Lippo Malls Indonesia Retail Trust

OCBC on 7 Nov 2013

LMIRT reported 3Q13 gross rental income of S$38.9m, up 13.6% YoY. The increase was mainly due to the acquisition of the six new malls in 4Q12, and positive rental reversions for the existing malls. Distributable income increased by 20.7% YoY to S$19.1m and DPU climbed 19.2% to 0.87 S cents. Results for the quarter were in-line with ours and consensus expectations. 9M13 DPU of 2.69 S cents forms 75% of our prior FY13 estimate. On 4 Oct, under its MTN programme, LMIRT issued S$150m 4.25% notes due 2016. Management indicates that it may use the money raised to refinance the S$147.5m term loan due Jun 2014 or to make acquisition. It currently has a potential target in mind. Adjusting our model slightly to incorporate higher finance expense from the S$150m notes issuance and lower cost of equity assumptions (9.7% instead of 10.8%), we raise our DDM-based FV to S$0.45 from S$0.44. Maintain HOLD. We estimate a FY13F yield of 7.8%.

3Q13 as expected
LMIRT reported 3Q13 gross rental income of S$38.9m, up 13.6% YoY. The increase was mainly due to the acquisition of the six new malls in 4Q12, and positive rental reversions for the existing malls. Distributable income increased by 20.7% YoY to S$19.1m and DPU climbed 19.2% to 0.87 S cents. Results for the quarter were in-line with ours and consensus expectations. 9M13 DPU of 2.69 S cents forms 75% of our FY13 estimate. Due to weakening of the IDR, NAV fell 20.1% QoQ to 45.28 S cents as of end 3Q13.

FX hedges in place
Management is looking to hedge 80-85% of distributable income using options, up from 65% earlier this year. A long-term forward-based hedge which expired in May was replaced with options, and management intends to do the same for another hedge which expires in the middle of this month. Compared to the average exchange rate over 3Q13, the SGD has strengthened 6.4% against the IDR for 4Q13 so far, with SGD1 buying an average of IDR8947 from 1 Oct to 6 Nov, compared to an average of IDR8410 over 3Q13 (Bloomberg).

S$150m notes issued in Oct
Gearing climbed from 24.2% in 2Q13 to 28.2% in 3Q13, chiefly due the fall in value of the investment properties in SGD terms. Management seeks to have an average gearing of 30% over the medium-term. On 4 Oct, LMIRT issued S$150m 4.25% notes due 2016. Management indicates that it may use the money raised to refinance the S$147.5m term loan due Jun 2014 or to make acquisition. It currently has a potential target in mind. Separately, management is speaking with a developer about developing an extension for Ekalokasari Plaza. Some tenants have not been renewed and others have been relocated, resulting in a drop in occupancy. Note that Ekalokasari accounts for only 3.6% of the portfolio by NLA.

Maintain HOLD
Adjusting our model slightly to incorporate higher finance expense from the S$150m notes issuance and lower cost of equity assumptions (9.7% instead of 10.8%), we raise our DDM-based FV to S$0.45 from S$0.44. Maintain HOLD. We estimate a FY13F yield of 7.8%.

Vard Holdings Limited

OCBC on 7 Nov 2013

Vard Holdings Limited’s (VARD) 3Q13 results fell short of ours and the street’s expectations, with revenue and PATMI dipping by 3.5% and 66.7% YoY to NOK2,370m and NOK76m, respectively. There was also strong margins pressure as its Niteroi yard in Brazil continued to experience cost overruns and delays. Nevertheless, the situation appears to be stabilising and we are also positive on its healthy orders intake worth NOK7.95b in 3Q13. This has boosted its orderbook to NOK19.5b as at 30 Sep 2013, versus NOK16.4b as at 30 Sep 2012. We rework our assumptions following a change in analyst coverage, lowering our FY13 and FY14 PATMI projections by 23.1% and 2.7%, respectively. Applying a PER valuation peg of 8x (approximately in-line with its average forward PER since listing) to our FY14F EPS forecast, we derive a new fair value estimate of S$0.84 (previously S$0.80). Upgrade VARD from Sell to HOLD.

