UOBKayhian on 27 May 2015
FY15F PE (x): 15.9
FY16F PE (x): 12.8
Global leader in the high barrier-to-entry, premium-priced cleanroom segment.
Cleanroom gloves are made for special industrial applications conducted in a critical
environment. It mainly serves the high-tech electronics manufacturing sector. Due to
the advanced technical capabilities involved, cleanroom gloves typically command
ASPs that are 2.5-3x higher than healthcare gloves. Barriers to entry are very high due
to the highly specialised nature. Riverstone’s long-standing blue-chip customers include
Western Digital, Seagate and Hitachi, some of whom source their needs solely from the
group.
We project a 3-year net profit CAGR of 18.8% in 2014-17 on the back of: a) strong
take-up of its cleanroom gloves in the tablet and mobile segment, b) resilient demand
from the healthcare sector, and c) production capacity expansion. In addition, while the
healthcare glove industry remains competitive, low raw material prices will protect
margins. We see room for further upside from better-than-expected ASPs, margins and
utilisation.
Undervalued glove maker, BUY with target price of S$1.59 (from S$1.51), pegged at
the sector’s historical mean PE of 14.2x applied to our 2016F EPS of 11.2 S cents.
Given the higher ROE and yield, RSTON is trading attractively at 2015F and 2016F PE
of 15.9x and 12.8x, vs peers’ average of 17.9x and 15.9x respectively.
Friday, 29 May 2015
ComfortDelGro
UOBKayhian on 28 May 2015
FY15F PE (x): 20.1
FY16F PE (x): 16.4
9% price pullback from the recent high presents a potential opportunity. We view the recent share price retracement as a buying opportunity. Given the uncertain outlook of equity markets, we believe CD’s resilient earnings and strong financials will be favoured. Opening of DTL stage 2 to feed traffic growth. We expect the Downtown Line (DTL) stage 2 to commence operations in 1Q16 while ridership continued to gain traction for stage 1 (DTL1). Average daily riderships for DTL1 grew 24.1% yoy to 67,000 passenger trips but this could be boosted further the opening of DTL stage 2 is expected to feed more traffic into DTL1. Upgrade to BUY with a DCF-based target price of S$3.30. At our target price, the implied 2016F PE of 18.4 is close to its +1SD valuation but we believe this is justified given its strong earnings track record and cash flow.
FY15F PE (x): 20.1
FY16F PE (x): 16.4
9% price pullback from the recent high presents a potential opportunity. We view the recent share price retracement as a buying opportunity. Given the uncertain outlook of equity markets, we believe CD’s resilient earnings and strong financials will be favoured. Opening of DTL stage 2 to feed traffic growth. We expect the Downtown Line (DTL) stage 2 to commence operations in 1Q16 while ridership continued to gain traction for stage 1 (DTL1). Average daily riderships for DTL1 grew 24.1% yoy to 67,000 passenger trips but this could be boosted further the opening of DTL stage 2 is expected to feed more traffic into DTL1. Upgrade to BUY with a DCF-based target price of S$3.30. At our target price, the implied 2016F PE of 18.4 is close to its +1SD valuation but we believe this is justified given its strong earnings track record and cash flow.
IHH Healthcare
UOBKayhian on 29 May 2015
FY15F PE (x): 48.2
FY16F PE (x): 38.8
IHH Healthcare’s (IHH) 1Q15 net profit below our and consensus full-year estimates by 23% and 9% respectively on the back of lower-than-expected inpatient volume growth at Parkway Pantai Life (PPL) Malaysia and the Acibadem business. Revenue and adjusted net profit increased 14% and 8% yoy respectively, driven mainly by growth in inpatient volume and revenue intensity. The group continues to ramp up operations in its relatively newer hospitals - Mount Elizabeth Novena Hospital, Acibadem Ankara Hospital and Acibadem Bodrum Hospital. Lower-than-expected inpatient volume growth. Our previous 2015 inpatient volume growth estimates for Parkway Pantai Life (PPL) Singapore, PPL Malaysia and Acibadem was 9.5%, 21.9% and 10.9% yoy respectively. Typically, growth in inpatient volumes are stronger in the second and third quarter of the year due to seasonality where inpatient and outpatient volumes are generally lower during festive periods and summer months. However, with inpatient growth for PPL Malaysia and Acibadem slowing down yoy in 1Q15, we have lowered our estimates to 16.2% and 9.2% respectively. Our inpatient volume growth assumption for PPL Singapore remains unchanged. Currently, one-third of IHH’s patients are foreigners while local patients make up two-thirds. In addition, we expect the increase in Middle Eastern patients to offset fluctuations from Indonesia. Maintain SELL with a lower target price of S$1.77 (from $S1.80). We think valuations are stretched and relatively unattractive at 48.2x 2015F PE vs peers’ average of 30.6x. Within the Singapore-listed healthcare space, we continue to prefer Raffles Medical and QT Vascular, the latter for those with a more aggressive risk appetite.
FY15F PE (x): 48.2
FY16F PE (x): 38.8
IHH Healthcare’s (IHH) 1Q15 net profit below our and consensus full-year estimates by 23% and 9% respectively on the back of lower-than-expected inpatient volume growth at Parkway Pantai Life (PPL) Malaysia and the Acibadem business. Revenue and adjusted net profit increased 14% and 8% yoy respectively, driven mainly by growth in inpatient volume and revenue intensity. The group continues to ramp up operations in its relatively newer hospitals - Mount Elizabeth Novena Hospital, Acibadem Ankara Hospital and Acibadem Bodrum Hospital. Lower-than-expected inpatient volume growth. Our previous 2015 inpatient volume growth estimates for Parkway Pantai Life (PPL) Singapore, PPL Malaysia and Acibadem was 9.5%, 21.9% and 10.9% yoy respectively. Typically, growth in inpatient volumes are stronger in the second and third quarter of the year due to seasonality where inpatient and outpatient volumes are generally lower during festive periods and summer months. However, with inpatient growth for PPL Malaysia and Acibadem slowing down yoy in 1Q15, we have lowered our estimates to 16.2% and 9.2% respectively. Our inpatient volume growth assumption for PPL Singapore remains unchanged. Currently, one-third of IHH’s patients are foreigners while local patients make up two-thirds. In addition, we expect the increase in Middle Eastern patients to offset fluctuations from Indonesia. Maintain SELL with a lower target price of S$1.77 (from $S1.80). We think valuations are stretched and relatively unattractive at 48.2x 2015F PE vs peers’ average of 30.6x. Within the Singapore-listed healthcare space, we continue to prefer Raffles Medical and QT Vascular, the latter for those with a more aggressive risk appetite.
Consumer Sector
OCBC on 28 May 2015
The consumer sector has been relatively unexciting, with both consumer indices FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS) showing a muted performance against the FSSTI. As a recap, our coverage had a couple of disappointments from OSIM, Petra Foods and BreadTalk, as weaker economic sentiment from their respective key markets, China and Indonesia, took a toll on performance. We are keeping our NEUTRAL call for the consumer sector given the subdued near term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] given its new flagship product launch in 2Q. We still favour Sheng Siong Group [BUY, S$0.92] as consumer staples evidently continue to offer stability. We also like Thai Beverage [BUY, S$0.83] for its market dominance in Thailand, while higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
Sector underperformed the FSSTI
The consumer indices, FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS), have had a comparably muted performance against the FSSTI, with YTD returns of -0.7% from FSTCS and 2.9% from FSTCG vs. the FSSTI of 1.6%. As for our preferred picks, Sheng Siong Group and Thai Beverage (Thai Bev), both have outperformed the benchmark with YTD gains of 27% and 10.6% respectively.
Disappointments in 1Q
Topline numbers for consumer stocks under our coverage were still reasonable, but bottom-line performance from OSIM, Petra Foods and BreadTalk did not meet our expectations as the companies continue to incur higher operating costs including gestation expenses. A subdued macro environment took a toll on performance as well as these stocks received a setback from weaker economic sentiment in their respective key markets, namely China and Indonesia.
Weaker economic sentiment took a toll
We understand that China’s inherent growth slowdown, structural changes, and e-commerce growth have contributed to lower footfall in malls, resulting in weaker sales for retail and F&B companies. OSIM and BreadTalk have had muted sales performance and underperforming stores in China. In addition, EIU projects that retail sales in China will see slower growth from 2015 to 2019, due to strong market competition and rising operating costs. Indonesia had a slow 1Q as well, and Petra Foods’ 1Q15 was its first quarter of negative underlying performance in a long while, raising doubts over the sustainability of sales growth for the coming quarters.
Maintain NEUTRAL
We are keeping our NEUTRAL call for the consumer sector given the subdued near-term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] whose new uMagic chair launched in April as well as further product introductions in the region from June should drive sales for the year. We still favour Sheng Siong [BUY, S$0.92] for its defensiveness. In addition to new stores, we are also confident of the group’s strong management execution in view of its venture into China. While this is not expected to be immediately profitable, the US$6m investment is not significant given its net cash position of ~S$139m. We also like Thai Bev [BUY, S$0.83] for its market dominance in Thailand, with 95% market share for its brown spirits. Higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
The consumer indices, FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS), have had a comparably muted performance against the FSSTI, with YTD returns of -0.7% from FSTCS and 2.9% from FSTCG vs. the FSSTI of 1.6%. As for our preferred picks, Sheng Siong Group and Thai Beverage (Thai Bev), both have outperformed the benchmark with YTD gains of 27% and 10.6% respectively.
Disappointments in 1Q
Topline numbers for consumer stocks under our coverage were still reasonable, but bottom-line performance from OSIM, Petra Foods and BreadTalk did not meet our expectations as the companies continue to incur higher operating costs including gestation expenses. A subdued macro environment took a toll on performance as well as these stocks received a setback from weaker economic sentiment in their respective key markets, namely China and Indonesia.
Weaker economic sentiment took a toll
We understand that China’s inherent growth slowdown, structural changes, and e-commerce growth have contributed to lower footfall in malls, resulting in weaker sales for retail and F&B companies. OSIM and BreadTalk have had muted sales performance and underperforming stores in China. In addition, EIU projects that retail sales in China will see slower growth from 2015 to 2019, due to strong market competition and rising operating costs. Indonesia had a slow 1Q as well, and Petra Foods’ 1Q15 was its first quarter of negative underlying performance in a long while, raising doubts over the sustainability of sales growth for the coming quarters.
Maintain NEUTRAL
We are keeping our NEUTRAL call for the consumer sector given the subdued near-term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] whose new uMagic chair launched in April as well as further product introductions in the region from June should drive sales for the year. We still favour Sheng Siong [BUY, S$0.92] for its defensiveness. In addition to new stores, we are also confident of the group’s strong management execution in view of its venture into China. While this is not expected to be immediately profitable, the US$6m investment is not significant given its net cash position of ~S$139m. We also like Thai Bev [BUY, S$0.83] for its market dominance in Thailand, with 95% market share for its brown spirits. Higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
Biosensors
OCBC on 28 May 2015
Biosensors International Group’s (BIG) FY15 revenue was 5% lower at US$308.4m, forming 95% of our full-year forecast. The group had faced ASP erosion, FX translation effects, and lower licensing revenue from Terumo over the financial year. A net loss position of US$224.8m was mainly due to a US$256.1m one-off goodwill write-off of its China subsidiary JWMS. Stripping exceptional items out, estimated core net profit fell 23% to US$34.9m, constituting 107% of our estimates. Amid on-going headwinds for the year ahead, the group intends to focus on top-line growth through BioFreedom, as well as expansion of its distribution business in Japan. We do not see immediate major impacts on profitability, and thus trim our FY16F revenue and net profit by 5%/11% while we also introduce our FY17 estimates. Our FV estimate of S$0.60 stays unchanged based on 20x FY16F P/E. SELL at this juncture on rich valuations.
Weaker FY15 YoY results within expectations
Biosensors International Group’s (BIG) FY15 revenue was 5% lower at US$308.4m, forming 95% of our full-year forecast. The group had faced ASP erosion, FX translation effects, and lower licensing revenue from Terumo over the financial year. Underlying growth for the group’s revenue was deemed ‘encouraging’ and we did see continued cost reduction initiatives, with total operating expense as a percentage of revenue a tad lower at 51% (FY14: 54%). A net loss position of US$224.8m was mainly due to a US$256.1m one-off goodwill write-off its China subsidiary, JWMS. Stripping exceptional items out, estimated core net profit fell 23% to US$34.9m, constituting 107% of our estimates.
Looking to rely on BioFreedom and Japan presence
The one-time goodwill impairment in JWMS was to reflect the protracted slowdown in growth in China as compared to the group’s better sales performance back in 2011, when BIG acquired the remaining 50% equity in JWMS. Amid on-going headwinds such as declining ASP, the group will focus on top-line growth through BioFreedom and the Cardiac Diagnostic segment, as well as expansion of its distribution business in Japan and emerging markets. In addition, last week’s positive news on BioFreedom and its BioMatrix family would be supportive in reinforcing the benefits of BIG’s products. We look to see how the growth story pans out for BioFreedom, as primary endpoint data for its LEADERS Free trial is slated for release later in the year. But we keep in mind that obtaining approvals from US and Japan for BioFreedom could take a long time, and hence impacts on profitability are unlikely to be immediate.
Maintain SELL
As we expect a similar picture in the near-term, we trim our FY16F revenue and net profit by 5%/11% while we also introduce our FY17 estimates. Our FV estimate of S$0.60 stays unchanged based on 20x FY16F P/E. SELL at this juncture on rich valuations.
