Yongnam Holdings

UOBKayhian on 9 Apr 2013

Valuation/Recommendation

·      Upgrade to BUY with a higher target price of S$0.40, based on 9x 2013F PE, pegged to Singapore-listed peers’ average.

What’s New 

·      Yongnam Holdings recently announced it has joined a consortium comprising JGC Corporation and Changi Airport Planners and Engineers Pte Ltd to evaluate a project tender for the construction and management of Hanthawaddy International Airportin Myanmar. According to management, the Ministry of Transport of Myanmar has prequalified seven firms for the project and the tender submission will be in April.

·      In addition, Yongnam said it will be diversifying into investing in infrastructural developments locally and overseas either through joint ventures and/or strategic alliances. This is to complement its existing business of providing structural steelworks, specialist civil engineering and mechanical engineering services in Singapore.

Our View

·      We view the move as positive as the construction industry in Singapore has been hit hard by rising labour costs and keen competition from foreign players. Yongnam currently derives 85% of its revenue from Singapore. With this diversification, Yongnam will be able to enjoy recurring income from infrastructure developments investment rather than lumpy project earnings recognition. But Yongnam remained tight-lipped on the potential size of the contract as well as the recurring income it will enjoy as it is still evaluating the project.

·      Yongnam has also conveyed to investors in the last results briefing the challenges within the construction industry. In 2012, revenue fell 9.4% yoy to S$301.6m and net profit dropped 31.3% yoy to S$43.5m due to project delays and a lower hit rate from project bidding. Yongnam only clinched S$240m worth of projects out of S$1.3b bidded as it is unwilling to take on low-margin projects.

·      However, we believe the construction pipeline remains healthy with many projects, such as the NTU Undergraduate Hall of Residence, the Energy Market Authority’s fourth storage tank for a LNG terminal at Jurong Island and JTC’s very large floating structure at Pulau Sebarok. As for the higher-margin specialised engineering segment, the group is looking to secure projects within the Singapore’s MRT Thomson Line, Hong Kong’s MTR and Kuala Lumpur’s metro lines. As at 31 Dec 12, Yongnam’s orderbook stood at S$400.6m, of which 78% will be recognised in 2013.

Breadtalk

OCBC on 8 Apr 2013

The 12% correction in BreadTalk’s share price over the past two days has helped to temper the sudden spike from late-Mar, and we take this opportunity to caution investors against getting too carried away. In our view, a takeover by Minor International is remote at this juncture. Despite impressive yearly double-digit revenue growth, BreadTalk has yet to translate the success to its operating margins. Although its ongoing expansion plans are partly to blame, the pace of the margin declines does create some concerns over its operational efficiencies in the long-run. In addition, with FY13 PATMI and dividend growth unlikely to differ much from recent performances, we deem BreadTalk expensive at current price levels. Keeping our fair value estimate of S$0.77, we downgrade BreadTalk to SELL and urge investors to take profit.

Timely price correction to halt over-exuberance 
The 12% correction in BreadTalk’s share price over the past two days has helped to temper the sudden spike from late-Mar. As a recap, Minor International (MINT), a Thailand-headquartered hospitality business, increased its stake in BreadTalk to 10% recently, and this fueled speculation of a possible take-over by MINT. According to management, these recent share purchases by MINT have been unsolicited.

Takeover unlikely at this juncture 
In our view, a takeover at this juncture is an unlikely scenario. Firstly, BreadTalk's chairman, George Quek, holds about 53% of the company along with his wife, and this is a stumbling block for any general offer. In addition, BreadTalk is far from being a polished product so any acquisition will encompass significant risks. For instance, its operating margins have narrowed due to ongoing expansion but the pace of their declines has led to some concerns over future margin stability when BreadTalk does approach a steady state. 

Higher probability of GO when BreadTalk achieves its targets
From our review of its operations, BreadTalk is still at least five years away from its stated goals. Its management also has to show that it is able to deliver healthier growth to its bottom-line beyond just impressive double-digit revenue growth. Failure to do so will result in the perception that BreadTalk is operational deficient, and this will dilute its appeal to suitors or result in an unfavourable valution. 

Unchanged fundamentals, time to take profit
We keep our S$0.77 fair value and downgrade Breadtalk to SELL as the share price has run ahead of fundamentals, which have remained unchanged. Margin improvement is unlikely in FY13, together with any increase in dividend payout. In fact, the forecasted yield is an unattractive 1.3% at current price levels.

Chinese yards

OCBC on 8 Apr 2013

The share price performances of COSCO Corp (Singapore) and Yangzijiang Shipbuilding (YZJ) have been uninspiring in recent history. COSCO’s share price has fallen by about 21% in the past one year, while YZJ’s has decreased by about 25%. We believe this is mainly due to a lack of positive catalysts amidst the difficult operating environment in China. In terms of offshore projects, Chinese yards still lack the established track records of their Asian competitors, but their organization, efficiency and sophistication are on the rise. To compete, the Chinese yards are going after orders at lower margins and back-end loaded payment terms. This inevitably leads to lower profitability and higher working capital requirements. Over the near- to medium- term horizon, we believe that the industry dynamics is unlikely to change significantly. Maintain HOLD ratings for both COSCO (FV: S$0.90) and YZJ (FV: S$0.95).

Uninspiring price performance
The share price performances of COSCO Corp (Singapore) and Yangzijiang Shipbuilding (YZJ) have been uninspiring in recent history. COSCO’s share price has fallen by about 21% in the past one year, while YZJ’s has decreased by about 25%. We believe this is mainly due to a lack of positive catalysts amidst the difficult operating environment in China. The shipbuilding industry still faces an oversupply of vessels and excess yard capacity in the country. In terms of offshore projects, Chinese yards still lack the established track records of their Asian competitors, but their organization, efficiency and sophistication are on the rise. 

Climbing the offshore learning curve… 
According to a recent report from Upstream (“Much further along the learning curve”, 29/3/2013), major Chinese offshore yards have demonstrated some improvements since three years ago. Then, the yards were notorious for delays when they tried to deliver orders many considered too ambitious. With the consolidation of their procurement and outsourcing schemes, the yards are now more efficient and timely in their vessel deliveries. While there is still a learning curve, Chinese yards have made some inroads into building sophisticated offshore units, including winter-class deepwater semi-submersibles for Arctic operations. The Chinese government has also made offshore engineering a priority industry for development until 2020. Local offshore yards are known to have easier excess to bank loans compared to other borrowers. 

But at the expense of profitability
However, the big push by Chinese yards into the offshore industry is at the expense of profitability. Without an established track record, the yards are going after orders at lower margins and back-end loaded payment terms. This inevitably leads to lower profitability and higher working capital requirements. Over the near- to medium- term horizon, we believe that the industry dynamics is unlikely to change significantly as the established Singaporean and Korean offshore yards both have their own niches. Maintain HOLD for both COSCO (FV: S$0.90) and YZJ (FV: S$0.95).

Sino Grandness

Kim Eng on 9 Apr 2013

Initiate with BUY. In our view, the odds are still good for buying Sino Grandness now to bet on the catalyst of it pulling off a successful spinoff of Garden Fresh, its beverage subsidiary, at substantially higher valuations in HK than what investors in Singapore are currently giving the whole group. Sino Grandness could be worth up to SGD2.52 (158% upside) on our best case scenario and SGD1.31 (34% upside) on the worst case scenario, with potential 20% downside even if the listing does not take place. The shares have doubled since 2012 as the market factored in good progress toward a successful spinoff but the odds are still good as a recent share placement drew in new institutional investors. We initiate coverage with a BUY and target price
of SGD1.60 pegged to 6x FY13F PER. Sino Grandness is still in the early stages of a multi-year growth cycle and the impending listing of its main growth engine will see it valued higher as a separate unit, unlocking substantial value for shareholders.

