OUE Hospitality Trust

OCBC on 19 Mar 2015

According to statistics released by the Singapore Tourism Board this week, international visitor arrivals remained weak for the month of Jan, largely due to North Asia and Southeast Asia, which are key markets for OUE Hospitality Trust (OUEHT). Nevertheless, there were some bright spots for hotel statistics. We are positive on OUEHT’s recently completed S$290m acquisition of Crowne Plaza Changi Airport Hotel (CPCA) from its sponsor. OUEHT will also purchase the Crowne Plaza extension (CPEX) for S$205m upon the completion of its construction. We expect this transaction to be DPU accretive to unitholders, and raise our fair value from S$0.85 to S$0.94. Although OUEHT offers an attractive FY15F and FY16F distribution yield of 7.5% and 8.0%, respectively, we remain cautious on the near-term outlook of the hospitality sector. As such, we are keeping our HOLD rating on the stock intact.

Tourist arrivals remain lacklustre
According to statistics released by the Singapore Tourism Board this week, international visitor arrivals remained weak for the month of Jan, with an overall dip of 7.0% YoY registered. In particular, visitor arrivals from North Asia and Southeast Asia, which are key markets for OUE Hospitality Trust (OUEHT), saw declines of 12.0% and 9.9% YoY to 337.8k and 448.0k, respectively. However, there were some bright spots for the sector, as average occupancy rates rose 1.9 ppt to 83.1%, while RevPAR inched up 1.4% YoY to S$207.3 in Jan this year.

Crowne Plaza acquisition to provide inorganic growth
In a bid to reduce its concentration risks in the Orchard Road precinct and to capture the long-term growth prospects of Singapore’s hospitality sector, OUEHT recently completed the acquisition of Crowne Plaza Changi Airport Hotel (CPCA) from its sponsor for S$290m. It will also purchase the Crowne Plaza extension (CPEX) for S$205m upon the completion of its construction, which we expect to occur in end 2015. We are positive on this development as we estimate that it would be DPU accretive to OUEHT’s unitholders. CPCA would be acquired using debt, at a cost of borrowing of ~3%. We assume CPEX to be financed by both debt and equity on a 50%-50% ratio. Other positive elements of this transaction include downside revenue protection for the master lease and close proximity to Changi Airport’s rejuvenation projects. Although we project OUEHT’s gearing ratio to increase to 41.9% in FY15 and 42.5% in FY16, this is still within management’s comfortable gearing ratio. As at 31 Dec 2014, 100% of OUEHT’s debt has been hedged. We expect management to seek new hedges on the fresh borrowings drawn down to finance the CPCA acquisition.

Raise FV but maintain HOLD
We raise our DDM-derived fair value from S$0.85 to S$0.94, as we input this acquisition in our model, and also roll forward our valuations. Although OUEHT offers an attractive FY15F and FY16F distribution yield of 7.5% and 8.0%, respectively, we remain cautious on the near-term outlook of the hospitality sector. As such, we are keeping our HOLD rating on the stock intact.

Healthcare Sector

OCBC on 18 Mar 2015

Following the recent earnings season, we saw steadier earnings from healthcare providers such as Raffles Medical Group (RFMD) and IHH Healthcare Berhad (IHH) [NON-RATED], as compared to a poor showing of results from Biosensors International Group (BIG). On a broad-based view, The FTSE ST Health Care Index (FSTHC) has been performing better than the FSSTI with an 8.1% YTD gain as compared to FSSTI’s marginal 0.02% YTD gain. However, FSTHC has been trading above its two-year historical average over the past six months, and valuations do not seem sufficiently attractive. Moreover, while favourable demographics will lead to increase in demand for the long-term, the government is also expanding the public healthcare infrastructure to address capacity pressures. Thus, with on-going expansion from private sector players as well, competition in the sector is likely to remain strong. Hence we maintain our NEUTRAL stance on the sector. Within our coverage, we have a HOLD rating on RFMD with S$3.91 fair value estimate, and a SELL rating on BIG with a fair value estimate of S$0.60.

Mixed share price performance within OIR coverage
The FTSE ST Health Care Index (FSTHC) has been trading above its two-year historical average over the past six months, and valuations on a broad-based level do not seem sufficiently attractive. Nonetheless, FTSHC has been performing better than the FSSTI with an 8.1% YTD gain as compared to FSSTI’s marginal 0.02% YTD gain. Within our coverage, we see a mixed showing in share price performance between Biosensors International Group (BIG) and Raffles Medical Group (RFMD). BIG’s price recovery earlier in the year was believed to be mainly supported by share buybacks as it gained 18.8% YTD, while RFMD’s price movement has been largely muted. 

Steadier earnings from healthcare providers
RFMD recorded decent FY14 results as revenue rose 9.9% to S$374.6m and core earnings was up by an estimated 6.7% to S$64.6m, driven by growth in both its hospital services and healthcare services segments. Looking at its peer, IHH Healthcare Berhad’s (IHH) [NON-RATED] FY14 revenue grew 9% to RM7.3b and core PATMI increased 29% to RM785m, backed by the continued ramp up of Mount Elizabeth Novena Hospital in Singapore and higher revenue intensity cases. On the other hand, BIG’s 3QFY15 earnings remained under pressure as revenue fell 6.1% YoY to US$77.5m and PATMI dipped 33.2% YoY to US$7.4m, partly due to currency depreciation.

Strong competition in sector for the long-term
The long-term outlook remains favourable for Singapore’s healthcare sector, due to supportive demographics like an ageing population as well as factors including higher insurance coverage. We continue to see substantial funding from the local government towards infrastructure development to address capacity pressures while assuring affordability of healthcare services through increased subsidies for Singaporeans. However, the on-going expansion plans by both the public and private sector would likely translate to strong competition for the long-term. Nonetheless, we keep in mind that the private sector is also supported by foreign patients demand, and companies are expanding their presence overseas to potentially drive business growth. 

Maintain NEUTRAL
We maintain our NEUTRAL stance on the healthcare sector as valuations are not sufficiently attractive and we expect competition in the sector to remain strong. Under our healthcare sector coverage, we have a HOLD rating on RFMD with S$3.91 fair value estimate as a lack of near term catalysts puts a cap on upside potential, though the counter has positive long-term growth prospects. While BIG [SELL, S$0.60] showed an inkling of improvement in its 3QFY15 operating margin, we look to see if the cost reduction initiatives taken are sustainable, and we await further progress in approvals for its medical devices.

United Envirotech

OCBC on 17 Mar 2015

United Envirotech Ltd (UEL) posted a good set of 3QFY15 results recently. Revenue jumped 81% YoY (also +10% QoQ) to S$116.1m, reported net profit climbed 49% YoY (down 25% QoQ) to S$12.5m. 9MFY15 revenue climbed 80% to S$287.8m, easily matching our full-year forecast, while reported net profit surged 143% to S$51.7m; core earnings of S$37.6m met about 95% of our FY15 forecast. We raised our FY15F revenue by 16%, but kept core earnings unchanged, as 4QFY15 is usually seasonally slower. Separately, the offer from CITIC Ltd and KKR & Co to acquire a majority stake in UEL at S$1.65 cash/share should turn unconditional by 23 Mar. Maintain HOLD with S$1.65 FV – investors should consider tendering part of their shares as offer looks attractive.

Good set of 3QFY15 results
United Envirotech Ltd (UEL) posted a good set of 3QFY15 results recently. Revenue jumped 81% YoY (also +10% QoQ) to S$116.1m, lifted by a 74% YoY jump in engineering revenue, which we understand came from its Fuzhou project, a 38% increase in treatment revenue, as well as an addition of S$11.4m of external membrane sales. However, gross margin eased to 40% from 46% in 2QFY15 and 47% in 3QFY14. Reported net profit jumped 49% to S$12.5m, but it was about 25% lower QoQ due to the lower profitability. 9MFY15 revenue climbed 80% to S$287.8m, easily matching our full-year forecast, while reported net profit surged 143% to S$51.7m; core earnings of S$37.6m met about 95% of our FY15 forecast. We raised our FY15F revenue by 16%, but kept core earnings unchanged, as 4QFY15 is usually seasonally slower. However, we bumped up our FY16F revenue by 28% and core earnings by 23%.