Biosensors International Group’s (BIG) FY15 revenue was 5% lower at US$308.4m, forming 95% of our full-year forecast. The group had faced ASP erosion, FX translation effects, and lower licensing revenue from Terumo over the financial year. Underlying growth for the group’s revenue was deemed ‘encouraging’ and we did see continued cost reduction initiatives, with total operating expense as a percentage of revenue a tad lower at 51% (FY14: 54%). A net loss position of US$224.8m was mainly due to a US$256.1m one-off goodwill write-off its China subsidiary, JWMS. Stripping exceptional items out, estimated core net profit fell 23% to US$34.9m, constituting 107% of our estimates.
Looking to rely on BioFreedom and Japan presence
The one-time goodwill impairment in JWMS was to reflect the protracted slowdown in growth in China as compared to the group’s better sales performance back in 2011, when BIG acquired the remaining 50% equity in JWMS. Amid on-going headwinds such as declining ASP, the group will focus on top-line growth through BioFreedom and the Cardiac Diagnostic segment, as well as expansion of its distribution business in Japan and emerging markets. In addition, last week’s positive news on BioFreedom and its BioMatrix family would be supportive in reinforcing the benefits of BIG’s products. We look to see how the growth story pans out for BioFreedom, as primary endpoint data for its LEADERS Free trial is slated for release later in the year. But we keep in mind that obtaining approvals from US and Japan for BioFreedom could take a long time, and hence impacts on profitability are unlikely to be immediate.
Maintain SELL
As we expect a similar picture in the near-term, we trim our FY16F revenue and net profit by 5%/11% while we also introduce our FY17 estimates. Our FV estimate of S$0.60 stays unchanged based on 20x FY16F P/E. SELL at this juncture on rich valuations.
Genting Singapore
OCBC on 27 May 2015
After reporting a weaker-than-expected set of 1Q15 results on 14 May, Genting Singapore’s (GS) share price tumbled nearly 10% to S$0.92 (just shy of recent 52-week low of S$0.905). But at current levels, we note most of bad news may have already been priced in; we also see some near-term positives on the horizon. Having said that, we believe the GS is really a 2017 story and one with a strong overseas angle. The first being the opening of its integrated resort on Jeju Island, South Korea and the second – still a long shot – will be the building of IRs in Japan. For these reasons as well as on valuation grounds, we upgrade our call to HOLD with an unchanged fair value of S$0.95.
Near-10% tumble after 1Q results
Genting Singapore (GS) saw a near-10% tumble in its share price to hit S$0.92 (recent 52-week low is at S$0.905), after the integrated resort operator reported a weaker-than-expected set of 1Q15 results on 14 May. We had also cut our rating from Hold to Sell as its core NPAT of S$61.3m (down 70% YoY) only met 13% of our full-year estimate then.
Accounting for most of bad news
But at current levels, we note most of bad news may have already been priced in. For one, GS has already warned for some time that VIP volumes are likely to remain sluggish in the medium term, as Chinese high rollers are still affected by the ongoing anti-graft campaign in China. It had also warned of further credit tightening for its VIP business and more provisions may be needed as collection of debt from these players are more difficult and could remain challenging to do so.
Some positives in the near-term
Meanwhile, we do see some near-term positives on the horizon. Universal Studios Singapore (USS) will re-open its main attraction – the Battlestar Galactica ride on 28 May, just in time for the Jun school holidays; this after being closed for nearly two years. In addition, media reports suggest that occupancy rate at its newly-opened Genting Hotel Jurong has been better than expected, even though it has just opened 25% of its 557 rooms in Apr. When fully opened in Jun, GS is hopeful that it can attract as much as 1.5k additional daily visitors to its IR this year.
Really a 2017 story
Having said that, we believe the GS is really a 2017 story and one with a strong overseas angle. The first being the opening of its integrated resort on Jeju Island, South Korea and the second – still a long shot – will be the building of IRs in Japan. For these reasons as well as on valuation grounds, we upgrade our call to HOLD with an unchanged fair value of S$0.95.
Genting Singapore (GS) saw a near-10% tumble in its share price to hit S$0.92 (recent 52-week low is at S$0.905), after the integrated resort operator reported a weaker-than-expected set of 1Q15 results on 14 May. We had also cut our rating from Hold to Sell as its core NPAT of S$61.3m (down 70% YoY) only met 13% of our full-year estimate then.
Accounting for most of bad news
But at current levels, we note most of bad news may have already been priced in. For one, GS has already warned for some time that VIP volumes are likely to remain sluggish in the medium term, as Chinese high rollers are still affected by the ongoing anti-graft campaign in China. It had also warned of further credit tightening for its VIP business and more provisions may be needed as collection of debt from these players are more difficult and could remain challenging to do so.
Some positives in the near-term
Meanwhile, we do see some near-term positives on the horizon. Universal Studios Singapore (USS) will re-open its main attraction – the Battlestar Galactica ride on 28 May, just in time for the Jun school holidays; this after being closed for nearly two years. In addition, media reports suggest that occupancy rate at its newly-opened Genting Hotel Jurong has been better than expected, even though it has just opened 25% of its 557 rooms in Apr. When fully opened in Jun, GS is hopeful that it can attract as much as 1.5k additional daily visitors to its IR this year.
Really a 2017 story
Having said that, we believe the GS is really a 2017 story and one with a strong overseas angle. The first being the opening of its integrated resort on Jeju Island, South Korea and the second – still a long shot – will be the building of IRs in Japan. For these reasons as well as on valuation grounds, we upgrade our call to HOLD with an unchanged fair value of S$0.95.
Tuesday, 26 May 2015
Aviation & Shipping Sectors
OCBC on 26 May 2015
Weak performances persisted into 1QCY15 for most of the companies within the aviation and shipping sectors. Large hedging losses continued to erode fuel savings for the airlines while the engineering service providers are also facing structural issues arising from improved airworthiness of aircraft/engines. Freight rates in the shipping sector were also muted through the period. Once again, overcapacity in both airline and shipping industry is expected to persist with more capacity to be added in CY15, which will put downward pressures on passenger yields and freight rates. Furthermore, moderate global economic growth is likely to cast uncertainties over air travel demand and trade volume. Hence, on these grounds, we maintain our UNDERWEIGHT rating on both the Aviation and Shipping sectors, with ratings on SIA [HOLD; FV:S$11.59], Tigerair [SELL; FV:S$0.30], SIAEC [SELL; FV:S$3.45], STE [HOLD; FV:S$3.33], SATS [HOLD; FV:S$3.11], NOL [HOLD; FV:S$1.15].
Review of 1QCY15 results
The airlines’ results came in mostly disappointing: 1) Singapore Airlines’ (SIA) [HOLD; FV: S$11.59] FY15 results were below expectations, as PATMI fell 16% to S$333.4m on weaker contributions from JVs and associates, as well as large hedging losses, and 2) Tiger Airways (Tigerair) [SELL; FV: S$0.30] saw a year of restructuring in FY15 as it continued to downsize operations but overcapacity and weak yields still led to core net loss of S$72.5m. The performances from aviation service providers were more mixed: 1) ST Engineering’s (STE) [HOLD; FV: S$3.33] 1Q15 results came in within expectations as core earnings slipped 2.2% YoY to S$142.9m as revenue from most segments saw decline, 2) SIA Engineering Company’s (SIAEC) [SELL; FV: S$3.45] FY15 results slightly missed our expectations as PATMI plunged 31.0% to S$183.3m on fewer aircraft/engines workshop visits, but 3) SATS Ltd’s (SATS) [HOLD; FV: S$3.11] FY15 results were above our expectations as PATMI grew 7.0% to S$195.9m on disciplined cost management and better business mix. Lastly, for shipping, Neptune Orient Lines’ (NOL) [HOLD; FV: S$1.15] 1Q15 results improved as net loss from continuing business dropped 71% to US$36m on cost savings driven by tight cost control and better operational efficiency but weak freight rates persisted.
Maintain UNDERWEIGHT on Aviation Sector
In our view, the airline industry continues to be plagued by overcapacity in the region as capacity is expected to increase over the next two years. Also, outlook for air travel demand is unlikely to be rosy after IMF in Apr-15 maintained its world economic growth forecasts for CY15 and CY16 at 3.5% and 3.8%, respectively. Furthermore, Thailand’s aviation sector came under fire after serious safety issues surfaced from the audit conducted by UN’s International Civil Aviation Organisation (ICAO). Consequently, it is logical to deduce that the service providers are likely to see tough times ahead too. On these reasons, we maintain UNDERWEIGHT on the Aviation Sector.
Maintain UNDERWEIGHT on Shipping Sector
Even though port congestion in the U.S. West Coast (USWC) is easing after tentative labour agreement had been reached, we think overcapacity issue is unlikely to ease in the near-term with more vessel deliveries expected this year. While the Transpacific Stabilisation Agreement (TSA) has recommended minimum contract rates on transpacific routes, we think any recovery is too early to tell, especially when IMF cut its world trade volume forecasts for CY15 and CY16 by 0.1% and 0.6% to 3.7% and 4.7%, respectively. Hence, we maintain UNDERWEIGHT on the Shipping Sector.
The airlines’ results came in mostly disappointing: 1) Singapore Airlines’ (SIA) [HOLD; FV: S$11.59] FY15 results were below expectations, as PATMI fell 16% to S$333.4m on weaker contributions from JVs and associates, as well as large hedging losses, and 2) Tiger Airways (Tigerair) [SELL; FV: S$0.30] saw a year of restructuring in FY15 as it continued to downsize operations but overcapacity and weak yields still led to core net loss of S$72.5m. The performances from aviation service providers were more mixed: 1) ST Engineering’s (STE) [HOLD; FV: S$3.33] 1Q15 results came in within expectations as core earnings slipped 2.2% YoY to S$142.9m as revenue from most segments saw decline, 2) SIA Engineering Company’s (SIAEC) [SELL; FV: S$3.45] FY15 results slightly missed our expectations as PATMI plunged 31.0% to S$183.3m on fewer aircraft/engines workshop visits, but 3) SATS Ltd’s (SATS) [HOLD; FV: S$3.11] FY15 results were above our expectations as PATMI grew 7.0% to S$195.9m on disciplined cost management and better business mix. Lastly, for shipping, Neptune Orient Lines’ (NOL) [HOLD; FV: S$1.15] 1Q15 results improved as net loss from continuing business dropped 71% to US$36m on cost savings driven by tight cost control and better operational efficiency but weak freight rates persisted.
Maintain UNDERWEIGHT on Aviation Sector
In our view, the airline industry continues to be plagued by overcapacity in the region as capacity is expected to increase over the next two years. Also, outlook for air travel demand is unlikely to be rosy after IMF in Apr-15 maintained its world economic growth forecasts for CY15 and CY16 at 3.5% and 3.8%, respectively. Furthermore, Thailand’s aviation sector came under fire after serious safety issues surfaced from the audit conducted by UN’s International Civil Aviation Organisation (ICAO). Consequently, it is logical to deduce that the service providers are likely to see tough times ahead too. On these reasons, we maintain UNDERWEIGHT on the Aviation Sector.
Maintain UNDERWEIGHT on Shipping Sector
Even though port congestion in the U.S. West Coast (USWC) is easing after tentative labour agreement had been reached, we think overcapacity issue is unlikely to ease in the near-term with more vessel deliveries expected this year. While the Transpacific Stabilisation Agreement (TSA) has recommended minimum contract rates on transpacific routes, we think any recovery is too early to tell, especially when IMF cut its world trade volume forecasts for CY15 and CY16 by 0.1% and 0.6% to 3.7% and 4.7%, respectively. Hence, we maintain UNDERWEIGHT on the Shipping Sector.
Yoma Strategic Holdings
OCBC on 25 May 2015
Yoma reported that 4QFY15 PATMI increased 47.5% YoY to S$11.9m, mostly due to increased fair value gains on investment properties and forex gains from the appreciation of the US dollar against SGD. 4QFY15 topline remained mostly flat at S$27.6m (up 0.1% YoY); contributions from the sales of residences and LDRs dipped from S$23.4m in 4QFY14 to S$12.5m in 4QFY15 but this was offset by increased contributions from rental income and also the automotive and tourism segments. Overall, this quarter is broadly within expectations, and adjusted core PATMI and revenues make up 116% and 88% of our full year forecast, respectively. The group also announced that CEO, Andrew Rickards, has resigned and will be replaced by Melvyn Pun, who is the son of major shareholder Serge Pun. Mr Rickards will step down after the AGM on 27 Jul 2015, and will remain as advisor to the company until the end of the year. No dividend has been declared. Maintain HOLD with an unchanged fair value estimate of S$0.52.
4QFY15 numbers broadly within expectations
Yoma reported that 4QFY15 PATMI increased 47.5% YoY to S$11.9m, mostly due to increased fair value gains on investment properties and forex gains from the appreciation of the US dollar against SGD. Over the quarter, the group recognized an S$8.03m revaluation gain from Star City A5 and Lakeview G in PHGE, in addition to a S$6.08m forex gain and a S$6.5m fair value loss on prepayments made to a JV for coffee cultivation. 4QFY15 topline remained mostly flat at S$27.6m (up 0.1% YoY); contributions from the sales of residences and LDRs dipped from S$23.4m in 4QFY14 to S$12.5m in 4QFY15 but this was offset by increased contributions from rental income and also the automotive and tourism segments. Overall, this quarter is broadly within expectations, and adjusted core PATMI and revenues make up 116% and 88% of our full year forecast, respectively. No dividend has been declared.
More units at Star City leased
Yoma reports that 100 out of the 150 units at Star City A5 has been leased out to date, up from 66 units as at end of the last quarter, and total revenue generated from the group’s investment properties increased YoY from S$0.4m to S$2.3m in 4QFY15. At Star City, Building A3 was completed over the quarter, with 100% of its profits now recognized, while the balance of S$6.8m of progress recognition from Building A4 is expected to roll in over the next six months.