The Grandest Catalyst. Sino Grandness is a stock with a very specific catalyst, the impendng listing of its beverage subsidiary in HK by Oct 2014. A successful listing of this subsidiary will make Sino Grandness a
much more valuable company as HK comparables trade at significantly higher valuations than the entire group. Sino Grandness’s holding in Garden Fresh alone could potentially worth SGD360m on our base case scenario relative vs Sino Grandness’ market cap of SGD285m.

The Grandest Risk. The flip side is Sino Grandness would be severely penalised if the listing does not take place by October 2014 as the CBs
will be redeemed at substantial premiums. However, we think Sino Grandness has made significant progress toward meeting its obligations. The next milestones would be mainly regulatory and market in nature and the prognosis for meeting them is positive, in our view.

Valuation and recommendation. At the current undemanding 4x PE, buying Sino Grandness is akin to a pre-IPO investment in Garden Fresh. Apart from substantial returns in the event of a successful listing of Garden Fresh, 4x earnings seems too cheap for a company with a forecasted profit growth of 20-30% over the next few years. We initiate coverage with a BUY and target price of SGD1.60, pegged to an FY13 PER of 6x.

Genting Singapore

Kim Eng on 8 Apr 2013

Two cards up its sleeve - VIP and FISH. GENS remains optimistic on its prospects going forward, especially in the VIP segment, while we are sanguine on potential margin compression from the newly-opened Marine Life Park (MLP). There are significant economies-of-scale in the operation of aquariums that will ensure a quick turnaround. Our 2013 earnings estimates are trimmed by 6% but 2014-15 forecasts are
unchanged as we expect the MLP margin compression to be temporary. Maintain BUY call and SGD1.67 TP on 13.5x 1-year forward EV/EBITDA.

More spring in its step. GENS is confident and we concur that VIP volumes will recover over the next 12-18 months on the recovering Chinese economy and the recently-concluded Chinese leadership transition. We also believe that VIP volumes will be boosted even further by rising CNY deposits in Singapore in the near future following the establishment of Singapore as a offshore CNY clearing hub. We also expect mass market GGR to truly grow this year thanks to a stable SGD and room rates this year.

Marine Life Park concerns likely overdone. Studying three other aquariums, we observe that there are significant economies of scale in operating aquariums. Assuming that MLP incurs long term cash expenses of SGD80m and average ticket price of SGD25, we estimate that it will require average daily visitation of only 8,800 to break even (4Q12: 7,100). Therefore, we trim our 2013 earnings estimates by 6% but leave our post-2013 earnings estimates little changed as we expect the margin compression by MLP to be only temporary.

Maintain BUY call and SGD1.67 TP. As our longer term earnings are relatively unchanged, we maintain our TP of SGD1.67. Our TP implies 1-year forward EV/EBITDA of 13.5x (13x previously). While at a slight
premium to the Macau gaming sector average of 12x, we believe that this is justifiable as (i) there is upside potential to VIP volumes due to the establishment of Singapore as a CNY hub and (ii) GENS is the only pure exposure to the Singaporean gaming industry.

Singapore Exchange

Kim Eng on 8 Apr 2013

3QFY13 results preview alert: Expect a very strong quarter. We are highlighting that the upcoming set of 3QFY13 results will be of major significance. Our street-high net profit forecast of SGD94.5m for the
quarter represents a strong 22% yoy and 24% qoq growth. More importantly, this will be SGX’s most profitable quarter since the Great Financial Crisis. The company will announce on 16th April after market.

Significant uptick in trading volume in 2013. Since the turn of the New Year, security trading activities have picked up significantly, with the quarter Jan-March 2013 registering an average SDAV of SGD1.7b. This momentum bodes well for the rest of the year, and will represent higher revenue in its more traditional bread-and-butter business.

Derivatives revenue growth will surprise market on the upside. We reiterate our earlier belief that this segment will see structural growth, decoupled from the more volatile volumes in its securities trading business. Growth momentum here has surpassed expectations, with 3QFY13 DAV (derivatives average volume) up more than 50% yoy. Overnight open interest, which grew 31% qoq in 2QFY13, will show another 29% exponential quarterly leap.

Collaborations likely to be a key discussion point. Following the failed ASX bid, partnerships will continue to be a key strategic pillar for SGX going forward. We expect management to highlight the progress here, having recently announced collaborations with Korea Exchange (KRX) and Philippines Stock Exchange (PSE) for the derivatives market and the ongoing efforts to integrate an ASEAN exchange where it is currently linked to the Stock Exchange of Thailand and Bursa Malaysia.

Reiterate BUY. Given its decreasing reliance on securities revenue (29% of Group revenue from derivatives for FY13 compared to 26% in FY12), we believe SGX should be re-rated. We increase our FY13F SDAV assumptions from SGD1.4b to SGD1.45b but keep FY14/FY15 estimates largely unchanged. Our TP of SGD9.00 remains pegged to 29x FY13F, 1-standard deviation above historical mean.

Long SPH / Short Starhub

OCBC on 5 Apr 2013

We recommend a long SPH/short STH pair trade. Investors would pick up a 63 bps dividend yield spread (to offset transactions costs) and gain significant upside exposure to the scenario that SPH lists its REIT. Two bases for our trade: first, we believe SPH’s 63 bps spread over STH is attractive. Newspapers are generally perceived to have weaker prospects than telcos but SPH has a virtual monopoly in its market while STH perennially competes against the much larger SingTel and has been losing market share in both its mobile and Pay TV segments. Second, from our calculations, we believe a SPH REIT listing scenario is realistic given the current yield/valuation dynamics of its assets and the size of its portfolio. Assuming SPH retains a 51% stake in the REIT, we see potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share. This could consequently lead to a special dividend and/or distribution in specie of REIT units for SPH shareholders.

ACTION: Long SPH / Short STH 
We recommend a long SPH/short STH pair trade. Investors would pick up a 63 bps dividend yield spread (to offset transactions costs) and, in addition, gain significant upside exposure to the scenario that SPH lists its REIT successfully. Equivalently, we also recommend STH shareholders switch into SPH to pick up the additional 63 bps yield and potential upside from a REIT listing. 

SPH a virtual monopoly while STH competes in tough market
First, we believe SPH’s 63 bps dividend yield spread over STH is attractive. While the newspaper sector is generally perceived to have weaker prospects than telcos, we note that SPH has a virtual monopoly in its market. Moreover, an already significant 27% of SPH’s group EBIT (as at FY12) is derived from its retail mall segment, which would grow further when Seletar Mall completes in 2014. In contrast, STH perennially competes against the much larger SingTel and has been losing market share in both its mobile and Pay TV segments.

REIT listing is realistic and could lead to special dividend
Second, from our calculations, we believe that a retail REIT listing for SPH is realistic given the current yield/valuation dynamics of its assets and the size of its portfolio. The unlocking of its retail malls’ full market value is a key potential catalyst for the share price. Assuming SPH retains a 51% stake in the REIT, we see potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share. This could consequently lead to a special dividend and/or distribution in specie of REIT units for SPH shareholders.

