PACC Offshore Services

OCBC on 24 Feb 2015

PACC Offshore Services Holdings Ltd. (POSH) reported a 1% YoY rise in revenue to US$55.8m but saw a net loss of US$10.0m in 4Q14, bringing full-year net profit to US$53.2m vs. US$73.4m in FY13. This was significantly below the street’s expectations (Bloomberg consensus: US$81.0m). Gross profit margin was only 11.6% in 4Q14, compared to 22.3% in 4Q13 and 25.9% in 3Q14, mainly due to poorer performance in the offshore support vessels segment as well as the transportation & installation segment. Looking ahead, it is uncertain when the second SSAV would secure a contract, and OSV charter rates are likely to be pressured. We update our estimates, and based on 8x FY15F EPS, we derive a fair value estimate of S$0.50 with a HOLD rating for POSH. Meanwhile, a 1.5 S cents dividend has been proposed for FY14.

FY14 results below street’s expectations
PACC Offshore Services Holdings Ltd. (POSH) reported a 1% YoY rise in revenue to US$55.8m but saw a net loss of US$10.0m in 4Q14, bringing full-year net profit to US$53.2m vs. US$73.4m in FY13. This was significantly below the street’s expectations (Bloomberg consensus: US$81.0m). Gross profit margin was only 11.6% in 4Q14, compared to 22.3% in 4Q13 and 25.9% in 3Q14, mainly due to poorer performance in the OSV segment as well as the transportation & installation segment. Losses at the JV level also pulled net profit down.

Updates on the two SSAVs
The first SSAV, POSH Xanadu, is undergoing inspections and trials in Brazil prior to deployment in 1Q15. It has been contracted to Petrobras for a 1+1 year contract worth US$80.5m for the first year. Efforts are underway to secure employment for the second SSAV, POSH Arcadia, which is scheduled for delivery in mid-2015. However, given the problems that Petrobras itself is facing, it is increasingly uncertain when the contract would be awarded. 

Looking beyond Mexico
Meanwhile, PEMEX is also planning for capex reductions, and it is also unclear when POSH’s Mexico JVs will turn around. As such, it is not surprising that out of the nine Mexican flagged vessels in FY14, six have been reflagged in pursuit of international charters. Of the remaining three vessels, two are on charter and the last unit is under negotiation. POSH has been seeing losses for its share of JV line item since 4Q13, save for 2Q14.

HOLD with S$0.50 fair value
With the oil price volatility, POSH plans to focus on cost efficiency and maximise vessel utilisation. It has also deferred certain planned newbuildings; committed capex as of end FY14 approximates US$250m, of which US$130m is expected to be paid in FY15. Meanwhile, net gearing stands at a healthy 0.5x. Based on 8x FY15F EPS, we derive a fair value estimate of S$0.50 with a HOLD rating for POSH. A final 1.5 S cents dividend has also been proposed for FY14, representing a cash payout of 38%.

Libra Group Ltd

OCBC on 23 Feb 

After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained upgrades to a L6 category for its BCA licences related to air-conditioning, refrigeration and ventilation works (workhead ME01) as well as integrated building services (workhead ME15). The upgrades would enable them to tender for an unlimited amount of public government projects, whereas previously they were constrained to projects with contract values below S$14m. Ahead of its FY14 results to be released, we believe the group could achieve an estimated 8.0 times growth in earnings to S$4.7m. The counter’s share price has appreciated 7.5% since our last report in Jan-15. With a good dividend yield of 7.0% expected, maintain BUY with a fair value estimate of S$0.33.

Licence upgrades create more opportunities
After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained an upgrade in its BCA grading from L5 category to L6 category for air-conditioning, refrigeration and ventilation works (workhead ME01). This enabled the group to receive a similar upgrade to L6 category for its integrated building services (workhead ME15) according to BCA regulatory requirements, which takes into consideration the company’s financial capability, relevant technical personnel, management certifications and track record of projects. The upgrades would enable Kin Xin Engineering to tender for an unlimited amount of public government projects. Prior to this, an L5 status had constrained them to tender for projects with contract values below S$14m. With Libra’s year-to-date order book estimated at S$105.6m, we think that Libra has strengthened its position to secure bigger contract wins amid a healthy public construction outlook.

Focusing on organic growth 
Having had a private placement back in Sep-14, Management also recently declared a reallocation of S$1.4m in proceeds, which was initially intended for potential investments and acquisitions, to be utilised in the group’s general working capital instead. This includes funding the growth of its mechanical and electrical segment as well as the building and construction business in relation to labour requirements and making payments to suppliers. 

FY14 results likely to incite confidence 
Ahead of its FY14 results to be released, we believe the group could achieve an estimated 8.0 times growth in earnings to S$4.7m driven by its three business segments – M&E, manufacturing as well as general construction solutions. Upside could also arise if the group proves to have improved its management of doubtful receivables. Given the group’s expansion plans, we may however see some erosion in margins. The counter’s share price has appreciated 7.5% since our last report in Jan-15. With a good dividend yield of 7.0% expected, maintain BUY with a fair value estimate of S$0.33.

Genting Singapore

UOBKayhian on 25 Feb 2015

FY15F PE (x): 16.2
FY16F PE (x): 15.3

Hold-normalised 2014 EBITDA in line. Genting Singapore’s (GENS) 2014 flattish EBITDA of S$1,158m accounted for only 88% of our full-year forecast, largely due to disappointing 4Q14 win rate of 2.2%. However, on a hold-normalised basis (2.85% win rate), EBITDA would have been in line at S$1,350m. 4Q14’s results were commendable after considering the higher-than-expected receivables impairment and 15% fall in RCV. 2015 EBITDA to recover significantly as win percentage should normalise. We foresee modest top-line recovery in 2015, as the expected mid-single digit growth in mass market volumes and normalisation of win percentage should more than offset contracting VIP volumes. Maintain BUY with unchanged SOTP-based target price of S$1.32, implying 12x 2015F EBITDA. Currently at 9x 2015F EV/EBITDA, GENS is trading at the low end of its historical range. In view of the 10% share price correction in the past two months coupled with disappearance of valuation premium against Genting sister companies, we believe most of the negatives stemming from VIP segment have been priced in.

Noble Group

OCBC on 17 Feb 2015

Noble Group's shares closed some 7.9% lower yesterday, after a little-known outfit Iceberg Research (IR) alleged that it has found "striking" financial similarities between Noble and Enron; IR estimates equity value to be less than US$360m, fair value of just S$0.10/share. Although Noble has issued a statement to completely reject these allegations, the near-term uncertainty is likely to linger, if the previous Olam-Muddy Waters episode is anything to go by. Due to the blackout period before Noble's FY14 results due 26 Feb, we are also unable to get much clarity from management. As such, we believe it is best to put our Buy rating and S$1.30 fair value under review until we do.

Shares tumble 7.9% 
Noble Group's shares closed some 7.9% lower yesterday, after a little-known outfit Iceberg Research (IR) alleged that it has found "striking" financial similarities between Noble and Enron; these include overvalued assets, contracts fair values, working capital management, debt presentation among others. Because of these alleged exploits to avoid large impairments of assets/associates and fabricate profit, IR estimates that Noble's equity is less than US$360m (versus a reported US$5.6b) after various impairments it had listed in its report. It further values Noble's share to be conservatively worth just S$0.10. 

Noble completely rejects these allegations
In a statement, Noble says it completely rejects these allegations, adding t hat all material information to which IR refers is in public domain. There has also been no material adverse change since the company last reported. The sharp drop in share price also drew a query from the exchange, to which, management replied that other than the IR report, it was not aware of any information not previously announced that might explain the trading.

Near-term uncertainty likely to continue
Although Noble has issued a statement to refute these allegations, the near-term uncertainty is likely to linger, if the previous Olam-Muddy Waters episode is anything to go by. While Noble may need to be more proactive in meeting with investors to categorically counter the allegations, we note that the company may be in a "blackout" period as it is due to report its FY14 financial results on 26 Feb, thus making IR's adverse report on Noble well timed.

Putting our rating under review
As we are also unable to get clarity from management due to the above-mentioned reason, we believe it is best to put our Buy rating and S$1.30 fair value under review. In the meantime, we will be going over some of the allegations raised by IR and hopefully get some answers from management during the results teleconference.