3Q13 results below our expectations
Vard Holdings Limited’s (VARD) 3Q13 results fell short of ours and the street’s expectations, with revenue and PATMI dipping by 3.5% and 66.7% YoY to NOK2,370m and NOK76m, respectively. However, this was a reversal from the net loss of NOK20m suffered in 2Q13 as VARD had taken an impairment of goodwill (NOK70m) on its Niteroi yard in Brazil then. For 9M13, revenue and PATMI dipped 6.3% and 68.6% to NOK8,062m and NOK244m, forming 68.0% and 52.0% of our previous FY13 forecasts, respectively. 

Orders intake healthy; but Brazil still a drag
VARD’s EBITDA and net margin fell from 13.5% and 9.3% in 3Q12 to 4.3% and 3.2% in 3Q13, respectively. This was attributed largely to continued cost overruns and delays at its Niteroi yard in Brazil. Management highlighted that the situation is stabilising, and it has booked in all the foreseeable losses on the ongoing projects at its Niteroi yard (four vessels under construction). On a positive note, VARD secured healthy orders intake of NOK7.95b in 3Q13, thus boosting its 9M13 contract wins to NOK11.9b. Its orderbook stood at NOK19.5b as at 30 Sep 2013, versus NOK16.4b as at 30 Sep 2012.

Upgrade to HOLD
We rework our assumptions on VARD following a change in analyst coverage, and now assume order wins of NOK12.9b in FY13 and NOK11b in FY14. Our revenue and PATMI forecasts are lowered by 9.2% and 23.1% for FY13, and 7.5% and 2.7% for FY14, respectively. Although we expect the operating environment in Brazil to remain challenging for VARD in the near future which may continue to exert pressure on its margins, we are positive on its recent strong order wins trend. Management highlighted that it is seeing a high level of tendering activities. We now apply a PER valuation peg of 8x (approximately in-line with its average forward PER since listing) to our FY14F EPS estimate, and consequently derive a new fair value estimate of S$0.84 (previously S$0.80). We upgrade VARD from Sell to HOLD. Upside potential appears limited at this juncture, in our opinion.

BreadTalk

OCBC on 7 Nov 2013

BreadTalk’s 3Q13 results exhibited the same traits as before. Revenue and operating profit increased following top-line growth across all three operating segments but operating margins remained depressed. In the coming quarters, we expect this trend to persist, especially with its new stated goal of having S$1b in revenue by 2016 and 2,000 stores by 2018. In our view, achieving these goals will be challenging in such a short-time as even our moderately optimistic medium-term projections has them missing the mark. More importantly, we feel that group has to address margin declines sooner rather than later as revenue growth without corresponding bottom-line increases via margin improvements will be hollow. Until then, we maintain SELL on BreadTalk with an unchanged fair value estimate of S$0.77.

Similar story plays out again
BreadTalk’s 3Q13 results exhibited the same traits as before. Revenue and operating profit grew 22.2% YoY to S$142.6m and 23.4% to S$6.4m, respectively, following revenue growth across all three operating segments. However, operating margins remained depressed with operating profit margin unchanged YoY at 4.5% and higher interest expenses eroding PATMI margin by 0.5ppt to 2.4%. As a result, PATMI was relatively the same at S$3.4m from the same period a year ago. 

Are new goals achievable and suitable?
Based on its 3Q13 results, we project that FY13’s revenue growth will slower as compared to previous years, and this raises concerns over BreadTalk’s ability to achieve its new goal of S$1b in sales by 2016 as even our moderately optimistic medium-term projection has them missing the mark. More importantly, an area of greater concern to us is this focus on top-line growth without corresponding attention on improving its performance margins, which have fallen over the years. Declining margins will erode the financial health of the company and may not serve its best interests in the long run. We also raise concerns with its target of 2,000 overall stores by 2018. In our view, an outright store target may result in management pursuing store openings without considering the related opportunity cost. 

Maintain SELL
To be clear, BreadTalk has a capable management team that has grown the business considerably over the years. However, we feel that the group has to address margin declines sooner than later. Unless that action is taken, investors are likely to see continued margin compression in the coming quarters from higher interest and operating expenses, and dividend yields are also expected to remain unattractive at ~1%. Maintain SELL with an unchanged fair value estimate of S$0.77.

