam Goi's listed entity GSH Corp, TYJ Group (private vehicle of Sam Goi) and Vibrant Group (formerly known as Freight Links). The consortium said the purchase is both for rental returns and capital gains from an expected subsequent sale of the property on a strata-titled basis. The price works out to SGD2,181 psf, which is 62.8% higher than our previous estimate of SGD1,340 psf. It is an attractive selling price for the vendors. Based on an estimated monthly passing rent of SGD7.50 psf, this translates to an NPI yield of barely ~3%. The sale would raise our RNAV estimates for Keppel Land by SGD0.09 per share to SGD6.22.
Sale of MBFC Tower 3 next in line
We are positive on the sale as Equity Plaza is a non-core asset and allows Keppel Land to book a net gain of SGD59.5m and receive net proceeds of SGD195.3m. On the heels of Keppel REIT’s (KREIT) recent sale on Prudential Tower for SGD512m, we believe that it is highly likely that Keppel Land will next divest its one-third stake in MBFC Tower 3 (valued at SGD1.1b) to KREIT in 2H14. Reiterate BUY. We keep our forecasts and TP of SGD4.60 unchanged, for now.
Singapore Residential Property
OCBC on 26 June 2014
We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
Forecasting lower prices over FY14-15 but crash is unlikely
We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this.
Latent demand exists at lower price points
In May-14, despite a 92% MoM pop in monthly sales to 1,528 units, the take-up rate of 82% in the month was lower on both a MoM and YoY basis (125% in Apr-14; 97% in May-13). The eight new launches showed a diverse range of performances, with take-up rates ranging from 10% to 98%. Amongst the four new mass-market launches, in particular, we found that developers that were willing to price their projects competitively, such as Coco Palms (98% of launched units sold), performed better.
Our base case: FY14 primary sales to dip 33% to 10k units
We forecast FY14 primary private home sales to dip 33% to 10k units, and see prices in mass-market segment to be more at risk versus the mid-tier and high end. A positive catalyst over the mid-term could be the reversal of certain government curbs once headline prices (the URA price index) shows a decline in excess of ~10%. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this.
Latent demand exists at lower price points
In May-14, despite a 92% MoM pop in monthly sales to 1,528 units, the take-up rate of 82% in the month was lower on both a MoM and YoY basis (125% in Apr-14; 97% in May-13). The eight new launches showed a diverse range of performances, with take-up rates ranging from 10% to 98%. Amongst the four new mass-market launches, in particular, we found that developers that were willing to price their projects competitively, such as Coco Palms (98% of launched units sold), performed better.
Our base case: FY14 primary sales to dip 33% to 10k units
We forecast FY14 primary private home sales to dip 33% to 10k units, and see prices in mass-market segment to be more at risk versus the mid-tier and high end. A positive catalyst over the mid-term could be the reversal of certain government curbs once headline prices (the URA price index) shows a decline in excess of ~10%. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
Wednesday, 25 June 2014
Cache Logistics Trust
UOBKayhian on 25 June 2014
FY14F PE (x): 15.8
FY15F PE (x): 15.5
Positive rental reversions to drive organic growth. We estimate positive reversions of 10-
15% for Cache Logistics Trust (Cache) for the master-leases coming due in 2015/16
(34%/ 32% of portfolio), based on current market rents. This provides an organic growth
catalyst as annual rents under the master-leases have been growing at an annual rate
of 1.5-2.0% p.a. over the four years from listing, while rents for logistic facilities have
risen 35-45% from three to four years ago.
Underlying tenancies remain strong with most master-leased properties underpinned by
multi-national logistics companies, including DB Schenker, Nippon Express and TNT
Express. Also, for CWT Commodity Hub, only 20% of the leased area is due for expiry
in 2015, while separate lease agreements have been entered with existing tenants to
extend their underlying leases.
Maintain BUY with a higher target price of S$1.35 (from S$1.31), based on DDM
(required rate of return: 6.9%, terminal growth: 1.5%).
FY14F PE (x): 15.8
FY15F PE (x): 15.5
Positive rental reversions to drive organic growth. We estimate positive reversions of 10-
15% for Cache Logistics Trust (Cache) for the master-leases coming due in 2015/16
(34%/ 32% of portfolio), based on current market rents. This provides an organic growth
catalyst as annual rents under the master-leases have been growing at an annual rate
of 1.5-2.0% p.a. over the four years from listing, while rents for logistic facilities have
risen 35-45% from three to four years ago.