Sembcorp Industries Ltd

UOBKayhian on 18 Feb 2015

FY15F PE (x): 9.4
FY16F PE (x): 8.7

Above expectations. Sembcorp Industries (SCI) posted a net profit of S$241m and S$801m for 4Q14 and 2014 respectively. 2014’s net profit was 4% of our forecast of S$772m. We attribute this to better-than-expected marine earnings. Marine operating margin was sharply higher at 16.1% vs 10.0% in 3Q14 and 11.1% in 4Q13. This was due to repeat orders and greater efficiency. Excluding a net exceptional gain of S$69m from 2013’s earnings, utilities net profit grew by 7% from S$381m in 2013 to S$408m in 2014. The net exceptional gain in 2013 was due to a S$117.1m gain from the Salalah IPO and net of S$48.5m impairment from UK Teeside. Powering ahead. SCI will continue to power ahead with 3,000MW (+76%) of power and close to 1.5m m3/day (+21%) of water and wastewater treatment capacities which will come on stream in 2014-16. The largest capacity additions are two power plants – totaling 2,640MW in India. SCI’s Banyan Cogen (Singapore) is completed and in operation. TPCIL’s (India) first 660MW unit is currently pre-commissioning with commercial operations to have occurred at end-14. NCCPP (India) and Fujairah 1 desalination expansion (UAE) are more than half complete. Maintain BUY and target price of S$5.20 which is pegged to our revised SOTP valuation. We value SCI’s utilities business at 2016F PE of 12x 2016F PE and SMM at S$2.93/share (based on 2016F PE of 9.5x, assuming Brent oil price at US$70/bbl). We maintain our BUY call.

CapitaLand

UOBKayhian on 18 Feb 2015

FY15F PE (x): 23.9
FY16F PE (x): 22.5

Results in line with expectations. CapitaLand reported 4Q14 net profit of S$409.4m, bringing its 2014 PATMI to S$1160.8m, up 38% yoy. This was driven by improved operating performance from the shopping mall segment and development projects in Vietnam in addition to profit from the sale of Westgate Tower (S$123.5m), as well as lower funding costs. Excluding exceptional items, core Operating PATMI of S$705.3m is in line with our expectations, accounting for 103% of our full-year forecast. Increased focus on expanding private equity funds. CapitaLand Fund Management will expand its current assets under management (AUM) of S$18b in conjunction with 4-5 new potential partners to come on board. Management has added that these potential candidates should be well-versed with CapitaLand’s strategic business model. Maintain BUY with an unchanged target price of S$4.08, pegged at a 20% discount to our RNAV of S$5.11/share. The stock is currently trading at a deep 30% discount to its RNAV.

Singapore Airlines

UOBKayhian on 23 Feb 2015
 FY15F PE (x): 14.2
FY16F PE (x): 14.8

SIA's Jan-15 pax traffic growth was lowest since 2013, but could be due to a later Chinese New Year (CNY) in 2015. SIA stated that the decline in pax traffic was due to seasonal factors. Still, the decline in load factors was quite telling, with the Americas and Europe declining by 8.6ppt and 3.5 ppt respectively. Load factor for Europe and the Americas have been declining since Jun 14 and Oct 14 respectively suggesting that increased competition is a key factor behind the decline in load factor and possibly even traffic. Decline in pax traffic is seen as an anomaly, sustainability of yields is a greater concern. Pax yields in 3QFY15 improved 2.7% and was the highest in 2.5 years. Given the spate of airline disasters in the region, there is a possibility that passengers on regional travel might gravitate towards SIA. This is not yet evident in SIA’s January numbers but fares could have increased on select routes. Thus there is a possibility that yields could remain strong in 4QFY15. The downside to this, is weakness out of Europe and increased competition from Middle Eastern carriers. Maintain HOLD on SIA. We have forecast ROE to improve threefold for FY16 and dividend to rise by 160% based on similar payout. Based on that, SIA would offer a dividend yield of 4.5%, which is reason enough to own the stock. We raise our suggested entry level from S$11.30 to S$11.70 to reflect the attractive yield. Comparatively, we still prefer Cathay Pacific (293 HK, BUY, Target HK$19.00) due to stronger traffic growth and cargo growth and prospects for improved cargo yield.

Sembcorp Industries

OCBC on 18 Feb 2015

Sembcorp Industries (SCI) posted a 10.4% YoY drop in revenue to S$2.7b and a 7.5% rise in net profit to S$240.6m in 4Q14, such that FY14 net profit of S$801.1m (-2%) was 4% higher than our full year estimate; within our expectations. Excluding one-off items in FY13, SCI achieved a 3% net profit growth in FY14. Management expects the utilities environment to remain challenging but is optimistic about overseas growth. After fine-tuning our estimates and taking into account our lower fair value estimate for Sembcorp Marine, our fair value for SCI drops from S$5.00 to S$4.84. However, as SCI’s share price has corrected since our last report, there is now an upside potential of 19% (includes 3.8% dividend yield). Hence we upgrade our rating to BUY. A final dividend of S$0.11/share is payable on 18 May 2015.

FY14 results in line
Sembcorp Industries (SCI) posted a 10.4% YoY drop in revenue to S$2.7b and a 7.5% rise in net profit to S$240.6m in 4Q14, such that FY14 net profit of S$801.1m (-2%) was 4% higher than our full year estimate; within our expectations. For the full year, net profit from the utilities business fell 9% to S$408.0m, while marine saw a 1% rise to S$340.0m. Urban development registered a 12% drop in net profit to S$8.9m. Net profit in FY14 decreased mainly because FY13 included the gains from the IPO of Salalah, offset by impairments for Teesside in the UK. Excluding these items, SCI achieved a 3% net profit growth in FY14. 

Utilities – seeking growth overseas
Management expects the utilities environment in Singapore to be challenging this year with intense competition in the power market as well as low oil prices. This is significant as Singapore accounted for 53% of utilities’ net profit in FY14. The picture looks brighter overseas, as SCI’s 1,320 MW power plant in India will commence operations in phases this year. The group is also seeking to expand its footprint in India, as seen by its recent S$232.5m acquisition of a 60% stake in Green Infra Ltd which owns 665 MW of wind and 35 MW of solar assets in operation and under development in India.

Final dividend of S$0.11/share
SCI has proposed a final dividend of S$0.11/share (payable 18 May 2015), bringing the full year dividend to S$0.16/share with a payout ratio of 36%. In FY13, the group paid a final dividend of S$0.15 and a special dividend of S$0.02 with no interim dividend.

Share price has corrected; upgrade to BUY
After fine-tuning our estimates and taking into account our lower fair value estimate for Sembcorp Marine, our SOTP-based fair value for SCI drops from S$5.00 to S$4.84. However, as SCI’s share price has fallen by ~10% since our last report, there is now an upside potential of 19% (includes 3.8% dividend yield). Hence we upgrade our rating to BUY.

CapitaLand Limited

OCBC on 18 Feb 2015

CAPL’s 4Q14 PATMI increased 187% to S$409.4m mainly due to divestment gains from office strata units at Westgate Tower, higher contributions and revaluation gains from the shopping mall and serviced residence businesses, partially offset by lower profits from China and lower portfolio losses. Full year PATMI and operating profit are reported to be S$1,160.8m and S$705.3m, up 38% and 40% respectively, which are within our expectations. Given the slowdown in the domestic residential space, the group sold only 278 units in Singapore over FY14 – a whopping 78% dip versus 1,260 units sold in FY13. Sales in China also fell 35% from 7,688 units in FY13 to 4,961 units in FY14; that said, we still see this to be a fairly respectable clip and note that Chinese total sales value only dipped 13% to RMB7,555m in FY14 given a more favorable mix. A final dividend of 9.0 S-cents has been proposed. We update our valuation model with latest sales datapoints and our fair value increases marginally from S$3.79 to S$3.98 (25% discount to RNAV). Maintain BUY.

Boost from Westgate office divestment gains
CAPL’s 4Q14 PATMI increased 187% to S$409.4m mainly due to divestment gains from office strata units at Westgate Tower, higher contributions and revaluation gains from the shopping mall and serviced residence businesses, partially offset by lower profits from China as fewer units were handed over over the quarter and lower portfolio losses. Full year PATMI and operating profit are reported to be S$1,160.8m and S$705.3m, up 38% and 40% respectively, which are within our expectations. Full year revenue increased 12% to S$3,924.6m again due to Westgate, improved performances from investment assets and development projects in Vietnam, offset by poorer numbers from developments in China. A final dividend of 9.0 S-cents has been proposed, up from 8.0 S-cents in the previous year.