Cosco Corporation

Maybank Kim Eng Research, Nov 6

Q3 2013 was another disappointing quarter with net profit of only US$4.2 million on US$989.4 million revenue. Cosco's performance still fell short despite our aggressive earnings cuts post previous quarterly results. Q3 2013 gross margins sank to 7.4 per cent with an S$15.8 million in inventory write-down and an S$33.9 million provision for losses. Maintain "sell", with unchanged target price of S$0.65 pegged to 1.1 times FY2014 BVPS.

Despite showing sequential orderbook growth, and exceeding its order win target of US$2.0 billion for FY2013, Cosco has yet to demonstrate improvements in execution as margins continued decline. While this was partly due to lower value contracts secured previously, we believe that its varied offshore product types may also hinder its ability to benefit from efficiency gains from repeat execution. Cosco has guided for continued pressure on margins, citing wage and raw material price increases, competition, higher financing costs and Chinese yuan strengthening as negative factors.

We maintain our pessimistic view on the shipbuilding market as we do not see an easing of the vessel oversupply situation yet. Furthermore, we believe that new shipbuilding prices would still remain suppressed despite recent market optimism following a surge in the Baltic Dry Index, which we view as seasonal and temporary.

We cut FY2013 forecast by further 22 per cent, but raise FY2014-2015 earnings by about 15 per cent to account for the pick-up in new order wins recently, which exceeded our initial forecast. We raise FY2013 order win assumptions to US$2.5 billion.

SELL

Broadway Industrial Group

DBS Group Research, Nov 6

EXCLUDING forex and one-off items, Broadway reported net loss of S$1.6 million, compared to losses of S$2.3 million in Q2 2013 and S$5 million in Q3 2012. Results missed our S$2.5 million profit forecast although sales were in line at S$165 million. Gross margins were firm at about 8 per cent but higher sales and administration costs as well as interest expense eroded net profit. More borrowings for capital expenditure investments led to a higher gearing of 0.78 from 0.67 in Q2 2013.

As hard disk drive (HDD) sales stabilised at around S$90 million, losses at the Ebit level narrowed substantially to a mere S$0.1 million from a loss of S$2.8 million in Q3 2012. Elsewhere, the non-HDD segments were dragged down by higher start-up costs for new mobile programmes while contribution from foam plastics shrunk because of a less profitable product mix.

Broadway has met only 25 per cent of our full-year estimates as of 9M 2013. A H2 rebound would be challenging as HDD is expected to be flat for another year, while non-HDD is taking longer to cultivate and the group's move to right-size operations is progressing slower than desired.

Maintain "hold". We cut FY2013/FY2014 earnings estimates by 44-49 per cent to reflect higher cost assumptions. We believe share price should hover around current levels of 0.5-0.6 times P/B and only re-rate if there is a significant turnaround. Target price is cut to S$0.25 based on 0.5 times P/B, the lower end of its historical P/B band.

HOLD

UOB

OCBC Investment Research, Nov 6

UOB posted Q3 net earnings of S$730 million, up 3.3 per cent y-o-y and -6.8 per cent q-o-q, and above market expectations of S$701.8 million.

While net interest income improved both y-o-y and q-o-q, there was a slight drag from lower non-interest income which fell 11 per cent y-o-y and 2 per cent q-o-q. This was partly due to lower contributions from wealth management, loans-related and fund management.

Net interest margin stabilised at 1.71 per cent, same as last quarter, and bucking the downtrend experienced at the other two banks. Impairment charges fell from last year, but were up from the previous quarter to S$85 million.

With the still uncertain outlook for the key developed markets, management's outlook was understandably more muted, largely to reflect the challenging business environment in Asia. It is guiding for loans growth in 2014 to be in the high single-digit to low teen region, lower than the expected low-to-mid teens for 2013.

However, it is expecting growth to come from both its Singapore and regional operations. While retail banking could be challenging, especially on the mortgage loans front due to Singapore property measures, this is likely to be mitigated by its business banking.

Reiterate "buy"; maintain fair value of S$22.97. While there were recent pockets of uncertainty in two of its key regional markets, we do not expect these events to have long-term effect on its regional franchise. We expect regional trades to lead to still healthy transactional banking activities. Overall group performance will also be aided by its consistently prudent cost management.