Underlying tenancies remain strong with most master-leased properties underpinned by
multi-national logistics companies, including DB Schenker, Nippon Express and TNT
Express. Also, for CWT Commodity Hub, only 20% of the leased area is due for expiry
in 2015, while separate lease agreements have been entered with existing tenants to
extend their underlying leases.
Maintain BUY with a higher target price of S$1.35 (from S$1.31), based on DDM
(required rate of return: 6.9%, terminal growth: 1.5%).
Global Logistics Properties
CIMB Research, June 23
WE maintain our Add call on GLP given its asset-recycling pipeline and visible growth from China. We cut our FY15-17 EPS by 4-22 per cent and RNAV by 5.6 per cent as we estimate that a greater proportion of partnerships in China will reduce GLP's attributable earnings and factor in US$500 million to US$600 million of annual injection for stabilised Japan assets.
We acknowledge the risks of higher competition among logistics facilities and land supply constraints but do not expect them to undermine GLP's market leader position. The combined spending on logistics facilities by GLP,
The land supply constraints are mitigated by the strategic partners, such as SOEs, COFCO and Sinotrans, which are not only likely to increase land supply but leasing demand as well. We believe GLP will maintain its market leader position in China through the fostering of strategic partnerships and enhancing customer stickiness.
We expect GLP's AUM to post a CAGR of 28 per cent over FY15-17 through the injection of stabilised assets into funds/Reits and the investment of committed capital from its development funds. This will be a positive as it not only builds its management fee platform but also enables capital to be recycled into its growing China portfolio.
GLP is trading at a 19 per cent discount to RNAV, about one standard deviation deeper than its historical mean discount of 12 per cent. Additionally, we expect GLP's RNAV to grow 9 per cent and 2 per cent in FY16 and FY17, respectively, driven by growth in its China assets and value creation from an enlarged fund management portfolio.
ADD
Frasers Centrepoint Trust
DBS Group Research, Equity, June 24
EARLIER this month, Frasers Centrepoint Trust (FCT) announced it had issued 88 million shares at S$1.835 a share (S$161.5 million in total) in a private placement to partially fund its S$305 million acquisition of Changi City Point (CCP), which was completed on June 16.
This was well subscribed, accounting for about 52 per cent of the acquisition price, on the higher end of our initial assumptions of 40-45 per cent, based on a gearing cap of 35 per cent (vs 31 per cent post-acquisition and placement).
As CCP is still in its first rent cycle and about 60 per cent of leases are up for renewal in FY14/15, the manager is uniquely poised to deliver earnings growth by refreshing the mall's tenant mix to better cater to its growing catchment population.
While there are no plans to increase the relative proportion of F&B tenants from the existing level of 44 per cent, we understand that the manager is looking to bring in F&B tenants that better cater to the preferences of students at the upcoming Singapore University of Technology and Design and workers at Changi Business Park.
Furthermore, for its retail tenants, the manager is looking to offer a better complementary shopping experience for the weekend expo crowds.
Through these initiatives, we forecast FCT to deliver two-year earnings CAGR (compound annual growth rate) of 6 per cent for FY15-16.
At current levels, FCT offers an attractive FY14-16F yield of 6.0-6.8 per cent - higher than Singapore-focused retail S-Reits, which are trading at yields of 5.5-6.6 per cent.
We have marginally increased our FY14 forecast earnings estimates to account for revised funding assumptions, no change to our TP of $2.13. FCT offers investors a 24-25 per cent total return for FY14/15. We maintain our BUY call.
BUY
Tuesday, 24 June 2014
Nam Cheong
UOBKayhian on 24 June 2014
FY14F PE (x): 8.1
FY15F PE (x): 6.6
Nam Cheong announced the sale of two Accommodation Work Barges (AWB) worth
approximately US$84m (S$105m), with the option to purchase another two vessels, to
a repeat customer, Perdana Petroleum Berhad (Perdana).
We revise up our 2014-15 earnings forecasts by 2% and 6% respectively, factoring in
earnings accretion from order win. Potential upside to our earnings is likely if Perdana
exercises its options for purchase of two more vessels.