CapitaMall Trust

OCBC on 5 Apr 2013

CapitaMall Trust (CMT) has been a clear laggard within the S-REITs space, staying flat YTD versus an average of 11.0% increase in unit prices for its local retail peers. We believe this is unjustified given its portfolio of 15 quality retail malls and its relentless efforts in optimizing its yield via asset enhancement initiatives. The operating landscape in the retail space also appears sanguine thus far. According to CBRE, the average rents in prime Orchard Road rose for the first time in 1Q13 after staying flat since 3Q11. While the suburban retail will see a substantial amount of space coming online in 2013, CBRE notes that retailers are still upbeat about the suburban market. This is consistent with our view that both the Orchard Road and suburban rents may possibly remain firm in 2013. We are keeping our S$2.32 fair value unchanged and maintaining BUY on CMT as we expect the valuation gap to narrow between CMT and its peers.

Languishing price performance unjustified
CapitaMall Trust (CMT) has been a clear laggard within the S-REITs space, staying flat YTD versus an average of 11.0% increase in unit prices for its local retail peers (FTSE ST REIT Index: 7.2% YTD). We believe this is unjustified given its portfolio of 15 quality retail malls, which are strategically located in the suburban areas and downtown core of Singapore, and its relentless efforts in optimizing its yield via asset enhancement initiatives (AEIs). We note that 2012 saw the completion of refurbishment works at JCube, Bugis+ and The Atrium@Orchard and subsequently strong take-up rates post AEI. In early Jan, CMT fully concluded the AEI at Clarke Quay and leased out all the space. All these activities are likely to contribute positively to CMT’s rental income and uphold its firm performance going forward, in our view.

Outlook still looks positive
The operating landscape in the retail space also appears sanguine thus far. According to CBRE, the average rents in prime Orchard Road rose for the first time (up 2% QoQ) in 1Q13 after staying flat since 3Q11. While the suburban retail will see a substantial amount of space (~1.6m sqft) coming online in 2013, CBRE notes that retailers are still upbeat about the suburban market (1Q13 rents flat QoQ). This is consistent with our view that both Orchard Road and suburban rents may possibly remain firm in 2013. Should this happen, we project that CMT may again achieve positive reversion rates similar to those seen in 2010-12 (6.0-6.5%), upon renewal of its leases.

Maintain BUY
We also note that CMT has recently established the Distribution Reinvestment Plan and increased its Euro MTN programme limit from US$2b to US$3b. This, together with the retention of CRCT’s distribution, will provide CMT with the funds for its investments/working capital. We are keeping our S$2.32 fair value unchanged and maintaining BUY on CMT as we expect the valuation gap to narrow between CMT and its peers.

Golden Agri-Resources

OCBC on 4 Apr 2013

Golden Agri-Resources (GAR), after reporting a disappointing set of FY12 results at end Feb, has languished below S$0.60 in recent weeks; and may continue to do so in lieu of the still-weak near-term outlook. The main reason for the expected near-term underperformance comes from the uninspiring CPO (crude price oil) prices, which has again fallen below MYR2,400/ton. The other reason is probably the still-high stockpiles seen at several planters in both Malaysia and Indonesia. Despite the near-term headwinds, management remains relatively upbeat about its prospects, as it still sees robust demand growth for CPO as an edible oil from emerging and development countries. For now, we intend to maintain our HOLD rating and S$0.63 fair value (based on 12.5x FY13F EPS); and we see value emerging at S$0.55 or better.

Near-term outlook remains weak
Golden Agri-Resources (GAR), after reporting a disappointing set of FY12 results at end Feb, has languished below S$0.60 in recent weeks; this after falling from S$0.635 to as low as S$0.565. Going forward, we do not expect the stock to make any significant breakout of this range, given the still-weak near-term outlook.

CPO prices continue to struggle 
The main reason for the expected near-term underperformance comes from the uninspiring CPO (crude price oil) prices, which has again fallen below MYR2,400/ton, weighed by worries that global demand will remain persistently weak, hurt by the ongoing crisis in Europe. GAR, being the second largest oil palm plantation owner in the world, is highly sensitive to CPO price movements – we note a 0.71 correlation between its stock price and CPO prices over a three-year period. 

Inventory issue remains key
Another reason for the poor sentiment probably comes from the still-high stockpiles seen at several planters in both Malaysia and Indonesia. For GAR, the group continued to see another increase in its CPO stockpile - inventory at end Dec has risen by another 8%, or 37k tons, to 520k tons, as demand from China and India remained sluggish. According to management, this is an excess of some 200k tonnes above its usual holding of ~320k tons. Nevertheless, GAR remains upbeat that it can reduce the surplus by end 1H13, citing a growing demand for bio-fuel as current CPO prices (<US$900/ton) already make it viable as an alternative for crude oil. 

Maintain HOLD as value emerging
Despite the near-term headwinds, management remains relatively upbeat about its prospects, as it still sees robust demand growth for CPO as an edible oil from emerging and development countries. For now, we intend to maintain our HOLD rating and S$0.63 fair value (based on 12.5x FY13F EPS); and we see value emerging at S$0.55 or better.

First REIT

OCBC on 4 Apr 2013

First REIT (FREIT) recently announced its proposal to acquire two Indonesian hospitals from its sponsor Lippo Karawaci (Lippo) for a total purchase consideration of S$190.4m. This would be funded largely by debt and the issuance of new units to a smaller extent to Lippo. We are positive on the acquisitions as it offers DPU accretion of 6-13% for FY13-14F, according to our estimates, while also providing stability and visibility to unitholders. We now adopt a DDM model (cost of equity: 7.7%; terminal growth rate: 1.0%) as our new valuation matrix (previously RNAV). Coupled with our higher DPU forecasts, we bump up our fair value estimate from S$1.00 to S$1.31. But we maintain our HOLD rating as we believe that the market has largely priced in the positives from these acquisitions and FREIT’s continued transition to a sizeable healthcare REIT in the region.

Recently proposed two sponsor-related acquisitions
First REIT (FREIT) recently announced that it has entered into two conditional sale and purchase agreements for the acquisition of two new hospitals from its sponsor Lippo Karawaci (Lippo). The hospitals are Siloam Hospitals Bali (SHBL) and Siloam Hospitals TB Simatupang (SHTS), with purchase considerations amounting to S$97.3m and S$93.1m, respectively. This represents a 13.3% and 12.5% discount to the average of two independent valuations for each property, respectively. The purchase of SHBL would be funded wholly by a drawdown from FREIT’s committed debt facility, while SHTS would be purchased using a combination of both debt and issuance of new units to Lippo (funding mix not finalised).

Acquisitions to provide stability and visibility to unitholders
We are positive on the acquisitions as it is expected to be accretive in nature and would enlarge FREIT’s asset base, lower its weighted average age of properties from 10.4 years to 8.6 years and increase its weighted average lease to expiry from 11.3 years to 12.0 years. The lease terms are largely similar to its two previous acquisitions made in Nov last year, and offers strong stability and visibility to unitholders (15+15 years lease tenure with downside base rental protection), in our view.