BUY

COSCO Corp

OCBC on 6 Nov 2013

COSCO Corp (Singapore) reported a 6% YoY rise in revenue to S$989.4m but saw an 84% drop in net profit to S$4.2m in 3Q13, such that 9MFY13 net profit accounted for 53% of our full year estimate. The results also disappointed the street, as 9MFY13 net profit only made up 42% of the full year consensus figure of S$62.6m. Operating profit margin was only 1.2% in 3Q13 vs. 4.8% in 3Q12, mainly because of a S$33.9m provision for expected losses on construction contracts. A S$15.8m provision was also taken for inventory write-down. This resulted in a net profit margin of 0.4% in the quarter vs. 2.8% in 3Q12. With low earnings visibility and increasing debt-related risks, we maintain our SELL rating with a fair value estimate of S$0.61.

Yet another weak quarter
COSCO Corp (Singapore) reported a 6% YoY rise in revenue to S$989.4m but saw an 84% drop in net profit to S$4.2m in 3Q13, such that 9MFY13 net profit accounted for 53% of our full-year estimate. The results also disappointed the street, as 9MFY13 net profit only made up 42% of the full-year consensus figure of S$62.6m. Operating profit margin was only 1.2% in 3Q13 vs. 4.8% in 3Q12, mainly because of a S$33.9m provision for expected losses on construction contracts. A S$15.8m provision was also taken for inventory write-down. This resulted in a net profit margin of 0.4% in the quarter vs. 2.8% in 3Q12.

Execution still needs more work; drillship profits to be reversed?
After five quarters of either little cost overruns or reversal of provisions made earlier, COSCO returned to making provisions on its construction contracts again, dousing hopes that it is gaining footing on the execution front. For the upcoming quarter, the group may even have to reverse profits on its “substantially completed” drillship that is mired in arbitration proceedings with customer Dalian Deepwater Development (DDD), unless COSCO is able to quickly find another buyer for its drillship.

Risky investment; maintain SELL
As of 30 Sep 2013, the group’s order-book stood at US$7.2b with progressive deliveries up to 2015. Although it looks stable, many orders are likely to be executed at low margins. Though the group has a cash level of S$1.7b, it also has S$1.85b worth of debt maturing in a year (36% of which is secured and may be rolled over), not forgetting the substantial working capital that the group needs with its back-end loaded payments for its contracts. Moreover, any credit tightening in China may affect the ability of customers to meet their financial obligations. Rolling forward our valuation to FY14F estimates with an unchanged P/B of 1x, our fair value estimate rises slightly from S$0.60 to S$0.61. Maintain SELL.

OCBC

DMG & Partners Research, Nov 5

OCBC has guided for 2014 loan growth of a high single digit. We believe the slower growth guided (vis-à-vis 2013) is partly in response to the various property cooling measures imposed by the Monetary Authority of Singapore.

Already, OCBC is seeing a 30 per cent y-o-y drop in residential mortgage applications and thinks that the impact on loan growth would start to be felt in H2 2014. The group remains open for potential M&A activities, especially if these involve any of OCBC's four key markets of Singapore, Malaysia, Indonesia and Greater China.

Our FY2013 earnings forecasts are unchanged, but we raise our FY2014 net profit forecast by 6 per cent on revising down loan allowances. We lift our fair value to $10.90 (from $10.60) after rolling forward our valuation base year to end-2014 (from June 2014).

There is no change to our target P/B multiple of 1.45 times. The pick-up in OCBC's profitability was largely due to MTM gains from the insurance unit, while the underlying profit at its banking operations was more muted. Maintain "neutral".

NEUTRAL

Genting Singapore

CIMB Research, Nov 5

WE maintain our "underperform" rating (target price: $1.17) as we are still expecting de-rating catalysts from potential disappointing VIP gross gaming revenue (GGR) numbers, which remain volatile.

Adjusting for $40 million in one-off property-assessment charges, Q3 2013 core net profits were up 59 per cent y-o-y, fuelled by operating leverage in its VIP business. Its VIP win rate was 2.95 per cent versus 2.85 per cent in Q3 2012, with a 58 per cent y-o-y increase in betting volume, translating into $610 million in GGR. Management attributed this to a broadening out of its VIP clientele not just in China but also in South-east Asia.

However, we believe its VIP business is ultimately dependent on credit and it is too early to tell whether it has found sustained growth and recovery.