SG resi sales down 78% to 278 units in FY14
Given the slowdown in the domestic residential space, the group sold only 278 units in Singapore over FY14 – a whopping 78% dip versus 1,260 units sold in FY13. We note that two of the group’s completed residential projects, Urban Resort (69% sold) and The Interlace (84% sold), are subject to QC penalties this year but total extension charges of S$8.6m are unlikely to have a significant impact. Sales in China also fell 35% from 7,688 units in FY13 to 4,961 units in FY14; that said, we still see this to be a fairly respectable clip and note that Chinese total sales value only dipped 13% to RMB7,555m in FY14 given a more favorable mix. The group has a steady pipeline in China with 9k units that are launch-ready and expects to complete 8k units in 2015.

Fair value increased to S$3.98
FY14 same-mall NPI for the group’s retail business increased 2.5% and 19.9% in Singapore and China, respectively, with Chinese shopper traffic also growing 4.8% over the period. We update our valuation model with latest sales datapoints and our fair value increases marginally from S$3.79 to S$3.98 (25% discount to RNAV). Maintain BUY.

BreadTalk

OCBC on 18 Feb 2015

BreadTalk’s FY14 results were hit by a disappointing performance in the last quarter, citing weaker-than-expected sales across its markets, especially in Mainland China. FY14 revenue was up just 9.9% to S$589.6m, compared to an average growth rate of ~20% over the past five years. Higher expenses kept its pressure, resulting in a 10.3% decline for PATMI to S$12.2m. A final DPS of 1 S-cents was declared, bringing total DPS to 1.5 S-cents/share, which is lower than FY13 DPS of 1.8 S-cents. Following a change in analyst coverage, we have revised our estimates based on a softer outlook, and derived a new fair value estimate of S$1.02 (previous S$1.12), pegged to an updated target PER of 23x FY15F EPS (near 1 s.d. above its five-year average PER). Current valuations look stretched with the counter trading at 35.1x FY14 PER, thus we maintain SELL.

FY14 earnings down 10.3% 
With a typically back-loaded set of results, BreadTalk’s disappointing last quarter took a toll on the group’s full year results. Citing weaker-than-expected sales across its markets, especially in Mainland China, FY14 revenue was up just 9.9% to S$589.6m as compared to an average growth rate of ~20% over the past five years. Although the group saw higher ‘other income’ growth of 48.6% to S$17.5m, consisting of a gain on sale of assets to the new JV in Thailand and increase in management fee income from food court operations, the group faced greater expenses as well, resulting in a 10.3% decline in PATMI to S$12.2m. A final DPS of 1 S-cents was declared, bringing total DPS to 1.5 S-cents, which is lower than FY13 DPS of 1.8 S-cents. 

Mixed bag of performance across segments
With 80 stores added to reach a current total of 817 Bakery outlets, the group’s Bakery division gained 8.4% in revenue while PATMI fell 36.9%, mainly attributable to higher rental and labour costs amid the gestation period. Din Tai Fung (DTF) in Singapore continued to drive the Restaurant division’s revenue up by 12.5% while PATMI only had a marginal change due to operating losses incurred from its Ramen Play business that had six stores closed in 2014. As the group only holds franchise agreement to open DTF in Singapore and Thailand, we could see a similar showing going forward, as opportunities for store openings become limited. We think there is better potential for its Food Atrium division, which grew 15.2% in revenue and 12.9% in PATMI on the back of its stores in Hong Kong and Singapore. Food atrium outlets increased from 58 to 63 as of Dec-14. 

Maintain SELL 
Following a change in analyst coverage, we have revised our estimates based on a softer outlook, and derived a new fair value estimate of S$1.02 (previous S$1.12), pegged to an updated target PER of 23x FY15F EPS (near 1 s.d. above its five-year average PER). Current valuations look stretched with the counter trading at 35.1x FY14 PER, thus we maintain SELL.

Neptune Orient Lines

OCBC on 18 Feb 2015

Neptune Orient Lines Limited (“NOL”) announced yesterday that it had entered into a sale and purchase agreement with Kintetsu World Express for APL Logistics (APLL) for ~US$1.2b. Based on FY14 results, the purchase values APLL at ~5.0x P/B, ~16.4x P/E, and ~15.0x EV/EBITDA. Compared to precedent logistics M&A transactions, IPO and peers valuations based on EV/EBITDA multiple of between 9.6x and 11.4x, we think the purchase price is more favourable for NOL. Divestment is expected to complete by mid-2015. Although the divestment will result in strengthened balance sheet, NOL will fully depend on liner business which we expect depressed yields to continue in FY15. Should the proposed divestment go through, based on a higher FY15F NBV, and 0.80x P/B (-0.75SD below 7-year mean) which we discount for higher risk on slower recovery without APLL, we derive a FV of S$1.15. However, given that the divestment is still pending approval, we incorporate the post-divestment FV with our current FV of S$0.92 (without divestment of APLL) on a blended basis. Consequently, our FV increases from S$0.92 to S$1.01. Upgrade to HOLD.

Proposed divestment price favourable for NOL
Neptune Orient Lines Limited (“NOL”) announced yesterday that it had entered into a sale and purchase agreement with Kintetsu World Express (KWE) for APL Logistics (APLL) for ~US$1.2b. Based on FY14 results, the purchase values APLL at ~5.0x P/B, ~16.4x P/E, and ~15.0x EV/EBITDA. Compared to precedent logistics M&A transactions, IPO and peers valuations based on EV/EBITDA multiple of between 9.6x and 11.4x, we think the purchase price is more favourable for NOL. The divestment came as a surprise to us as management played down the possible sale only last Friday.

Impact on NOL if divestment goes through
If the proposed divestment is approved by shareholders and regulators, we should see the following impact on NOL assuming the transaction completes in 3Q15: 1) one-off pre-tax gain of US$900m in FY15F from the divestment, 2) no impact on cash balance in FY15F as we assume the full US$1.2b cash will be used to repay debts, 3) debts to reduce by US$1.2b from 3Q15 resulting in an estimated US$30.0m annual saving in interest expenses, 4) this will boost FY15F NBV from ~US$1.7b to ~US$2.8b while net gearing declines from 2.32 to 1.02, 5) loss of ~US$55.0m annual PATMI as APLL’s contribution to cease from 3Q15, 6) net negative impact of ~US$25.0m annually on NOL’s P&L. That said, we think the strengthened balance allows NOL to be better poised to for recovery as it is able to direct focus and resources to manage the liner business. However, note that APLL makes up ~19% of total revenue and has been the sole positive contributor to NOL’s bottom-line over the last three years. We also expect depressed yields to continue although lifted partially by lower bunker price in the near-term. Hence, should the proposed divestment go through, based on a higher FY15F NBV, and 0.80x P/B (-0.75SD below 7-year mean), discounted for slower recovery without APLL, we derive a FV of S$1.15.

Increase FV; upgrade to HOLD
However, given that the divestment is still pending approval, we incorporate the post-divestment FV with our current FV of S$0.92 (i.e. without divestment of APLL) on a blended basis. Consequently, our FV increases from S$0.92 to S$1.01. Upgrade to HOLD.

Halcyon Agri Corp

UOBKayhian on 17 Feb 2015

FY15F PE (x): 8.2
FY16F PE (x): 3.8

Results within our expectations. Halcyon Agri Corp’s (Halcyon) adjusted net loss of S$9.4m for 2014 was in line with our forecast of a US$6m loss. This was on the back of a surge in cost of sales (+146% yoy) and finance costs (+537% yoy). The increase in cost of sales was mainly due to higher sales volume (+265% yoy) while the higher finance cost was due to the group’s issuing term loan and medium-term note (MTN) in Jul 14 to partly finance the Anson acquisition. GMP and margin pressures not letting off. Gross material profit (GMP) continued to be suppressed. 4Q14 GMP was lower than the historical average of US$356. As a result, gross margin fell 4.7ppt from 9.9% in 2013 to 5.2% in 2014. However, we note that as HACL continues with its transformation into an integrated natural rubber supply chain manager, the group will be able to sell its rubber products at a premium above market prices and it is likely to capture upstream and downstream margins in the long term. Maintain HOLD and target price of S$0.64, based on 9.4x 2015F PE after applying a 10% discount to Sri Trang’s historical mean PE of 10.4x. Entry price is S$0.51.