Maintain BUY with a higher target price of S$0.47 (previous: S$0.44), pegged at 8.0x
to our revised 2015F PE. Our target PE is a 15% premium to peers’ long-term mean of
7.0x, which we think is justified given Nam Cheong’s dominant 50-75% market share in
the high barriers-to-entry Malaysian OSV shipbuilding market.
FY14F PE (x): 8.1
FY15F PE (x): 6.6
Nam Cheong announced the sale of two Accommodation Work Barges (AWB) worth
approximately US$84m (S$105m), with the option to purchase another two vessels, to
a repeat customer, Perdana Petroleum Berhad (Perdana).
We revise up our 2014-15 earnings forecasts by 2% and 6% respectively, factoring in
earnings accretion from order win. Potential upside to our earnings is likely if Perdana
exercises its options for purchase of two more vessels.
Maintain BUY with a higher target price of S$0.47 (previous: S$0.44), pegged at 8.0x
to our revised 2015F PE. Our target PE is a 15% premium to peers’ long-term mean of
7.0x, which we think is justified given Nam Cheong’s dominant 50-75% market share in
the high barriers-to-entry Malaysian OSV shipbuilding market.
Hospitality Trusts
CIMB Research, June 23
RECENT data from the Singapore Tourism Board (STB) revealed that visitor arrivals to Singapore remained flat y-o-y in Q1-14. During this period, higher visitor arrivals from South-east Asia (+4.1 per cent y-o-y), on the back of stronger arrivals from Indonesia (+5.5 per cent y-o-y), was offset by weaker visitor arrivals from China (-14.0 per cent y-o-y).
On the other hand, it was noted that RevPAR (revenue per available room) for Singapore hotels during the first four months rose by 2.1 y-o-y, despite a 0.7 per cent y-o-y drop in occupancy.
The growth was attributed to the upscale and luxury hotel segments, where RevPAR expanded by 10.1 per cent and 3.1 per cent y-o-y, respectively, versus -4.4 per cent in the mid-tier and +0.2 per cent in economy segments.
The slowdown in visitor arrivals from China could mainly be attributed to (1) the new tourism law in China which took effect last October, and, (2) (but to a lesser extent) the MH370 incident.
For February and March, Chinese visitor arrivals dropped by an average of 19.5 per cent y-o-y. During this period, although fewer Chinese came on multi-country package tours, more travelled here on their own. This group of visitors tend to spend more. As highlighted by data released by STB earlier this year, total Chinese tourism receipts in Q4-13 grew by one per cent despite their numbers dipping by 31 per cent over the same period.
During 2013, Chinese spending was also noted to reach about S$3.0 billion, exceeding the Indonesians (at S$2.3 billion) for the first time since 2007. Furthermore, tourism shopping tax refund company Global Blue recently pointed out that Singapore remains the second most favoured shopping destination for the Chinese after Paris.
This trend is expected to strengthen as the government aims to position Singapore as a top luxury lifestyle destination through various partnerships with Chinese tourism providers.
Other than the patronage from big Chinese spenders, the upscale and luxury hotel segments are expected to benefit from (1) stronger Indonesian visitor arrivals, (2) packed calendar of events in 2014, and (3) a potentially stronger corporate spending trend as the global economy continues to recover in 2014.
With the luxury and upscale hotel segments' RevPARs expected to be strong in 2H14, we maintain our "Add" rating on OUE-HT (TP: S$0.96) as the company has the ability to boost RevPAR through the sponsor-funded AEI (asset enhancement initiatives) of its Mandarin Orchard hotel.
Similarly, we remain positive on CDL-HT (Add; TP: S$1.97) and expect continual good performance from its Singapore and Maldives portfolios.
On the other hand, we are negative on Far East Hospitality Trust (Reduce; TP: S$0.80) as we expect its portfolio of mid-tier hotels, particularly those located along Orchard Road, to come under pressure amid intensifying competition in the coming months.
Sector: OVERWEIGHT
OUE Hospitality Trust
Kim Eng on 24 June 2014
OUE Hospitality Trust (OUEHT), the only trust with pure Orchard Road play, owns the integrated 125,000-sq ft high-end fashion mall Mandarin Gallery (MG; 30% of revenue and portfolio value) and the upscale 1,077-room Mandarin Orchard Singapore hotel (MOS; 70% of revenue and portfolio value). In our view, it stands to benefit from the growing hospitality segment in Orchard Road. OUEHT looks attractive as it offers a FY14E DPU yield of 7.3%, the highest among Singapore-based hospitality and retail S-REITs.