Q4 2012 and Q1 2013 saw similar spikes in VIP rolling chip, but there was a pullback in Q2 2013 when credit was reined in. Trade receivables crossed $1 billion for the first time and we estimate that $473 million in bad debt has been provided for since operations began. About $50.2 million was provided for in Q3 2013 versus $31.9 million in Q2 2013 and $32 million in Q3 2012.

Mass GGR was $409 million, down 15 per cent y-o-y and 10 per cent q-o-q. Market share for Resorts World Sentosa (RWS) dropped to 44 per cent from 49 per cent in Q3 2012. A 550-room new hotel in the Jurong Lake District will be a key catalyst for RWS as it will cater to tour groups which should help drive yields on its gaming assets during off-peak hours.

We believe, based on our assumptions, that the share price is factoring in a potential 50 per cent stake for Genting in a US$10 billion IR project in Japan with a ROCE of 15 per cent valued at 12 times EV/Ebitda. This works out to $0.37/share in RNAV. We believe this represents much of the option value given that we are still very early in the timeline.

UNDERPERFORM

Sembcorp Marine

OCBC on 6 Nov 2013

Sembcorp Marine (SMM) reported an 85.9% YoY fall in revenue to S$1.66b and a 12.3% increase in net profit to S$129.7m in 3Q13, within our expectations. Operating margin in 3Q13 was 10.1%; though on the lower side, this is still within management’s guidance of 10-13% for this year. With the commencement of operations in the new Tuas yard, ship repair revenue rose 34% YoY. After securing new orders worth about S$3.9b YTD (vs our full year estimate of S$4b), the group’s net order book stands at S$13.5b with deliveries extending till 2019. With the more conservative profit recognition stance adopted by management for at least this year, we lower our earnings estimates by 3-7% for FY13-14F. However, as we roll forward our valuations to FY14F earnings, our SOTP-based fair value estimate rises slightly from S$5.64 to S$5.68. Maintain BUY.

3Q13 results within expectations
Sembcorp Marine (SMM) reported an 85.9% YoY fall in revenue to S$1.66b and a 12.3% increase in net profit to S$129.7m in 3Q13, such that 9M13 revenue and net profit accounted for about 75% and close to 70% of our full year estimates, respectively. We judge the results to be within our expectations, as 1) gross profit margin in the quarter was lower partly due to conservative profit recognition of two products (well-intervention semi-sub rig and a harsh-environment unit) such that margins should be higher nearing completion, and 2) the new Tuas yard should see greater contribution in 4Q13. Operating margin in 3Q13 was 10.1% vs. 14.1% in 3Q12 and 13.0% in 2Q13; though on the lower side, this is still within management’s guidance of 10-13% for this year.

Five projects achieved initial recognition and higher ship repair revenue
The last quarter saw the progressive recognition of 12 projects in the rig building segment with five rig projects (one well-intervention semi-sub rig, one harsh environment semi-sub rig and three jack-up rigs) achieving initial recognition in 3Q13, bumping up this segment’s revenue to S$1.1b vs S$428m a year ago. Ship repair also saw a 34% increase in turnover to S$204m with the commencement of operations in the new integrated yard at Tuas on 5 Aug 2013.

Prospects remain bright
Customers of SMM continue to have positive comments on the outlook of the rig market in their latest earnings calls, and SMM’s management also expects demand from high spec and ultra-deepwater rigs to remain strong. 

Maintain BUY
After securing new orders worth about S$3.9b YTD (close to our full year estimate of S$4b), the group’s net order book stands at S$13.5b with deliveries extending till 2019. With the more conservative profit recognition stance adopted by management for at least this year, we lower our earnings estimates by 3-7% for FY13-14F. However, as we roll forward our valuations to FY14F earnings, our SOTP-based fair value estimate rises slightly from S$5.64 to S$5.68. Maintain BUY.