Likely less focus on pure EPC work
Going forward, management says it will continue to harness its strength as a fully-integrated water solutions provider; but UEL says it will focus less on pure EPC (civil works) but more on supplying components of the water treatment facilities, including membranes. Management believes that this is a more efficient use of capital and will also improve its margins. 

CITIC offer should turn unconditional by 23 Mar
Separately, the offer from CITIC Ltd and KKR & Co to acquire a majority stake in UEL at S$1.65 cash/share should turn unconditional by 23 Mar; this as the consortium has gotten all the necessary government approvals in China. We also understand that CITIC has committed to subscribe for between 30m and 50m of new UEL shares at S$1.65 each. As before, we view the move as positive as the SOE will give UEL access to cheaper funding, help open more doors and expand its reach into other regions of China. 

Maintain HOLD with S$1.65 FV
Maintain HOLD with S$1.65 FV – investors should consider tendering part of their shares as offer looks attractive (and slightly rich).

Nam Cheong

OCBC on 16 Mar 2015

Last week, Nam Cheong announced that it sold two vessels worth about US$58m to two repeat customers; we estimate that there are another 15 vessels left unsold for 2015 delivery. Despite efforts to diversify revenue, the group is still very much dependent on Asia, and OSV owners in this region have also been impacted by the recent oil price rout, including cabotage-protected markets like Malaysia and Indonesia. Middle East, another key market, also saw a surge in idle tonnage recently. Looking ahead, we believe that vessel owners will face stiffer competition amidst weaker demand and flat or falling day rates. In addition, newbuild OSVs continue to be delivered in 2015. With O&M peers trading at lower valuations, we decrease our P/E from 7x to 6x FY15 EPS, such that our fair value estimate eases slightly from S$0.35 to S$0.30. Maintain HOLD; we would be buyers at around S$0.275.

First vessel sales for the year
Last week, Nam Cheong announced that it sold two vessels worth about US$58m to two repeat customers. A 200-pax accommodation work vessel was sold to a subsidiary of Marco Polo Marine for delivery in the next quarter, and a 12,000 bhp AHTS (delivery 2016) was sold to Topaz Energy and Marine, which is based in Dubai. This brings its cumulative order book to RM1.7b (~S$637.8m, based on S$1 = RM2.665). 

Sold 20 of 35 vessels for 2015 delivery
With the recent sales, we estimate that the group has sold 20 of its 35 vessels that were slated for 2015 delivery, leaving another 15 unsold. Management had indicated that there were no plans to slow down construction even as potential customers adopt a wait-and-see attitude; we think that the group may be willing to offer discounts to customers under the current muted environment. 

Slowdown across the board
Despite efforts to diversify revenue, the group is still very much dependent on Asia, and OSV owners in this region have also been impacted by the recent oil price rout, including cabotage-protected markets like Malaysia and Indonesia. Middle East, another key market, saw a surge in idle tonnage recently as the challenging OSV market is now becoming more evident in the Middle East. Asia-based customers (e.g. Singapore, Malaysia, Indonesia, Vietnam) accounted for 78% of total revenue in FY14, with Middle East at 16%, Africa at 5% and Europe at less than 1%. This is similar to FY13, though Middle East accounted for a bigger portion then at 22%, with less coming from Africa. 

Wait it out for now
Looking ahead, we believe that vessel owners will face stiffer competition amidst weaker demand and flat or falling day rates. In addition, newbuild OSVs continue to be delivered in 2015. With O&M peers trading at lower valuations, we decrease our P/E from 7x to 6x FY15 EPS, such that our fair value estimate eases slightly from S$0.35 to S$0.30. Maintain HOLD; we would be buyers at around S$0.275.

Global Logistics Properties

OCBC on 13 Mar 2015

Recent leasing activity with new customers in GLP's key growth markets of China and Brazil points to continued positive momentum in terms of leasing demand. GLP recently reported new leases totaling 63k sqm in China with four new customers, of which three will be multi-location customers. In addition, the group also signed pre-lease agreements for 97k sqm in Sao Paulo, Brazil, with three new customers. Finally, the group also completed the acquisition of its US$8.1b logistics platform in the US and expects to pare down its current 55% stake to ~10% by Aug-15 through a fund syndication exercise. We understand that the syndication is currently over-subscribed with several investors in advanced stages of due diligence. Maintain BUY with an unchanged fair value estimate of S$2.99.

New leases to major players in China and Brazil
GLP recently reported new leases totaling 63k sqm in China with four customers who are leaders in the e-commerce, packaged foods and pharmaceutical industries, and that three will be multi-location customers. We believe this points to steady leasing momentum in China where growing domestic consumption continues to drive demand for modern logistic facilities. In addition, GLP also signed pre-lease agreements for 97k sqm in Sao Paulo, Brazil, with three new customers. Sequoia Logistica, a third-party logistics provider, pre-leased 61k sqm at GLP Embu which will now be 100% pre-committed before its Sep-15 completion. Sanofi, a global pharmaceutical player, and Medley, a member of the Sanofi group, also pre-leased 36k sqm at GLP Guarulhos to establish its largest distribution center in Latin America. 

Completes acquisition of US$8.1b US logistics portfolio
GLP also completed the acquisition of its US$8.1b logistics platform in the US and expects to pare down its current 55% stake to ~10% by Aug-15 through a fund syndication exercise. We understand that the syndication is currently over-subscribed with several investors in advanced stages of due diligence. The US portfolio is 91% leased as at 31 Jan 2015, and comprises 11m sqm of high quality logistics properties in locations with high barriers to entry. Given the quality of the assets and improving market fundamentals in the US, the group expects to increase the lease ratio and capture positive leasing spreads ahead. We are positive on this acquisition which will enable GLP to establish scale rapidly in the US and is aligned with the group’s strategic direction of operating in prime markets and growing the fund management platform. 

Maintain BUY with S$2.99 FV 
We continue to like GLP for its leading position in key markets with positive e-commerce trends and growing demand for logistics facilities. As at end Dec-14, the group also sits on a healthy balance sheet with a net cash position. Maintain BUY with an unchanged S$2.99 fair value estimate.

Land Transport

OCBC on 12 Mar 2015

The two public transport operators (PTOs) in Singapore, ComfortDelGro (CDG) and SMRT Corp (SMRT) had a smooth end to CY14, as results came in within expectations. CDG’s FY14 revenue rose 8.1% while PATMI grew 7.7%. For SMRT, recovery momentum continues on as 3QFY15 PATMI jumped 58.4% YoY as revenue rose 6.8% on both non-fare and fare businesses recorded broad-based growth. Going forward, we have reasons to believe that the sector outlook remains positive on several catalysts, both near-term and longer-term. Overall, the expected increase in ridership in addition to the catalysts stated above will continue to drive growth. We believe PTOs will also continue to manage costs and improve productivity gains, improving profitability further. Hence, we maintain OVERWEIGHT on land transport sector. However, given the recent run-up in CDG’s share price, our top pick for the land transport sector is now SMRT as we reiterate BUY on SMRT [FV: S$1.85] while we maintain HOLD [FV: S$3.07] on CDG.

Review of CY14 results 
The two public transport operators (PTOs) in Singapore, ComfortDelGro (CDG) and SMRT Corp (SMRT) had a smooth end to CY14, as results came in within expectations. CDG’s FY14 revenue rose 8.1% while PATMI grew 7.7%. Its PATMI formed 98.5% of our projection as it continued to achieve broad-based revenue growth across bus, rail and taxi segments. Business stability remains as CDG’s key characteristic but we note that there are other growth drivers going forward as well. For SMRT, recovery momentum continues on as 3QFY15 PATMI jumped 58.4% YoY as revenue rose 6.8% on both non-fare and fare businesses recorded broad-based growth. Its operating margins also improved YoY for the fourth consecutive quarters as 9MFY15 PATMI formed 76.5% of our projection. Similarly, we think SMRT has much more room to grow in view of the several catalysts we have identified.