Positive business dynamics to drive DPU growth
Modest room additions in Orchard Road and the ongoing refurbishments to upgrade 430 rooms at MOS, will ensure RevPar for MOS remains resilient. Limited new retail space (0.31m sq ft of NLA) on Orchard Road over the next three years and measures to optimise the tenant mix at MG suggest scope for rental upside at MG. Their close proximity to key tourist attractions, commercial and medical clusters puts them in good stead to continue to ride the leisure, business and medical tourism wave. We expect visitor arrivals to be supported by new tourist attractions, and deeper penetration into the MICE and medical businesses.
Catalyst: Crowne Plaza Changi Airport
The sponsor, OUE Limited, is a leading real-estate owner, developer and operator, who manages the Meritus hospitality brand. The sponsor’s right of first refusal (ROFR) includes Singapore’s first airport hotel, Crowne Plaza Changi Airport (320 rooms). Post development of an adjacent site, the enlarged hotel will offer 563 rooms.
- Initiate at BUY and TP of SGD0.93 (cost of equity =8%, Tg=1.5%), offering a decent 13% total return.
- Offers the highest yield among Singapore-based hospitality and retail S-REITs, supported by its two prime assets.
- Good quality sponsor’s ROFR to drive future growth.
OUE Hospitality Trust (OUEHT), the only trust with pure Orchard Road play, owns the integrated 125,000-sq ft high-end fashion mall Mandarin Gallery (MG; 30% of revenue and portfolio value) and the upscale 1,077-room Mandarin Orchard Singapore hotel (MOS; 70% of revenue and portfolio value). In our view, it stands to benefit from the growing hospitality segment in Orchard Road. OUEHT looks attractive as it offers a FY14E DPU yield of 7.3%, the highest among Singapore-based hospitality and retail S-REITs.
Positive business dynamics to drive DPU growth
Modest room additions in Orchard Road and the ongoing refurbishments to upgrade 430 rooms at MOS, will ensure RevPar for MOS remains resilient. Limited new retail space (0.31m sq ft of NLA) on Orchard Road over the next three years and measures to optimise the tenant mix at MG suggest scope for rental upside at MG. Their close proximity to key tourist attractions, commercial and medical clusters puts them in good stead to continue to ride the leisure, business and medical tourism wave. We expect visitor arrivals to be supported by new tourist attractions, and deeper penetration into the MICE and medical businesses.
Catalyst: Crowne Plaza Changi Airport
The sponsor, OUE Limited, is a leading real-estate owner, developer and operator, who manages the Meritus hospitality brand. The sponsor’s right of first refusal (ROFR) includes Singapore’s first airport hotel, Crowne Plaza Changi Airport (320 rooms). Post development of an adjacent site, the enlarged hotel will offer 563 rooms.
Nam Cheong
Kim Eng on 24 June 2014
Nam Cheong has just sold two 500-men Accommodation Work Barges (AWBs) to repeat customer, Perdana Petroleum, for USD84m (~SGD105m/MYR273m), with an option to purchase another two. The AWBs would be constructed under the build-to-order (BTO) model with delivery scheduled for 2016. Orderbook for Nam Cheong now stands at MYR1.5b vs MYR1.4b as of end-March.
What’s Our View
The AWBs, which can accommodate up to 500 men, would be the first-of-its-kind in Malaysia when delivered. It is also the largest AWB ever to be constructed by Nam Cheong. Perdana Petroleum had previously ordered three other AWBs but those were of lower capacity of 300 men. In our view, this order not only demonstrates Nam Cheong shipbuilding capability but more importantly, it reflects its dominance in the Malaysian market with strong support from the domestic OSV players.
There is upside to our forecasts which do not incorporate any new BTO contracts. We estimate a total earnings uplift of MYR32-35m (EPS of MYR1.5-1.7 sen) over FY14E-16E. The bulk of the recognition should be in FY15E during the mid-construction phase based on an S-curve recognition profile.