Ezion Holdings

UOBKayhian on 17 Feb 2015

FY15F PE (x): 5.9
FY16F PE (x): 5.1

Marginally ahead of expectation. Ezion reported net profit of US$223.7m for 2014 and US$83.7m for 4Q14. Against our forecast of US$210m, results were marginally ahead of our expectations. The company booked in a US$34.9m gain in 4Q14 from the divestment of the offshore logistic support services business to AusGroup. This offset the negative impact of the off-hire of Ezion’s tugs and barges in Australia. The tugs and barges will be rechartered on a spot basis in 2015. Management had earlier guided weaker-than- expected operating profits for 4Q14, but it would be offset by the divestment disposal gain. Cautious on new capex. In the company’s recent communication with institutional investors, majority wanted Ezion to be cautious on having new capex amid the beginning of an industry downturn. Ezion expects to secure charter contracts for less new units than last year’s 10-11. Maintain BUY and our target price of S$1.55, based on 7.0x 2016F PE. UOB Kay Hian is forecasting an average Brent oil price of US$65/bbl for 2015 and US$70/bbl in the longer term. Our regression analysis of past cycles suggests US$70/bbl for Brent oil, and the 1-year forward PE of Singapore OSV-owner segment is 6.2x. Given Ezion’s locked-in long-term vessel charters and its positioning in shallow-water production, we value it at a higher 2016F PE of 7.0x.

Raffles Medical Group

UOBKayhian on 17 Feb 2015

FY15F PE (x): 30.2
 FY16F PE (x): 25.7

No surprises in 2014. Raffles Medical Group’s (RMG) 2014 adjusted net profit of S$64.6m (+6.7% yoy) came in broadly within our and market expectations. Despite revenue growth outpacing staff costs, pressures from other operating segments resulted in a 6.2ppt decline in operating margins. A total dividend per share of 5.5 S cents in 2014 implies a dividend payout of 48%. Valuations are slightly stretched with the price rise over the past year. Fundamentals remain promising, but much of the benefits have been priced in after a 21.6% price rise over the past year. The stock currently trades at 27.7x 2015F PE, which is above +1SD of 28.8x.

COSCO Corp

UOBKayhian on 17 Feb 2015


FY15F PE (x): 28.2
 FY16F PE (x): 21.6

Net earnings 57% below estimate. COSCO Corp (COSCO) reported a S$13.2m loss in 4Q14 and net profit of S$20.9m in 2014, coming in 57% below our estimate. While revenue surprised with a 22% upside, S$212m of impairments, allowances and writedowns totalled to drag earnings down. Margins under pressure. COSCO’s gross margin has been on a steady decline since 2013, while the high gearing and large receivables on its balance sheet remains as a concern. With the shipbuilding market expected to remain weak for the foreseeable future, we expect the stock to languish further. Maintain SELL, with a reduced target price of S$0.53. We base our target price on 2015 P/B of 0.8x, translating to a target price of S$0.53.

City Developments

UOBKayhian on 17 Feb 2015

FY15F PE (x): 13.8
FY16F PE (x): 11.8

Results below expectations. City Developments (CDL) reported 4Q14 net profit of S$384.9m, up 73% yoy, bringing full-year net profit to S$769.6m, up 12% yoy. Property development PBT increased 47% yoy in 4Q14, largely due to full revenue recognition from Blossom Residences which obtained TOP in Sep 14. The strong performance from the hotel segment was primarily due to contributions from recently-acquired refurbished hotels in the US (particularly Millennium Hotel Minneapolis), and the UK. The decrease in pre-tax profit for rental properties was mainly attributed to an absence of substantial gains on disposal of non-core investment properties. Excluding gains from the securitisation of its Sentosa properties (Quayside Collection: W Hotel, Retail and The Residences at W Singapore), results were below our expectations, mainly due to timing differences. Maintain HOLD and target price of S$10.84, pegged at a 20% discount to our RNAV of S$13.55/share. Entry price is S$8.70.

BOUSTEAD SINGAPORE

UOBKayhian on 17 Feb 2015

• Maintain BUY but with a reduced target price of S$2.04, derived from our SOTP model. We cut our FY15-17F net profit by 2.5-5.4% to account for the lower-than expected earnings and order wins for the energy segment. 

 FINANCIAL HIGHLIGHTS 

• Boustead Singapore recorded profit after tax of S$11.8m in 3QFY15, a decline of 36% compared with S$18.4m in 3QFY14, due to lower gross profit margins despite higher revenue. The Group’s revenue grew 37% yoy to S$177.9m mainly attributable to a larger contribution from the real estate segment that saw revenue from this segment rising 95% to S$99.5m. However, gross profit and gross profit margins were lower for the quarter as a result of the completion of a large real estate project. Gross profit for the quarter fell 12% to S$42m with overall GPM deteriorating 13.3ppt from 36.9% in 3QFY14 to 23.6% in 3QFY15. 9MFY15 net profits totalled S$45.4m (+1% yoy) and accounts for 72.4% of our previous full-year forecast of S$62.7m. 
• The group also announced that its current orderbook backlog stands at S$342m (S$180m in real estate and S$162m in energy). While there was been a slower than expected award of contracts for the energy segment due to falling oil price, management maintains positive about its mid-long term prospects as its enquiry pipeline remains healthy. 

OUR VIEW 

• Gross margins from the real estate segment should normalise. We understand that the large real estate project that dragged gross profit margin down was awarded with a more competitive bid two years ago, as Boustead saw it as a strategic move rather than plain profitability. Upon the completion of this lower margin real estate project, we expect margins to recover going forward. 
• Challenges to remain in the energy segment. Although Boustead is still receiving healthy number of enquiries on projects, we expect orders to slow as its customers reduce capex amidst falling oil prices. Investors should note that this segment contributes approximately 26% of PBT and 18% of our valuation. 
• There is still no official update on the Boustead Project demerger, but we expect the company to already have submitted relevant documents to the authorities. Boustead is carrying out this corporate action with utmost priority as any delay will result in the company having to file the complete set of financial documents again.

Olam

OCBC on 17 Feb 2015

Olam posted a slightly weaker-than-expected 2QFY15 results, impacted mostly by adverse currency devaluations, lower trading volumes and underperformance in hazelnuts and Dairy farming in Uruguay. As such, although 1HFY15 revenue was up 4.0% at S$9178.0m, meeting 44% of our full-year forecast, reported NPAT slipped 9.7% to S$163.0m; operational NPAT tumbled 21.4% to S$137.3m, or 31% of our FY15 estimate. While Olam has continued to make divestments as part of its strategy to boost its balance sheet, it has also made several large acquisitions, which could again put its balance sheet under pressure. Furthermore, our FY15 estimates are likely to be quite distorted until we get a better sense of the new seasonality of its earnings. For now, we are keeping our fair value unchanged at S$2.30 and our HOLD rating.

2QFY15 still slightly soft 
Olam posted a slightly weaker-than-expected 2QFY15 results. Although revenue grew 8.3% YoY to S$4879.4m, EBITDA slipped 11.3% to S$278.3m, affected mostly by adverse currency devaluations, lower trading volumes and underperformance in hazelnuts and Dairy farming in Uruguay. Reported net profit slipped 12.0% to S$118.7m; operational NPAT fell by a larger 18.5% to S$105.1m. For 1HFY15, revenue was up 4.0% at S$9178.0m, meeting 44% of our full-year forecast, while reported NPAT slipped 9.7% to S$163.0m; operational NPAT tumbled 21.4% to S$137.3m, or 31% of our FY15 estimate. We note that this is also at the lower end of its 30-40% earnings guidance for seasonality. 

Hazelnuts, Dairy and forex impacted bottomline
In 2QFY15, Edible Nuts saw lower volumes shipped as it had partially discontinued operations at its cashew processing facility in Nigeria, while lower EBITDA was also due to challenges in the hazelnut business. Food Staples and Packaged Foods also saw a hefty volume decline due to discontinued operations in Australia and South Africa, while the continued underperformance of Dairy farming operations in Uruguay and the impact of currency devaluation affected EBITDA. 

Still on buying spree
In 2QFY15, Olam made a divestment that had a positive S$217.8m cashflow; it has also turned FCFF positive to the tune of S$75.6m in 1HFY15, although we note that Olam still incurred a negative net operating cashflow of S$67.5m. Meanwhile, Olam has made several acquisitions of late, including the move to acquire the global cocoa business of Archer Daniels Midland (ADM) for US$1.3b, with deal to be concluded by Jun 2015. Currently, Olam has a net gearing of 1.85x as of 31 Dec 2014 versus its target of <2.0x. 

FY15 estimates likely to be distorted
Due to the change in financial year end, our FY15 estimates are likely to be quite distorted until we get a better sense of the new seasonality of its earnings. For now, we are keeping our fair value unchanged at S$2.30 and our HOLD rating.