Outlook remains positive on several catalysts
Going forward, we have reasons to believe that the sector outlook remains largely positive on several catalysts. On near-term catalysts, we expect: 1) further growth for CDG’s taxi segment as it is the only taxi operator in Singapore allowed to grow its fleet size by 2.0% in CY15, 2) higher taxi rental income for both PTOs in CY15 as they continue to renew their taxi fleet, 3) full rental income contribution from SMRT’s Kallang Wave Mall from FY16 onwards, and lastly, 4) savings from lower energy costs that will be more visible from FY16 for both PTOs with different hedging exposures. The longer-term catalysts are still the same from our last sector report: 5) with a little more than a year before the new bus government contracting model (GCM) commences, LTA has to take over all the bus assets from the PTOs and we believe both PTOs have much to gain if LTA pays in lump sum to purchase the bus assets, 6) the transition to the new GCM by 2HCY16 will see core bus operations of both PTOs turn profitable, and 7) the announcement of concrete details on new rail financing model, that has limited impact on CDG but large positive impact on SMRT.

Maintain OVERWEIGHT
Overall, the expected increase in ridership in addition to the catalysts stated above will continue to drive growth. We believe PTOs will also continue to manage costs and improve productivity gains, improving profitability further. Hence, we maintainOVERWEIGHT on land transport sector. However, given the recent run-up in CDG’s share price, our top pick for the land transport sector is now SMRT as we reiterate BUY on SMRT [FV: S$1.85] while we maintain HOLD [FV: S$3.07] on CDG. However, note that we have also taken into account the potential fines and higher expenses resulting from the series of train disruptions on SMRT services thus far in CY15.

Consumer Sector

OCBC on 11 Mar 2015

All of our selected countries saw lower consumer confidence levels QoQ in 4Q14 but stayed in the optimistic territory except for Malaysia, possibly in relation to the GST implementation this April. Challenges will remain in the short-term but we continue to be optimistic on the regional consumption outlook in the longer-term, underpinned by supportive policy reforms and accelerated government spending. Thus we maintain our NEUTRAL stance for the consumer sector. We also note that the FSTCG index (which includes Thai Beverage) forward PER level is no longer trading at a 1 s.d. premium since its run-up from Aug-14. Perhaps it is time to re-consider consumer counters, and within our coverage, we continue to favour Sheng Siong Group [BUY, S$0.81] for their strong management execution and sustainable margins. We also like Thai Beverage [BUY, S$0.80] as we believe its long-term growth story is intact, with benefits to be reaped from further synergies and collaboration with its entities.

Steadier start compared to previous year
The FTSE Consumer Services (FSTCS) Index trailed the FSSTI with a YTD gain of 0.1% vs FSSTI of ~1.0%, while the FTSE Consumer Goods (FSTCG) stayed largely flat over the past three months. We did see some rally at the end of Jan-15, likely attributable to the ECB’s announcement of a better-than-expected stimulus package among other factors. We note that the FSTCG index (which includes Thai Beverage) forward PER level is no longer trading at a premium of more than 1 s.d. above their 2-year historical averages since its run-up from Aug-14. Perhaps it is time to re-consider consumer counters with relatively attractive valuations and strong fundamentals. 

Mixed performance with our coverage 
FY14 topline growth was largely within street’s expectations for most of the counters under our coverage, and some (Sheng Siong, Thai Beverage) showed good management of gross profit margin while others (OSIM) continued to see pressure on operating margin. There were no drastic changes to prices in the past month, except for BreadTalk with a 9.1% loss YTD, possibly due to the group’s disappointing 4Q results that took a toll on its full-year performance. 

Government reforms to support regional consumption
All of our selected countries saw lower consumer confidence levels QoQ in 4Q14 according to data from Nielsen. Levels were still in the optimistic territory (i.e. at least 100), whereas the lowest level at 89 came from Malaysia as usual, signifying further pessimism, possibly in relation to the GST implementation this April. Challenges also persist for Thailand amid falling commodity prices as retail sales YoY growth remained negative for the last quarter of 2014. While our counters (OSIM, BreadTalk) had a weaker performance for their Chinese segments, we note that Chinese macro retail sales growth held steady at ~12% YoY in 4Q14. All considered, we continue to be optimistic on the outlook in the longer-term, underpinned by supportive policy reforms and accelerated government spending in the region.

Maintain NEUTRAL
We maintain our NEUTRAL stance for the consumer sector given the short-term macro challenges faced by regional countries. Within our coverage, we continue to favour Sheng Siong Group [BUY, S$0.81] for their strong management execution and sustainable margins amid an amicable tone in the local supermarket industry. We also like Thai Beverage [BUY, S$0.80] following its decent FY14 performance and a final dividend surprise giving a 3.5% yield. We believe its long-term growth story is intact, with synergy benefits to be reaped from further collaborations with its entities. On the other hand, we do not see a near-term catalyst yet for OSIM [HOLD, S$1.97] and valuations are not sufficiently attractive for Petra Foods [HOLD, S$3.78] and BreadTalk [SELL, S$1.02].

Singapore Telcos

OCBC on 10 Mar 2015

For FY15, the three local telcos have guided for a relatively stable outlook. M1 is probably the most optimistic among them, while StarHub is probably the most conservative. By segment, we believe that the mobile market will be quite stable, although revenue growth will now depend on higher data usage instead of subscriber growth. Competition in the broadband market is likely to continue, albeit at a more rational level, but saturation point is not far away. The biggest risk that the sector faces is the looming interest rate risk; but as long as local interest rates do not rise sharply, we do not expect the telcos to lose their appeal as defensive and stable dividend yield stocks. Maintain NEUTRAL on the sector, with a preference for Singtel (HOLD, S$4.16).

Stable outlook for 2015
For FY15, the three local telcos have guided for a relatively stable outlook. M1 is probably the most optimistic among them, as it is expecting moderate earnings growth (in single digit) and slightly lower capex of S$120m this year. On the other hand, StarHub eyes low single-digit revenue growth, but it has kept its EBITDA margin guidance at 32%; as this is lower than the 33.7% achieved in FY14, it could translate to a flat earnings growth. Singtel has kept its stable group revenue and EBITDA outlook unchanged. 

Mobile market remains stable
On the main mobile market, we note that while there has been a pickup in net adds in subscribers as well as ARPUs in the post-paid space, mobile penetration continues to edge lower, suggesting that further growth in mobile revenue will have to be driven by increased data usage. The telcos are hopeful that the higher 4G speeds will trigger more data usage; but anecdotal evidence suggests that subscribers remain mindful of their data caps.

Some signs that broadband market is more rational
While telcos continue to expect the broadband market to remain competitive, we believe that there are signs that the competition is getting more rational; this as the ISPs are no longer using price to grab market share. Instead, more are starting to offer speed upgrades to entice customers to sign up with them. As the incremental cost of these speed upgrades are quite minimal, margins should also start to improve.

Interest rate threat looming
With telecom stocks being pitched as defensive stocks and “prized” for their stable and attractive dividend yields, the threat of higher interest rate is likely to be a concern. However, we believe that as long as local interest rates do not rise sharply, we do not expect the telcos to lose their appeal. Maintain NEUTRAL on the sector, with a preference for Singtel (HOLD, S$4.16).

