Hutchison Port Holdings Trust

OSK-DMG Research, July 31

AS Hutchison Port Holdings Trust's (HPHT) H1 FY2013 earnings fell short of forecasts, we are slashing our FY2013 estimate by 12 per cent. Earnings fell 15.4 per cent y-o-y (Q2 FY2013: down 25.2 per cent y-o-y, down 2.6 per cent q-o-q), making up only 39.5 per cent of our initial full-year forecast.

The contraction was largely attributed to the 2.1 per cent dip in 1H FY2013 total throughout, a result of weak EU and US trade, as well as a strike by its unionised workers.

This caused a 0.9 per cent drop in revenue during the period, further exacerbated by the higher costs relating to the strike in April and May. Management has agreed to a 9.8 per cent increase in salary to meet the union's demands.

Meanwhile, the lower earnings led to the group's Q2 FY2013 distribution per unit (DPU) shrinking 22.2 per cent y-o-y to HK$0.187 (S$0.031). HPHT is trying to meet the lower range of its DPU guidance of HK$0.40 to HK$0.51.

Box trade in the EU and the US remained weak as the 2.3 per cent YTD growth at Yantian Port was largely boosted by intra-Asia trade. This cushioned the contraction at HPHT's ports. HIT, ACT and Cosco-HIT saw combined volume contracting 5.6 per cent YTD in 1H FY2013.

To some extent, Yantian saw a rise in the number of transshipment boxes owing to the strike at Hong Kong International Terminal (HIT), while ACT, which was acquired in Q1 FY2013, captured additional volume diverted from HIT.

With the advent of the peak season, management hopes to see flat growth y-o-y for Hong Kong terminal in FY2013, while Yantian port may see 3-4 per cent growth, since box trades to/from EU and US remain weak.

We maintain a "neutral" on HPHT. We are cutting our projections due to the lower throughput. We expect throughput to improve come FY2014, but management has yet to provide any guidance.

We trim our FY2013/FY2014/ FY2015 earnings by 12/10/9 per cent respectively, on assuming lower volume and cut our staff cost per TEU (20-foot equivalent unit) as our estimates were above management's guidance.

We cut our fair value to US$0.79 (from US$0.82), based on 8 per cent cost of equity on DDM (dividend discount model) valuation. The attractive 6.4 per cent dividend yield lends share price support.

NEUTRAL

Singapore Telecoms Sector

OSK-DMG Research, July 30

SINGAPORE's Ministry of Communications and Information has rejected SingTel's appeal for an exemption from cross-carrying the Barclays Premier League (BPL).

The expected outcome will not hurt SingTel much in the short to medium term as viewing habits take time to change and viewers would want to compare the new bundled packages that StarHub will be unveiling very soon.

That said, SingTel would have to reassess its strategy on iconic sports content (such as the upcoming 2014 World Cup) going forward, as this development has thrown a spanner into its bundling proposition.

The decision by the Media Development Authority (MDA) to cross-carrying the BPL benefits StarHub as its subscribers would have access to the content without having to buy a second set-top box (STB), thus mitigating pay-TV churn.

BPL will cost 72 per cent more on its own. SingTel has fixed the price for standalone BPL content at $59.90 a month, the same rate that StarHub subscribers would have to pay to watch it on the latter's platform. This is 72 per cent higher than the retail price for the sports pack during the 2011 season, with BPL bundled in.

While the cost of BPL rights has skyrocketed over the years, it would appear that cross-carrying the content does not result in lower subscription fees (on a standalone basis).

SingTel's bundled Gold Pack (over 80 channels including BPL), being retailed for only $64.40 a month, is the telco's tactic to "persuade" StarHub subscribers who may be put off by the standalone BPL price.

We expect StarHub to up the ante shortly by unveiling attractive content bundles now that SingTel has made its pricing known.

It has to do this before the Aug 1 date for subscribers to start signing up for the BPL, which commences broadcast on Aug 17.

Coincidentally, M1 chose to introduce MiBox, an over-the-top Android STB, over the weekend, offering 116 TV channels and more than 18,000 video-on-demand channels.

We think M1's service, which is available to non-M1 fibre customers, will have niche appeal as it does not come with premium content. The current 1Box, launched in 2010, will be retired.

We are still "neutral" on the sector. Our top pick for exposure to Singapore's telecoms sector is M1 ("neutral", fair value: $3.25), as it is in a sweet spot of not having to contend with expensive content and offers the strongest revenue upside potential from next-generation network fibre services.

Sector - NEUTRAL

King Wan Corporation

OSK Research, June 11

WE showcased King Wan at a road show last week.

Management briefed investors on how it arrived at the decision to dispose of its Thai associates as well as clarified KTIS' IPO timeline. We think that post-special dividend, the market will not allow King Wan to trade at a 9 per cent yield indefinitely.