Maintain BUY with TP of SGD0.45, which is pegged to 1.9x FY15E P/BV. Net profit forecasts to be reviewed.
- To construct two 500-men AWBs worth USD84m for repeat customer Perdana Petroleum, with option to purchase another two.
- First-of-its-kind AWB in Malaysia and largest ever to be built by Nam Cheong. Orderbook now stands at MYR1.5b.
- To provide a combined EPS uplift of MYR1.5-1.7 sens over FY14E-16E. Maintain BUY, TP SGD0.45.
Nam Cheong has just sold two 500-men Accommodation Work Barges (AWBs) to repeat customer, Perdana Petroleum, for USD84m (~SGD105m/MYR273m), with an option to purchase another two. The AWBs would be constructed under the build-to-order (BTO) model with delivery scheduled for 2016. Orderbook for Nam Cheong now stands at MYR1.5b vs MYR1.4b as of end-March.
What’s Our View
The AWBs, which can accommodate up to 500 men, would be the first-of-its-kind in Malaysia when delivered. It is also the largest AWB ever to be constructed by Nam Cheong. Perdana Petroleum had previously ordered three other AWBs but those were of lower capacity of 300 men. In our view, this order not only demonstrates Nam Cheong shipbuilding capability but more importantly, it reflects its dominance in the Malaysian market with strong support from the domestic OSV players.
There is upside to our forecasts which do not incorporate any new BTO contracts. We estimate a total earnings uplift of MYR32-35m (EPS of MYR1.5-1.7 sen) over FY14E-16E. The bulk of the recognition should be in FY15E during the mid-construction phase based on an S-curve recognition profile.
Maintain BUY with TP of SGD0.45, which is pegged to 1.9x FY15E P/BV. Net profit forecasts to be reviewed.
CWT Ltd
OCBC on 23 June 2014
Recently Dagang bonded warehouse at Qingdao Port was being investigated for the fraudulent practice of pledging single batches of metals as collateral for multiple loans. CWT’s revenue exposure to Qingdao port comes from collateral management service under its Logistics segment, which we understand from management is negligible. Thus, we do not expect Logistics earnings to be adversely affected. The incident’s indirect effects, through tighter credit and moving stocks offshore, will lower liquidity and commodity trade flows. We examined a similar steel-for-loan fraud in 2012 and found that the shock factor to market and impact on physical trade flows lasted only a few months. We think it would be similar this time round unless the probe widens significantly. Moreover, given that CWT’s Logistics revenue exposure to China is less than 3%, we think the segment will be little affected by the systemic impact. Maintain BUY with S$1.92 fair value estimate.
Negligible incident-specific impact on CWT
Recently Dagang bonded warehouse at Qingdao Port was being investigated for the fraudulent practice of pledging single batches of metals as collateral for multiple loans. CWT’s revenue exposure to Qingdao port comes from collateral management service under its Logistics segment, which we understand from management is negligible. Thus, we do not expect Logistics earnings to be adversely affected.
Systemic impact centres on in-warehouse stock financing
The indirect impact of the Qingdao port incident comes from: 1) banks reportedly scaling back on loans backed by commodities, 2) banks seeking higher margins, 3) requiring buyers to be found first, and 4) moving collateral to better regulated locations outside China. Collectively, they will lower liquidity and commodity trade flows in China. We examined a similar steel-for-loan fraud in 2012 and found that the impact on futures market and physical trade flows were short-lived, lasting only up to a few months. We think it would be similar this time round unless the probe widens significantly. Moreover, given that CWT’s Logistics revenue exposure to China is less than 3%, the segment will be little affected by the systemic impact. In addition, we expect Commodity Marketing earnings to be fairly resilient. We think the heat will be mostly felt by those reliant on in-warehouse stock financing, the current focus of the investigations. For in-warehouse stocks used to secure loans, they are typically held by a single party until no longer needed as collateral; this is different from Commodity Marketing (CM), where there goods are exchanged for money between two parties. While removal of leverage through tighter credit might drive metal prices down, we noted earlier that CM’s earnings are dependent upon volume flow and not prices.
Irrational fear presents opportunity to accumulate
We think indiscriminate fear of companies involved in China’s commodity business will arise should further negative news appear. Unless unforeseen legal liabilities arise, we think the subsequent price dips present chances for accumulation. Maintain BUY with S$1.92 fair value estimate.