SATS

OCBC on 6 Nov 2013

SATS’s 2QFY14 results came in below expectations. Revenue fell for the second straight quarter (-2.0% YoY to S$452.1m) following declines in the food solutions segment, and EBITDA and PATMI fell 11.6% YoY to S$65.7m and 3.2% YoY to S$48.7m, respectively, as a result of higher staff costs. Management declared an interim dividend of 5 S cents, similar to last year’s amount. For 2HFY14, we expect revenue to decline further due to the full-year impact of Qantas’ relocation to Dubai, and margins should stay compressed as well. With the weakened 2HFY14 outlook, we leave our fair value estimate unchanged at S$3.35 and maintain our HOLD rating. We foresee limited upside at this juncture and on-going tapering expectations may have a negative impact on dividend-yielding counters like SATS.

2QFY14 results fall short 
SATS’s 2QFY14 results were similar to the previous quarter. Revenue came in below our expectations (-2.0% YoY to S$452.1m) following declines in the food solutions segment, and EBITDA fell 11.6% YoY to S$65.7m as a result of higher staff costs. Fortunately, a better performance from its Indian and Indonesian associates managed to offset a weaker contribution from TFK and helped to arrest its PATMI decline to only 3.2% YoY to S$48.7m. Management declared an interim dividend of 5 S cents, similar to last year’s amount. 

Weaker 2HFY14 outlook
Qantas’ relocation to Dubai was the main factor for SATS’s revenue decline in 1HFY14. As SATS experiences the full impact on a YoY basis, we are likely to see revenue fall further for 2HFY14. In addition, EBITDA margins (1QFY14: -0.3ppt oya to 13.9%; 2QFY14: -1.6ppt oya to 14.5%) have also fallen due to higher staff costs (wage increments from 1QFY14) and an increase in services to LCCs vis-à-vis premium carriers. This trend is likely to extend into 2HFY14.

Rising staff costs a longer-term concern
An area of longer-term concern is staff costs. With foreigners accounting for one in three workers, SATS qualifies under the Tier 3 dependency ceiling i.e. incurs the highest tier in foreign worker levies and faces further levy increases in Jul 2014/15. Although SATS has the ability to subsidise a portion of that increase due to cost escalation clauses, margins will still be depressed if foreign worker dependency is not reduced. To management’s credit, SATS has embarked on automation initiatives and we await further clarity on cost savings. 

Counter fairly valued; maintain HOLD
Due to the weakened 2HFY14 outlook, we leave our fair value estimate unchanged at S$3.35 and maintain our HOLD rating. We foresee limited upside at this juncture and on-going tapering expectations may have a negative impact on dividend-yielding counters such as SATS.

Genting Singapore

OCBC on 5 Nov 2013

Genting Singapore (GS) reported 3Q13 earnings (attributable to shareholders) of S$193.0m, versus our S$190m forecast, as both gaming and non-gaming segments performed better. Going forward, management has turned slightly more positive, as compared to the previous quarter, after seeing a better spread of VIP customers coming from SE Asia and not just China. It is also seriously exploring gaming and non-gaming opportunities in the region; and expects to announce something in the next 12 months. In line with the continued margin improvement, we up our DCF-based fair value from S$1.41 to S$1.47. But given the limited upside, we maintain our HOLD rating and would be buyers closer to S$1.40.

3Q13 earnings were within expectations
Genting Singapore (GS) reported its 3Q13 results last evening, with revenue climbing 16% YoY and 10% QoQ to S$776.8m, while adjusted EBITDA gained 15% YoY (+12% QoQ) to S$347.4m, as both gaming (saw higher volume in the premium player segment) and non-gaming (daily visitation exceeded 18k) segments performed better. As a result, net profit jumped 75% YoY and 38% QoQ to S$193.0m, versus our S$190m forecast. 9M13 revenue inched 1% lower to S$2154.4m, meeting 73% of our full-year forecast, while net profit also slipped 1% to S$449.1m, or 80% of our FY13 estimate.

Still looking towards Japan
Looking ahead, management has turned slightly more positive, as compared to the previous quarter, after seeing a better spread of VIP customers coming from SE Asia and not just China; although it notes that the global economic environment is still relatively unpredictable. Building on its track record (RWS has again been named the best IR for the 3rd consecutive year at the 23rd Annual TTG Travel Awards), GS says it is seriously pursuing opportunities in the gaming, leisure/entertainment and hospitality sectors in the region. Management believes that it could have something to announce within the next 12 months. Meanwhile, GS is also watching the developments in Japan closely and it expects the legislative passage of the IR Executive Law in early 2014. 