Estimated DPU accretion of 6-13%; but maintain HOLD 
We raise our FY13 and FY14 DPU estimates by 5.9% and 13.2%, respectively, as we incorporate contribution from the assets in our forecasts. We assume that SHTS would be financed by S$45m of debt and S$50m of equity. This would raise FY13F gearing ratio to 34.0%, based on our estimates. Yields for FY13F and FY14F remain healthy at 6.2% and 6.8%, respectively. We also adopt a DDM model (cost of equity: 7.7%; terminal growth rate: 1.0%) as our new valuation matrix (previously RNAV). Our fair value estimate is raised from S$1.00 to S$1.31. But we maintain our HOLD rating as we believe that the market has largely priced in the positives from these acquisitions (price appreciated 6.3% since the announcement) and FREIT’s continued transition to a sizeable healthcare REIT in the region.

SMRT

Kim Eng on 5 Apr 2013

Loss guidance follows wage hike – dividend cuts again? The previously unimaginable has happened. SMRT is expecting its first ever quarterly loss in its history for 4QFY3/13. Escalating operating costs and a SGD17m impairment in goodwill in its associate, Shenzhen ZONA, are the primary causes of the loss. We are expecting the PATMI loss to come in at ~SGD2m for the quarter, which still points to profitability at a core level excluding the effects of the impairment. However we expect final dividends to be cut as a result of this announcement. We were among the earliest to downgrade SMRT to a SELL in early 2012. This loss guidance validates our sustained SELL call, and we are reiterating it with a reduced, Street-low target price of SGD1.19.

A fallen dividend angel. SMRT has been a dividend darling in the past, with stable and growing earnings providing shareholders with a steady stream of dividends to look forward to. However those days of
stability and certainty look to be coming to an end, as our final dividend forecast for FY3/13 is correspondingly cut by 30% to SG 3.5 cts /share.

Posturing possibility, but immaterial to our call. We see a possibility of SMRT lumping all its bad news in a single quarter to posture for a favourable fare review outcome. The method in which public transport
fares are decided is currently under review, and land transport companies like SMRT could be attempting to signal its poor financial position should the revised fare formula not equitably account for its rising costs. However, this does not change our SELL call.

SELL call reinforced – fare review lifeline still not in sight. In light of such firm guidance on the challenges ahead for land transport operators like SMRT, we are slashing our earnings forecasts by 25% for FY3/13 and ~10% for FY3/14-15. Our target price is reduced to SGD1.19, as we maintain our valuation peg to 15x FY3/14 PER, a full standard deviation below mean. SELL SMRT – we see no reason to own a stock where earnings continue to be hampered by a postponement in an equitable fare review formula and rising operational costs, which in turn translate to lower dividend yields (~3%) for shareholders.

Neo Group

UOBKayhian on 4 Apr 2013

Valuation

·          Neo Group (NGL) is trading at 15x FY13 PE and 2.6x P/B.

Investment Highlights

·          A 60% dividend payout policy. NGL plans to distribute at least 60% of its net profit as dividends annually for the next three years. For FY13, NGL announced a dividend of 1.5 cents (or a 71.4% payout), translating to a dividend yield of 4.5%. Major shareholders with more than a combined 80% stake have also pledged to maintain 100%, 70% and 40% of their shareholdings in the first, second and third year of listing respectively. 

·          Market leader in a growing industry. The event catering market in Singapore grew at a solid 3-year CAGR of 11.3% from S$250m in 2009 to S$306.6m in 2011. Based on sales in 2011, NGL is the largest event caterer inSingapore with a market share of 9%. Contrary to other segments of the F&B industry, economies of scale are especially vital in the food catering sector as all the food are prepared in a central kitchen. We see further room for growth by NGL as we believe its significant market share allows it to achieve economies of scale, and further benefit through quality and competitive pricing.

·          Improving productivity through technology. NGL is a huge advocate of using technology in its operations. From order placement to tracking delivery, the company uses technology to increase productivity and improve customer service. The higher productivity is evident in the 24% decline in distribution cost in FY13 as the company increased the efficiency and utilisation of their full -time drivers. Umisushi has also turned around in FY13 as the food retail business tapped on the advertising and IT system of NGL’s catering business to improve productivity and cut cost.

·          Highly competitive industry. Typical of the F&B industry, the food catering is a highly segmented market. The top five caterers inSingapore (including Neo Group) accounted for only 21.6% of total food catering sales in 2011. While economies of scale play a vital role in the catering industry, barriers to entry are low. There is no restriction preventing other smaller F&B restaurants from providing catering services.

Financial Highlights:

·          Although NGL reported an 8.7% yoy rise in revenue for FY13, net profit dropped 43.9% yoy due to a one-off IPO expense of S$0.9m and a 32.7% increase in employee benefits. Excluding the non-recurrent items, net profit would have declined 27.2% yoy. 

·          The increase in employee benefits is in line with the company’s plans to increase its sales force to grow the corporate and government catering businesses.

Sheng Siong Group

CIMB Research on 1 April 2013

SHOP n Save's 57 stores will be re-branded into Giant stores from April 1. Dairy Farm's retreat from the budget segment highlights Sheng Siong's competitive positioning in this space.

We upgrade to "outperform" (from "neutral") on evidence of Sheng Siong's dominance in the budget segment. Our estimates are maintained.

We raise our target price (to $0.75), which is based on a higher applied multiple of 23 times 2014 PE (previously 18 times) on a 5 per cent discount to Dairy Farm (previously 20 per cent). We see catalysts as earnings delivery from new stores and continued store expansion.

OUTPERFORM

Frasers Centrepoint Trust

OCBC on 3 Apr 2013

Frasers Centrepoint Trust (FCT) has enjoyed a good run-up in its unit price, clocking a 7.0% return YTD and 40.8% return YoY. This compares significantly to the 5.7% YTD and 31.4% YoY increase seen by the FTSE ST REIT Index. Now trading near its historical high and our fair value, FCT is the most expensive (P/B of 1.40x) when compared to its local retail peers (1.18x) and the S-REITs sector average (1.17x). As such, we believe that most of the good news has been priced in. While the asset injection of Changi City Point into FCT’s portfolio may possibly be a catalyst to its unit price and DPU growth, the timeline is uncertain as the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. In view of the limited upside potential in the near term, we now downgrade FCT from Buy to HOLD on valuation grounds. We recommend switching FCT to CapitaMall Trust [BUY, S$2.32 FV] as a cheaper alternative to blue-chip local retail play with exposure to equally resilient suburban portfolio assets.

Strong unit price performance
Frasers Centrepoint Trust (FCT) has enjoyed a good run-up in its unit price, clocking a 7.0% return YTD and 40.8% return YoY. This compares significantly to the 5.7% YTD and 31.4% YoY increase seen by the FTSE ST REIT Index (STI: 4.8% YTD, 10.2% YoY). We believe the outperformance is reflective of its resilient suburban malls and laudable financial results in 1QFY13. As a note, its DPU grew by 9.1% YoY to reach 2.40 S cents despite retaining S$2.1m in distributable income during the quarter.

Likely limited upside in near term
At current price level, we believe that most of the good news has been priced in. Now trading near its historical high and our fair value, FCT is the most expensive (P/B of 1.40x) when compared to its local retail peers (1.18x) and the S-REITs sector average (1.17x). While we note that FCT’s portfolio occupancy (96.4% as at 31 Dec 2012) is likely to improve further in 2QFY13 following the completion of fitting out and start of operations by tenants at Causeway Point and Bedok Point, we judge that the incremental income is likely to be relatively modest from the prior quarter.