CWT Limited

OCBC on 17 Feb 2015

CWT Limited’s (CWT) FY14 revenue jumped 67% to S$15.2b as it recorded revenue growth from all its business segments. Its top-line growth continues to be driven by Commodity Marketing (CM) segment while FY14 PATMI only saw a 6% increase to S$112.4m. The growth in profit was still mainly from Financial Services segment on higher business volume and increased capacity in Logistics Services. However, with a decline in CM’s profit contribution, CWT’s FY14 EPS only formed 87.9% of the consensus forecast. Going forward, we continue to expect CWT to grow through capacity expansion in its LS segment while CM segment should continue to see high volume with slightly improved margin. With change in analyst coverage, we incorporate the latest results and adjusted our assumptions on a slower growth outlook. Consequently, we derive a new FV of S$1.98 (prev: S$2.01) and reinstate our BUY rating on CWT.

PATMI grew 6% YoY to S$112.4m
CWT Limited’s (CWT) FY14 revenue jumped 67% to S$15.2b as it recorded revenue growth from all its business segments. Its top-line growth continues to be driven by Commodity Marketing (CM) segment with 72.0% growth to S$13.9b. While revenue surged 67%, FY14 PATMI only saw a 6% increase to S$112.4m. Excluding one-off gains/losses, core PATMI grew 18.2% to S$111.9m. The growth in profit was still mainly due to: 1) solid earnings from Financial Services (FS) segment on higher business volume with increased customers’ base for brokerage as well as trade services, and 2) increased capacity in Logistics Services (LS) from CWT Jurong East Logistics Centre which received TOP in Jan-14. However, as margin squeeze on its CM segment due to weaker demand, liquidity and less favourable trading conditions led to decline in CM’s profit contribution, CWT’s FY14 EPS only formed 87.9% of the consensus forecast. 

FY15 growth to come from logistics capacity expansion
Going forward, we continue to expect CWT to grow through capacity expansion in its LS segment, specifically: 1) CWT Cold Hub 2, which obtained TOP in July 2014 is about ~100% utilised from Jan-15 after a fitting out period, and we expect to see almost a full-year impact in FY15, 2) CWT Pandan Logistics Centre, which obtained TOP in end Jan-15, and expects 100% utilisation from Apr-15 after 2-month fitting out period, and 3) in the longer-term, CWT’s 2.2m sqft mega logistics hub, which is expected to complete in 2017 and construction targeted to commence in mid-2015. We expect LS gross margins to stay close to its current level of ~17.0%. For CWT’s CM segment, we think volume will remain high while gross margin to improve from average of 0.80% in FY14 to 0.85% in FY15 and FY16. However, note that Naphtha trading will be impacted by seasonality issues with higher demand for winter season.

Change in analyst coverage; reinstate BUY rating
With change in analyst coverage, we incorporate the latest results and adjusted our assumptions on a slower growth outlook. Consequently, we derive a new FV of S$1.98 (prev: S$2.01) and reinstate our BUY rating on CWT.

COSCO Corp

OCBC on 17 Feb 2015

COSCO Corp reported a 2.3% YoY rise in revenue to S$915.8m but saw a net loss of S$13.2m in 4Q14 compared to net profit of S$4.6m a year ago. For the full year, revenue rose 21% to S$4.26b but net profit was a paltry S$20.9m, a 32% fall from FY13’s already poor showing. For the past six years, COSCO has been seeing negative operating cash flow each year – the business has essentially been propped up by bank loans. With a net gearing of 1.5x amidst a slowing offshore market, bank support has never been more critical. Execution also remains wanting to date. Lowering our P/B from 0.8x to 0.7x, our fair value estimate drops from S$0.50 to S$0.43. Maintain SELL.

Hitting a new low
COSCO Corp reported a 2.3% YoY rise in revenue to S$915.8m but saw a net loss of S$13.2m in 4Q14 compared to net profit of S$4.6m a year ago. For the full year, revenue rose 21% to S$4.26b but net profit was a paltry S$20.9m, a 32% fall from FY13’s already poor showing. Gross profit margin was 6.8% in FY14 vs 9.2% in FY13, while net profit margin was 0.5% in FY14 vs 0.9% in FY13.

Seeing the bottom for impairments yet?
In FY14, there was a S$124.5m write-down of inventories, S$61.7m allowance for construction contracts, and S$25.8m impairment of trade and other receivables. With a project undergoing arbitration and another one at risk of cancellation, there could be more provisions or impairments ahead for the group. This is in addition to execution hiccups that may occur as COSCO scales the offshore learning curve.

Surviving on bank loans
For the past six years, COSCO has been seeing negative operating cash flow each year – the business has essentially been propped up by bank loans. So far three (Guangdong, Dalian, Zhoushan) of the group’s six major yards have made it to the Chinese government’s white list of yards and are expected to enjoy financial support from local banks. It is unclear if more yards will be added to the list; if COSCO’s remaining yards are not added, there could be a reduction in bank support for the group.

Remains a risky proposition
As at 31 Dec 2014, the group’s gross order book stood at US$8.4b, with progressive deliveries up to 2017. However, as the group continues to execute projects that were secured in recent years “at low contract values”, it expects operating margins on these new shipbuilding projects to face downward pressure. This does not augur well for a company with a net gearing of 1.5x (vs. 0.7x in 4Q12 and 0.8x in 4Q13) amidst a slowing offshore market. Lowering our P/B from 0.8x to 0.7x, our fair value estimate drops from S$0.50 to S$0.43. Maintain SELL.

Roxy-Pacific Holdings

OCBC on 17 Feb 2015

Roxy’s 4Q14 PATMI increased 4% YoY to S$46.5m, mainly due to a surge in share of profits from associates (up from S$3.1m in FY13 to S$42.7m in FY14) with the recognition of sales profits and fair value gains from 8 Russell Street retail units, partially offset by lower development profits. Adjusted FY14 PATMI, excluding fair value gains, cumulates to an estimated S$92.4m which constitutes 108% of our full year forecast and is judged to be within expectations. A final cash dividend of 1.297 S-cents per share is proposed. Our valuation model is updated with a marginally higher discount rate and softer residential sales and ASP assumptions, and our fair value estimate dips to S$0.55 from S$0.61 previously. Maintain HOLD.

4Q14 results broadly in line
Roxy’s 4Q14 PATMI increased 4% YoY to S$46.5m mainly due to a surge in share of profits from associates (up from S$3.1m in FY13 to S$42.7m in FY14) with the recognition of sales profits and fair value gains from 8 Russell Street retail units, partially offset by lower development profits. Adjusted FY14 PATMI, excluding fair value gains, cumulates to an estimated S$92.4m which constitutes 108% of our full year forecast and is judged to be within expectations. In terms of the topline, FY14 revenue fell 14% to S$317.8m due to a decline in contributions from the property development segment, mitigated by growth in the hotel and investment property segments. A final cash dividend of 1.297 S-cents per share is proposed.

Growing recurring income from investment assets
Roxy continues to sit on a hefty S$656.6m of progress billings from already sold units which will be recognized over FY15-17. Given the slowdown in the core domestic residential segment, sales at the group’s latest projects Sunnyvale Residences (30% sold) and Trilive (25% sold) have slowed somewhat. That said, management has focused on strengthening its recurring income base from investment properties over FY14. Revenues from rental assets increased from S$1.6m in FY13 to S$6.6m in FY14, as contributions from 59 Goulburn Street in Sydney (acquired in Jul-14) came online. Hotel segment revenue increased 3% to S$47.9m in FY14 as the average occupancy rate improved from 86.1% in FY13 to 91.2% in FY14, partially offset by a reduced average room rate which dipped 4% YoY to S$184.5. We understand the group continues to see acquisition opportunities in Malaysia and Australia, particularly in key cities, and aims to work closely with experienced partners in these markets. Our valuation model is updated with a marginally higher discount rate and softer residential sales and ASP assumptions, and our fair value estimate dips to S$0.55 from S$0.61 previously. Maintain HOLD.

Raffles Medical Group

OCBC on 17 Feb 2015

Raffles Medical Group’s FY14 revenue was up 9.9% to S$374.6m, meeting the street’s expectations. Adjusting for one-off items, core PATMI at S$64.6m was up 6.7% but fell short of consensus by 5%. The group declared a final dividend of 4 S-cents/share, bringing total dividend to 5.5 S-cents/share (FY13: 5 S-cents/share). We think the group will likely receive a boost to top-line growth from the Emergency Care Collaboration with the Ministry of Health as well as its Holland Village project that is slated to open in 1Q16. Following a change in analyst coverage, we cut our FY15 EPS forecast slightly by 1.2%, mostly in consideration of higher expected expenses in relation to the group’s growing insurance business. This brings our fair value estimate a tad lower from S$3.95 to S$3.91 as we keep our target peg of 30x FY15F EPS unchanged. Maintain HOLD.