Melvyn Pun to take over as CEO
The group also announced that CEO, Andrew Rickards, has resigned and will be replaced by Melvyn Pun, who is the son of major shareholder Serge Pun. Mr Rickards will step down after the AGM on 27 Jul 2015, and will remain as advisor to the company until the end of the year. In addition, Mr JR Ching, formerly the Head of Business Development of the group, will also be appointed CFO. Maintain HOLD with an unchanged fair value estimate of S$0.52.
Yoma reported that 4QFY15 PATMI increased 47.5% YoY to S$11.9m, mostly due to increased fair value gains on investment properties and forex gains from the appreciation of the US dollar against SGD. Over the quarter, the group recognized an S$8.03m revaluation gain from Star City A5 and Lakeview G in PHGE, in addition to a S$6.08m forex gain and a S$6.5m fair value loss on prepayments made to a JV for coffee cultivation. 4QFY15 topline remained mostly flat at S$27.6m (up 0.1% YoY); contributions from the sales of residences and LDRs dipped from S$23.4m in 4QFY14 to S$12.5m in 4QFY15 but this was offset by increased contributions from rental income and also the automotive and tourism segments. Overall, this quarter is broadly within expectations, and adjusted core PATMI and revenues make up 116% and 88% of our full year forecast, respectively. No dividend has been declared.
More units at Star City leased
Yoma reports that 100 out of the 150 units at Star City A5 has been leased out to date, up from 66 units as at end of the last quarter, and total revenue generated from the group’s investment properties increased YoY from S$0.4m to S$2.3m in 4QFY15. At Star City, Building A3 was completed over the quarter, with 100% of its profits now recognized, while the balance of S$6.8m of progress recognition from Building A4 is expected to roll in over the next six months.
Melvyn Pun to take over as CEO
The group also announced that CEO, Andrew Rickards, has resigned and will be replaced by Melvyn Pun, who is the son of major shareholder Serge Pun. Mr Rickards will step down after the AGM on 27 Jul 2015, and will remain as advisor to the company until the end of the year. In addition, Mr JR Ching, formerly the Head of Business Development of the group, will also be appointed CFO. Maintain HOLD with an unchanged fair value estimate of S$0.52.
Oil and Gas Sector
OCBC on 22 May 2015
Many oil and gas stocks saw a rally in early Apr as oil prices were supported by geopolitical tensions in the Middle East, and investors also took to bargain hunting with depressed valuations of stocks in the sector. This rally lasted about two to three weeks, and the momentum has fizzled out for now. On the operational front, many companies continued to see deterioration in outlook and business profitability. Unsurprisingly, 1Q15 had many companies reporting earnings that were lower versus a year ago, and many were in fact below ours and the street’s expectations. In the Offshore Support Vessel (OSV) segment, vessel owners are prioritizing utilisation rates over charter rates while yards seek to defend their existing order books. So far, the most resilient in terms of earnings has been Ezion Holdings [BUY, FV: S$1.55], and the liftboat segment is still one of the relatively brighter spots of the sector in terms of demand. As such, investors may also want to consider Triyards Holdings [BUY, FV: S$0.60]. Maintain NEUTRAL on the broader sector.
Rally in Apr has fizzled out
Many oil and gas stocks saw a rally in early Apr as oil prices were supported by geopolitical tensions in the Middle East, and investors also took to bargain hunting with depressed valuations of stocks in the sector. This rally lasted about two to three weeks, and the momentum has fizzled out for now. Certain stocks that were previously trading at unjustifiably low valuations have seen their prices holding up well ever since, while others have given up most of their gains.
1Q15 harbinger of more challenging times ahead
On the operational front, many companies continued to see deterioration in outlook and business profitability. Unsurprisingly, 1Q15 had many companies reporting earnings that were lower versus a year ago, and many were in fact below ours and the street’s expectations. Out of the 13 Oil & Gas/Offshore & Marine stocks under our coverage, most were below expectations and none performed above expectations.
Utilisation over rates; defending existing order books
In the Offshore Support Vessel (OSV) segment, vessel owners are prioritizing utilisation rates over charter rates, and even then, they are facing rising pressure to maintain utilisation rates. Those with stronger balance sheets are waiting to scoop up distressed assets, and we believe that more opportunities may present themselves in the months ahead. Meanwhile, many owners are also implementing cost-cutting measures. With vessel owners holding pessimistic views on the chartering market, shipbuilders and rigbuilders would have to rely on their order books for now, and seek to defend the existing order book in the hope that there are few order delays, discounts, or cancellations.
Maintain NEUTRAL on broader sector
The industry downturn is starting to show more clearly the individual characteristics of the various sub-sectors, as well as the business models of different companies. So far, the most resilient in terms of earnings has been Ezion Holdings [BUY, FV: S$1.55], and the liftboat segment is still one of the relatively brighter spots of the sector in terms of demand. As such, investors may also want to considerTriyards Holdings [BUY, FV: S$0.60]. Maintain NEUTRAL on the broader sector.
Many oil and gas stocks saw a rally in early Apr as oil prices were supported by geopolitical tensions in the Middle East, and investors also took to bargain hunting with depressed valuations of stocks in the sector. This rally lasted about two to three weeks, and the momentum has fizzled out for now. Certain stocks that were previously trading at unjustifiably low valuations have seen their prices holding up well ever since, while others have given up most of their gains.
1Q15 harbinger of more challenging times ahead
On the operational front, many companies continued to see deterioration in outlook and business profitability. Unsurprisingly, 1Q15 had many companies reporting earnings that were lower versus a year ago, and many were in fact below ours and the street’s expectations. Out of the 13 Oil & Gas/Offshore & Marine stocks under our coverage, most were below expectations and none performed above expectations.
Utilisation over rates; defending existing order books
In the Offshore Support Vessel (OSV) segment, vessel owners are prioritizing utilisation rates over charter rates, and even then, they are facing rising pressure to maintain utilisation rates. Those with stronger balance sheets are waiting to scoop up distressed assets, and we believe that more opportunities may present themselves in the months ahead. Meanwhile, many owners are also implementing cost-cutting measures. With vessel owners holding pessimistic views on the chartering market, shipbuilders and rigbuilders would have to rely on their order books for now, and seek to defend the existing order book in the hope that there are few order delays, discounts, or cancellations.
Maintain NEUTRAL on broader sector
The industry downturn is starting to show more clearly the individual characteristics of the various sub-sectors, as well as the business models of different companies. So far, the most resilient in terms of earnings has been Ezion Holdings [BUY, FV: S$1.55], and the liftboat segment is still one of the relatively brighter spots of the sector in terms of demand. As such, investors may also want to considerTriyards Holdings [BUY, FV: S$0.60]. Maintain NEUTRAL on the broader sector.
Hyflux
OCBC on 21 May 2015
Recently, Yoma Strategic Holdings announced the opening of a potable water plant at Pun Hlaing Gold Estate, in Myanmar, which is designed by Hyflux and utilizes Hyflux’s proprietary technology to treat brackish water. Although the project is quite small with a treatment capacity of 1k m3/day, we think that there could be more opportunities for the two companies to cooperate on future projects that Yoma may undertake in Myanmar. Meanwhile, in the nearer term, the starting of full-scale development of Qurayyat Desalination (QIWP) project would be the more immediate catalyst for Hyflux. But until these activities kick in from 2H15 onwards, we suspect that the group could face another pretty lackluster quarter ahead. In any case, the company’s share price has corrected further to around S$0.835 post its weaker-than-expected 1Q15 results recently. As mentioned in our report on 15 May, although we are maintaining our HOLD rating and DCF-based fair value of S$0.96, we believe that investors may consider taking some profit and re-entering at S$0.80 or better between now and 2H15.
Small project in Myanmar
Recently, Yoma Strategic Holdings announced the opening of a potable water plant at Pun Hlaing Gold Estate, in Myanmar, where the development is said to be the first in the country to have its own water treatment plant. Yoma revealed that Hyflux Ltd was the designer and technology provider for the potable water project, which utilizes Hyflux’s proprietary Kristal ultrafiltration and reverse osmosis technologies for brackish water. Although the project is quite small with a treatment capacity of 1k m3/day, we think that there could be more opportunities for the two companies to cooperate on future projects that Yoma may undertake in Myanmar.
QIWP will be the main catalyst
Meanwhile, in the nearer term, the starting of full-scale development of Qurayyat Desalination (QIWP) project would be the more immediate catalyst for Hyflux. As a recap, Hyflux was formally awarded the US$250m project recently, where wholly-owned subsidiary Hydrochem (S) Pte Ltd will carry out the construction work (worth US$210m). As the project is expected to be completed by mid-2017, we expect the EPC revenue to be split between FY15 and FY16, with a slightly heavier 60% weightage in FY16. Also note that management has recently guided for increased operational activities in the second half; this as a result of 1) ramp up in Magtaa Desalination Plant, Algeria; 2) commissioning of Tuaspring Power Plant, Singapore; and 3) full-scale development of QIWP, Oman. Another potential catalyst could be the financial close of the much-delayed Dahej project in India.
Share price languishing post weak 1Q results
But until these activities kick in, we suspect that the group could face another pretty lackluster quarter ahead. In any case, the company’s share price has corrected further to around S$0.835 post its weaker-than-expected 1Q15 results recently. As mentioned in our report on 15 May, although we are maintaining our HOLD rating and DCF-based fair value of S$0.96, we believe that investors may consider taking some profit and re-entering around S$0.80 or better between now and 2H15.
Recently, Yoma Strategic Holdings announced the opening of a potable water plant at Pun Hlaing Gold Estate, in Myanmar, where the development is said to be the first in the country to have its own water treatment plant. Yoma revealed that Hyflux Ltd was the designer and technology provider for the potable water project, which utilizes Hyflux’s proprietary Kristal ultrafiltration and reverse osmosis technologies for brackish water. Although the project is quite small with a treatment capacity of 1k m3/day, we think that there could be more opportunities for the two companies to cooperate on future projects that Yoma may undertake in Myanmar.
QIWP will be the main catalyst
Meanwhile, in the nearer term, the starting of full-scale development of Qurayyat Desalination (QIWP) project would be the more immediate catalyst for Hyflux. As a recap, Hyflux was formally awarded the US$250m project recently, where wholly-owned subsidiary Hydrochem (S) Pte Ltd will carry out the construction work (worth US$210m). As the project is expected to be completed by mid-2017, we expect the EPC revenue to be split between FY15 and FY16, with a slightly heavier 60% weightage in FY16. Also note that management has recently guided for increased operational activities in the second half; this as a result of 1) ramp up in Magtaa Desalination Plant, Algeria; 2) commissioning of Tuaspring Power Plant, Singapore; and 3) full-scale development of QIWP, Oman. Another potential catalyst could be the financial close of the much-delayed Dahej project in India.
Share price languishing post weak 1Q results
But until these activities kick in, we suspect that the group could face another pretty lackluster quarter ahead. In any case, the company’s share price has corrected further to around S$0.835 post its weaker-than-expected 1Q15 results recently. As mentioned in our report on 15 May, although we are maintaining our HOLD rating and DCF-based fair value of S$0.96, we believe that investors may consider taking some profit and re-entering around S$0.80 or better between now and 2H15.
Singapore REITS
OCBC on 20 May 2015
All 22 S-REITs under OIR’s coverage have announced their 1QCY15 results. The clear underperformer came from the hospitality subsector, whereby all four hospitality REITs under coverage missed our expectations. Another miss came from Suntec REIT, while the only outperformer was Mapletree Greater China Commercial Trust. Overall, there were four REITs under our coverage which registered lower DPU on a YoY basis (three from hospitality subsector), versus just one during the 4QCY14 reporting period. We maintain NEUTRAL on the S-REITs sector, as the operating environment remains challenging, with some forms of headwinds facing each subsector. Uncertainties over the Fed funds rate hike also remain a concern for investors. We continue to adopt a bottom-up stock picking strategy, and retain Frasers Centrepoint Trust [BUY; FV: S$2.27], Frasers Commercial Trust [BUY; FV: S$1.65] and Starhill Global REIT [BUY; FV: S$0.93] as our top sector picks.
1QCY15 earnings season review
All 22 S-REITs under OIR’s coverage have announced their 1QCY15 results. The clear underperformer came from the hospitality subsector, whereby all four hospitality REITs under coverage missed our expectations. Another miss came from Suntec REIT, as DPU was flat despite a 12.9% YoY growth in gross revenue. The only outperformer was Mapletree Greater China Commercial Trust, which delivered robust YoY DPU growth of 9.8% due to better-than-expected rental reversions achieved. The remaining 16 REITs we cover met our expectations, with strong results coming from Lippo Malls Indonesia Retail Trust (DPU +16.2% YoY), Frasers Commercial Trust (DPU +16.1% YoY), Fortune REIT (DPU +12% YoY) and CapitaLand Retail China Trust (DPU +10% YoY). Overall, there were four REITs under our coverage which registered lower DPU on a YoY basis (three from hospitality subsector), versus just one during the 4QCY14 reporting period.
RevPAR remains lacklustre for Singapore Hotels
The poor performance of Singapore’s hospitality industry was attributed to a number of reasons. These include the absence of biennial events such as the Singapore Airshow, sluggish corporate demand and lacklustre tourist arrivals, especially Indonesians, whom typically put up at hotels in Orchard Road. Although occupancy rates for hospitality REITs were largely stable, RevPAR/RevPAU declines (for Singapore assets) ranged from 3.9%-11.0% YoY, which we believe implies hospitality players have aggressively lowered prices and offered more promotions in order to boost their market share.