Downgrade to HOLD on valuation grounds
The asset injection of Changi City Point into FCT’s portfolio may possibly be a catalyst to its unit price and DPU growth, but timeline is uncertain as the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. At an estimated book value of ~S$198m for the retail mall, we also do not rule out the possibility of FCT raising equity to fund the acquisition. Recall that FCT has previously financed its past acquisitions via private placements in 2010-11. Our fair value remains unchanged at S$2.13. However, in view of the limited upside potential in the near term, we now downgrade FCT from Buy to HOLD on valuation grounds. We recommend switching FCT to CapitaMall Trust [BUY, S$2.32 FV] as a cheaper alternative to blue-chip local retail play with exposure to equally resilient suburban portfolio assets.

Sembcorp Marine

OCBC on 3 Apr 2013

Sembcorp Marine (SMM) is currently building a 82.5ha yard in Brazil to undertake drillship construction, amongst others. Should inflation in Brazil continue to be unrelenting, SMM may face further margin pressures from labour costs, especially since there is already a shortage of skilled labour in the country. Over the longer term, however, we believe that SMM’s foray into the drillship business puts it in good stead to secure more drillship orders, diversifying its product range. In the shorter term, however, we prefer to be more prudent on the group’s operating margin assumptions, and lower these to 12.1% and 12.3% for FY13F and FY14, respectively (2012: 12.5%). As such, our SOTP-based fair value estimate slips from S$5.84 to S$5.64. Maintain BUY.

Further margin pressures?
Sembcorp Marine (SMM) is currently building a 82.5ha yard in Brazil to undertake drillship construction, amongst others. Its first drillship has achieved initial recognition with more than 20% completion in Singapore, and we expect Brazil to take the baton in end 2013 or early 2014. Like most facilities, there is a possibility of initial teething issues. Indeed, if inflation in Brazil continues to be unrelenting, SMM may face further margin pressures from labour costs, especially since there is already a shortage of skilled labour in the country. Keppel Corporation (KEP) already has an established yard in Brazil (its BrasFELS yard has been in operation since 2000), and though it may face the problem of higher labour costs, there may be higher execution risk in SMM’s new yard. KEP is also building semi-submersible rigs instead of drillships in Brazil.

Nothing ventured, nothing gained
As the drillship is a new product for SMM, the group will adopt a conservative stance on profit recognition in the early stages of construction. Contingencies are likely to be released towards the end of construction, assuming smooth execution. Hence, we expect this conservative stance to remain for at least the whole of this year. Over the longer term, however, we believe that SMM’s foray into the drillship business puts it in good stead to secure more drillship orders, diversifying its product range. In the shorter term, however, we prefer to be more prudent on the group’s operating margin assumptions, and lower these to 12.1% and 12.3% for FY13F and FY14, respectively (2012: 12.5%). 

Maintain BUY
Our SOTP-based fair value estimate slips from S$5.84 to S$5.64 due to lower margin assumptions. Despite this, we still like SMM for its robust order book of S$13.6b (deliveries till 2019), healthy pipeline of new orders and new growth opportunities with two upcoming yards (Brazil and Tuas). Maintain BUY.

Ascendas REIT

Kim Eng on 4 Apr 2013

Downgrade to HOLD. The industrial REIT run looks over and we downgrade A-REIT to HOLD on valuations. It was our last BUY among Industrial-REITS. A-REIT has been our conviction BUY since we initiated in June 2012 and the stock has risen 30%. We expect the current QE-inflated growth to run out of steam once the artificially compressed interest rates in the US, and hence Singapore, start normalising sometime next year or in early 2015. Industrial property prices in the physical market have almost doubled since 2009 whereas rentals are up only 44%. Further government cooling measures will put a lid on asset prices, while we are sceptical that rentals can scale up in the near term. We remain cautious on the mismatch between industrial rentals and physical prices and see no further catalysts for the sector at the current levels (refer to our S-REITs report, titled Rational Temperance, dated 22 Mar 2013).

Private placement. A-REIT conducted a private placement of 160m units (6.7% dilution post-placement) at SGD2.54/unit on 19 Mar 2013. An advance distribution of 2.70 cents is expected to be paid on 25 April. Of the gross proceeds of SGD406m, SGD126m has been used to  acquire The Galen at Science Park II and SGD210m will be used to partly fund an integrated industrial mixed-use property, currently under construction, at Kallang Avenue (total value ~SGD490m). The rest of the money will be reserved for issue expenses, corporate/working capital purposes and debt repayments.

The Galen acquisition. We have factored into our model A-REIT’s private placement and purchase of The Galen (SGD538 psf on NLA basis), with initial NPI yields of 6.8% and passing rents of SGD4.10 psf/mth. This works out to ~SGD11m in revenue and ~SGD8.6m in NPI contributions. A six-storey multi-tenanted science park building, The Galen has a NLA of 234,384 sq ft and occupancy rate of 97.5%. Ascendas Land and the REIT manager occupy 52.7k sq ft, or 22.5%, of the lease space.

Moving up the value chain. Based on our estimates, A-REIT has 38% of its FY3/14F GAV in business/science parks and 23% in high-tech industrial/data centres. We expect these two segments to progressively increase in proportion as Singapore outsources its lower value-add activities to neighbouring countries (warehouse rents and asset values in Singapore are, respectively, 2.5x and 8.5x higher than in  Iskandar Malaysia). We downgrade A-REIT to HOLD with a TP of SGD2.70.

United Envirotech Ltd

OCBC on 2 Apr 2013

United Envirotech Ltd (UEL) has recently inked an agreement worth RMB200m (S$40m) with the local government of Siyang County, Jiangsu Province, China for TOT (Transfer-Operate-Transfer) and BOT (Built-Operate-Transfer) projects in an industrial park for the textile industry. Management intends to finance its latest investment using proceeds from the previous convertible bond issue to KRR and bank financing. Based on its usual 40% equity/60% debt financing model, UEL would need around S$5.6m for Phase 1 of the TOT project, which should not be an issue as it is currently sitting on ~S$63.2m of cash (as at 31 Dec 2012). In light of the latest investment, we bump up our FY14 estimates for revenue by 1.5% and earnings by 4.9%; this in turn raises our fair value from S$0.88 to S$0.90, still based on 13x FY14F EPS. Maintain BUY.

Inks industrial project in Jiangsu
United Envirotech Ltd (UEL) has recently inked an agreement worth RMB200m (S$40m) with the local government of Siyang County, Jiangsu Province, China for TOT (Transfer-Operate-Transfer) and BOT (Built-Operate-Transfer) projects in an industrial park for the textile industry. For the TOT deal (worth RMB70m), UEL will acquire the 30-year concession rights to operate a textile and mixed industrial waste-water treatment plant with 40k m3/day capacity (Phase 1 will be operational by Jun 2013) and add another 80k m3/day capacity at a later stage (Phase 2). For the BOT project (worth RMB130m for Phase 1), UEL will use its MBR (Membrane Bio-reactor) technology to treat and recycle 60k m3/day of textile industrial wastewater; it will also construct and operate a 50k m3/day industrial water supply plant. 