Core PATMI was up 6.7% for FY14
Raffles Medical Group’s FY14 revenue was up 9.9% to S$374.6m, meeting the street’s expectations. This was driven by higher revenue in the healthcare services segment and hospital services of 12.4% and 8.8% respectively. The group continued to add new specialists in 4Q14 to enhance the group’s services. Foreign patient growth also remained steady with more patients coming from emerging markets like Vietnam and Myanmar albeit fewer were from Russia and Indonesia possibly due to macro-led factors such as home currency depreciation. Effective tax rate was noticeably higher at 17% for the year following the group’s full utilization of their Productivity and Innovation Credit benefits. Management is hopeful that this scheme will be extended and lower rates could return going forward. Excluding a one-off gain of S$20.4m from the disposal of a subsidiary in FY13 as well as adjustments in fair value of investment properties, the group attained an estimated 6.7% increase in core PATMI to S$64.6m, falling short of consensus by 5%.

Topline growth likely to get boost 
From 3Q15 onwards, the Emergency Care Collaboration (ECC) with the Ministry of Health will see the hospital’s Emergency Department begin to receive subsidized patients from SCDF’s emergency ambulances. Management emphasized the implication of this scheme coupled with the provision of government healthcare subsidies, citing a plausible shift of more patients from public to private hospitals in the coming years. Moreover, its Raffles Holland Village project is slated to open in 1Q16, whereby the group will gain revenue from its own healthcare services and rental income from tenants. 

Maintain HOLD
The group declared a final dividend of 4 S-cents/share, bringing total dividend to 5.5 S-cents/share (FY13: 5 S-cents/share). Following a change in analyst coverage, we cut our FY15 EPS forecast slightly by 1.2%, mostly in consideration of higher expected expenses in relation to the group’s growing insurance business. Our fair value estimate is now a tad lower at S$3.91 from S$3.95 previously while we keep our target peg of 30x FY15F EPS. Maintain HOLD.

Ezion Holdings

OCBC on 16 Feb 2015

Ezion Holdings reported a 24.9% YoY rise in revenue to US$104.6m and a 106.6% increase in net profit to US$83.7m in 4Q14, boosted by a US$34.9m disposal gain in the quarter. Stripping that out, full year core income was US$188m vs. our estimate of US$190m. Out of the five units coming up for renewal this year, the first unit has been renewed at the same rate for another two years. We are expecting renewal rates for the remaining units to be similar to previous rates or at most 5% lower. Meanwhile, Ezion’s net gearing has dropped to 0.86x as at end FY14. We have tweaked our earnings estimates to incorporate downtime for unit 9 due to a bad weather accident, as well as repair work required for the Chinese unit (liftboat 13). Along with depressed valuations of oil and gas peers, we use a lower P/E of 9x, such that our fair value is lowered from S$2.04 to S$1.75, aided by the assumption of a stronger USD (US$1 = S$1.35). Maintain BUY.

FY14 results in line
Ezion Holdings reported a 24.9% YoY rise in revenue to US$104.6m and a 106.6% increase in net profit to US$83.7m in 4Q14, boosted by a US$34.9m disposal gain in the quarter. Stripping that out, recurring income was US$48.8m in 4Q14. This brings full year core income to US$188m vs. our estimate of US$190m, in line with our expectations. Gross profit margin in the quarter remained healthy at 50.6% compared to 51.0% in 3Q14 and 48.7% in 4Q13. 

Five units coming up for renewal in 2015
Out of the five units coming up for renewal this year, the first one (unit 1) has been renewed at the same rate for another two years. We are expecting renewal rates for the remaining units to be similar to previous rates or at most 5% lower. So far, management has not obtained any written requests from customers (for units that are currently chartered out) for any rate reductions.

Has one of the best earnings visibilities among O&G companies
With 37 contracts, Ezion has grown its fleet to a sizeable figure. The group mostly deals with national oil companies (e.g. Pertamina, Petronas, PEMEX) and international companies (e.g. Maersk, Exxon), and has a well-diversified portfolio in Asia, West Africa and the North Sea. Ezion’s rigs are also mainly used in the maintenance phase of the offshore oil and gas industry, rather than the drilling phase, and have been relatively more resilient under this current low oil price environment.

Lower net gearing at 0.86x
With the disposal of the marine business to Ausgroup and ongoing earnings contribution, Ezion’s net gearing has dropped from 1.15x as at end FY13 to 0.86x as at end FY14. We have tweaked our earnings estimates to incorporate downtime for unit 9 due to a bad weather accident, as well as repair work required for the Chinese unit (liftboat 13). Along with depressed valuations of oil and gas peers, we use a lower P/E of 9x, such that our fair value is lowered from S$2.04 to S$1.75, aided by the assumption of a stronger USD (US$1 = S$1.35). Maintain BUY.

CityDev

OCBC on 16 Feb 2015

CityDev reported 4Q14 PATMI of S$384.9m, up 73.4% YoY mostly due to the structured sale of cash flows in a subsidiary which owns W Singapore. FY14 PATMI cumulates to S$769.6m which forms 123% of our full year forecast and we judge this to be somewhat above expectations due to faster than anticipated progress recognition at development projects. Management reports that the South Beach project will complete in 4Q15 and ~80% of the North Tower office space has been leased out at rentals between S$10–S$12 psf pm. The group sold 1,378 residential units over FY14, down 57% YoY versus the 3,210 units sold in FY13, and will launch two projects in FY15, subject to market conditions: the first is a 638-unit EC project at Canberra Dr and the second, the 174-unit freehold condominium project (Gramercy Park) along Grange Rd. A final dividend of 8.0 S-cents and a special final dividend of 4.0 S-cents are proposed. We update our valuation model with the latest data-points from the 4Q results, and our fair value estimate increases from S$8.72 to S$9.37 (25% RNAV discount). Maintain SELL.

4Q14 PATMI up 73% YoY mainly due to structured deal boost
CityDev reported 4Q14 PATMI of S$384.9m, up 73.4% YoY mostly due to the structured sale of cash flows in a subsidiary which owns W Singapore. FY14 PATMI cumulates to S$769.6m which forms 123% of our full year forecast and we judge this to be somewhat above expectations due to faster than anticipated progress recognition at development projects. FY14 topline increased 17.1% YoY to S$3,763.9m with maiden contributions from D’Nest, Jewel@Buangkok and the Blossom Residences EC which achieved TOP over the year. The group is proposing a final dividend of 8.0 S-cents per share and a special final dividend of 4.0 S-cents; including the 4.0 S-cent interim dividend, this brings FY14 total dividends to 16.0 S-cents.

Expects residential headwinds to continue
CityDev sold 1,378 residential units over FY14, down 57% YoY versus the 3,210 units sold in FY13. Management expects to launch two projects in FY15, subject to market conditions: the first is a 638-unit EC project at Canberra Dr and the second, the 174-unit freehold condominium project (Gramercy Park) along Grange Rd. The South Beach project will complete in 4Q15 and ~80% of the North Tower office space has been leased out at rentals between S$10–S$12 psf pm. 

Hotel subsidiary M&C reports improved RevPar
The group’s hotel subsidiary M&C reported FY14 PATMI of GBP110.0m, which decreased 51% YoY mainly due to the absence of contributions from the fully-sold Glyndebourne project which was recognized in 2013. RevPar increased 2.8% YoY to GBP71.55 and 6.9% YoY in constant currency terms, given higher room rates after the renovation of hotels at Millennium Hotel Minneapolis and Grand Hyatt Taipei and the closure of the poorly performing Millennium Hotel St Louis. We update our valuation model with the latest data-points from the 4Q results, and our fair value estimate increases from S$8.72 to S$9.37 (25% RNAV discount). Maintain SELL.

Tat Hong

OCBC on 16 Feb 2015

Tat Hong’s 3QFY15 revenue was lower by 7.4% YoY to S$154.9m while PATMI at S$4.5m saw a steep decline of 62.7%. Management highlighted that there was in fact an improvement in this quarter’s underlying profit if we excluded the one-off gain of S$13.0m received in 3QFY14 from the disposal of the purchase rights for a plot of land in Iskandar, Malaysia. With that said, we believe this quarter’s numbers were still unexciting as 3QFY15 was also helped by a net foreign exchange gain of S$4.8m, without which, its bottom line would have conceivably been worse off as well. Following a change in analyst coverage and a revision of forecasts based on a more modest outlook, we derive a new fair value estimate of S$0.75 (previous: S$0.84) pegged to an approximate five-year average p/e of 14x FY16F EPS. While the counter’s share price has fallen by ~10% over the past three months, current valuation appears fair rather than attractive, thus we maintain HOLD.