Retail REITs remain resilient
Despite stifling issues such as manpower shortages and soft tourism figures, Singapore-focused retail REITs remained resilient, registering positive rental reversions and largely stable or slightly lower occupancy rates. Rental uplifts ranged from 3.8% (Frasers Centrepoint Trust) to 17.5% (Mapletree Commercial Trust). Data for tenants’ sales and footfall was mixed, as REITs with suburban malls exposure held up better than malls in the Orchard Road area.
Maintain NEUTRAL on S-REITs sector
We maintain NEUTRAL on the S-REITs sector, as the operating environment remains challenging, with some forms of headwinds facing each subsector. Uncertainties over the Fed funds rate hike also remain a concern for investors. The U.S. 10-year Treasury bond yield has recently seen a 40 bps spike from 1.89% on 20 Apr 2015 to 2.29%, and this corresponded with a decline in the FTSE ST REIT Index by 2.1%. We continue to adopt a bottom-up stock picking strategy, and retain Frasers Centrepoint Trust [BUY; FV: S$2.27], Frasers Commercial Trust [BUY; FV: S$1.65] and Starhill Global REIT [BUY; FV: S$0.93] as our top sector picks.
All 22 S-REITs under OIR’s coverage have announced their 1QCY15 results. The clear underperformer came from the hospitality subsector, whereby all four hospitality REITs under coverage missed our expectations. Another miss came from Suntec REIT, as DPU was flat despite a 12.9% YoY growth in gross revenue. The only outperformer was Mapletree Greater China Commercial Trust, which delivered robust YoY DPU growth of 9.8% due to better-than-expected rental reversions achieved. The remaining 16 REITs we cover met our expectations, with strong results coming from Lippo Malls Indonesia Retail Trust (DPU +16.2% YoY), Frasers Commercial Trust (DPU +16.1% YoY), Fortune REIT (DPU +12% YoY) and CapitaLand Retail China Trust (DPU +10% YoY). Overall, there were four REITs under our coverage which registered lower DPU on a YoY basis (three from hospitality subsector), versus just one during the 4QCY14 reporting period.
RevPAR remains lacklustre for Singapore Hotels
The poor performance of Singapore’s hospitality industry was attributed to a number of reasons. These include the absence of biennial events such as the Singapore Airshow, sluggish corporate demand and lacklustre tourist arrivals, especially Indonesians, whom typically put up at hotels in Orchard Road. Although occupancy rates for hospitality REITs were largely stable, RevPAR/RevPAU declines (for Singapore assets) ranged from 3.9%-11.0% YoY, which we believe implies hospitality players have aggressively lowered prices and offered more promotions in order to boost their market share.
Retail REITs remain resilient
Despite stifling issues such as manpower shortages and soft tourism figures, Singapore-focused retail REITs remained resilient, registering positive rental reversions and largely stable or slightly lower occupancy rates. Rental uplifts ranged from 3.8% (Frasers Centrepoint Trust) to 17.5% (Mapletree Commercial Trust). Data for tenants’ sales and footfall was mixed, as REITs with suburban malls exposure held up better than malls in the Orchard Road area.
Maintain NEUTRAL on S-REITs sector
We maintain NEUTRAL on the S-REITs sector, as the operating environment remains challenging, with some forms of headwinds facing each subsector. Uncertainties over the Fed funds rate hike also remain a concern for investors. The U.S. 10-year Treasury bond yield has recently seen a 40 bps spike from 1.89% on 20 Apr 2015 to 2.29%, and this corresponded with a decline in the FTSE ST REIT Index by 2.1%. We continue to adopt a bottom-up stock picking strategy, and retain Frasers Centrepoint Trust [BUY; FV: S$2.27], Frasers Commercial Trust [BUY; FV: S$1.65] and Starhill Global REIT [BUY; FV: S$0.93] as our top sector picks.
Land Transport Sector
OCBC on 20 May 2015
While ComfortDelgro (CDG) had a relatively smooth journey through 1QCY15 on diversified revenue growth, SMRT’s cost recovery momentum seen for the first three quarters of FY15 was marred by higher depreciation from expanding train and bus fleet and higher repair and maintenance (R&M) expenses for the ageing rail system and more scheduled maintenance, which is in-line with the larger train and bus fleet. Nonetheless, the two public transport operators (PTOs) continue to exhibit YoY improvements and are expected to benefit from the ongoing regulatory changes in Singapore’s land transport industry. We are still positive on Singapore’s land transport sector outlook on two key medium to longer-term catalysts: 1) transition to the new bus government contracting model (GCM); and 2) transition to the new rail financing framework (RFF) that will benefit SMRT more than CDG. We believe the catalysts driven by regulatory changes will positively change the earnings profile of both PTOs. Hence, we maintain OVERWEIGHT on the land transport sector. Given the current share prices, our top pick is still SMRT [BUY; FV: S$1.85] and we think CDG [HOLD; FV: S$3.07] is fairly priced for now.
Review of 1QCY15 results
ComfortDelGro’s (CDG) 1Q15 results came in largely within expectations continuing its stable growth journey. Its 1Q15 PATMI rose 6.8% YoY to S$67.6m on the back of higher revenue driven by Bus (+2.2%), Rail (+8.1%) and Taxi (+5.2%) segments but eroded by weaker AUD and GBP. SMRT Corp (SMRT) on the other hand, posted a set of disappointing FY15 performance even as PATMI jumped 47% to S$91.0m. SMRT’s cost recovery momentum seen for the first three quarters of FY15 was marred by higher depreciation from expanding train and bus fleet and higher repair and maintenance (R&M) expenses for the ageing rail system and more scheduled maintenance, which is in-line with the larger train and bus fleet. SMRT’s FY15 revenue growth was mainly driven by higher ridership, average fares and rental income. Nonetheless, the two public transport operators (PTOs) continue to exhibit YoY improvements and are expected to benefit from the ongoing regulatory changes in Singapore’s land transport industry.
Recent development reinforce positive outlook
We are still positive on Singapore’s land transport sector outlook on two key medium to longer-term catalysts: 1) transition to the new bus government contracting model (GCM); and 2) transition to the new rail financing framework (RFF) that will benefit SMRT more than CDG. Looking over the past few months, one key development in the changing landscape of the sector is worthy of mention – LTA awarded the first bus package (Bulim) contract to Tower Transit Group (TTG). Earlier in Mar 15, LTA released details of the tender for the Bulim contract, of which eight out of the 11 tenders were shortlisted. SMRT and CDG’s (through its 75% owned SBS Transit) tenders were both shortlisted, with SMRT’s bid 25.2% lower than SBS Transit’s bid, which was the second lowest shortlisted bid. Market became concerned that if SMRT had won the tender, it could put downward pressures on the contract fees for the remaining 10 bus packages. More recently on 8 May, LTA awarded the Bulim contract to TTG at an amount that is 18.7% higher than SMRT’s bid, which provides relief over this concern, especially when the remaining nine packages (~80% of Singapore’s total bus fleet) are to remain with the incumbents, SMRT and CDG, until 2021. We are encouraged seeing good progress on the transition to GCM as well as relief over bus operating margin.
Maintain OVERWEIGHT
In the near-term, we expect both PTOs’ fare business to grow on higher ridership and average fares. CDG is expected to continue its stable growth momentum but note that SMRT is likely to see higher operating expenses in the near-term on reasons mentioned above but mitigated by higher rental income. We believe the catalysts driven by regulatory changes will positively change the earnings profile of both PTOs. Hence, we maintain OVERWEIGHT on land transport sector. Given the current share prices, our top pick is still SMRT [BUY; FV: S$1.85] and we think CDG [HOLD; FV: S$3.07] is fairly priced for now.
ComfortDelGro’s (CDG) 1Q15 results came in largely within expectations continuing its stable growth journey. Its 1Q15 PATMI rose 6.8% YoY to S$67.6m on the back of higher revenue driven by Bus (+2.2%), Rail (+8.1%) and Taxi (+5.2%) segments but eroded by weaker AUD and GBP. SMRT Corp (SMRT) on the other hand, posted a set of disappointing FY15 performance even as PATMI jumped 47% to S$91.0m. SMRT’s cost recovery momentum seen for the first three quarters of FY15 was marred by higher depreciation from expanding train and bus fleet and higher repair and maintenance (R&M) expenses for the ageing rail system and more scheduled maintenance, which is in-line with the larger train and bus fleet. SMRT’s FY15 revenue growth was mainly driven by higher ridership, average fares and rental income. Nonetheless, the two public transport operators (PTOs) continue to exhibit YoY improvements and are expected to benefit from the ongoing regulatory changes in Singapore’s land transport industry.
Recent development reinforce positive outlook
We are still positive on Singapore’s land transport sector outlook on two key medium to longer-term catalysts: 1) transition to the new bus government contracting model (GCM); and 2) transition to the new rail financing framework (RFF) that will benefit SMRT more than CDG. Looking over the past few months, one key development in the changing landscape of the sector is worthy of mention – LTA awarded the first bus package (Bulim) contract to Tower Transit Group (TTG). Earlier in Mar 15, LTA released details of the tender for the Bulim contract, of which eight out of the 11 tenders were shortlisted. SMRT and CDG’s (through its 75% owned SBS Transit) tenders were both shortlisted, with SMRT’s bid 25.2% lower than SBS Transit’s bid, which was the second lowest shortlisted bid. Market became concerned that if SMRT had won the tender, it could put downward pressures on the contract fees for the remaining 10 bus packages. More recently on 8 May, LTA awarded the Bulim contract to TTG at an amount that is 18.7% higher than SMRT’s bid, which provides relief over this concern, especially when the remaining nine packages (~80% of Singapore’s total bus fleet) are to remain with the incumbents, SMRT and CDG, until 2021. We are encouraged seeing good progress on the transition to GCM as well as relief over bus operating margin.
Maintain OVERWEIGHT
In the near-term, we expect both PTOs’ fare business to grow on higher ridership and average fares. CDG is expected to continue its stable growth momentum but note that SMRT is likely to see higher operating expenses in the near-term on reasons mentioned above but mitigated by higher rental income. We believe the catalysts driven by regulatory changes will positively change the earnings profile of both PTOs. Hence, we maintain OVERWEIGHT on land transport sector. Given the current share prices, our top pick is still SMRT [BUY; FV: S$1.85] and we think CDG [HOLD; FV: S$3.07] is fairly priced for now.
Healthcare Sector
OCBC on 19 May 2015
In recent days, we witnessed more players in the healthcare sector announcing expansion plans into China. Aging population, rising consumer wealth and government reforms, underpins the supportive outlook for healthcare players entering China. For one, Raffles Medical Group (RFMD) [HOLD, S$4.17] has formed a JV to develop a 400-bed international general hospital in Shanghai by mid-2018. We view this positively especially for local players, as competition in Singapore continues to increase from both the private and public sectors coupled with the risk of waning medical tourism. However, the growth story is not always smooth sailing, as we recall Biosensors International Group’s (BIG) [SELL, S$0.60] sales performance was affected by lower ASPs for its products amid structural changes in China. Given the early stage of expansion plans at this juncture, we maintain a NEUTRAL stance for the sector. Valuations are not sufficiently attractive on a broad-based level as the FSTHC is currently trading slightly above 1 s.d. of its two-year historical forward P/E average.
More players expanding into China
In recent days, we witnessed more players in the healthcare sector announcing expansion plans into China. Raffles Medical Group (RFMD) formed a JV with Shanghai LuJiaZui Group to develop a 400-bed international general hospital in Shanghai’s Pudong New Area by mid-2018. Ramsay Health Care [non-rated] had also recently signed a JV with a Chinese healthcare company to operate hospitals in Chengdu. There appears to be an apparent consensus on China’s growth prospects as IHH Healthcare Berhad’s [non-rated] chairman was previously reported to have continued interest in growing their presence in China. At present, they have some clinics in the country and a hospital in Shanghai. Q & M Dental Group [non-rated] had also announced a proposed spin-off and listing of their dental healthcare business in PRC to potentially grow in scale.
China offers attractive prospects amid liberalization
According to EIU, annual healthcare spending in China is expected to grow 9.5% a year from 2015-2019 to US$911.4b by 2019. Aging population, rising consumer wealth and government reforms, underpins the supportive outlook. With long waiting times and poor services at public hospitals, private sector players can easily position themselves to capture patients. We view the players’ development plans positively, especially for local players like RFMD, as competition in Singapore continue to increase from both the private and public sectors coupled with the risk of waning medical tourism. RFMD’s management also expects higher pricing and better profit margins from their Shanghai hospital project.
A challenging road nonetheless
However, the growth story in China is not always smooth sailing, as we recall Biosensors International Group’s (BIG) sales performance was affected by lower ASPs for its products amid structural changes in China. Another key concern is the lack of adequate supply of trained and qualified medical professionals. Strict regulations are also imposed on the employment of foreign staffs.
Still in early stages; Maintain NEUTRAL
Given the early stage of expansion plans at this juncture, we maintain a NEUTRAL stance for the sector. Valuations are not sufficiently attractive on a broad-based level as the FTSE ST Health Care Index (FSTHC) is currently trading slightly above 1 s.d. of its two-year historical forward P/E average. Notably, the index has gained 27.7% YTD vs. 2.6% by the FSSTI. Looking back at Raffles Medical Group [HOLD, S$4.17], growth ahead would be driven by its Singapore Holland Village project and Raffles Hospital extension slated for opening in the next two years. As BIG [SELL, S$0.60] faced unfavourable factors in China, the group hopes a management change in China since 2QFY15 will improve performance. BIG’s FY15 results will be released on 27 May.