Recently Dagang bonded warehouse at Qingdao Port was being investigated for the fraudulent practice of pledging single batches of metals as collateral for multiple loans. CWT’s revenue exposure to Qingdao port comes from collateral management service under its Logistics segment, which we understand from management is negligible. Thus, we do not expect Logistics earnings to be adversely affected.
Systemic impact centres on in-warehouse stock financing
The indirect impact of the Qingdao port incident comes from: 1) banks reportedly scaling back on loans backed by commodities, 2) banks seeking higher margins, 3) requiring buyers to be found first, and 4) moving collateral to better regulated locations outside China. Collectively, they will lower liquidity and commodity trade flows in China. We examined a similar steel-for-loan fraud in 2012 and found that the impact on futures market and physical trade flows were short-lived, lasting only up to a few months. We think it would be similar this time round unless the probe widens significantly. Moreover, given that CWT’s Logistics revenue exposure to China is less than 3%, the segment will be little affected by the systemic impact. In addition, we expect Commodity Marketing earnings to be fairly resilient. We think the heat will be mostly felt by those reliant on in-warehouse stock financing, the current focus of the investigations. For in-warehouse stocks used to secure loans, they are typically held by a single party until no longer needed as collateral; this is different from Commodity Marketing (CM), where there goods are exchanged for money between two parties. While removal of leverage through tighter credit might drive metal prices down, we noted earlier that CM’s earnings are dependent upon volume flow and not prices.
Irrational fear presents opportunity to accumulate
We think indiscriminate fear of companies involved in China’s commodity business will arise should further negative news appear. Unless unforeseen legal liabilities arise, we think the subsequent price dips present chances for accumulation. Maintain BUY with S$1.92 fair value estimate.
Strategy: Impact of Iraq conflict on companies
OCBC on 20 June 2014
Oil prices have been more volatile of late due to the conflict in Iraq, with WTI crude rising close to about US$107/bbl and Brent US$113/bbl last week to hit a nine-month high. It is everyone’s hope that the crisis will be contained soon, but should an escalation occur, we may see more interest in certain sectors whose earnings may be affected by high oil prices. In a sustained high oil price environment, the “winners” are upstream oil and gas players [Overweight], and coal miners, and the “losers” are refiners, utilities (those without cost pass-through mechanisms) and fuel-intensive industries such as transportation. We have an Underweight rating on the Air Transport sector, but are Overweight Land Transport. Companies with extensive operations in Iraq and neighbouring countries could also be at risk should the conflict spread.
Crude oil prices have risen with tensions in Iraq
Oil prices have been more volatile of late due to the conflict in Iraq, with WTI crude rising close to about US$107/bbl and Brent US$113/bbl last week to hit a nine-month high. Currently, they are still hovering at these levels due to uncertainties over Iraq’s situation, which is understandable as Iraq’s average oil production in 2013 was 3m bbl/day, accounting for 8% of OPEC’s supply. What is more important, however, is that the IEA, in its latest oil market report, has forecasted that Iraq is expected to provide 60% of OPEC’s oil production growth in the next decade. Iraq is also the third largest oil exporter in the world after Saudi Arabia and Russia, with an increasing share of these exports directed to fast-growing Asian markets. It is everyone’s hope that the crisis will be contained soon, but should an escalation occur, we may see more interest in certain sectors whose earnings are affected by oil prices.
Discerning the beneficiaries…
With higher oil prices, the clear winners are upstream oil and gas players [Overweight], as there would be more oil and gas exploration and production activity, but we point out that sustained high prices are required for this, rather than mere spikes due to geopolitical tensions. However, oil and gas companies that derive a substantial portion of their earnings from Iraq may be adversely affected if oil production is reduced due to the conflict. Coal miners may also benefit due to the substitution effect, while crude palm oil plays [Neutral] may also see a mild positive effect on their stocks due to the positive correlation between crude oil and crude palm oil prices.
… and those that may lose out
On the other hand, possible “losers” are refiners, utilities (those without cost pass-through mechanisms) and fuel-intensive industries such as transportation. We have an Underweight rating on the Air Transport sector, but are Overweight Land Transport. Companies with extensive operations in Iraq and neighbouring countries could also be at risk should the conflict spread.