SMRT

OCBC on 9 Mar 2015

SMRT trains experienced five disruptions over the past two weeks across the North-South Line (NSL), East West Line (EWL), Circle Line (CCL), and Bukit Panjang LRT Line. Last year, SMRT were fined S$1.6m for two safety breaches and two train disruptions. Of the S$1.6m, the heavier fines came from the two safety breaches amounting to a total of S$1.3m. With these disruptions deemed unacceptable by LTA, we updated in our forecasts to provide for fines in FY16 with an amount slightly more than twice of what was paid in FY15. We expect higher expenses in FY16 and beyond based on SMRT’s plans to improve rail reliability announced last Friday. However, we remain largely positive as their growth catalysts are still valid in our view. Consequently, we cut FY16 PATMI forecast by 10.5%, as we incorporate higher expenses and potential fines. We reiterate BUY on SMRT on positive growth outlook although our DDM-derived FV decreases from S$1.90 to S$1.85.

A series of unfortunate disruptions
SMRT’s trains experienced five disruptions over the past two weeks across the North-South Line (NSL), East West Line (EWL), Circle Line (CCL), and Bukit Panjang LRT Line. Last year, SMRT were fined S$1.6m for two safety breaches and two train disruptions. Of the S$1.6m, the heavier fines came from the two safety breaches amounting to a total of S$1.3m. On these recent incidents, the longest delay was more than four hours on NSL on 23-Feb due to damaged train components. With these disruptions deemed unacceptable by LTA, we updated in our forecasts to provide for fines in FY16 with an amount slightly more than twice of what was paid in FY15.

Higher expenses expected but growth catalysts still present
SMRT announced last Friday its plans to improve rail reliability. There were two key points that required us to update our forecasts from FY16 onwards: 1) SMRT is expected to expand its workforce of engineers and technicians by another 39% and 24% respectively, by 2018, and 2) SMRT to provide more training to ground staff, setting up maintenance operations centre to support and coordinate response by maintenance teams during rail incidents as well as investing to equip maintenance teams with computer tablets to support maintenance needs. However, we believe its growth catalysts are still valid: 1) energy expenses to see further savings as electricity costs is expected to continue to decrease while FY16 diesel needs are largely exposed, 2) full-year rental income contribution from Kallang Wave Mall in FY16, 3) taxi rental income growth through fleet renewal, 4) core bus operations to turn profitable with forecasted margins of ~9.0%, from 2QFY17 after transit to new bus model, 5) potential LTA’s purchase of SMRT bus assets with lump sum cash payment resulting to possible special dividend and/or acquisitions for growth, 6) longer-term catalyst of transit to new rail financing framework, leading to potential purchase of train assets by LTA, though no timeline is provided by LTA.

Lower FV; reiterate BUY
Consequently, we cut FY16 PATMI forecast by 10.5%, as we incorporate higher expenses and potential fines. We reiterate BUY on SMRT on positive growth outlook although our DDM-derived FV decreases from S$1.90 to S$1.85.

Frasers Centrepoint Trust

OCBC on 6 Mar 2015

Although Frasers Centrepoint Trust (FCT) would be affected by the Singapore Government’s decision to not extend the stamp duty remission upon its expiry on 31 Mar this year, we do not expect a significant impact on its growth prospects. This is because the stamp duty charges of ~3% on future acquisitions in Singapore remain manageable to FCT, in our view. We believe Singapore will continue to be FCT’s core focus given its strong pipeline of potential acquisition targets here. Meanwhile, we expect FCT’s growth in FY15 to be driven by a full year of contribution from Changi City Point and continued positive rental reversions, particularly from its larger malls such as Causeway Point and Northpoint. Despite the soft retail sector outlook, we are still optimistic on FCT’s resilient and defensive portfolio of suburban malls. Maintain BUY on FCT, with an unchanged fair value estimate of S$2.27.

Strong pipeline of acquisition targets in Singapore
Given that the Singapore Government has decided not to extend the stamp duty remission upon its expiry on 31 Mar this year, this would predominantly affect REITs with large exposure to Singapore, such as Frasers Centrepoint Trust (FCT). Nevertheless, we do not expect a significant impact on FCT’s growth prospects, as the stamp duty charges of ~3% on future acquisitions in Singapore remain manageable, in our view. While FCT may also step up its efforts to seek inorganic growth overseas, we believe Singapore will remain its core focus given its strong pipeline of potential acquisition targets here. In our view, interesting developments managed by its sponsor Frasers Centrepoint Limited (FCL) include Waterway Point and Northpoint City. The latter will comprise over 500 retail outlets spanning an estimated 850,000 sq ft if we also take into account the existing Northpoint Shopping Centre (owned by FCT). Although there could be some cannibalisation from the enlarged retail space upon completion, this would only take place in 2018. Moreover, we believe FCL will seek to find the optimal tenant mix and extract synergies from the integration with the existing mall.

Growth drivers for FY15
During 1QFY15, FCT managed to deliver a healthy YoY boost in its revenue and DPU by 18.3% and 10.0%, respectively. For the remainder of FY15, we expect growth to be driven by a full year of contribution from Changi City Point (CCP) and continued positive rental reversions, particularly from its larger malls such as Causeway Point and Northpoint. For CCP, we project its gross revenue to jump 251% to S$27.5m in FY15, as FY14 had only 3.5 months of contribution. Despite the soft retail sector outlook, we are still optimistic on FCT’s resilient and defensive portfolio of suburban malls.

Maintain BUY
FCT is currently trading at FY15F and FY16F P/B ratio of 1.08x and 1.07x, respectively. This is approximately half a standard deviation below its 5-year forward mean of 1.12x, which we believe reflects value in FCT’s current share price. MaintainBUY, with an unchanged fair value estimate of S$2.27.

First Resources

UOBKayhian on 6 Mar 2015

FY15F PE (x): 11.9
FY16F PE (x): 9.9

CPO price well supported in 1H15. Management believes that CPO price will be better in 1H15 with the tight CPO supply due to the decline in CPO production owing to the lagged impact from prolonged dry weather in 1Q14. Also, inventory level in key producing countries and key consuming countries such as China and India are relatively low or are decreasing. This indicates demand from consuming countries is likely to pick up post winter seasons. Direction of CPO price in 2H15 depends on the biodiesel offtake in Indonesia. While CPO price in 1H15 will be supported by the tight supply in the market, CPO production will enter into its peak production season going into 2H15. If Indonesia is able to execute its biodiesel programme well in 2H15, it will help to absorb the increase in supply in the market and provide support to the CPO price. Otherwise, CPO price might go down. Maintain BUY and target price of S$2.80 based on 15x 2016F. FR remains one of our top picks in the plantation sector for its attractive profile age, cost-efficient estates and hands-on management.

Singapore Press Holdings

UOBKayhian on 5 Mar 2015

FY15F PE (x): 22.1
FY16F PE (x): 21.4

Advertising revenue contraction continues to taper off. We expect Singapore Press Holdings’ (SPH) advertising revenue (AR) contraction to continue to taper off in FY15. Our monthly page monitor of The Straits Times suggests advertising spending (adspend) contracted 5% yoy in 2QFY15 (Sep-Nov 14) vs a reported advertising revenue contraction of 9% yoy in 1QFY15. This contraction is less than 4QFY14’s -10% yoy and 3QFY14’s -9% yoy. By 2QFY15. February saw a large contraction of 12% yoy because of the Chinese New Year holiday which fell on 19 February this year vs 31 January last year. SPH’s AR would see the full negative impact of the total debt service ratio (TDSR) measures imposed by the government at end-Jun 13 to curb property purchases. This caused a major negative impact on property launches and propertyrelated advertising. Flat share price but dividend yield is decent. SPH’s print revenue is expected to perform in tandem with Singapore’s muted GDP growth which is projected at 3.3% for 2015. Traditionally, the share price has had a good correlation with domestic economic growth. The share price is expected to be flat, but annual dividend yields of 4.9% for FY15-17 are decent amid a low interest-rate environment. Maintain HOLD. Our target price of S$4.30 is based on a SOTP valuation. Our recommended entry price is S$4.00 and below.