Financing via bank borrowing and internal funds
Management intends to finance its latest investment using proceeds from the previous convertible bond issue to KRR and bank financing. Based on its usual 40% equity/60% debt financing model, UEL would need around S$5.6m for Phase 1 of the TOT project, which should not be an issue as it is currently sitting on ~S$63.2m of cash (as at 31 Dec 2012). UEL would need around S$26m for the BOT project; but the financing needs are likely to be staggered as payout will be based on completion. In addition, KKR will be injecting another US$40m into the company following the successful placement of 98.5m new shares at S$0.50 each. KKR now has a direct interest of 45.2% on a fully diluted basis (assuming full conversion of US$113.8m of convertible bonds into shares at S$0.45 each).

Maintain BUY with new S$0.90 fair value
In light of the latest investment, we bump up our FY14 estimates for revenue by 1.5% and earnings by 4.9%; this in turn raises our fair value from S$0.88 to S$0.90, still based on 13x FY14F EPS. Maintain BUY.

SMRT

OCBC on 2 Apr 2013

We view the recent goodwill impairment announcement as a way for SMRT’s new management to turn the page on its past overseas ventures although the timing did take us by surprise. While the Shenzhen ZONA venture failed to yield the desired results, its performance only turned negative over the past two quarters. Nonetheless, we feel that management review of existing operations is still ongoing, and we could see further impairments – particularly on the SG bus business – down the line. In the interim, we expect to see a net loss in excess of S$4.3m for 4QCY13, and a possible halving of FY12’s final dividend. As we roll our valuations forward to include FY15, our fair value declines to S$1.51 from S$1.62 previously with higher operating expenses and a lack of growth opportunities to blame. We maintain HOLD on SMRT and reiterate our view that an inflection point is unlikely anytime soon.

First ever profit guidance issued
SMRT Corp issued its first ever profit guidance for 4Q13, attributing the expected net loss to higher operating expenses and an impairment of the S$17m in goodwill for its Chinese associate, Shenzhen ZONA Transportation Group. 

Time to wipe the slate clean
We view the goodwill impairment as a way for SMRT’s new management to turn the page on its past overseas ventures although the timing did take us by surprise. While the Shenzhen ZONA venture failed to yield the desired results, its performance only turned negative over the past two quarters. On the other hand, SMRT was willing to wait out eight quarters of much larger operating losses on its SG bus operations before making a goodwill impairment in 4QFY12. 

Further impairments to come
In our view, the review of SMRT’s business segments by the new management is still ongoing and we could see further impairments with regards to the SG bus business. Its operations continue to suffer from growing operating expenses and a write-down of assets could materialise in the coming quarters if operating losses persist and widen beyond the current losing streak of nine consecutive quarters. 

Lower final FY13 dividend
For now, our 4QFY13 estimates call for a loss in excess of $4.3m, and this should reduce FY13’s reported profit to around S$90m. Assuming an unchanged 60% PATMI payout – last seen in FY04/05 – investors can expect a halving of last year’s dividend payout. 

Valuation lowered
As we roll our valuations forward to include FY15, our fair value declines from S$1.62 to S$1.51 as higher operating expenses and lack of growth opportunities continue to bite. This undesirable combination will likely override any cheer from the upcoming fare increase in mid-CY2013. We reiterate that SMRT is unlikely to see an inflection point anytime soon. Maintain HOLD.

KSH Holdings

OCBC on 1 Apr 2013

KSH would acquire a 30% stake in 160 Changi Rd, located at the corner of Changi Rd and Lorong 105 Changi, for S$20.4m. Assuming a 50:50 retail and office breakdown and selling prices of S$2.8k and S$1.8k for retail and office, respectively, we estimate a 1.5 S-cents accretion to KSH’s RNAV. We like that KSH has re-deployed capital expediently into new projects after raising S$13.9m in mid-Mar 2013, and believe this points to a well thought-out plan for capital management and growth. Maintain BUY with an increased fair value estimate of S$0.62 versus S$0.61 previously. Our SOTP methodology conservatively values KSH’s construction segment at 4x FY13E earnings and its property segment at a 40% RNAV discount. This being so, its fair value estimate could re-rate signficantly if construction order book replenishment continues unabated and/or upcoming launches perform well.

Acquires stake in 160 Changi Road
KSH would acquire a 30% stake in 160 Changi Rd located at the corner of Changi Rd and Lorong 105 Changi. The consortium comprises KSH (30%), Lian Beng (40%) and Tee Intl (30%) and would acquire 160 Changi for S$68m. The site is zoned “Commercial” and has a land area of 17,974 sq ft with plot ratio 3.0. The group intends to redevelop the site into a mixed retail and office project.

Project expected to accrete 1.5 S-cent to RNAV
We believe the redevelopment would consist of 50:50 retail and office components, and estimate the overall breakeven price to be S$1.75k psf. Assuming a selling price of S$2.8k and S$1.8k for retail and office, respectively, this project has an estimated net profit margin of 20%, on an overall basis, and would accrete 1.5 S-cents to KSH’s RNAV.

Fast re-deployment of capital for growth
We like that KSH has re-deployed capital expediently into new projects after raising S$13.9m from a placement of new and treasury shares in mid-Mar 2013. Over the last two weeks, the group has increased its stake in its Beijing condominium project (Liang Jing Ming Ju, Phase 4) from 26.2% to 45.0% for S$1.9m, and acquired a 30% stake in 160 Changi Rd for S$20.4m. In our view, this points to a well thought-out plan for capital management and growth, particularly as KSH bought back a significant number of shares into its treasury at S$0.22 - S$0.32 in late 2012 and placed them out at S$0.408 to private investors in Mar 2013.

Fair value estimate raised to S$0.62
Maintain BUY with an increased fair value estimate of S$0.62 versus S$0.61 previously as we incorporate this acquisition into our model. Our SOTP methodology conservatively values KSH’s construction segment at four times FY13E earnings and its property segment at a 40% RNAV discount. This being so, its fair value estimate could re-rate signficantly if construction order book replenishment continues unabated and/or upcoming launches perform well.

Nam Cheong

OCBC on 1 Apr 2013

Nam Cheong Ltd announced that it has sold six vessels worth a total of US$72.1m to two of its existing customers. Two 5,150 bhps Anchor Handing Towing Supply (AHTS) vessels were sold to Icon Offshore Berhad, one of Malaysia’s largest OSV group, while four Emergency Response and Rescue Vessels (ERRVs) were sold to a Singapore-based company that provides ship management and chartering services. The six vessels will be built in one of its sub-contracted yards in China with expected deliveries between 2Q13 and 4Q14. We continue to like Nam Cheong for its exposure to the buoyant offshore market in Malaysia and its close ties with Petronas-licensed companies. Its build-to-stock shipbuilding programme enables it to capture the strong domestic vessel demand, while its build-to-order business model helps lower its overall risk profile. Maintain BUY with unchanged fair value estimate of S$0.30.

Six vessels sold to two customers 
Last week, Nam Cheong Ltd announced that it has sold six vessels worth a total of US$72.1m to two of its existing customers. Two 5,150 bhps Anchor Handing Towing Supply (AHTS) vessels were sold to Icon Offshore Berhad, one of Malaysia’s largest OSV group. The AHTS vessels, which are part of Nam Cheong’s build-to-stock series, will be deployed in Malaysian waters upon delivery. Four Emergency Response and Rescue Vessels (ERRVs) were sold to a Singapore-based company that provides ship management and chartering services. The ERRVs, constructed under its build-to-model model, will be deployed in North Sea. The six vessels will be built in one of its sub-contracted yards in China with expected deliveries between 2Q13 and 4Q14. With the contract wins, Nam Cheong’s order-book to date remains at RM1.3b. 