Results still unexciting 
A cursory glance at Tat Hong’s 3QFY15 results would have presented another weak showing compared to 3QFY14, with revenue lower by 7.4% YoY to S$154.9m while PATMI at S$4.5m saw a steep decline of 62.7%. On a QoQ basis, revenue was marginally higher by 1.4%. More importantly, management highlighted that there was in fact an improvement in this quarter’s underlying profit if we excluded the one-off gain of S$13.0m received in 3QFY14 from the disposal of the purchase rights for a plot of land in Iskandar, Malaysia. Its 3QFY15 bottom line was helped by lower operating expenses, which dropped S$12.1m or 24% to S$38.8m. This is attributed to the divestment of a crane rental subsidiary, Hup Hin Transport earlier in July-14, as well as lower staff expenditure, insurance and warranty expenses. With that said, we believe this quarter’s numbers were still unexciting as 3QFY15 was also helped by a net foreign exchange gain of S$4.8m due to stronger RMB and USD against SGD, without which, its bottom line would have conceivably been worse off as well. 

Only Tower Crane segment grew as usual
Similar to previous quarters, overall revenue dropped YoY across all business segments other than Tower Crane Rental, which saw a 6% growth to S$25.1m. Weak conditions in Australia led to double-digit declines in revenue for General Equipment Rental (-13% to S$13.3m) and Distribution (-15% to S$55.9m). On a positive note, we saw SEA countries and Hong Kong increased contribution by 50% YoY to an aggregate S$37.1m or 24% of total revenue, with stable crane rental revenue attained in Hong Kong and Thailand. 

Maintain HOLD 
Following a change in analyst coverage and a revision of forecasts based on a more modest outlook, we derive a new fair value estimate of S$0.75 (previous: S$0.84) pegged to an approximate five-year average p/e of 14x FY16F EPS. While the counter’s share price has fallen by ~10% over the past three months, current valuation appears fair rather than attractive, thus we maintain HOLD.

OUE Limited

OCBC on 16 Feb 2015

OUE announced 4Q14 PATMI of S$127.5m, which improved significantly against a loss of S$66.3m in 4Q13, mostly due to fair value gains on OUE Bayfront, Lippo Plaza, US Bank Tower and an investment in a mutual fund, and due to also the absence of fair value losses on investment properties booked in the same period last year. FY14 gross profit and PATMI cumulates to S$179.6m and S$1,094.5m, constituting 96.4% and 111.8% of our full year forecasts, respectively, which we judge to be broadly in line with expectations. The US Bank Tower now has a 79.6% committed occupancy rate, and enhancement works at the observation deck and restaurant are slated for completion in mid-2015. Management also reports that the refurbishment work at OUE Downtown is on track to complete by 2016, which will transform the asset’s existing podium into a five-storey retail mall. A final cash dividend of 1.0 S-cent per share has been proposed. Maintain BUY with an unchanged fair value estimate of S$2.69 (20% discount to RNAV).

FY14 earnings boosted by fair value gains
OUE announced 4Q14 PATMI of S$127.5m, which improved significantly against a loss of S$66.3m in 4Q13, mostly due to fair value gains on OUE Bayfront, Lippo Plaza, US Bank Tower and an investment in a mutual fund, and due to also the absence of fair value losses on investment properties booked in the same period last year. FY14 gross profit and PATMI cumulates to S$179.6m and S$1,094.0m, constituting 96.4% and 111.8% of our full year forecasts, respectively, which we judge to be broadly in line with expectations. In terms of the topline, 4Q14 revenue decreased 4.6% YoY to S$416.4m mainly from the impact of the loss of revenues from the China hotels which were disposed in Sep-13 and lower contributions from OUE Twin Peaks, partially offset by the inclusion of revenues from Lippo Plaza and US Bank Towers. Management has proposed a final cash dividend of 1.0 S-cent per share, bringing the total cash dividend for FY14 to 2.0 S-cents per share, in addition to the distribution in specie of one OUE Hospitality Trust stapled security for every six OUE shares in Mar-14. 

AEIs on track at US Bank Tower and OUE Downtown
The US Bank Tower now has a 79.6% committed occupancy rate, and enhancement works at the observation deck and restaurant are slated for completion in mid-2015. Management also reports that the refurbishment work at OUE Downtown is on track to complete by 2016, which will transform the asset’s existing podium into a five-storey retail mall. The group also recently divested Crowne Plaza Changi to OUE Hospitality Trust in Jan-15; in addition, the 10-storey extension to the hotel will occur after its TOP which is anticipated before Jun-16. The group continues to enjoy a good balance sheet, with a relatively low net gearing of 43% and a cash balance of S$162.0m. We continue to see value in OUE shares currently trading at a 0.52x and 0.66x its book value and RNAV, respectively. Maintain BUY with an unchanged fair value estimate of S$2.69 (20% discount to RNAV).

Neptune Orient Lines

OCBC on 16 Feb 2015

Neptune Orient Lines Limited (“NOL”) reported a 4.6% YoY decline in 4Q14 revenue to US$2.2b, mainly due to decrease in its Liner revenue on lower freight rates and volume. Cost of sale reduced 7.6% to US$2.0b as its liner segment saw cost savings of US$140m on better operational efficiencies. Consequently, it managed to reduce its net loss from US$137.2m in 4Q13 to US$85.1m in 4Q14. NOL’s FY14 results were slightly below our expectation as its net loss of US$259.8m came in higher than our forecast of US$250.0m net loss. While the impact from lower bunker costs and lower bunker consumption is positive, it is likely to be offset with the depressed yields expected in FY15 on overcapacity reason. Taking into account the lower bunker costs and other factors above, we bump up our FY15 forecast from –8.6 US-cents to 0.4 US-cents and introduce FY16 forecasts. Consequently, we increase our FV from S$0.84 to S$0.92 based on 1.0x FY15F P/B (0.25SD below 5-year mean). Given a 22.3% rally in its share price over the last two months, we downgrade NOL from Hold to SELL.

FY14 recorded net loss of US$259.8m
Neptune Orient Lines Limited (“NOL”) reported a 4.6% YoY decline in 4Q14 revenue to US$2.2b, mainly due to decrease in its Liner revenue on lower freight rates and volume. Cost of sale reduced 7.6% to US$2.0b as its liner segment saw cost savings of US$140m on better operational efficiencies, but was partially offset by higher depreciation and finance expenses as well as foreign exchange losses. Consequently, its net loss reduced from US$137.2m in 4Q13 to US$85.1m in 4Q14. NOL’s FY14 results were slightly below our expectation as its US$259.8m net loss came in higher than our forecast of US$250.0m net loss, but is way above the street’s forecast of US$100.5m net loss. NOL FY14 logistics segment continues to grow as revenue registered 5% YoY growth to US$1.7b while core EBIT remained flat at US$67.0m as it took in ~US$4m M&A and integration-related expenses. 

Lower bunker costs not enough to overcome tough year ahead
Management expects overcapacity in the liner industry to persist and the port congestion in U.S. West Coast remains a risk factor. The port congestion added US$15.0m in incremental costs during 4Q14. While we think lower bunker price is good for NOL in the near-term, we remain cautious as competitors may make use of lower bunker price to adjust freight rates in the longer term. We also note that NOL now has a leaner fleet with more fuel-efficient vessels (i.e. lower bunker consumption) with no new deliveries expected in FY15. Hence, while the impact from lower bunker costs and lower bunker consumption is positive, it is likely to be offset with depressed yields expected in FY15 on overcapacity reason. We also expect management’s continuous focus on operational efficiencies and good cargo yield management for key trade routes to improve liner segment’s margins.

Downgrade to SELL
Taking into account the lower bunker costs and other factors above, we bump up our FY15 forecast from –8.6 US-cents to 0.4 US-cents and introduce FY16 forecasts. Consequently, we increase our FV from S$0.84 to S$0.92 based on 1.0x FY15F P/B (0.25SD below 5-year mean). Given a 22.3% rally in its share price over the last two months, we downgrade NOL from Hold to SELL.