Keppel Land

OCBC on 5  Mar 2015

We are now one week from the offer deadline and see better-than-even odds for KepLand’s privatization but, at the same time, also highlight that KepCorp – a 54.6% holder before the offer – will require significant acceptances in excess of 35.4% to cross the 90% compulsory acquisition threshold for the higher offer price of S$4.60 to take effect; and that there has been limited visibility regarding the level of acceptances to date. In Mar15 so far, we note that KepLand has been trading with decent volume in the S$4.54 to S$4.55 range, which translates to an implied probability of 73% - 77% that the offerer will cross the threshold. In our judgment, this could be somewhat rich and offers a prime hedging opportunity for those planning to accept the offer. They can divest a portion of their KepLand positions in the market at S$4.54 - S$4.55, effectively paying an opportunity cost of S$0.05 – S$0.06 (only 1.1% to 1.3% of S$4.60) to lock in S$4.60 and hedge out the downside risk of a significantly lower S$4.38 offer price.

Current prices offer good hedging opportunity
We are now one week from the offer deadline and see better-than-even odds for KepLand’s privatization but, at the same time, also highlight that KepCorp – a 54.6% holder before the offer – will require significant acceptances in excess of 35.4% to cross the 90% compulsory acquisition threshold for the higher offer price of S$4.60 to take effect; and that there has been limited visibility regarding the level of acceptances to date. In Mar15 so far, we note that KepLand has been trading with decent volume in the S$4.54 to S$4.55 range, which translates to an implied probability of 73% - 77% that the offerer will cross the threshold. In our judgment, this could be somewhat rich and offers a prime hedging opportunity for those planning to accept the offer. They can divest a portion of their KepLand positions in the market at S$4.54 - S$4.55, effectively paying an opportunity cost of S$0.05 – S$0.06 (only 1.1% to 1.3% of S$4.60) to lock in S$4.60 and hedge out the downside risk of a significantly lower S$4.38 offer price.

A recap: voluntary unconditional cash offer by KepCorp
To recap, on 25 Jan 2015, KepCorp announced a voluntary unconditional cash offer for its real estate unit KepLand, and will offer S$4.38 in cash for each share that it does not already own or control. In the event that the level of acceptances brings KepCorp over the compulsory acquisition threshold of 90%, the offer price will be adjusted to S$4.60 per share in cash. Note that both offer prices include KepLand’s proposed final FY14 dividend of S$0.14 and that both offer prices are final. Given uncertain outlooks for KepLand’s core development businesses in Singapore and China, we believe this is a reasonable enough offer and allows minority shareholders to exit at a share price above the pre-offer 36-month high. Our main recommendation is for KepLand shareholders to ACCEPT THE OFFER.

Swiber Holdings

OCBC on 4 Mar 2015

Swiber Holdings reported a 30.1% fall in revenue to US$726.5m and a 65.1% drop in net profit to US$21.7m in FY14, the latter boosted by the sale of Kreuz in the year. Excluding such one-off items, core net loss was around US$68m in FY14, close to our forecast of US$62.8m. From S$0.53 a year ago, Swiber’s share price has declined about 70%. Though the stock is now trading at less than 0.2x P/B, any potential acquirer has to keep in mind the substantial net debt position the group is in (US$990m). In addition, more funds may also be needed to support its higher order book. Meanwhile, refinancing risk is also increasing. With a re-allocation of resources, we are now ceasing coverage on Swiber.

FY14 – a year to forget
Swiber Holdings reported a 30.1% fall in revenue to US$726.5m and a 65.1% drop in net profit to US$21.7m in FY14, the latter boosted by the sale of Kreuz in the year. Excluding such one-off items, core net loss was around US$68m in FY14, close to our forecast of US$62.8m. There was a loss on the gross level in 4Q14, bringing full year gross margin to only 2.4% vs 16.4% in FY13. 

FY15 does not look too good either
As at 27 Feb 2015, the group had an order book of US$1.4b, supported by recent contract wins. However, we are less certain about the margins, especially for the newer contracts in which the group bid relatively aggressively. Looking ahead, there is likely to be intensified competition among contractors as oil majors shelve projects in view of the lower oil price environment.

Embarking on cost saving initiatives
Swiber has terminated and restructured certain existing vessels that were previously under various leasing arrangements, and it believes this strategy would lower its leasing expenses and enhance the profitability of its operations in future. In addition, Swiber plans to work on optimizing its administrative structure to yield cost savings. 

Share price has declined ~70% in the past 12 months
From S$0.53 a year ago, Swiber’s share price has declined about 70%. Though the stock is now trading at less than 0.2x P/B, any potential acquirer has to keep in mind the substantial net debt position the group is in (US$990m). In addition, more funds may also be needed to support its higher order book. Meanwhile, refinancing risk is also increasing; S$95m (~US$71.6m) of notes are due in Jun this year, followed by S$130m in Jun 2016, S$75m in Jul 2016, S$100m in Oct 2016 and four more notes payable in 2017-2018. Interest rates for the notes range from 5.13% to 7.75%. With a re-allocation of resources, we are now ceasing coverage on Swiber.

KS Energy

OCBC on 3 Mar 2015

KS Energy reported a 40.5% increase in revenue to S$227.3m and a net profit of S$30.1m in FY14 vs net profit of S$23k in FY13. Excluding one-off items such as disposal gains and impairment losses on PPE and non-trade receivables, we estimate recurring net profit to be about S$8.8m for the year vs our forecast of S$3.6m, higher than expectations. However, with the oil price rout, the group could potentially see lower charter rates during contract renewals or maybe even more rig impairments later. If the rig market turns out to be worse than expected, certain units may be left idle as well. Looking ahead, the outlook for the offshore services sector continues to be affected by lower oil prices, and with a re-allocation of resources, we are ceasing coverage on KS Energy.

Hit by impairments and higher depreciation charges 
KS Energy reported a 40.5% increase in revenue to S$227.3m and a net profit of S$30.1m in FY14 vs net profit of S$23k in FY13. Excluding one-off items such as disposal gains and impairment losses on PPE and non-trade receivables, we estimate recurring net profit to be about S$8.8m for the year, higher than our forecast of S$3.6m. In particular, the group saw a S$12.2m impairment on PPE as well as S$5.0m impairment on non-trade receivables in 4Q14; the former relating to the Discoverer 2 land rig and the jack-up accommodation rig, Atlantic Rotterdam. There were also additional depreciation charges relating to depreciation policy revisions. Accounting for about 92.2% of total revenue, the drilling business generated revenue of S$209.5m for FY14 compared to S$144.0m for FY13. The balance 7.8% was from the group's engineering and other businesses.

No official announcement of charter contract for Cosco rig
As for the second jack-up rig from Cosco, recall that the group was expecting to take delivery in 4Q14, but so far there has not been any official announcement of a charter contract yet. According to management, the delivery date for this rig has been pushed back again. With falling jack-up rig utilisation levels, we believe it may be tough securing decent charter rates for this unit.

Ceasing coverage
With the oil price rout, the group could potentially see lower charter rates during contract renewals or maybe even more rig impairments later. If the rig market turns out to be worse than expected, certain units may be left idle as well. The distribution business is also likely to be impacted by lower demand for its goods and services. Looking ahead, the outlook for the offshore services sector continues to be affected by lower oil prices, and with a re-allocation of resources, we are ceasing coverage on KS Energy.

Midas Holdings

OCBC on 3 Mar 2015

Midas Holdings Ltd’s (Midas) FY14 results performed better than expected on lower tax expense. For FY14, revenue grew 14.8% to RMB1317.9m driven by higher business volume from its aluminum alloy extruded products division, which contributes ~98.2% of total revenue. Despite recording 26.6% and 68.5% growth in administrative expenses and finance costs, respectively, Midas’ FY14 PATMI increased 18.1% to RMB56.3m as a result of an 83.2% decline in tax expense. Excluding this tax impact, its FY14 PBT saw a 6.1% drop to RMB55.9m. We believe Midas’ outlook remains uncertain due to several reasons including uncertain sales volume from new light alloy division and the potential impact on future orders from CSR/CNR proposed merger, even though its current order book remains at a healthy level for deliveries over the next couple of years. We introduce FY16 forecasts and increase our previously conservative FY15 PATMI forecast by 40.6%. Based on a 0.6x target blended FY15F P/B, we raise our FV from S$0.30 to S$0.33. Maintain HOLD.