Instead, we expect yield compression to move the share price closer to a 7 per cent yield, as implied in our target price of 43 cents.

Within the mechanical & electrical (M&E) space, King Wan is the only company that is involved in the fields of electrical, plumbing, air-conditioning and fire protection. Its economies of scale give it a contract-winning cost advantage. The group is also currently involved in the construction of the Sports Hub.

The core M&E business currently contributes $5 million-$7 million of cash, which is easily sufficient to meet our core 1.5 cent dividend totalling $5.2 million.

Other sources of cash are King Wan's property development arms, its vessel chartering associate, and of course, the sale of shares in the Thai sugar mill (KTIS).

Earlier, we were mistaken in stating that KTIS' IPO was delayed from April. Management clarified that the IPO process began only in June 2012, and the short one-year period to IPO (implicit in the option to reverse the sale) was agreed upon by both parties to hasten the exercise.

Management is "80 per cent confident" that the IPO will proceed in mid-July as planned.

Although profitable and paying good dividends, it sold its Thai associates because: its tax incentives were expiring, the Thai government had granted other licences to its rivals, which would hurt its long-term profitability, and there was little reason to hold on to the illiquid 20 per cent minority interest in a listed entity.

Management intends to eventually liquidate its entire shareholding in KTIS, but we think it may let go of a third of its shares in the short term.

Management also discussed the potential for a dividend policy that could support KTIS' valuations. Maintain "buy".

BUY

SGX

OSK on 17 Apr 2013

Singapore Exchange's fiscal-3Q13 showed a good pickup, with net profit of $98 million, up 26% on-year, at the upper end of the estimate range, led by stronger securities and derivatives, OSK-DMG says.

The house raises its FY13-14 net profit forecast by 4% each after lowering operating cost projections as the company continued to show good cost discipline and maintained its operating expense guidance.

It raises its fair value to $6.80 from $6.50. But it adds, while the stock's current 24.5x 2013 PER isn't particularly expensive, it prefers Bursa Malaysia on its cheaper 22x 2013 PER valuation and stronger earnings growth.

"Furthermore, we note that April's average daily turnover has softened to around $1.26 billion, potentially suggesting a weaker 4Q13 is in store. Thus, despite the commendable results, we have maintained our Sell call." The stock is up 1.0% at $7.78.

Keppel Corp

OSK on 9 Apr 2013

 The pricing of Keppel's (BN4.SG) latest jackup rig contract for long-term customer Ensco is positive at US$225 million ($279 million), says OSK

It notes the price is around 15% higher than an August 2011 order for a similar design, while it estimates equipment prices may have only risen by 8%-9% over the same period. The latest contract brings Keppel's year-to-date orders to $1.88 billion, it estimates, accounting for 38% of the house's $5 billion order win estimate.

OSK keeps its FY13-14 EPS estimates unchanged as the order is within its forecasts. It keeps Keppel at Neutral with $11.21 target, citing expectations EPS will fall 30% on-year on the absence of lumpy property earnings and normalising O&M margins; it views the stock's current 14.8x FY13 P/E valuation as fair.

"Re-rating will be capped by rising concerns over competition for offshore orders from shipyards in China and South Korea." The stock is up 1.2% at $11.29.

Singtel

OSK Research on 14 Feb 2013

SINGTEL reported a 2 per cent y-o-y decline in 9M FY2013 core profit to $2.61 billion on the back of a 2.4 per cent contraction in revenue to $13.7 billion.

Core earnings for the quarter narrowed 1.2 per cent sequentially (down 2.3 per cent y-o-y) to $874 million. The share of associate contributions fell 15.3 per cent q-o-q (up 2.2 per cent y-o-y) to $486 million in Q3 FY2013, albeit up 6 per cent YTD to $1.57 billion.

The group's overall results continued to reflect weaknesses across key regional currencies, in particular the Australian dollar, Indian rupee and Indonesian rupiah, which depreciated 3-13 per cent y-o-y (down 2-3 per cent q-o-q) against the Singapore dollar.

At 70 per cent of our and 71 per cent of consensus estimates, SingTel's 9M FY2013 results narrowly missed our expectations, albeit in line with street estimates.

The key takeaways from the results were: extended losses at its new digital life business which had diluted overall group margin; higher Singapore and Optus revenues marked by seasonality; and weaker regional currencies, specifically the Australian dollar, Indian rupee and Indonesian rupiah which impacted revenue and profits when translated.

Optus' revenue improved 2 per cent q-o-q after three consecutive quarters of contraction or flat growth, but was down 4 per cent y-o-y in 9M FY2013, reflecting the lower mobile termination rate implemented in January 2012.

The restructuring of its business and unrelenting focus on cost and yield management contributed to the 3 per cent q-o-q and y-o-y growth in Ebitda, which translates into slightly stronger Ebitda margin of 25.2 per cent during the quarter.