In recent days, we witnessed more players in the healthcare sector announcing expansion plans into China. Raffles Medical Group (RFMD) formed a JV with Shanghai LuJiaZui Group to develop a 400-bed international general hospital in Shanghai’s Pudong New Area by mid-2018. Ramsay Health Care [non-rated] had also recently signed a JV with a Chinese healthcare company to operate hospitals in Chengdu. There appears to be an apparent consensus on China’s growth prospects as IHH Healthcare Berhad’s [non-rated] chairman was previously reported to have continued interest in growing their presence in China. At present, they have some clinics in the country and a hospital in Shanghai. Q & M Dental Group [non-rated] had also announced a proposed spin-off and listing of their dental healthcare business in PRC to potentially grow in scale.
China offers attractive prospects amid liberalization
According to EIU, annual healthcare spending in China is expected to grow 9.5% a year from 2015-2019 to US$911.4b by 2019. Aging population, rising consumer wealth and government reforms, underpins the supportive outlook. With long waiting times and poor services at public hospitals, private sector players can easily position themselves to capture patients. We view the players’ development plans positively, especially for local players like RFMD, as competition in Singapore continue to increase from both the private and public sectors coupled with the risk of waning medical tourism. RFMD’s management also expects higher pricing and better profit margins from their Shanghai hospital project.
A challenging road nonetheless
However, the growth story in China is not always smooth sailing, as we recall Biosensors International Group’s (BIG) sales performance was affected by lower ASPs for its products amid structural changes in China. Another key concern is the lack of adequate supply of trained and qualified medical professionals. Strict regulations are also imposed on the employment of foreign staffs.
Still in early stages; Maintain NEUTRAL
Given the early stage of expansion plans at this juncture, we maintain a NEUTRAL stance for the sector. Valuations are not sufficiently attractive on a broad-based level as the FTSE ST Health Care Index (FSTHC) is currently trading slightly above 1 s.d. of its two-year historical forward P/E average. Notably, the index has gained 27.7% YTD vs. 2.6% by the FSSTI. Looking back at Raffles Medical Group [HOLD, S$4.17], growth ahead would be driven by its Singapore Holland Village project and Raffles Hospital extension slated for opening in the next two years. As BIG [SELL, S$0.60] faced unfavourable factors in China, the group hopes a management change in China since 2QFY15 will improve performance. BIG’s FY15 results will be released on 27 May.
Olam
OCBC on 15 May 2015
Olam’s 1Q15 revenue slipped 11% YoY to S$4321.1m, on the back of lower sales volume (down 33.2% YoY) as it continues to restructure lower margin businesses as part of its strategic plan objectives. Reported net profit tumbled 92% YoY to S$31.3m; mainly due in part to an exceptional gain of S$294m in 1Q14 as well as an exceptional loss of S$97m (related to bond buyback) in 1Q15. Excluding these items, Olam said operational NPAT was actually up 26% YoY at S$128.5m. Olam reiterates that it remains focused on executing its strategic plan initiatives and optimizing its debt portfolio. Olam currently has a net gearing of 1.83x as of end Mar, versus its target of <2.0x; it also generated FCFF of S$120.2m in 1Q15, though still FCFE negative to the tune of S$57.4m. For now, we maintain HOLD with an unchanged S$2.30 fair value.
New start to FY15
Olam’s 1Q15 revenue slipped 11% YoY to S$4321.1m, on the back of lower sales volume (down 33.2% YoY) as it continues to restructure lower margin businesses as part of its strategic plan objectives. Reported net profit tumbled 92% YoY to S$31.3m, mainly due in part to an exceptional gain of S$294m in 1Q14 as well as an exceptional loss of S$97m (related to bond buyback) in 1Q15. Excluding these items, Olam said operational NPAT was actually up 26% YoY at S$128.5m.
Edible Nuts did well in 1Q15; not so for Food Staples
By segments, top-performer Edible Nuts saw higher revenue growth of 13.2% YoY and EBITDA growth of 14.6%, aided by elevated prices of almonds, hazelnuts and pepper, despite a 17% dip in volume. Olam expects its almond business to continue its good performance, although it notes of a potential rise in cost in the coming quarters. On the other hand, Food Staples saw sharp YoY declines in volume of 42%, revenue of 38% and EBITDA of 34%; besides deconsolidation of the Grains business in Australia, the segment was also affected by the continued underperformance of Dairy farming operations in Uruguay and currency devaluation impact in Nigeria, Ghana and Mozambique. But on a whole, EBITDA margin has improved to 7.6% in 1Q15 from 5.8% in 4Q14 and 6.9% in 1Q14.
Strategic review still on track
Olam reiterates that it remains focused on executing its strategic plan initiatives and optimizing its debt portfolio. So far, it has completed 20 initiatives with a positive cashflow impact of S$966.1m; although it has recently embarked on the acquisition trail again, including the move to acquire the global cocoa business of Archer Daniels Midland (ADM) for US$1.3b. Olam currently has a net gearing of 1.83x as of end Mar, versus its target of <2.0x; it also generated FCFF of S$120.2m in 1Q15, though still FCFE negative to the tune of S$57.4m.
Maintain HOLD with S$2.30 fair value
For now, we maintain HOLD with an unchanged S$2.30 fair value.
Olam’s 1Q15 revenue slipped 11% YoY to S$4321.1m, on the back of lower sales volume (down 33.2% YoY) as it continues to restructure lower margin businesses as part of its strategic plan objectives. Reported net profit tumbled 92% YoY to S$31.3m, mainly due in part to an exceptional gain of S$294m in 1Q14 as well as an exceptional loss of S$97m (related to bond buyback) in 1Q15. Excluding these items, Olam said operational NPAT was actually up 26% YoY at S$128.5m.
Edible Nuts did well in 1Q15; not so for Food Staples
By segments, top-performer Edible Nuts saw higher revenue growth of 13.2% YoY and EBITDA growth of 14.6%, aided by elevated prices of almonds, hazelnuts and pepper, despite a 17% dip in volume. Olam expects its almond business to continue its good performance, although it notes of a potential rise in cost in the coming quarters. On the other hand, Food Staples saw sharp YoY declines in volume of 42%, revenue of 38% and EBITDA of 34%; besides deconsolidation of the Grains business in Australia, the segment was also affected by the continued underperformance of Dairy farming operations in Uruguay and currency devaluation impact in Nigeria, Ghana and Mozambique. But on a whole, EBITDA margin has improved to 7.6% in 1Q15 from 5.8% in 4Q14 and 6.9% in 1Q14.
Strategic review still on track
Olam reiterates that it remains focused on executing its strategic plan initiatives and optimizing its debt portfolio. So far, it has completed 20 initiatives with a positive cashflow impact of S$966.1m; although it has recently embarked on the acquisition trail again, including the move to acquire the global cocoa business of Archer Daniels Midland (ADM) for US$1.3b. Olam currently has a net gearing of 1.83x as of end Mar, versus its target of <2.0x; it also generated FCFF of S$120.2m in 1Q15, though still FCFE negative to the tune of S$57.4m.
Maintain HOLD with S$2.30 fair value
For now, we maintain HOLD with an unchanged S$2.30 fair value.
Tuesday, 19 May 2015
Thai Beverage
OCBC on 18 May 2015
Thai Beverage PLC’s (ThaiBev) posted a set of decent 1Q15 results despite a poor economic environment in Thailand. Revenue was up 11.4% YoY to THB45.7b and PATMI grew 10.2% to THB6.6b, meeting 28.7% of our full-year estimates. Certain situational factors may have helped boost growth, particularly for the alcoholic segments. Nevertheless, market share for Spirits increased by one ppt to 95% while it was stable for the beer segment, testament to Thai Bev’s pricing power and branding strength. Following the additional excise tax, ASPs for the group’s products have been raised to cover this charge. As 2Q and 3Q are usually weaker on a quarterly basis, 1Q15 performance is set to taper off to some extent but profitability should still improve YoY. As we update our SOTP model with slightly higher PATMI projections, our FV increases from S$0.80 to S$0.83. Maintain BUY.
Decent 1Q15 results
Thailand, which contributes about 96% of Thai Beverage’s (Thai Bev) revenue, saw declines in private consumption and investment as well as consumer confidence during the first quarter. Despite the poor economic environment, Thai Bev reported a decent set of 1Q15 results. Revenue was up 11.4% YoY to THB45.7b, underpinned by growth across all product segments (Spirits, Beer, Non-alcoholic Beverages, Food). PATMI also grew 10.2% to THB6.6b, meeting 28.7% of our full-year estimates.
Helped by situational factors
Sales for Spirits rose 9.9% YoY to THB29.6b and Beer sales grew 17.6% to THB10.5b. We think certain drivers in this quarter were situational. The additional 2% of excise tax for the National Sports Development fund led to the increased stockpiling by agents prior to its implementation from 27 Mar-15. As such, the Spirits business had a 10.2% volume growth. Volume for the Beer segment also increased by 17.7%, but the jump was partly due to the low base in 1Q14 when the stock level in the supply chain was lower.
Market share maintained
Nevertheless, market share for Spirits increased by one ppt to 95% while it was stable for the beer segment, testament to Thai Bev’s pricing power and branding strength. Following the additional excise tax, ASPs for the group’s products have been raised to cover this charge. As 2Q and 3Q are usually weaker on a quarterly basis, 1Q15 performance is set to taper off to some extent but profitability should still improve YoY. For Non-alcoholic Beverages, we think there is still a long way before losses narrow due to ongoing expansion with new products. 100PLUS was launched in Thailand in Mar-15 as well as Jubjai, a herbal drink.
Maintain BUY with new FV of S$0.83
With regards to a 0.92x current ratio as at end Mar-15, management stated that they would restructure THB25b of short-term loans within June-15 with repayment scheduled during 2016-2018. As we update our SOTP model coupled with slightly higher PATMI projections, our FV increases from S$0.80 to S$0.83. Maintain BUY.
Thailand, which contributes about 96% of Thai Beverage’s (Thai Bev) revenue, saw declines in private consumption and investment as well as consumer confidence during the first quarter. Despite the poor economic environment, Thai Bev reported a decent set of 1Q15 results. Revenue was up 11.4% YoY to THB45.7b, underpinned by growth across all product segments (Spirits, Beer, Non-alcoholic Beverages, Food). PATMI also grew 10.2% to THB6.6b, meeting 28.7% of our full-year estimates.
Helped by situational factors
Sales for Spirits rose 9.9% YoY to THB29.6b and Beer sales grew 17.6% to THB10.5b. We think certain drivers in this quarter were situational. The additional 2% of excise tax for the National Sports Development fund led to the increased stockpiling by agents prior to its implementation from 27 Mar-15. As such, the Spirits business had a 10.2% volume growth. Volume for the Beer segment also increased by 17.7%, but the jump was partly due to the low base in 1Q14 when the stock level in the supply chain was lower.
Market share maintained
Nevertheless, market share for Spirits increased by one ppt to 95% while it was stable for the beer segment, testament to Thai Bev’s pricing power and branding strength. Following the additional excise tax, ASPs for the group’s products have been raised to cover this charge. As 2Q and 3Q are usually weaker on a quarterly basis, 1Q15 performance is set to taper off to some extent but profitability should still improve YoY. For Non-alcoholic Beverages, we think there is still a long way before losses narrow due to ongoing expansion with new products. 100PLUS was launched in Thailand in Mar-15 as well as Jubjai, a herbal drink.
Maintain BUY with new FV of S$0.83
With regards to a 0.92x current ratio as at end Mar-15, management stated that they would restructure THB25b of short-term loans within June-15 with repayment scheduled during 2016-2018. As we update our SOTP model coupled with slightly higher PATMI projections, our FV increases from S$0.80 to S$0.83. Maintain BUY.
Singapore Airlines
OCBC on 18 May 2015
Singapore Airlines’ (SIA) 4QFY15 revenue climb 6.9% YoY to S$3.88b on better airline operations but offset by decline in contribution from SIAEC and cargo operations. Lower fuel costs and improved passenger yield also helped turn in an operating profit in 4QFY15 of S$91.9m vs. operating loss of S$60.3m a year ago. Consequently, 4QFY15 PATMI grew 46.7% to S$39.6m. For FY15, revenue grew 2.1% to S$15.57b but excluding Tigerair’s consolidation, SIA’s revenue declined 0.2% to S$15.2b instead. Excluding exceptional items, FY15 core PATMI declined 16.1% to S$333.4m and formed ~95% of our forecasts. Our view remains unchanged – we think the airline industry is still plague by overcapacity issues, which may not allow SIA’s passenger yields to sustain at the current level but cheaper fuel will certainly help. Factoring in FY15 results, hedging positions and FY17 forecast, our FY16 PATMI forecast drops by 13.5%. However, our FV remains unchanged at S$11.59, which is based on 1.05x FY16 P/B (5-year mean). Maintain HOLD.
FY15 missed as hedging losses limit fuel savings
Singapore Airlines’ (SIA) 4QFY15 revenue climb 6.9% YoY to S$3.88b on better airline operations but offset by decline in contribution from SIAEC and cargo operations. Partially offset by taxes and impairment losses on aircraft, lower fuel costs and improved passenger yield helped turn in an operating profit in 4QFY15 of S$91.9m vs. operating loss of S$60.3m a year ago. Consequently, 4QFY15 PATMI grew 46.7% to S$39.6m. For FY15, revenue grew 2.1% to S$15.57b but excluding Tigerair’s consolidation, SIA’s revenue declined 0.2% to S$15.2b instead. SIA’s parent airline operations showed encouraging statistics as FY15 passenger yield improved 0.9% while passenger unit dropped 2.2%, mainly on lower fuel cost. However, hedging losses of S$549m in FY15 compared to hedging gain of S$87m in FY14 limit fuel savings. Excluding exceptional items, FY15 core PATMI declined 16.1% to S$333.4m and formed ~95% of our forecasts.