Oil prices have been more volatile of late due to the conflict in Iraq, with WTI crude rising close to about US$107/bbl and Brent US$113/bbl last week to hit a nine-month high. Currently, they are still hovering at these levels due to uncertainties over Iraq’s situation, which is understandable as Iraq’s average oil production in 2013 was 3m bbl/day, accounting for 8% of OPEC’s supply. What is more important, however, is that the IEA, in its latest oil market report, has forecasted that Iraq is expected to provide 60% of OPEC’s oil production growth in the next decade. Iraq is also the third largest oil exporter in the world after Saudi Arabia and Russia, with an increasing share of these exports directed to fast-growing Asian markets. It is everyone’s hope that the crisis will be contained soon, but should an escalation occur, we may see more interest in certain sectors whose earnings are affected by oil prices.
Discerning the beneficiaries…
With higher oil prices, the clear winners are upstream oil and gas players [Overweight], as there would be more oil and gas exploration and production activity, but we point out that sustained high prices are required for this, rather than mere spikes due to geopolitical tensions. However, oil and gas companies that derive a substantial portion of their earnings from Iraq may be adversely affected if oil production is reduced due to the conflict. Coal miners may also benefit due to the substitution effect, while crude palm oil plays [Neutral] may also see a mild positive effect on their stocks due to the positive correlation between crude oil and crude palm oil prices.
… and those that may lose out
On the other hand, possible “losers” are refiners, utilities (those without cost pass-through mechanisms) and fuel-intensive industries such as transportation. We have an Underweight rating on the Air Transport sector, but are Overweight Land Transport. Companies with extensive operations in Iraq and neighbouring countries could also be at risk should the conflict spread.
Monday, 23 June 2014
M1
UOBKayhian on 23 June 2014
FY14F PE (x): 19.7
FY15F PE (x): 18.4
Adjusting pricing for mobile services higher. M1 has raised its pricing for mobile
services with effect from 1 Jan 14:
a) M1 has imposed a minimum charge of one minute per call for mobile services. The
change in pricing applies to M1’s entire post-paid subscriber base. It is the last among
the three telcos to impose the minimum charge.
b) M1 has raised excess charges for data from S$5.35/GB to S$10.70/GB. The cap on
excess charges was also lifted from S$94.16 to S$188.32/month. The new pricing will
come into effect upon customers re-contracting.
Anticipates moderate growth in 2014. Management guided moderate single-digit
growth for net profit in 2014. Capex is estimated at S$130m for 2014. M1 is scheduled
to complete the upgrade of its 4G network to LTE Advance by end-14. M1 will
overhaul its billing and customer care system to handle customers with multiple
services. It will retrofit a second building (leased) at International Business Park, which
also houses a data centre.
Re-iterate BUY. We have raised our target price for M1 from S$3.89 to S$4.05 based
on DCF (required rate of return: 6.7%, terminal growth: 1.0%).
FY14F PE (x): 19.7
FY15F PE (x): 18.4
Adjusting pricing for mobile services higher. M1 has raised its pricing for mobile
services with effect from 1 Jan 14:
a) M1 has imposed a minimum charge of one minute per call for mobile services. The
change in pricing applies to M1’s entire post-paid subscriber base. It is the last among
the three telcos to impose the minimum charge.
b) M1 has raised excess charges for data from S$5.35/GB to S$10.70/GB. The cap on
excess charges was also lifted from S$94.16 to S$188.32/month. The new pricing will
come into effect upon customers re-contracting.
Anticipates moderate growth in 2014. Management guided moderate single-digit
growth for net profit in 2014. Capex is estimated at S$130m for 2014. M1 is scheduled
to complete the upgrade of its 4G network to LTE Advance by end-14. M1 will
overhaul its billing and customer care system to handle customers with multiple
services. It will retrofit a second building (leased) at International Business Park, which
also houses a data centre.
Re-iterate BUY. We have raised our target price for M1 from S$3.89 to S$4.05 based
on DCF (required rate of return: 6.7%, terminal growth: 1.0%).
Silverlake Axis
Kim Eng on 23 June 2014
Our DCF-based (WACC= 9.3%, terminal g= 3.0%) TP of SGD1.40 implies a 21% upside. Despite the strong 32% share price performance YTD, we expect the solid 16% FY6/14E-17E EPS CAGR
to sustain its re-rating. Furthermore, the highly cash generative nature of its business should support rising dividends.