Biosensors International Group

OCBC on 13 Feb 2015

Biosensors International Group’s (BIG) 3QFY15 revenue dipped 6.1% YoY to US$77.5m, as licensing and royalties revenue from Terumo dropped by 46% YoY to US$5.8m. FX translation also had an adverse impact on topline as on a constant currency basis, we could have seen a positive mid single-digit growth in the product revenue. While the group emphasized the improvement in its operating income and margin on the back of cost reduction initiatives, 3QFY15 PATMI fell 33.2% YoY to US$7.4m, bringing down its net profit margin to 9.6% from 13.8% a year ago. Following a change in analyst coverage and slightly higher margin assumptions, we have revised our FY15/FY16 revenue and PATMI forecasts upwards by 1.6%/2.2% and 5.8%/3.2%, respectively. In addition to a stronger USD-SGD assumption, we derived a new fair value estimate of S$0.60 (previous: S$0.54) based on an unchanged target P/E of 20x. We note that share buybacks had supported the counter’s recent price recovery, and it is currently trading at 28.5x, more than 1 s.d. above its 2 year P/E average, thus we maintain SELL at this juncture.

Weak earnings; FX translation effects played a role
Biosensors’ 3QFY15 revenue dipped 6.1% YoY to US$77.5m, as licensing and royalties revenue from Terumo dropped by 46% YoY to US$5.8m. 9MFY15 revenue was 4% down YoY to US$232.5m. The revenue from Terumo is expected to further diminish as the group focuses on growing its own sales force to continue gaining market share and eventually expand its reach across the whole of Japan. Adverse impacts on the group’s topline also came from currency depreciation of the SGD, EUR and JPY against the USD – On a constant currency basis, we could have seen a positive mid single-digit growth in the product revenue. 3QFY15 PATMI fell 33.2% YoY to US$7.4m, bringing down its net profit margin to 9.6% from 13.8% in 3QFY14. 9MFY15 PATMI of US$22.2m declined 36% YoY and formed 46% of the street’s estimate.

Can cost reduction initiatives sustain? 
Management had emphasized the improvement in its operating income, which saw a 4% YoY gain to US$15.7m, attributable to lower overall expenses. Comparing to 2QFY15, the gain was more prominent at 50% QoQ. While operating margin over the past nine months seems rather uneven, with a current level of 20% (1Q:19%, 2Q:13%), this quarter could be testament to CEO Mr Jose Calle’s efforts in optimising the group’s cost structure that will in turn aid bottom-line performance as well. With that said, considering that the group is still in the early growth stages, particularly with its LEADERS Free Japan Trial and CREDIT II Trial in China just completing patient enrolment, we would wait to see if the cost reduction initiatives taken are sustainable.

Maintain SELL
Following a change in analyst coverage and slightly higher margin assumptions, we revise our FY15/FY16 revenue and PATMI forecasts upwards by 1.6%/2.2% and 5.8%/3.2%, respectively. In addition to a stronger USD-SGD assumption, we derived a new fair value estimate of S$0.60 based on an unchanged target p/e of 20x. We note that share buybacks had supported the counter’s recent price recovery, and it is currently trading at 28.5x, more than 1 s.d. above its 2-year p/e average, thus we maintain SELL at this juncture.

UOB

OCBC on 13 Feb 2015

UOB closed FY14 with net earnings of S$3249m, up 8% and also ahead of market consensus of S$3177m (based on Bloomberg). Management guided for 5-10% loans growth for 2015 and expects fee income to be stable despite heightened market volatility. Its exposure to the oil and gas sector is about 5% of its portfolio. On its wealth business, its current AUM amounted to S$80b, and management expects to reach its target of S$100b in the next few years. On M&A, management shared that it is not the right time to acquire at this juncture. UOB’s share price has performed well since the low of S$21.50 in late Oct 2014 and is trading close to our fair value estimate of S$24.20 now. While we have fine-tuned our FY15 earnings, we are retaining our fair value estimate for now as we do not expect any near to medium term share price re-rating based on current market conditions. With less than 10% upside, we downgrade UOB to a HOLD.

FY14 results were ahead of consensus
UOB posted FY14 net earnings of S$3249m, up 8%, and ahead of consensus of S$3177m based on Bloomberg. Its performance in 4Q14 was fairly muted, with net earnings of S$786m, up 1.7% YoY and down 9.3% QoQ. Net Interest Margin (NIM) fell from 1.71% in 3Q14 to 1.69% in 4Q14. Allowances in 4Q14 rose +19% YoY and +2% QoQ to S$166m. It declared a final dividend of 50 cents and a special dividend of 5 cents, bringing total payout to 75 cents. 

Guiding for loans growth of 5-10% 
Management guided for 5-10% loans growth for 2015 and expects fee income to be stable despite heightened market volatility. On the interest rate front, it expects rates to remain low and any increases are likely to be gradual and small. Overall, its assessment is that the current low oil price is positive for South-east Asia, an area that it operates in. On its exposure to the oil and gas sector, this amounted to about 5% of its portfolio, and if extended to agriculture and commodities, this accounted for less than 10% of its portfolio. On its wealth business, its current AUM amounted to S$80b, and management expects to reach its target of S$100b in the next few years. Wealth Management accounted for about 47% of its personal financial services profits in FY14, up from 20% in FY10. On its exposure to Sentosa properties, management shared that it is about 2.6% of its loans portfolio and that 80% of its property loans are for owner-occupied units, with LTV of about 70-80%. On M&A, management shared that it is not the right time to acquire at this juncture. 

Downgrade to HOLD
UOB’s share price has performed well since the low of S$21.50 in late Oct 2014 and is trading close to our fair value estimate of S$24.20 now. While we have fine-tuned our FY15 earnings, we are retaining our fair value estimate for now as we do not expect any near to medium term share price re-rating based on current market conditions. With less than 10% upside, we downgrade UOB to a HOLD.

Wilmar International Limited

OCBC on 13 Feb 2015

Wilmar International Limited (WIL) posted FY14 results that were above our expectations – core earnings of US$1219.9m (down 6.4%) was 15% ahead of our forecast, aided by improved margins in its Palm and Laurics business. WIL declared a final dividend of S$0.055/share, unchanged from last year, bringing the total dividend of S$0.075; but below S$0.08 last year. Going forward, WIL expects the lower palm, crude oil and sugar prices to negatively impact its plantation, palm bio-diesel and sugar milling segments, but it believes its processing and downstream businesses should benefit from lower feedstock costs. As a whole, WIL says its integrated business model should enable stable and resilient earnings in 2015. In light of the latest results and weak outlook for commodity prices in general, we see the need to pare our FY15 estimates by 10%. However, we think that WIL’s resilient business model and ability to execute in a difficult environment warrant a higher 13x FY15 PER (versus 12.5x previously); hence our fair value improves from S$3.47 to S$3.50. Maintain BUY.

FY14 core earnings above forecast
Wilmar International Limited (WIL) reported its 4Q14 results last night, with revenue slipping 7.3% YoY (down 6.5% QoQ) to US$10777.7m, after weaker CPO prices resulted in lower Palm & Laurics revenue and Plantations revenue. But aided by lower feedstock cost and stable growth in its downstream business, net profit grew 8.7% YoY (-5.0% QoQ) to US$401.2m. Excluding exceptional items, core net profit jumped 16.9% YoY (-4.0% QoQ) to US$412.5m. For the full year, revenue slipped 2.3% to US$43084.9m, or about 6.6% below our forecast, while net profit fell 12.3% to US$1156.2m; core earnings was down 6.4% to US$1219.9m, but was still 14.8% above our estimate. WIL declared a final dividend of S$0.055/share, unchanged from last year, bringing the total dividend of S$0.075; but below S$0.08 last year. 

Expects stable and resilient earnings in 2015
Going forward, WIL expects the lower palm, crude oil and sugar prices to negatively impact its plantation, palm bio-diesel and sugar milling segments, but it believes its processing and downstream businesses should benefit from lower feedstock costs. As a whole, WIL says its integrated business model should enable stable and resilient earnings in 2015. On its markets, WIL expects growth in China to remain slow, but sees Africa as an important market in the foreseeable future. The group added it remains positive on sugar, while crush margins in China should stabilize and remain positive this year. 

Maintain BUY with new S$3.50 FV
In light of the latest results and weak outlook for commodity prices in general, we see the need to pare our FY15 estimates by 10%. However, we think that WIL’s resilient business model and ability to execute in a difficult environment warrant a higher 13x FY15 PER (versus 12.5x previously); hence our fair value improves from S$3.47 to S$3.50. Maintain BUY.