Cheaper fuel cost amidst mixed outlook
Our view remains unchanged – we think the airline industry is still plague by overcapacity issues, which may not allow SIA’s passenger yields to sustain at the current level. We also expect contribution from cargo operations to continue its decline on capacity reduction. SIAEC’s gloomy outlook is likely to stick, at least for the next two years. Note that foreign exchange movements including depreciation for AUD, JPY and Euro will further place pressure on outbound air travel demand from those countries. However on a positive note, we do expect fuel savings to improve in FY16. Also, there could be improvement to yields when SIA introduce its premium economy from Aug-15 onwards but bear in mind costs will also increase as such. We expect Tigerair’s performance to improve slowly while NokScoot continues to face headwinds on safety concerns over Thai aviation sector. Overall, outlook remains mixed but cheaper fuel is on SIA’s side.
Maintain HOLD
Factoring in FY15 results, hedging positions and FY17 forecast, our FY16 PATMI forecast drops by 13.5%. However, our FV remains unchanged at S$11.59, which is based on 1.05x FY16 P/B (5-year mean). Maintain HOLD.
Singapore Airlines’ (SIA) 4QFY15 revenue climb 6.9% YoY to S$3.88b on better airline operations but offset by decline in contribution from SIAEC and cargo operations. Partially offset by taxes and impairment losses on aircraft, lower fuel costs and improved passenger yield helped turn in an operating profit in 4QFY15 of S$91.9m vs. operating loss of S$60.3m a year ago. Consequently, 4QFY15 PATMI grew 46.7% to S$39.6m. For FY15, revenue grew 2.1% to S$15.57b but excluding Tigerair’s consolidation, SIA’s revenue declined 0.2% to S$15.2b instead. SIA’s parent airline operations showed encouraging statistics as FY15 passenger yield improved 0.9% while passenger unit dropped 2.2%, mainly on lower fuel cost. However, hedging losses of S$549m in FY15 compared to hedging gain of S$87m in FY14 limit fuel savings. Excluding exceptional items, FY15 core PATMI declined 16.1% to S$333.4m and formed ~95% of our forecasts.
Cheaper fuel cost amidst mixed outlook
Our view remains unchanged – we think the airline industry is still plague by overcapacity issues, which may not allow SIA’s passenger yields to sustain at the current level. We also expect contribution from cargo operations to continue its decline on capacity reduction. SIAEC’s gloomy outlook is likely to stick, at least for the next two years. Note that foreign exchange movements including depreciation for AUD, JPY and Euro will further place pressure on outbound air travel demand from those countries. However on a positive note, we do expect fuel savings to improve in FY16. Also, there could be improvement to yields when SIA introduce its premium economy from Aug-15 onwards but bear in mind costs will also increase as such. We expect Tigerair’s performance to improve slowly while NokScoot continues to face headwinds on safety concerns over Thai aviation sector. Overall, outlook remains mixed but cheaper fuel is on SIA’s side.
Maintain HOLD
Factoring in FY15 results, hedging positions and FY17 forecast, our FY16 PATMI forecast drops by 13.5%. However, our FV remains unchanged at S$11.59, which is based on 1.05x FY16 P/B (5-year mean). Maintain HOLD.
Starhub
OCBC on 18 May 2015
StarHub Ltd reported a slightly weaker-than-expected set of 1Q15 results last Friday. Although revenue grew 8.1% YoY to S$617.9m, meeting 26% of our full-year forecast, net profit fell 8.5% to S$73.7m, meeting just 20% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05 as guided. In any case, StarHub has kept its FY15 guidance intact where it expects FY15 service revenue to grow in the low single-digit range, driven mainly by its enterprise fixed network and mobile services. EBITDA margin guidance remains at 32% of service revenue, suggesting that it expects sequential improvement in the next few quarters. StarHub expects to spend around 13% of total revenue as capex (versus 13.5% in FY14). Lastly, it has kept its annual dividend at S$0.20/share, or S$0.05 per quarter. We have opted to keep our forecasts unchanged for now as we could see stronger QoQ improvements in 2H15. Maintain HOLD with an unchanged DCF-based fair value of S$4.17.
1Q15 earnings slightly below forecast
StarHub Ltd reported a slightly weaker-than-expected set of 1Q15 results last Friday. Although revenue grew 8.1% YoY to S$617.9m, meeting 26% of our full-year forecast, we note that the bulk of the increase came from equipment sales (+181% to S$77.5m); on the other hand, broadband revenue fell 11% to S$48.1m, still hit by intense price competition in the fibre space. As a result, StarHub reported a 8.5% dip in EBITDA to S$162.1m, as service EBITDA margin fell to 30% in the quarter, versus 32.6% in 1Q14 and 33.8% in 4Q14. Correspondingly, net profit also fell 8.5% to S$73.7m, meeting just 20% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05 as guided.
Broadband competition still intense
As above, the intense competition in the Broadband space was the main reason for the muted showing. Although StarHub managed to add another 4k new subscribers in the quarter, ARPU was stuck at S$33/month, suggesting that subscribers continued to take up the lower price plans. However, we believe that the worst could be over as we do not envision the basic plans falling below S$30/month; we also note that broadband revenue has actually improved 0.8% QoQ. Meanwhile, Mobile revenue was flat YoY (but down 5% QoQ) at S$305.4m, Pay TV rose 2.3% (but slipped 4.1% QoQ) to S$96.0m; Fixed Network Services revenue inched up 0.8% YoY (down 9.9% QoQ) to S$90.9m.
No change to FY15 guidance
In any case, StarHub has kept its FY15 guidance intact where it expects FY15 service revenue to grow in the low single-digit range, driven mainly by its enterprise fixed network and mobile services. EBITDA margin guidance remains at 32% of service revenue, suggesting that it expects sequential improvement in the next few quarters. StarHub expects to spend around 13% of total revenue as capex (versus 13.5% in FY14). Lastly, it has kept its annual dividend at S$0.20/share, or S$0.05 per quarter.
Maintain HOLD with S$4.17 fair value
We have opted to keep our forecasts unchanged for now as we could see stronger QoQ improvements in 2H15. Maintain HOLD with an unchanged DCF-based fair value of S$4.17.
StarHub Ltd reported a slightly weaker-than-expected set of 1Q15 results last Friday. Although revenue grew 8.1% YoY to S$617.9m, meeting 26% of our full-year forecast, we note that the bulk of the increase came from equipment sales (+181% to S$77.5m); on the other hand, broadband revenue fell 11% to S$48.1m, still hit by intense price competition in the fibre space. As a result, StarHub reported a 8.5% dip in EBITDA to S$162.1m, as service EBITDA margin fell to 30% in the quarter, versus 32.6% in 1Q14 and 33.8% in 4Q14. Correspondingly, net profit also fell 8.5% to S$73.7m, meeting just 20% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05 as guided.
Broadband competition still intense
As above, the intense competition in the Broadband space was the main reason for the muted showing. Although StarHub managed to add another 4k new subscribers in the quarter, ARPU was stuck at S$33/month, suggesting that subscribers continued to take up the lower price plans. However, we believe that the worst could be over as we do not envision the basic plans falling below S$30/month; we also note that broadband revenue has actually improved 0.8% QoQ. Meanwhile, Mobile revenue was flat YoY (but down 5% QoQ) at S$305.4m, Pay TV rose 2.3% (but slipped 4.1% QoQ) to S$96.0m; Fixed Network Services revenue inched up 0.8% YoY (down 9.9% QoQ) to S$90.9m.
No change to FY15 guidance
In any case, StarHub has kept its FY15 guidance intact where it expects FY15 service revenue to grow in the low single-digit range, driven mainly by its enterprise fixed network and mobile services. EBITDA margin guidance remains at 32% of service revenue, suggesting that it expects sequential improvement in the next few quarters. StarHub expects to spend around 13% of total revenue as capex (versus 13.5% in FY14). Lastly, it has kept its annual dividend at S$0.20/share, or S$0.05 per quarter.
Maintain HOLD with S$4.17 fair value
We have opted to keep our forecasts unchanged for now as we could see stronger QoQ improvements in 2H15. Maintain HOLD with an unchanged DCF-based fair value of S$4.17.
Midas Holdings Limited
OCBC on 15 May 2015
Midas Holdings Limited (Midas) recorded a weak start to the year as 1Q15 PATMI declined 5.3% YoY to RMB10.9m, which was below our expectations, as it formed only 17.8% of our FY15 forecast. 1Q15 revenue increased 8.0% YoY to RMB320.6m, driven mainly by its core business. Start-up costs continue to be a drag on results and will likely remain so in the near-term. While we acknowledge the growth potential in China’s rail industry is huge with an estimated RMB2.8t railway spending between 2016-2020, as well as longer-term Silk Road Plan developments, we expect growth for rail equipment makers to be more back-end loaded. Hence, we think Midas’ near-term outlook is likely to be muted. Incorporating the disappointing 1Q15 results, we cut our FY15/16 PATMI forecasts by 21.4%/22.0%. Rolling forward our valuation to 0.65x blended FY15/16 NAV, our FV remains unchanged at S$0.375. Maintain HOLD.
Weak showing from 1Q15 performance
Midas Holdings Limited (Midas) recorded a weak start to the year as 1Q15 PATMI declined 5.3% YoY to RMB10.9m, which was below our expectations, as it formed only 17.8% of our FY15 forecast. 1Q15 revenue increased 8.0% YoY to RMB320.6m, driven mainly by its core business, Aluminium Alloy Extruded Products Division. Although gross margin improved 4.8ppt YoY to 28.8%, its 1Q15 performance was weighed down by a 30.9% jump in expenses to RMB92.1m, driven by higher start-up costs pertaining to its two new plants. Although the Luoyang plant started commercial production in 2Q15, we think it will take at least until end of the year to ramp-up its utilization. Hence, with its light alloy plant targeted to start only from FY16 onwards, we expect start-up costs to still be a drag on its core business in the near-term.
Near-term strong growth not expected
In addition to the persistent start-up costs expected over FY15 and FY16, we believe there are several reasons to remain cautious over Midas’ growth outlook. We acknowledge that the growth potential in China’s rail industry is huge in the longer-term on strong commitments shown by the Chinese government over the Silk Road Plan. Even though the National Railway Administration’s draft plan indicated China’s commitment to invest RMB2.8t over the next five years on railway spending as part of the 13th Five-Year Plan (2016-2020), we do not expect strong growth immediately. The reason is clear – based on historical trends, building of rail infrastructure had always been the priority for rail spending in a given Five-Year plan, while equipment and trains manufacturing spending had always been back-end loaded. Given that Midas is a supplier of extrusion products for train’s carriages, mainly in China, we think growth will remain slow for now. Meanwhile, more overseas orders should help to boost its near-term growth.
Cut forecasts; maintain HOLD
Incorporating the disappointing 1Q15 results, we cut our FY15/16 PATMI forecasts by 21.4%/22.0% on muted outlook. Rolling forward our valuation to 0.65x blended FY15/16 NAV, our FV remains unchanged at S$0.375. Maintain HOLD.
Midas Holdings Limited (Midas) recorded a weak start to the year as 1Q15 PATMI declined 5.3% YoY to RMB10.9m, which was below our expectations, as it formed only 17.8% of our FY15 forecast. 1Q15 revenue increased 8.0% YoY to RMB320.6m, driven mainly by its core business, Aluminium Alloy Extruded Products Division. Although gross margin improved 4.8ppt YoY to 28.8%, its 1Q15 performance was weighed down by a 30.9% jump in expenses to RMB92.1m, driven by higher start-up costs pertaining to its two new plants. Although the Luoyang plant started commercial production in 2Q15, we think it will take at least until end of the year to ramp-up its utilization. Hence, with its light alloy plant targeted to start only from FY16 onwards, we expect start-up costs to still be a drag on its core business in the near-term.
Near-term strong growth not expected
In addition to the persistent start-up costs expected over FY15 and FY16, we believe there are several reasons to remain cautious over Midas’ growth outlook. We acknowledge that the growth potential in China’s rail industry is huge in the longer-term on strong commitments shown by the Chinese government over the Silk Road Plan. Even though the National Railway Administration’s draft plan indicated China’s commitment to invest RMB2.8t over the next five years on railway spending as part of the 13th Five-Year Plan (2016-2020), we do not expect strong growth immediately. The reason is clear – based on historical trends, building of rail infrastructure had always been the priority for rail spending in a given Five-Year plan, while equipment and trains manufacturing spending had always been back-end loaded. Given that Midas is a supplier of extrusion products for train’s carriages, mainly in China, we think growth will remain slow for now. Meanwhile, more overseas orders should help to boost its near-term growth.
Cut forecasts; maintain HOLD
Incorporating the disappointing 1Q15 results, we cut our FY15/16 PATMI forecasts by 21.4%/22.0% on muted outlook. Rolling forward our valuation to 0.65x blended FY15/16 NAV, our FV remains unchanged at S$0.375. Maintain HOLD.
Dyna-Mac Holdings
OCBC on 15 May 2015
Dyna-Mac Holdings reported a 49.5% YoY drop in revenue to S$39.8m and a 76.0% drop in net profit to S$1.7m in 1Q15. However, if we were to exclude one-off items such as a S$2.6m fair value loss on derivative financial instruments, we estimate core PATMI to be about S$4.3m in the quarter. Still, this formed only 13% of ours and the street’s full year figure, and is below expectations. Looking ahead, we expect 2Q to be relatively soft too, with some recovery starting in 3Q. Meanwhile, the market is also likely to focus on new order flow and the margins at which they are secured at. We lower our earnings estimates by 23/26% for this year and next, such that our fair value estimate is revised from S$0.35 to S$0.27. Maintain HOLD.