FY14 PATMI lifted by lower tax expense
Midas Holdings Ltd’s (Midas) FY14 results performed better than expected on lower tax expense. For FY14, revenue grew 14.8% to RMB1317.9m driven by higher business volume from its aluminium alloy extruded products division, which contributes ~98.2% of total revenue. Despite recording 26.6% and 68.5% growth in administrative expenses and finance costs, respectively, Midas’ FY14 PATMI increased 18.1% to RMB56.3m as a result of an 83.2% decline in tax expense (one-off deferred tax income of RMB17.1m). Excluding this tax impact, its FY14 PBT saw a 6.1% drop to RMB55.9m. Consequently, Midas’ FY14 revenue and PATMI formed 101.8% and 202.9% of our projections.

Remain cautious on mixed reasons
We believe Midas’ outlook remains uncertain on several mixed reasons: 1) its new light alloy division, which manufactures basic materials for wider range of industries, is expected to start commercial production from FY16 and we expect to see higher volume though at much lower margin of ~16%; however, ability to ramp up sales volume is unclear as competition will be high compared to its current core business, 2) increasing finance costs is still a challenge but we think refinancing of short-term debt at lower rate is possible given the recent rate cut by China’s central bank, 3) increasing administrative costs is also likely to continue due to new start-up plants without revenue contribution, 4) that said, its Luoyang plant, which adds capacity to existing extruded products division, is expected to start commercial production in 2H15, 5) order book remains healthy at RMB850m for core business and RMB8.5b for NPRT (32.5% owned by Midas), both with deliveries scheduled over the next few years, 6) it was awarded concessionary tax rate of 15% until 2016, and lastly, 7) impact on future orders from CSR/CNR proposed merger still an unknown.

Raise FV; maintain HOLD
We introduce FY16 forecasts and increase our previously conservative FY15 PATMI forecast by 40.6%. Based on a 0.6x target blended FY15F P/B, we raise our FV from S$0.30 to S$0.33. Maintain HOLD.

Thai Beverage

OCBC on 2 Mar 2015

Thai Beverage PLC’s (ThaiBev) FY14 results were largely in line with expectations. FY14 revenue was up 4% at THB162.0b, driven by increased sales in its spirits, beer and food business. The former two segments also achieved overall better GP margins due to a rise in average selling price (ASP), but incurred higher-than-expected SG&A expenses in 4Q14. Looking ahead, we should see growth supported by white spirits and its beer segment. Upon lower gearing attained for the year, the group declared a surprise dividend of THB0.46/share, with total DPS of THB0.61 (FY13: THB0.44), giving a yield of ~3.7%. The higher DPS is likely to continue at similar levels if gearing stabilizes or improves from the current 45%. As we roll forward our SOTP model along with a weaker SGDTHB assumption and slightly higher margins expected, our TP moves up to S$0.80 (prev: S$0.77). At current share price level, there is now an upside potential of 18% (including 3.7% div yield), thus we upgrade our call to BUY.

FY14 results largely in line with expectations
Thai Beverage PLC’s (ThaiBev) FY14 revenue was up 4% at THB162.0b, driven by increased sales in its spirits, beer and food business. The former two segments also achieved overall better GP margins due to a rise in average selling price (ASP), but incurred higher-than-expected SG&A expenses in 4Q14. Thus FY14 PATMI came in about 4.1% lower than consensus estimates as it rose 13% to THB21.7b. Looking ahead, management is optimistic about its beer segment’s growth while white spirits remain as a steadier revenue driver compared to brown spirits.

More collaboration ahead for non-alcoholic beverages
Non-alcoholic beverages (NAB) sales decreased 7.3% YoY to THB15.8b. In line with vision2020, further collaboration among ThaiBev, F&N, Oishi and Sermsuk are expected as they exploit synergies through tapping on the entities’ complementary distribution networks and having favourable contract terms such as the sharing of marketing expenditure. For instance, Est Cola has been able to keep its market share at levels of 12-13% as it leverages on ThaiBev’s capabilities for brand promotion. Following the recent launch of 100+ in Thailand, we understand that Oishi and 100+ are expected to launch in Malaysia this year. While high A&P expenses will persist during the initial phase of building brand visibility, we believe successful penetration of products into new markets will eventually translate into narrower NAB losses as well as positive bottomline contribution in the longer term. 

Upgrade to BUY; new TP S$0.80
Upon lower gearing attained for the year at 45% (FY13: 64%), the group declared a record DPS of THB0.46, with total DPS at THB0.61 (FY13: THB0.44), giving a div yield of ~3.7%. The higher DPS is likely to continue at similar levels if gearing stabilizes or improves from the current 45%. As we roll forward our SOTP model along with a weaker SGDTHB assumption and slightly higher margins expected, our TP moves up to S$0.80 (prev: S$0.77). At current price level, there is now an upside potential of 18% (including 3.7% div yield), thus we upgrade our call to BUY.

Kim Heng Offshore & Marine

OCBC on 2 Mar 2015

Kim Heng Offshore & Marine reported a weak set of 4Q14 results. Excluding one-off items, we estimate core net profit to be S$1.9m in the quarter, such that full year core PATMI of S$8.1m accounted for close to 70% of our estimate, below ours and the street’s expectations. Looking ahead, Kim Heng’s CEO sees the oil and gas industry heading into a downturn similar to the 1980s. As such, it is seeking to cut costs and secure work from other industries. The group is currently servicing warm-stacked rigs; should owners choose to cold-stack them, it would affect Kim Heng negatively. After lowering our earnings estimates with a more downbeat assessment of the industry, our fair value estimate slips from S$0.16 to S$0.12, based on a SOTP valuation that takes into account Kim Heng’s net cash position of S$40m. Maintain HOLD. Meanwhile, a S$0.005/share final dividend has been declared.

Soft FY14 results
Kim Heng Offshore & Marine reported a 21% YoY fall in revenue to S$20.5m and net loss of S$1.0m in 4Q14, mainly due to a lower gross profit margin of 30% in the quarter vs 44% a year earlier, as well as S$3.3m provisions for doubtful trade receivables (related to a towage contract; legal proceedings underway to recover the money). Excluding such one-off items, we estimate core net profit to be S$1.9m in the quarter, such that full year core PATMI of S$8.1m accounted for close to 70% of our estimate, still below ours and the street’s expectations. 

Industry heading into a downturn
Looking ahead, Kim Heng’s CEO sees the industry heading into a downturn similar to the 1980s. As such, it is seeking to cut costs in various ways, such as reducing the number of workers and overtime pay. Currently, the group has more than 200 workers, which may fall to 100 or so depending on the outlook. The group is also seeking work from other sectors. For instance, it may seek to charter out assets for infrastructure-related work; the group has also secured orders to build two aluminium boats. 

Cold-stacking of rigs would be negative for group
According to management, there are about 15 warm-stacked rigs in Singapore yards, and another 15 near Johor; many cold-stacked rigs go to Labuan. Currently, the group is servicing about 15 warm-stacked rigs, and this number may grow as rig utilisation levels fall. However, if rig owners choose to cold-stack their rigs, this would impact the group negatively. Currently, rig utilization in Asia is on a downward trend, resulting in a decrease in demand for rig maintenance and related services. As such, the group expects business to be “volatile and challenging” in 2015. After lowering our earnings estimates with a more downbeat assessment of the industry, our fair value estimate slips from S$0.16 to S$0.12, based on a SOTP valuation that takes into account Kim Heng’s net cash position of S$40m. Maintain HOLD. Meanwhile, a S$0.005/share final dividend has been declared.