Reasons to be optimistic
- Initiate at BUY with a DCF-based TP of SGD1.40. At our TP, the implied FY6/15E P/E is 26.6x.
- Entrenched position in growing market with solid expansion in recurring income stream.
- Strong capital management potential with a net cash position of MYR300m.
Our DCF-based (WACC= 9.3%, terminal g= 3.0%) TP of SGD1.40 implies a 21% upside. Despite the strong 32% share price performance YTD, we expect the solid 16% FY6/14E-17E EPS CAGR
to sustain its re-rating. Furthermore, the highly cash generative nature of its business should support rising dividends.
Reasons to be optimistic
- Entrenched position in the huge addressable Asia-Pacific banking market. Ranked fifth in Asia Pacific and top 2 in Southeast Asia, we expect SAL to benefit from growing IT spending by banks (five-year CAGR= 6.8%). The ongoing drive to upgrade ageing core banking systems will continue to drive sales of its flagship product and allow it to monetize the large installed base of its products.
- Strong momentum in software licencing: leading indicator for recurring income. Software licencing sales increased by 15% YoY in 9MFY6/14 and we expect this to translate into growing recurring income (FY6/14E: 43% of group revenue) over the next few years.
- Strong capital management potential. With an ungeared balance sheet and sizeable war chest of more than MYR300m in cash, SAL could optimize their capital structure by announcing a special dividend or initiating a share buyback program.
HanKore Environment Tech
Kim Eng on 20 June 2014
HanKore’s share price has corrected by 25% since details of the reverse takeover by China Everbright International (CEI) was announced on 2 June. The market viewed the deal negatively on the back of a higher-than-expected transaction price, causing a larger-than-expected EPS dilution. This has the effect of inflating HanKore’s FY6/15E P/E multiple to 23.4x, exceeding that of its closest peer SIIC, which is priced at 22.1x FY15E.
Remain sanguine on the stock
We believe the benefits that CEI could bring, such as stronger project sourcing ability, lower cost of borrowing and stronger balance sheet remain underappreciated by the market. With the backing of CEI, we expect HanKore to embark on an acquisition drive to position itself as a key player in the wastewater treatment (WWT) industry. We are now looking at an annual acquisition of 1m ton/day WWT capacity in FY6/15E and FY6/16E vs our original forecast of 500k ton/day.
After incorporating the final details of the CEI deal, we expect HanKore’s FY6/15E EPS to contract by 28.9% (vs +8.1% previously) before rebounding to 35.6% in FY6/16E. Accordingly, we cut our TP to SGD1.23, still based on 30x FY6/15E P/E. We believe the current share price weakness presents a good buying opportunity.
- Although the CEI deal was more expensive than expected, we believe that the benefits CEI could bring remain underappreciated by the market, in our view.
- With the backing of a state-owned enterprise, we expect HanKore to embark on a more aggressive acquisition drive.
- Maintain BUY but with a lower TP of SGD1.23 (previously SGD1.70) after incorporating the merger structure.
HanKore’s share price has corrected by 25% since details of the reverse takeover by China Everbright International (CEI) was announced on 2 June. The market viewed the deal negatively on the back of a higher-than-expected transaction price, causing a larger-than-expected EPS dilution. This has the effect of inflating HanKore’s FY6/15E P/E multiple to 23.4x, exceeding that of its closest peer SIIC, which is priced at 22.1x FY15E.
Remain sanguine on the stock
We believe the benefits that CEI could bring, such as stronger project sourcing ability, lower cost of borrowing and stronger balance sheet remain underappreciated by the market. With the backing of CEI, we expect HanKore to embark on an acquisition drive to position itself as a key player in the wastewater treatment (WWT) industry. We are now looking at an annual acquisition of 1m ton/day WWT capacity in FY6/15E and FY6/16E vs our original forecast of 500k ton/day.
After incorporating the final details of the CEI deal, we expect HanKore’s FY6/15E EPS to contract by 28.9% (vs +8.1% previously) before rebounding to 35.6% in FY6/16E. Accordingly, we cut our TP to SGD1.23, still based on 30x FY6/15E P/E. We believe the current share price weakness presents a good buying opportunity.
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