Strong vessel demand
Outlook for the Malaysian offshore industry remains robust, underpinned by Petronas’ planned capex of RM300b across 2011-15. According to the management, the domestic market for small size AHTS vessels remains buoyant, especially within the shallow-water Malay basin. Nam Cheong is also seeing vessel demand arising from top-side maintenance, hook-up and commissioning and exploitation of reserve. In addition, there is also a need for older vessels to be replaced with new and higher specification ones. 

Maintain BUY 
Nam Cheong remains one of our preferred picks among the small-cap oil & gas space. We continue to like the group for its exposure to the buoyant offshore market in Malaysia and its close ties with Petronas-licensed companies. Its build-to-stock business model enables it to capture the strong domestic vessel demand, while its build-to-order helps lower its overall risk profile. Maintain BUY with unchanged fair value estimate of S$0.30.

Yoma Strategic Holdings

OCBC on 28 Mar 2013

Yoma Strategic Holdings (Yoma) reported that it would take a 70% stake in Chindwin Holdings which would acquire several connected tourism assets. First, Chindwin would acquire 75% of a balloon tour company “Balloons over Bagan (BOB)” for US$10.7m. BOB is the only hot air balloon operator in Myanmar and has had a profitable track record since it began operations 13 years ago. We understand that this acquisition price translates to a forward PE multiple of 6 to 8 times. In addition, Chindwin would acquire a 75% stake in 21.2 acres of land in Bagan for US$3.75m. This acquisition is conditional on the present owner converting the existing land-rights to allow for the construction and operation of a hotel business. Overall we see these acquisitions to be positive and allows Yoma to capitalize on the burgeoning demand for luxury tourism in Myanmar. While we believe the company holds meaningful franchise value as a leading developer in Myanmar, most positives are likely priced in at current prices. Maintain SELL with a 12-month fair value estimate of S$0.71 (20% premium to RNAV).

Proposed acquisition of balloon services company
Yoma reported that it would take a 70% stake in Chindwin Holdings which would acquire several connected tourism assets. First, Chindwin would acquire 75% of a balloon tour company “Balloons over Bagan” for US$10.7m. The company is the only hot air balloon operator in Myanmar and has had a profitable track record since it began operations 13 years ago. We understand that the acquisition price translates to a forward PE multiple of 6 to 8 times.

Additional 21.2 acres of land in Bagan
In addition, Chindwin would also acquire a 75% stake in 21.2 acres of land in Bagan for US$3.75m. This acquisition is conditional on the present owner converting the existing land-rights to allow for the construction and operation of a hotel business. The site is 5km away from the archeology site of ancient Bagan and offers panoramic views of the Irrawady river and the Yoma mountain range in the background. The group intends to develop a luxury boutique resort hotel on this site. Finally, the JV would also acquire 75% of Eastern Safaris – a company offering adventure tours - for US$0.1m. Overall we see these acquisitions to be positive and allow Yoma to capitalize on the burgeoning demand for luxury tourism in Myanmar.

Rights issue for acquisition of central Yangon site delayed
Yoma also recently updated that its proposed 80% acquisition of a central Yangon site would be delayed, as the company is in still in discussion with authorities regarding the new leasehold title of the site. However, Yoma indicated that verbal assurances have been given that a new lease in accordance with the current Foreign Investment Law would likely be granted, and it is confident that a Master Lease would be issued before 30 June 2013.

Maintain SELL
We believe the company holds meaningful franchise value as a leading developer in Myanmar but see most positives to be priced in at current levels. Maintain SELL with a 12-month fair value estimate of S$0.71 (20% premium to RNAV).

Oil and Gas sector

OCBC on 28 Mar 2013

We recently attended IHS Petrodata’s seminar on the offshore oil and gas sector, and came away feeling positive on prospects of selected sub-segments of the industry. For the deepwater drilling market, day rates have recovered to 2008 levels, especially the ultra-deepwater segment. Rates for harsh-environment rigs have also been climbing. 2013 is also expected to see the development of more global oil and gas field projects, while sentiment on the OSV market has generally improved. In particular, average earned day rates in Asia Pacific are showing signs of an upturn, especially for AHTS vessels smaller than 6,000BHP in Indonesia and Malaysia. Maintain Overweight on the broader oil and gas sector, with Ezion Holdings [BUY, FV: S$2.35], Keppel Corporation [BUY, FV: S$12.68], Sembcorp Marine [BUY, FV: S$5.84], and Nam Cheong [BUY, FV: S$0.30] as our preferred picks.

Beneficiaries of healthy deepwater and harsh env rig market
We recently attended IHS Petrodata’s seminar on the offshore oil and gas sector, and came away feeling more positive on prospects of selected sub-segments of the industry. For the deepwater drilling market, day rates have recovered to 2008 levels, especially the ultra-deepwater segment. Rates for harsh-environment rigs have also been climbing. These are products that Keppel Corporation [BUY, FV: S$12.68] and Sembcorp Marine [BUY, FV: S$5.84] specialise in, and their established track records put them in good stead to secure more orders. Meanwhile, in addition to more stringent requirements for BOPs, more operators are also requesting for second BOP units for rigs. A direct beneficiary is MTQ Corporation [Unrated]. 

Development of more offshore fields
2013 is also expected to see the development of more global oil and gas field projects. Key near term trends include increased contract flows, increased backlogs of EPC work, and more marginal field development. Ezion Holdings [BUY, FV: S$2.35]charters service rigs and liftboats to various parts of the world, and also provides offshore logistics and support in Australia, one of the growth areas going forward.

Signs of an upturn for AHTS vessels <6,000BHP in SE Asia 
Compared to a year or two ago, the sentiment on the OSV market has generally improved. Average earned day rates in Asia Pacific are showing signs of an upturn, especially for AHTS vessels smaller than 6,000BHP in Indonesia and Malaysia.Marco Polo Marine [BUY, FV: S$0.56] is one of the few companies with good exposure to the OSV sector in Indonesia, while Nam Cheong [BUY, FV: S$0.30] is a direct beneficiary of Petronas’s capex plans in Malaysia.

Maintain Overweight
IHS has revised its 2013-2014 oil price forecast upwards – it now expects Brent crude to average US$105/bbl in 2013 and US$93/bbl in 2014, sustaining capital expenditure in the sector. Maintain Overweight on the broader oil and gas sector.

Wing Tai

Kim Eng on 3 Apr 2013

The sale that caught the eye. Wing Tai sold one more unit at Le Nouvel Ardmore in February at a month-high unit price of SGD4,372 psf, suggesting that Wing Tai is not compromising on pricing just to move inventory. Our ASP assumptions for its two upcoming project launches may also be a tad conservative. At current valuation of 0.64x P/B, we maintain that Wing Tai is a bargain. Reiterate BUY with a Street-high target price of SGD2.55.

Taking the slow high-end market in stride. The latest transaction suggests that Wing Tai remains steadfast in its pricing strategies. We do not foresee any immediate need to adopt a more aggressive pricing strategy particularly for Le Nouvel Ardmore, given its low estimated breakeven of SGD2,160 psf. In terms of timing, Wing Tai has a little over two years to finish selling the remaining 41 units, as we expect the project to obtain its TOP in the coming months.