Hyflux

OCBC on 2 Mar 2015

Hyflux Ltd ended FY14 on a pretty muted note as expected, with revenue down 40% at S$321.4m. Although reported net profit grew 31% to S$57.5m, it was boosted by several one-off items; excluding these items, we estimate that it reported a net loss of S$72.3m. Hyflux declared a final dividend of 1.6 S cents/share, unchanged from FY13. Going forward, FY15 should improve slightly, as the company will be starting work on the recently won Quarayyat project in Oman - note that the EPC portion is worth US$210m - as the plant is expected to commence operations in May 2017. The connection of the Tuaspring power plant to the national grid could also provide a source of recurring income in 2H15. As such, we now expect Hyflux to turnaround in FY15 versus a small loss previously; this also improves our DCF-based fair value from S$0.75 to S$0.96. Upgrade to HOLD.

Poor FY14 finish as expected
Hyflux Ltd ended FY14 on a pretty muted note as expected. Due to the lack of new sizable contract wins and the continued delay in trying to achieve financial close for the Dahej project in India, revenue fell 40% to S$321.4m. Although reported net profit came in at S$57.5m, up 31%, we note that it was boosted by several one-off items totaling S$157.8m. Otherwise, the company incurred a negative EBITDA of ~S$38.2m, and a core net loss of S$72.3m; this was due to the higher utility charges from Tuaspring Desalination Plant due to the delay in the national grid connection to its power plant. Nevertheless, the company has kept its final dividend unchanged at 1.6 S cents/share.

Tuaspring power plant likely operational in 2H15
Speaking of its Tuaspring project, management notes that it has been making progress in trying to connect up the 400mw power plant to the grid, and believes that the connection should be completed in 2H15. Hyflux is quite upbeat about its prospects once this project is completed; this as it can sell as much as 75% of its power to the grid, given that the desalination plant only needs about 50mw per day. While management believes the revenue contribution could be quite sizable, we note that the margin is likely in the low teens; but could provide a source of recurring income.

Oman project boost from 2H15 onwards
Management is also upbeat about the recent Qurayyat contract win, where it expects the US$210m EPC portion to start this year, given that the IWP is scheduled to start commercial operations by May 2017. Hyflux adds that it does not expect the project to face any delays in trying to achieve financial close, unlike the Dahej project. Nevertheless, we expect the Oman project to be more backend loaded, with the bulk of the revenue likely recognized in FY16.

Upgrade to HOLD with S$0.96 fair value
We now expect Hyflux to turnaround in FY15 versus a small loss previously; this also improves our DCF-based fair value from S$0.75 to S$0.96. Upgrade to HOLD.

Golden Agri-Resources

OCBC on 2 Mar 2015

Golden Agri-Resources (GAR) reported a pretty weak set of FY14 earnings as expected. Going forward, management expects near-term volatility to remain, especially for its oilseeds business in China. However, management is reviewing its strategy there to improve operating efficiency. Still, GAR remains positive about the long-term prospects of the palm oil industry. It aims to spend US$130m for upstream operations and US$170m to expand its downstream business. While we do not expect to see any positive catalyst in the near term, we note that the share price has corrected quite a bit and may have found a base at around S$0.40, suggesting most of the negative news has been captured. Nevertheless, we are paring our FY15 estimates by 5-13% to reflect the weak CPO outlook. Our fair value eases from S$0.44 to S$0.42, now based on 13.5x FY15F EPS (versus blended FY14/FY15F previously). Upgrade to HOLD.

FY14 NPAT down 64%
Golden Agri-Resources (GAR) reported a pretty weak set of FY14 earnings as expected. While revenue jumped 15.7% to US$7619.3m, or about 4.5% above our forecast, buoyed by the expansion of its palm downstream business; reported net profit tumbled 63.5% to US$113.6m, hit by fair value loss of S$133.7m for biological assets. Excluding this item, core earnings still fell 30.5% to US$221.3m, but was just 1.3% below our forecast. GAR declared a final dividend of 0.177 S cent/share, versus 0.515 S cent in FY13. 

Near-term volatility likely to remain
Going forward, management expects its operating performance to be affected by the fluctuating commodity prices, sustainability of the global economy, climatic conditions, as well as developments in China and Indonesia. It adds that is reviewing its oilseeds business strategy to improve operating performance, given that the operating environment in China remains challenging in the near to medium term.

Still expanding for the future
Nevertheless, GAR remains positive about the long-term prospects of the palm oil industry. For 2015, GAR plans to spend US$130m to expand palm oil plantations via organic growth and acquisition. It is also exploring new initiatives for yield improvements and cost efficiency. On the downstream, it intends to spend US$170m to extend product portfolio, distribution coverage and global market reach as well as logistic facilities to enhance its integrated operations. GAR will further increase downstream processing capacity in strategic locations. 

Upgrade to HOLD with S$0.42 FV
While we do not expect to see any positive catalyst in the near term, we note that the share price has corrected quite a bit and may have found a base at around S$0.40, suggesting most of the negative news has been captured. Nevertheless, we are paring our FY15 estimates by 5-13% to reflect the weak CPO outlook. Our fair value eases from S$0.44 to S$0.42, now based on 13.5x FY15F EPS (versus blended FY14/FY15F previously). Upgrade to HOLD.

Libra Group

OCBC on 2 Mar 2015

Libra Group achieved a solid set of results for FY14, underpinned by sharp execution from the new management team. Revenue was up 102% to S$63.7m on the back of a 161.8% increase in revenue from its M&E segment. Alongside an improved gross profit margin of 23.1%, PATMI grew a whopping 9.2x to S$5.3m. A positive momentum in contract wins also brought their order book up to S$121m as of 31-Dec 2014, which is an 124% increase from FY13’s order book of S$54m. Following an impressive turnaround in performance, the group declared a final DPS of 0.7 S-cents, with total DPS of 0.12 S-cents giving a 5% dividend yield (FY13: 1.3%). Maintain BUY. Our fair value estimate is increased to S$0.37, from S$0.33 previously, based on a 4.8x blended FY15/16F P/E.

FY14 PATMI up whopping 9.2 times 
Libra Group achieved a solid set of results for FY14, underpinned by sharp execution from the new management team. Revenue was up 102% to S$63.7m, as its M&E segment revenue increased 161.8% to S$46.0m and contributed 72% of full-year revenue. Revenue from its manufacturing segment rose 24.8% to S$16.2m, but there was a dip in manufacturing margin as the group focused on gaining market share. That said, overall gross profit margin improved by 5.7 ppt to 23.1% (FY13: 17.4%) on the back of better project execution and productivity. The group’s turnaround story continues, as PATMI grew a whopping 9.2x to S$5.3m. Notably, its receivables days also improved from 185 to 142 days through effective management control.

Contract wins boost order book 
A positive momentum in contract wins also brought their order book up to S$121m as of 31-Dec 2014, which is an 124% increase from FY13’s order book of S$54m. About S$12m comes from its upstream main contractor segment, which may start contributing to the group’s bottomline in the next two years. We believe that the license upgrades for its M&E segment and further contract wins will add to the sustainability of Libra’s continued growth ahead.

Higher gearing was expected
As mentioned in our initiation report, the increase in the group’s gearing (FY14: 73%) was due to the factory acquisition at S$16m in late 2014. The new factory is slated to help contain costs with potential rental savings of at least S$1m. We believe good margins and management of its cash conversion cycle will help maintain a healthy balance sheet going forward.

Maintain BUY with new FV of S$0.37
The group declared a final DPS of 0.7 S-cents, with total DPS of 0.12 S-cents giving a 5% div yield. Maintain BUY. Our fair value estimate is increased to S$0.37, from S$0.33 previously, based on a 4.8x blended FY15/16F P/E.