Soft 1Q15 results
Dyna-Mac Holdings reported a 49.5% YoY drop in revenue to S$39.8m and a 76.0% drop in net profit to S$1.7m in 1Q15. However, if we were to exclude one-off items such as a S$2.6m fair value loss on derivative financial instruments, we estimate core PATMI to be about S$4.3m in the quarter. Still, this formed only 13% of ours and the street’s full year figure, and is below expectations. The S$2.6m fair value loss on derivative financial instruments relates to fair value adjustment on hedging contracts due to mark-to-market adjustments on foreign currency forward contracts. The SGD weakened against the USD in 4Q14 and 1Q15, resulting in fair value losses in both quarters. With a reversal in trend in 2Q15, there should be some fair value gains in the upcoming results.
2Q15 may be a little weak too; recovery in 2H15
The lower revenue in 1Q15 was mainly due to the timing in revenue recognition of projects in the Dyna-Mac’s yards in Singapore as well as the lower activity levels in the group’s overseas yards with most projects still in the initial stage of production. There was also a delay in a project that pushed back recognition. Looking ahead, we expect 2Q to be relatively soft too, with some recovery starting in 3Q.
Focusing on new order flows
Dyna-Mac has a net order book of S$349m with deliveries extending into 2016, and this includes S$149m in new orders secured YTD. The market is, however, likely to focus on new order flow and the margins at which they are secured at. With the recent oil price rout, there could be margin pressure for new orders as oil and gas companies seek to negotiate for lower-priced contracts. Meanwhile, the group will seek to improve its operational efficiency and expand its product capabilities. We lower our earnings estimates by 23/26% for this year and next, such that our fair value estimate is revised from S$0.35 to S$0.27. Maintain HOLD.
Dyna-Mac Holdings reported a 49.5% YoY drop in revenue to S$39.8m and a 76.0% drop in net profit to S$1.7m in 1Q15. However, if we were to exclude one-off items such as a S$2.6m fair value loss on derivative financial instruments, we estimate core PATMI to be about S$4.3m in the quarter. Still, this formed only 13% of ours and the street’s full year figure, and is below expectations. The S$2.6m fair value loss on derivative financial instruments relates to fair value adjustment on hedging contracts due to mark-to-market adjustments on foreign currency forward contracts. The SGD weakened against the USD in 4Q14 and 1Q15, resulting in fair value losses in both quarters. With a reversal in trend in 2Q15, there should be some fair value gains in the upcoming results.
2Q15 may be a little weak too; recovery in 2H15
The lower revenue in 1Q15 was mainly due to the timing in revenue recognition of projects in the Dyna-Mac’s yards in Singapore as well as the lower activity levels in the group’s overseas yards with most projects still in the initial stage of production. There was also a delay in a project that pushed back recognition. Looking ahead, we expect 2Q to be relatively soft too, with some recovery starting in 3Q.
Focusing on new order flows
Dyna-Mac has a net order book of S$349m with deliveries extending into 2016, and this includes S$149m in new orders secured YTD. The market is, however, likely to focus on new order flow and the margins at which they are secured at. With the recent oil price rout, there could be margin pressure for new orders as oil and gas companies seek to negotiate for lower-priced contracts. Meanwhile, the group will seek to improve its operational efficiency and expand its product capabilities. We lower our earnings estimates by 23/26% for this year and next, such that our fair value estimate is revised from S$0.35 to S$0.27. Maintain HOLD.
NOL
OCBC on 15 May 2015
With the divestment of its logistics business almost completed, Neptune Orient Lines Limited’s (NOL) 1Q15 results from continuing operations saw liner’s revenue fell 13% YoY to US$1.58b due to decrease in Liner’s revenue from planned capacity cuts, void sailings and muted freight rates. 1Q15 cost of sales dropped 22% YoY to US$1.45b, driven by savings of ~US$258m from network improvements and lower bunker cost. As a result of disciplined cost management and operational efficiency, NOL’s 1Q15 net loss from continuing business dropped 71% to US$36m. We expect overcapacity to be sustained in the near-term and, with uncertain world trade volume growth ahead, downward pressures on freight rates are likely to continue. We incorporate divestment of NOL’s logistics business into our forecasts and based on a higher FY15F NBV and 0.80x P/B (discounted for near-term weakness and slower longer-term recovery without APLL), we derive a FV of S$1.15 (prev: S$1.01). Maintain HOLD on NOL.
1Q15 results improved YoY on cost savings
With the divestment of its logistics business almost completed, Neptune Orient Lines Limited’s (NOL) 1Q15 results from continuing operations were not a surprise to us after seeing disciplined cost management over the past few quarters. Liner’s revenue fell 13% YoY to US$1.58b due to decrease in Liner’s revenue from planned capacity cuts, void sailings and muted freight rates. US West Coast (USWC) port congestion added to the 15% YoY decline in liner’s volume. Correspondingly, 1Q15 cost of sales dropped 22% YoY to US$1.45b, driven by savings of ~US$258m from network improvements and lower bunker cost. As a result of disciplined cost management and operational efficiency, NOL’s 1Q15 net loss from continuing business dropped 71% to US$36m but core EBIT turned positive to US$13m from negative of US$82m in 1Q14.
Uncertain volume and rates’ outlook
In-line with our view, NOL’s management stated: 1) industry overcapacity to continue to continue and 2) improved US West Coast ports’ productivity after tentative labour agreement was reached in Feb-15. That said, we expect the large backlog of containers built up from USWC congestion to take at least six to eight weeks to work through, and we expect some spill over into early 2Q15. For freight rates, we expect downward pressures to be sustained as world trade volume is likely to be soft while capacity to expand by ~8% in FY15. With 41% (1Q15) exposure to transpacific routes, the catalyst for NOL will be increases in transpacific freight rates driven by recovery in U.S. economy leading to higher trade volume. While there are efforts to push for such increases, we remain unsure of whether these efforts will hold (refer to page 2). However, with management’s focus on cost management and improving operational efficiency, we believe it will help mitigate the uncertain outlook.
Incorporate divestment impact; maintain HOLD
We incorporate the impact of divestment of APL Logistics (refer to page 2) in our forecasts as we think regulatory approval will most likely be obtained. Based on a higher FY15F NBV and 0.80x P/B (discounted for near-term weakness and slower longer-term recovery without APLL), we derive a FV of S$1.15 (prev: S$1.01). Maintain HOLD on NOL.
With the divestment of its logistics business almost completed, Neptune Orient Lines Limited’s (NOL) 1Q15 results from continuing operations were not a surprise to us after seeing disciplined cost management over the past few quarters. Liner’s revenue fell 13% YoY to US$1.58b due to decrease in Liner’s revenue from planned capacity cuts, void sailings and muted freight rates. US West Coast (USWC) port congestion added to the 15% YoY decline in liner’s volume. Correspondingly, 1Q15 cost of sales dropped 22% YoY to US$1.45b, driven by savings of ~US$258m from network improvements and lower bunker cost. As a result of disciplined cost management and operational efficiency, NOL’s 1Q15 net loss from continuing business dropped 71% to US$36m but core EBIT turned positive to US$13m from negative of US$82m in 1Q14.
Uncertain volume and rates’ outlook
In-line with our view, NOL’s management stated: 1) industry overcapacity to continue to continue and 2) improved US West Coast ports’ productivity after tentative labour agreement was reached in Feb-15. That said, we expect the large backlog of containers built up from USWC congestion to take at least six to eight weeks to work through, and we expect some spill over into early 2Q15. For freight rates, we expect downward pressures to be sustained as world trade volume is likely to be soft while capacity to expand by ~8% in FY15. With 41% (1Q15) exposure to transpacific routes, the catalyst for NOL will be increases in transpacific freight rates driven by recovery in U.S. economy leading to higher trade volume. While there are efforts to push for such increases, we remain unsure of whether these efforts will hold (refer to page 2). However, with management’s focus on cost management and improving operational efficiency, we believe it will help mitigate the uncertain outlook.
Incorporate divestment impact; maintain HOLD
We incorporate the impact of divestment of APL Logistics (refer to page 2) in our forecasts as we think regulatory approval will most likely be obtained. Based on a higher FY15F NBV and 0.80x P/B (discounted for near-term weakness and slower longer-term recovery without APLL), we derive a FV of S$1.15 (prev: S$1.01). Maintain HOLD on NOL.
SATS Ltd
OCBC on 15 May 2015
SATS Ltd (SATS) rounded off its FY15 with a decent set of 4QFY15 results. 4QFY15 core PATMI rose 18.6% YoY to S$51.6m even as revenue declined 2.2% to S$425.1m. Bottom-line grew on the back of a 3.2% YoY reduction in operating expenses to S$380.4m, and a 32.3% jump in share of after-tax profits from overseas associates/JV to S$13.1m. FY15 core PATMI was slightly higher than our expectations as it formed 103% of our forecast, which was 7.0% higher at S$195.9m. Once again, management reiterated strategy to focus on reining in costs and improving productivity through investment on automation for both the FS and GS segments. We also think the recently announced fee rebates at Changi Airport and the expected growth in contributions from its associates/JV to help mitigate weaker performance from FS segment. As such, we raise our FY16F PATMI by 1.2% and introduce FY17 forecasts. Rolling forward to 16.5x FY16F EPS, maintain HOLD as FV increases from S$2.98 to S$3.11, supported by a decent 4.7% FY16F dividend yield.
FY15 beat our expectations
SATS Ltd (SATS) rounded off its FY15 with a decent set of 4QFY15 results. 4QFY15 core PATMI rose 18.6% YoY to S$51.6m even as revenue declined 2.2% to S$425.1m. Bottom-line grew on the back of a 3.2% YoY reduction in operating expenses to S$380.4m, and a 32.3% jump in share of after-tax profits from overseas associates/JV to S$13.1m. FY15 core PATMI was slightly higher than our expectations as it formed 103% of our forecast, which was 7.0% higher vs. FY14 at S$195.9m. FY15 revenue decreased 1.9% to S$1753.2m as Food Solutions (FS) business declined 4.7% driven by a 17.6% drop in revenue from its Japan subsidiary, TFK. These were mitigated by a 2.8% increase in Gateway Services (GS) business on favourable business mix with more cargo business. With a 2.5% decline in operating expenses, FY15 operating margin improved 0.6ppt to 10.2%.
Cost management and productivity gains still key focus
Once again, management reiterated strategy to focus on reining in costs and improving productivity through investment on automation for both the FS and GS segments. The key idea is to increase operating leverage such that workforce can be managed with higher business volume. For the FS segment, we believe revenue will continue be muted until air traffic volume picks up again, and TFK’s profit contribution to be subdued as management noted overcapacity of caterers in Narita Airport. We believe GS revenue will help mitigate the FS decline on expectation that business mix will continue to shift favourably towards cargo business, especially the higher-margin pharmaceutical segment. Over the longer-term, we believe SATS’ JV with BRF will provide growth but expect muted contribution in the near-term.
Increase FV; maintain HOLD
We think the recently announced fee rebates at Changi Airport and the expected growth in contributions from its associates/JV will help mitigate weaker performance from the FS segment. As such, we raise our FY16F PATMI by 1.2% and introduce FY17 forecasts. Rolling forward to 16.5x FY16F EPS, maintain HOLD as FV increases from S$2.98 to S$3.11, supported by a decent 4.7% FY16F dividend yield.
SATS Ltd (SATS) rounded off its FY15 with a decent set of 4QFY15 results. 4QFY15 core PATMI rose 18.6% YoY to S$51.6m even as revenue declined 2.2% to S$425.1m. Bottom-line grew on the back of a 3.2% YoY reduction in operating expenses to S$380.4m, and a 32.3% jump in share of after-tax profits from overseas associates/JV to S$13.1m. FY15 core PATMI was slightly higher than our expectations as it formed 103% of our forecast, which was 7.0% higher vs. FY14 at S$195.9m. FY15 revenue decreased 1.9% to S$1753.2m as Food Solutions (FS) business declined 4.7% driven by a 17.6% drop in revenue from its Japan subsidiary, TFK. These were mitigated by a 2.8% increase in Gateway Services (GS) business on favourable business mix with more cargo business. With a 2.5% decline in operating expenses, FY15 operating margin improved 0.6ppt to 10.2%.
Cost management and productivity gains still key focus
Once again, management reiterated strategy to focus on reining in costs and improving productivity through investment on automation for both the FS and GS segments. The key idea is to increase operating leverage such that workforce can be managed with higher business volume. For the FS segment, we believe revenue will continue be muted until air traffic volume picks up again, and TFK’s profit contribution to be subdued as management noted overcapacity of caterers in Narita Airport. We believe GS revenue will help mitigate the FS decline on expectation that business mix will continue to shift favourably towards cargo business, especially the higher-margin pharmaceutical segment. Over the longer-term, we believe SATS’ JV with BRF will provide growth but expect muted contribution in the near-term.
Increase FV; maintain HOLD
We think the recently announced fee rebates at Changi Airport and the expected growth in contributions from its associates/JV will help mitigate weaker performance from the FS segment. As such, we raise our FY16F PATMI by 1.2% and introduce FY17 forecasts. Rolling forward to 16.5x FY16F EPS, maintain HOLD as FV increases from S$2.98 to S$3.11, supported by a decent 4.7% FY16F dividend yield.