Impending new launches. We expect The Tembusu to be launched sometime this quarter, which should be met with healthy demand given its proximity to Kovan MRT station. That is likely to be shortly followed by the launch of the Prince Charles Crescent (PCC) site possibly around June. Considering that SingLand is looking to price Mon Jervois nearby at ~SGD2,000 psf, our ASP assumption of SGD1,750psf for the PCC site would appear a tad conservative. Should Wing Tai manage to achieve SGD2,000 psf, its RNAV could be raised by 5 cents/share.

What’s in the price, and what’s not? Wing Tai is trading at a deep 34% discount to its NAV/share of SGD2.95. From its Enterprise Value (see Figure 1), the implied GDV of its attractive Singapore residential landbank including the two prime Armore Park sites is as low as SGD1,562 psf, while valuing its investment properties and growing retail business at next to nothing!

Better shape than ever. Wing Tai still trades below its ten-year average P/B of 0.84x despite having reduced its net gearing position to a ten-year low of ~16%. We believe the current steep discount severely undervalues the stock. Reiterate BUY with a target price of SGD2.55, valuing the stock at 0.86x P/B and 0.7x P/RNAV.

STX OSV

Kim Eng on 2 Apr 2013

A steal at current price. We initiate coverage on STX OSV (VARD) with a Buy and TP of SGD1.66, pegged to 9x PER on average FY13-15F earnings. As a quality Norwegian shipyard with a niche in high specification offshore support vessels (OSV), VARD deserves to trade at a premium to Asian OSV yards. The conclusion of its sale to Fincantieri Group removes the overhang on share price, while recovering OSV orders will support an earnings turnaround. With a potential capital upside of 35% and FY13F dividend yield of 4.9% (which can rise to 7.3% in FY15F), the stock is a steal.

Depressed by Fincantieri offer. Share price has been de-rated and suppressed due to the lowball offer (SGD1.22/sh) by Fincantieri for STX Group’s 50.75% stake. We suspect that the latter was forced to dispose VARD at such depressed valuations (7.2x FY12 PER/2.0x FY12 P/B) due to financial distress. With the sale concluded, the overhang on share price has been removed and VARD should re-rate positively to at least peer valuation levels.

Setting the stage for outperformance. VARD has been conservative in its order win guidance. We believe that the weakened ordering activity from 2H12 is short-term in nature and foresee a pickup towards 2H13. Offshore activities remain fundamentally strong and the need for a more sophisticated and modern OSV fleet is ever increasing as offshore operations grow more complex. In our opinion, the cautious guidance sets the stage for positive surprises when ordering activities pick up faster and stronger than expected.

Market underestimates strength of recovery. Order win momentum is the key leading indicator to watch. Near-term earnings growth profile masks the real strength and timing of a turnaround given the lagged effect between order win and revenue recognition. We forecast NOK9.7b/12.8b/13.5b in new order wins for FY13F/14F/15F. We expect an 11% dip in FY13F EPS but a 30%/12% surge in FY14F/15F earnings, which puts our earnings forecasts above consensus for FY14F/15F but lower for FY13F. We believe the market has been overly cautious and underestimated the potential strength of a recovery.

Ying Li International

Kim Eng on 1 Apr 2013

Relatively unscathed by China property tightening. Ying Li’s share price dropped to SGD0.42 from the peak of SGD0.53 after the Chinese government announced the latest round of property cooling measures including a 20 percent capital gains tax and higher downpayments for second-time home buyers. In our view, the market’s negative reaction is overdone because we believe Ying Li will be less affected by the recent
property cooling measures. Reiterate BUY with target price of SGD0.61, pegged to 25% discount to RNAV.

Ying Li’s residential property portfolio. China announced further residential property curbs on 1 March 2013. Ying Li’s residential portfolio mainly includes Ying Li International Plaza Block 2 to 5 and San Ya Wan Phase 2, which only accounts for a small proportion of the total portfolio. Among these, Ying Li International Plaza Block 2 to 5 have been largely sold out and San Ya Wan Phase 2 will only be delivered after 2015. In our view, there will be very little immediate effect from the latest property cooling measures.

New CEO, new opportunities. Ying Li recently appointed Mr Ko Kheng Hwa as CEO. Mr Ko’s rich experience in Singapore and China could open up new opportunities for Ying Li. It is possible to even explore other business models such as the integrated township projects that Mr Ko used to lead in his previous company. We note that there are several township projects currently under planning in Chongqing Liangjiang New Area, that Ying Li could participate in.

Reiterate BUY for robust growth. We are projecting an average 40% EPS growth in the next three years on the back of strong pipeline of assets. We like Ying Li’s prime asset quality and its exposure to highend commercial property sector in Chongqing. We believe that Ying Li offers the most direct exposure to Chongqing’s fast-growing economy and stands to benefit from Chongqing’s ambition to be a commercial and manufacturing hub in west China. Maintain BUY and target price of SGD0.61, pegged to 25% discount to RNAV.

NOL

OCBC on 28 Mar 2013

The Shanghai Containerised Freight Index has exhibited relative stability since the start of the year, and this should provide a good base for upcoming generate rate increases such as those enacted under the TSA for Apr. Although there is a possibility of a supply outpacing demand, several liners have expressed confidence in the resilience of rates this year and continue to push through GRIs beyond Apr. Nonetheless, the major liners acknowledge potential threats to profitability and have reiterated the need for the industry to strike a balance between competition and sustainability. Although some liners have taken heed – such as the G6 and CKYH alliances who have cancelled their planned Asia-Europe service launches this year – there remains some routes that are particularly susceptible to rate fluctuations, and we adjusted our estimates downwards for NOL accordingly. Regardless of this adjustment, our view on NOL’s turnaround in FY13 remains intact and we maintain our BUY rating with a fair value of S$1.38.

Overall 1Q rates were okay despite jitters
Despite the constant reminders of lingering economic uncertainty, the Shanghai Containerised Freight Index has stayed within a tight band (1,073-1,246) since the start of CY2013. This relative stability should provide a good base for the upcoming rate hikes from Apr 1, where members of the Transpacific Stabilization Agreement (TSA) have applied for across-the-board general rate increases (GRI) of between US$400/FEU to US$600/FEU on all dry and refrigerated cargo. 

Liners quietly confident on CY2013 rates
Although container ship capacity is estimated to increase by at least 10% this year, several liners are quietly confident of a better CY2013 showing in terms of rates. Senior executives from Maersk Line’s have signalled expectations for rates on eastbound transpacific routes to increase by 10% while Hapag-Lloyd continues to push ahead with GRI announcements beyond Apr and into May on the anaemic Asia-Europe trade routes.

Downside risks still present so industry action still needed
While we view the optimism over CY2013’s prospects positively, there is still the likelihood of supply outstripping demand, especially on certain routes such as the transpacific trade lane. That said, several senior executives from various major liners have reiterated publicly the need for a balance between competition and sustainability, and fortunately, some liners have taken heed. For instance, both the G6 and CKYH alliances have cancelled their planned Asia-Europe service launches this year.

Adjusted our estimates, but turnaround still intact
We are encouraged by these developments and maintain our view that NOL will have a turnaround year in FY13. Nonetheless, we adjust our estimates downwards as we feel the transpacific route, which is NOL’s main revenue contributor, to be especially susceptible to rate fluctuations. However, even with this adjustment, our BUY rating with a fair value of S$1.38 remains.