Sheng Siong Group

OCBC on 27 Feb 2015

Sheng Siong Group’s (SSG) FY14 results largely met the street’s expectations. FY14 revenue rose 5.6% to S$726.0m and net profit had increased 22.3% to S$47.6m. Looking ahead, the following growth drivers are likely to arise: 1) management expects to open new stores early this year, 2) ramp up from recently opened stores and 3) the Bedok store may no longer be a drag on revenue after a better 4Q14 performance. We also believe that the improved margins seen in FY14 would at least maintain going forward, as the group continues to reap benefits from its distribution centre and better sales mix amid a stable pricing environment across the industry. A cash dividend of 1.5 S-cents/share was declared, with total full-year DPS at 3.0 S-cents, giving a dividend yield of 4.1%. We reiterate BUY with a slightly higher DCF-derived fair value estimate of S$0.81 (previous: S$0.77), mainly attributable to better gross profit margin expectations.

FY14 results in line with expectations 
Sheng Siong Group’s (SSG) FY14 results largely met the street’s expectations. FY14 revenue rose 5.6% to S$726.0m and net profit increased 22.3% to S$47.6m, coming in marginally higher than our forecast. Topline was driven by new stores and old stores sales, which grew by 2.3% and 3.3%, respectively. Looking ahead, the following growth drivers are likely to arise: 1) management expects to see new store openings early this year, 2) ramp up from recently opened stores (a ~4k sq ft store in Penjuru area and a ~9.8k sq ft store in Tampines), and 3) the Bedok store may no longer be a drag on revenue after a better 4Q14 performance. With that said, we are keeping our assumption of 5.2% revenue growth for FY15 as the 8 stores that were opened in 2012 would normalise as these stores enter the third year of operations. Should the plan for new stores materialise this year, ramp-up from the new stores would likely lead to better revenue contributions from FY16 onwards.

Sustainable margins 
Notable improvement in gross profit margin from 23% to 24.2% came on the back of lower costs from its distribution centre, stable selling prices and better sales mix. The latter factor includes continued focus on fresh produce, and we understand that the supermarket industry has also seen a gradual increase in concentration towards frozen products such as frozen seafood, which garners good margins as well. Moreover, while there was higher manpower costs as a result of higher bonuses given to its employees, operating margin had improved, proving effective cost control by the management. Going forward, we expect margins to at least maintain at current levels.

Maintain BUY, raising FV to 81 cents 
A cash dividend of 1.5 S-cents/share was declared, with total full-year DPS at 3.0 S-cents, giving a dividend yield of 4.1%. We maintain BUY with a slightly higher DCF-derived fair value estimate of S$0.81 (previous: S$0.77), mainly attributable to better gross profit margin expectations.

ST Engineering

OCBC on 27 Feb 2015

ST Engineering (STE) reported its FY14 revenue slipped 1.4% to S$6539.4m, or about 2.0% below our forecast, while profit before tax fell 10.8% to S$650.7m, which STE had earlier guided that it would be lower. Net profit retreated 8.4% to S$532.0m, or about 2.7% below our estimate. STE declared a final dividend of 4.0 S cents/share plus a special of 7.0 S cents/share, bringing the full-year dividend to 15.0 S cents, unchanged from FY13. Going forward, STE expects FY15 revenue and PBT to be comparable to FY14, backed by an order book of S$12.5b (as of end Dec). In view of the FY14 performance and comparable FY15 guidance, we need to pare our FY15 estimates for revenue by 2.4% and core earnings by 7.9%. While we are keeping our 19x peg versus FY15F EPS, our fair value eases from S$3.47 t0 S$3.33. However, as we still expect STE to pay at least S$0.15/share of total dividend in FY15, we maintain our HOLD rating.

Weaker FY14 results as guided
ST Engineering (STE) reported its FY14 results this morning, with revenue easing 1.4% to S$6539.4m, or about 2.0% below our forecast, while profit before tax slipped 10.8% to S$650.7m, which STE had earlier guided that it would be lower. Net profit fell 8.4% to S$532.0m, or about 2.7% below our estimate. STE declared a final dividend of 4.0 S cents/share plus a special of 7.0 S cents/share, bringing the full-year dividend to 15.0 S cents, unchanged from FY13.

Electronics, Others showed better profitability
All business segments showed revenue declines of between 1% and 18%, with the exception of Marine (+8%), which also outperformed its comparable guidance; this mainly due to higher Shipbuilding and Engineering revenues. Others and Electronics segments showed higher PBT of 126% and 8% respectively, while the rest saw declines of between 11% and 50%. Nevertheless, these were in line with its guidance. 

Guides for comparable FY15 performance
Going forward, management is guiding for FY15 revenue and PBT to be comparable to FY14 (growth to be between 0% and 5%), barring unforeseen circumstances; this backed by an order book of S$12.5b (as of end 2014), where S$3.8b of which is expected to be delivered this year. By segments, it expects Aerospace revenue and PBT to be comparable; Electronics revenue and PBT to both be higher; Land Systems revenue to be comparable, PBT to be higher; and Marine revenue to be lower, PBT to be comparable.

Lowering FV to S$3.33 on softer FY15 estimates
In view of the FY14 performance and comparable FY15 guidance, we need to pare our FY15 estimates for revenue by 2.4% and core earnings by 7.9%. While we are keeping our 19x peg versus FY15F EPS, our fair value eases from S$3.47 to S$3.33. However, as we still expect STE to pay at least S$0.15/share of total dividend in FY15, we maintain our HOLD rating.

Petra Foods

OCBC on 27 Feb 2015

Petra Foods reported a weaker set of results for FY14, which was expected by the street as the group’s topline was hindered by the weakening IDR against its USD reporting currency over the year. FY14 revenue was down 0.9% to US$504.0m and PATMI declined 17.8% to US$48.8m. In constant currency terms, FY14 revenue rose 10.7% while PATMI saw a marginal 0.6% increase. The group managed to maintain margins at about 32% over the year. Looking ahead, management plans to increase their sales and distribution points to drive growth, and may also look to raise prices if IDR remains weak. A final dividend of 2.58 S-cents and a special dividend of 2.19 S-cents were declared, bringing total DPS to 7.5 S-cents. Our FV estimate dips to S$3.78 from S$3.86 as we trimmed our revenue growth expectations. Maintain HOLD.

Weaker FY14 results were expected 
Petra Foods reported a weaker set of results for FY14, which was expected by the street as the group’s topline was hindered by the weakening IDR against its USD reporting currency over the year. FY14 revenue was down 0.9% to US$504.0m and PATMI declined 17.8% to US$48.8m. Excluding the exceptional cost of US$1.5m from the on-going dispute with Barry Callebaut, its core PATMI fell 15.2% to an estimated US$50.3m, which was slightly lower than our forecast. In constant currency terms, FY14 revenue rose 10.7% while PATMI saw a marginal 0.6% increase. We note that Own Brand growth in the Philippines was more than 30%, but it will take the next few years for its business to achieve the desired scale that will enable contribution to its bottom-line.

Increasing distribution points to drive growth
The group managed to maintain margins at about 32% over the year despite higher cost inflation resulting mainly from weakness in regional currencies. This is underpinned by having a right mix of timely pricing adjustments (especially for its premium chocolate products), product rightsizing and buying forward its raw materials. Looking ahead, management remains positive on their business growth in local currency terms. Driving growth this year will be the group’s plans to increase their sales and distribution points as well as introducing new products and categories to expand its portfolio. While IDR depreciation against USD is expected to extend into the rest of FY15, in response, management may look to raise prices.

Keeping cash due to ongoing dispute 
With a cash pile of US$172.0m, the group is looking out for opportunities, but with its ongoing dispute with Barry Callebaut over sale proceeds of the Cocoa Ingredients business, it is also sensible to keep the cash for now. A final dividend of 2.58 S-cents/share and a special dividend of 2.19 S-cents/share were declared, bringing total DPS to 7.5 S-cents. Our FV estimate dips to S$3.78 from S$3.86 as we trimmed our revenue growth expectations. Maintain HOLD.