CWT
OCBC on 15 May 2015
CWT Limited’s (CWT) 1Q15 results came in below our expectations as PATMI declined 16% YoY to S$29.2m and formed only 21.7% of our FY15 forecasts. 1Q15 revenue, however, plunged 59% to S$1.87b. Stripping out one-off items, CWT’s core PATMI declined by 13.2% YoY to S$30.4m. Going forward, we lower our FY15 revenue expectation significantly but expect overall gross profit margin to remain within the 3.0% region. Revenue outlook for all segment except for logistics is expected to soften in FY15. Accordingly, we cut our FY15F and FY16F PATMI by 12.1% and 8.1%, respectively. Consequently, our SOTP FV decreases from S$1.98 to S$1.88 based on blended FY15/16 earnings. We also note that CWT is currently trading at ~+3.5SD above its 2-year forward P/E. Hence, we downgrade to HOLD rating on valuation grounds, as we recommend partial exit to investors.
Weak 1Q15 revenue but higher gross margin
CWT Limited’s (CWT) 1Q15 results came in below our expectations as PATMI declined 16% YoY to S$29.2m and formed only 21.7% of our FY15 forecasts. 1Q15 revenue, however, plunged 59% to S$1.87b. CWT recorded several impairment charges amounting to S$5.5m but also had a gain on disposal of AFS financial assets of S$4.7m. Stripping out one-off items, CWT’s core PATMI declined by 13.2% YoY to S$30.4m. Lower revenue was mainly due to declines recorded in the Commodity Marketing (CM) (-62.5% YoY), Engineering Services (ES) (-12.8%) and Financial Services (FS) (-57.7%) segments, while the Logistics segment grew 3.3%. Notably, overall gross profit margin increased 2.6ppt to 4.5%, explaining the gentler slide in PATMI.
Softer growth outlook in FY15
Going forward, we lower our FY15 revenue expectation significantly but expect overall gross profit margin to remain within the 3.0% region. Looking at 1Q15 results, we expect revenue from the CM segment to decline on lower commodity prices, specifically, Naphtha (~-50% since 2014) and Copper concentrate. The lower prices also led to lower volatility and fewer trades performed. However, we expect GP margin to hold for the CM business as the spread charged by CWT is likely to decrease minimally or stay the same. Similarly, with lower demand for trading, its FS segment’s trade financing business will likely remain soft in FY15. For engineering services, management guided completion of projects in 2Q15, with timeline of new projects unclear. Logistics segment is the only one that we believe will continue to grow, especially with contribution from its Pandan Logistics Hub. We expect to see full contribution from 2Q15 onwards, with margins maintained at ~16% region.
Downgrade to HOLD on valuation grounds
With softer outlook, we cut our FY15F and FY16F PATMI by 12.1% and 8.1%, respectively. Consequently, our SOTP FV decreases from S$1.98 to S$1.88 based on blended FY15/16 earnings. We also note that CWT is currently trading at ~+3.5SD above its 2-year forward P/E. Hence, we downgrade to HOLD rating on valuation grounds, as we recommend partial exit to investors.
CWT Limited’s (CWT) 1Q15 results came in below our expectations as PATMI declined 16% YoY to S$29.2m and formed only 21.7% of our FY15 forecasts. 1Q15 revenue, however, plunged 59% to S$1.87b. CWT recorded several impairment charges amounting to S$5.5m but also had a gain on disposal of AFS financial assets of S$4.7m. Stripping out one-off items, CWT’s core PATMI declined by 13.2% YoY to S$30.4m. Lower revenue was mainly due to declines recorded in the Commodity Marketing (CM) (-62.5% YoY), Engineering Services (ES) (-12.8%) and Financial Services (FS) (-57.7%) segments, while the Logistics segment grew 3.3%. Notably, overall gross profit margin increased 2.6ppt to 4.5%, explaining the gentler slide in PATMI.
Softer growth outlook in FY15
Going forward, we lower our FY15 revenue expectation significantly but expect overall gross profit margin to remain within the 3.0% region. Looking at 1Q15 results, we expect revenue from the CM segment to decline on lower commodity prices, specifically, Naphtha (~-50% since 2014) and Copper concentrate. The lower prices also led to lower volatility and fewer trades performed. However, we expect GP margin to hold for the CM business as the spread charged by CWT is likely to decrease minimally or stay the same. Similarly, with lower demand for trading, its FS segment’s trade financing business will likely remain soft in FY15. For engineering services, management guided completion of projects in 2Q15, with timeline of new projects unclear. Logistics segment is the only one that we believe will continue to grow, especially with contribution from its Pandan Logistics Hub. We expect to see full contribution from 2Q15 onwards, with margins maintained at ~16% region.
Downgrade to HOLD on valuation grounds
With softer outlook, we cut our FY15F and FY16F PATMI by 12.1% and 8.1%, respectively. Consequently, our SOTP FV decreases from S$1.98 to S$1.88 based on blended FY15/16 earnings. We also note that CWT is currently trading at ~+3.5SD above its 2-year forward P/E. Hence, we downgrade to HOLD rating on valuation grounds, as we recommend partial exit to investors.
Hyflux
OCBC on 15 May 2015
Hyflux Ltd made a weaker-than-expected start to FY15, even though the first quarter is seasonally softer. Revenue tumbled 32% YoY to S$60.4m, while reported net profit slipped 85% to S$5.6m; mainly due to the divestment of its JV and associate with Marmon Water LLC group in 1Q14, but mitigated by a divestment gain of S$15.8m. Otherwise, we estimate that the company would have suffered a core net loss of around S$20.3m, versus a core net loss of S$6.7m in 1Q14. Going forward, company expects to see increased operational activities in the second half; this suggesting the group could face another pretty lackluster quarter ahead. Although we are maintaining our HOLD rating and S$0.96 fair value, investors may consider booking some profit (stock has risen some 20% since we upgraded it in early Mar and has hit our fair value target on 30 Apr) and re-entering at S$0.80 or better between now and 2H15.
Weaker start to FY15
Hyflux Ltd made a weaker-than-expected start to FY15, even though the first quarter is seasonally softer. Revenue tumbled 32% YoY to S$60.4m, mainly due to lower EPC activities; this as Hyflux has largely completed its Tuaspring project and will likely start on the Qurayyat Desalination (QIWP) project from 2Q onwards. Reported net profit slipped 85% to S$5.6m, mainly due to the divestment of its JV and associate with Marmon Water LLC group in 1Q14; but it was lifted by a divestment gain of S$15.8m. Otherwise, we estimate that the company would have suffered a core net loss of around S$20.3m, versus a core net loss of S$6.7m in 1Q14. Another reason for the wider net core loss is likely due to the large 110% jump in share of associate loss of US$7.9m; this reflecting lower-than-expected plant utilization rates compared to designed capacity.
Guiding for increased operational activities in 2H15
Going forward, company expects to see increased operational activities in the second half; this as a result of 1) ramp up in Magtaa Desalination Plant, Algeria; 2) commissioning of Tuaspring Power Plant, Singapore; and 3) full-scale development of QIWP, Oman. Management adds that the group is still actively pursuing opportunities for municipal and industrial water projects in the Middle East, Africa, Asia and the Americas. At the same time, it continues to explore potential divestment opportunities in line with its asset-light strategy.
Patience needed for now
And until these activities kick in, we suspect that the group could face another pretty lackluster quarter ahead. But to be fair, the company’s revenue tends to be quite lumpy, given the project-based nature of its business. However, we note that the stock price has recovered nearly 20% since we upgraded our call to Hold in early Mar, and the share price has hit our DCF-based fair value of S$0.96 on 30 Apr. Although we are maintaining our HOLD rating and S$0.96 fair value, investors may consider booking some profit and re-entering at S$0.80 or better between now and 2H15.
Hyflux Ltd made a weaker-than-expected start to FY15, even though the first quarter is seasonally softer. Revenue tumbled 32% YoY to S$60.4m, mainly due to lower EPC activities; this as Hyflux has largely completed its Tuaspring project and will likely start on the Qurayyat Desalination (QIWP) project from 2Q onwards. Reported net profit slipped 85% to S$5.6m, mainly due to the divestment of its JV and associate with Marmon Water LLC group in 1Q14; but it was lifted by a divestment gain of S$15.8m. Otherwise, we estimate that the company would have suffered a core net loss of around S$20.3m, versus a core net loss of S$6.7m in 1Q14. Another reason for the wider net core loss is likely due to the large 110% jump in share of associate loss of US$7.9m; this reflecting lower-than-expected plant utilization rates compared to designed capacity.
Guiding for increased operational activities in 2H15
Going forward, company expects to see increased operational activities in the second half; this as a result of 1) ramp up in Magtaa Desalination Plant, Algeria; 2) commissioning of Tuaspring Power Plant, Singapore; and 3) full-scale development of QIWP, Oman. Management adds that the group is still actively pursuing opportunities for municipal and industrial water projects in the Middle East, Africa, Asia and the Americas. At the same time, it continues to explore potential divestment opportunities in line with its asset-light strategy.
Patience needed for now
And until these activities kick in, we suspect that the group could face another pretty lackluster quarter ahead. But to be fair, the company’s revenue tends to be quite lumpy, given the project-based nature of its business. However, we note that the stock price has recovered nearly 20% since we upgraded our call to Hold in early Mar, and the share price has hit our DCF-based fair value of S$0.96 on 30 Apr. Although we are maintaining our HOLD rating and S$0.96 fair value, investors may consider booking some profit and re-entering at S$0.80 or better between now and 2H15.
Genting Singapore
OCBC on 15 May 2015
Genting Singapore (GS) reported a weak set of 1Q15 results last night, with revenue down 23% at S$639.2m, meeting just 23% of our full-year forecast; core earnings fell 70% to S$61.3m, meeting just 13% of our FY15 estimate. Going forward, management notes that the environment for the gaming industry in Asia remains challenging, especially for the premium segment; and it does not expect any respite in the medium term. In light of the near-term challenges and potential provisions, we see the need to revise down our forecasts again – paring our FY15 revenue forecast by 12% and earnings by 28%; FY16 revenue by 9%, earnings by 16%. This will also reduce our DCF-based fair value from S$1.03 to S$0.95. Downgrade to SELL for now.
Weak start to FY15
Genting Singapore (GS) reported a weak set of 1Q15 results last night, with revenue down 23% at S$639.2m, meeting just 23% of our full-year forecast; this as the integrated resort continues to feel the impact of the slide in China inbound visitors (gaming revenue fell 26% YoY; non-gaming fell 8% YoY). Reported net profit slipped 73% to S$62.7m, also dragged lower by a fair value loss on derivative financial instruments amounting to S$118.0m (versus a gain of S$15.0m in 1Q14); although mitigated by a forex gain of S$119.3m (versus S$6.3m gain in 1Q14). We estimate that core earnings fell about 70% to S$61.3m, meeting just 13% of our FY15 estimate. Still, we did note of sequential improvements of 0.2% for topline and 67% for underlying net profit. Furthermore, adjusted property EBITDA improved 20% QoQ to S$228.1m, while margin recovered to 35.8% from 29.8% in 4Q14.
Outlook remains challenging
Having said that, management notes that the environment for the gaming industry in Asia remains challenging, especially for the premium segment, and it does not expect any respite in the medium term. GS will continue to adopt a cautious approach in granting credit to VIP gamers and will be prudent in providing for its receivables. As a recap, GS made S$76.3m receivables impairment in 1Q15, and could also see a similar provision in the coming quarter; this as collections are more difficult and could remain challenging to do so. But further ashore, GS is more “optimistic” about its prospects in both South Korea (Jeju) and Japan. Resorts World Jeju (RWJ) is progressing well and GS targets to progressively open RWJ from late 2017. As for Japan, GS notes that the Integrated Resort Promotion Bill has been submitted to the national legislature and sees this as a big step forward.
Downgrade to SELL with reduced S$0.95 fair value
But in light of the near-term challenges and potential provisions, we see the need to revise down our forecasts again – paring our FY15 revenue forecast by 12% and earnings by 28%; FY16 revenue by 9%, earnings by 16%. This will also reduce our DCF-based fair value from S$1.03 to S$0.95. Downgrade to SELL for now.
Genting Singapore (GS) reported a weak set of 1Q15 results last night, with revenue down 23% at S$639.2m, meeting just 23% of our full-year forecast; this as the integrated resort continues to feel the impact of the slide in China inbound visitors (gaming revenue fell 26% YoY; non-gaming fell 8% YoY). Reported net profit slipped 73% to S$62.7m, also dragged lower by a fair value loss on derivative financial instruments amounting to S$118.0m (versus a gain of S$15.0m in 1Q14); although mitigated by a forex gain of S$119.3m (versus S$6.3m gain in 1Q14). We estimate that core earnings fell about 70% to S$61.3m, meeting just 13% of our FY15 estimate. Still, we did note of sequential improvements of 0.2% for topline and 67% for underlying net profit. Furthermore, adjusted property EBITDA improved 20% QoQ to S$228.1m, while margin recovered to 35.8% from 29.8% in 4Q14.
Outlook remains challenging
Having said that, management notes that the environment for the gaming industry in Asia remains challenging, especially for the premium segment, and it does not expect any respite in the medium term. GS will continue to adopt a cautious approach in granting credit to VIP gamers and will be prudent in providing for its receivables. As a recap, GS made S$76.3m receivables impairment in 1Q15, and could also see a similar provision in the coming quarter; this as collections are more difficult and could remain challenging to do so. But further ashore, GS is more “optimistic” about its prospects in both South Korea (Jeju) and Japan. Resorts World Jeju (RWJ) is progressing well and GS targets to progressively open RWJ from late 2017. As for Japan, GS notes that the Integrated Resort Promotion Bill has been submitted to the national legislature and sees this as a big step forward.
Downgrade to SELL with reduced S$0.95 fair value
But in light of the near-term challenges and potential provisions, we see the need to revise down our forecasts again – paring our FY15 revenue forecast by 12% and earnings by 28%; FY16 revenue by 9%, earnings by 16%. This will also reduce our DCF-based fair value from S$1.03 to S$0.95. Downgrade to SELL for now.
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