SingTel's Ebitda fell 2 per cent q-o-q (up 1.4 per cent y-o-y) in Q3 FY2013, reflecting the start-up losses at Amobee which contributed $21 million in revenue for the quarter and $49 million in 9M FY2013.

Mobile revenue improved 4 per cent q-o-q (Q2 FY2013: up 2 per cent q-o-q), supported by seasonally higher roaming revenue, increased handset sales and stronger subs net-addition.

SingTel added 64,000 mobile subscribers during the quarter and signed-up a further 8,000 mio-TV customers with total pay-TV subs crossing the 400,000 mark in January as it continued to chip away StarHub's dominance in the pay-TV segment through increased channel offerings.

SingTel's bright spots are in Indonesia and Thailand. The stronger showing from Telkomsel and AIS offset Bharti's weaker numbers.

Overall contributions from associates were negatively impacted by the steep depreciation of the respective currencies.

Management has maintained its prior guidance of consolidated revenue to decline by low single-digit Singapore revenue to grow at low single digit; low single-digit decline for Optus' revenue (which was downgraded post Q2 FY2013 results); and stable Ebitda for both Singapore and Optus operations.

Our forecasts and fair value are under review pending the results conference call with management. We are likely to finetune our forecast but keep our "neutral" recommendation on the stock.

NEUTRAL, UNDER REVIEW

Technics Oil & Gas

OSK Research, Feb 6

TECHNICS surprised on the downside this quarter, with revenue coming in a third below expectation and achieving a breakeven performance at the bottom line. The first and last quarters of the financial year are typically the weakest with the monsoon season preventing offshore work, but the $11.2 million showing is weaker than our seasonally adjusted $17 million expectation, after factoring in the loss of revenue from de-consolidating the Norr Offshore Group.

On the bright side, margins improved to 44 per cent. We are cutting our revenue forecast by 15 per cent, while reducing our EPS forecast by 10 per cent. Downgrade to "neutral" with a target price of $0.95.

NEUTRAL

King Wan

OSK RESEARCH on 4 Feb 2013

WE initiate coverage with a "buy" rating and TP of $0.40. King Wan (KWAN) is Singapore's leading mechanical & electrical (M&E) services provider for the construction industry, and also operates the country's largest fleet of mobile lavatories. KWAN's investment in two Thai associates for $12.3 million were sold last year for $50 million, and we expect this sum to be distributed over the next 10 years, doubling the dividend and raising the yield to 11 per cent.

The Thai associates were sold to Kaset Thai Industry Sugar (KTIS) for 5 per cent in cash and 95 per cent in shares of KTIS, which is headed for IPO within five months.

Being the third-largest sugar miller in Thailand, and the largest listed one, we expect the IPO to perform well, which provides upside to the value of the Thai Associates. KWAN has no moratorium on the sale of its KTIS shares and thus enjoys full flexibility on the timing of the sale. From another angle - if KWAN sells its KTIS shares immediately on IPO, its net cash balance would be 74 per cent of its entire market cap.

KWAN's core business is set for stable growth with its highest order book on record of $176 million. This compares very favourably with the $129 million to $146 million order book range of FY2008-FY2011. With this positive outlook, we expect the base-case scenario of 1.5 cent dividend to be easily maintained.

KWAN's balance sheet is solid with a net cash of $21.5 million. As the core businesses no longer require much capital expenditure, KWAN has been aggressively returning cash to shareholders - dividends grew at a compounded annual growth rate of 82 per cent over the last five years. At the current 1.5 cent dividend, KWAN still has four years of dividends in its net cash balance.

Dividend discount model (DDM)/discounted cash flow (DCF) values of $0.40/$0.44. We value KWAN at $0.40 based on a dividend yield of 7.5 per cent. This valuation ties in very closely with our DDM and DCF values, which are $0.40 and $0.44 respectively, and they incorporate some very conservative assumptions. In this yield-hungry environment, high-yield instruments like REITs have been compressed to a 5.9 per cent average yield. We believe that early movers into this stock can enjoy both capital gains from yield compression and a very attractive sustainable dividend for a total return of 59 per cent.

BUY

Midas Holdings

OSK RESEARCH on 10 Jan2013

CHINA'S rail industry is likely to pick up, as the government increases infrastructure investment to drive economic growth. The Chinese government plans to spend between 600 billion yuan (S$118 billion) and 650 billion yuan in 2013 in rail investment, and as one of the dominant aluminium alloy extrusion products manufacturer for the rail transport industry, we believe Midas stands to benefit.

Its JV (NPRT) is expected to turnaround in FY2013, supported by its strong order book of 9 billion yuan, with deliveries expected from FY2013. With the potential for more orders as the demand for train cars rises, we think Midas should enjoy a re-rating. Maintain "buy" with a TP of S$0.75, based on 1.5x FY2013 P/B, a 25 per cent discount from its average of 2x.

BUY