Adjusting FV to S$1.47
With margins expected to stabilize from here as more of its non-gaming operations enter into steady state, we bump up our FY13 and 14 earnings forecasts by 2.5% while leaving our revenue numbers unchanged. Our DCF-based fair value also inches up from S$1.41 to S$1.47. But given the limited upside from here, especially after the pre-results run-up, we maintain our HOLD rating. We would be buyers closer to S$1.40.

Ascott Residence Trust

UOBKayhian on 5 Nov 2013

(ART SP/HOLD/S$1.29/Target: S$1.31)
FY13F PE (x): 19.5
FY14F PE (x): 20.9

Rights issue is not a surprise but the 23% discount is. While we had expected ART to raise funds via a placement or a rights issue due to its relatively high gearing of 41%, the steep 23% discount to closing price
comes in as a surprise. During the previous two rounds of fund raising, the new shares were placed out at relatively low 5-10% discounts. Management mentioned that the units were priced attractively to benefit unit holders.

Acquisition on the cards. ART did not announce any concrete acquisition along with the rights but stressed that it is in advanced stages (expected timeline: three months) to acquire assets in China, Japan, Malaysia and Australia. The potential acquired assets are likely to be from the sponsor as well as third parties, with the former accounting for the bulk of it. Management stressed that new acquisitions will be yield-accretive to unit holders, citing recent acquisitions in China and Japan being done at an NPI yield of 5.5-6%.

Maintain HOLD with a lower ex-rights target price S$1.31 (previously S$1.48) as we factor in the DPU dilution. Key re-rating catalyst would be any yield-enhancing acquisitions in the near term. Our target price is based on a two-stage dividend discount model (required rate of return: 8.2% and terminal growth: 2.0%). Suggested entry price is S$1.15.

Genting Singapore

UOBKayhian on 5 Nov 2013

(GENS SP/HOLD/S$1.52/Target: S$1.42)
FY13F PE (x): 30.6
FY14F PE (x): 24.4

Adjusted EBITDA within our expectations. 9M13 EBITDA of S$907.9m contributed 73% of our full-year forecast, in line with our expectations, as we expect a stronger 4Q due to seasonality factor.

Improvement in win percentage. GENS's win percentage improved to slightly above the theoretical win percentage of 2.85% in 3Q13 (2Q13: 2.5%, 1Q13: 2.1%), contributing largely to the upswing in EBITDA margin to 44.7% from 43.9% in 2Q13. However, the margin gains were slightly offset by lower contribution from the lucrative mass-market.

Maintain HOLD and target price of S$1.42, based on 12x 2014F EV/EBITDA. We think GENS is fairly valued with share price having rallied 18% from its Aug13 low as investors gradually priced in an ‘option value’ for potential greenfield and M&A opportunities. Entry price is S$1.30.

Mapletree Greater China Commercial Trust

DBS Group Research, Nov 4

MAPLETREE Greater China Commercial Trust (Magic) reported gross revenue of $63.1 million for Q2 FY2014 - 9.5 per cent ahead of prospectus forecast. Net property income (NPI) and distributable income came in 10 per cent and 13.2 per cent higher than projected to $50.6 million and $38.8 million respectively. Q2 distribution per unit (DPU) was 1.455 cents.

The better performance was achieved on higher portfolio occupancy of 99 per cent with Festival Walk (FW) being 100 per cent taken up and Gateway Plaza (GP) at 98.3 per cent leased. Rents achieved were 22 per cent higher than previous corresponding levels at FW and 81 per cent better at GP. FW continues to enjoy consistently robust shopper footfall growth of 5.2 per cent y-o-y and sales turnover growth of 6.1 per cent.

With only a remaining 11 per cent of leases due to be renewed at FW for the remainder of FY2014 and another 4 per cent at GP, the trust should continue to be underpinned by strong cashflow from FW while consolidation activities and expansion demand should continue to generate demand for niche office markets such as at GP.

Transacted rents at GP remain at between 320-350 yuan per square metre per month. The manager is also in talks to renew its lease with anchor tenant BMW a year ahead of expiry at end 2014 and any conformation towards this end would extend the strong income visibility profile of the trust.

With the repayment of HK$695 million of term-loan facility using operating cash, gearing dipped to 40.1 per cent. Interest cost remains unchanged at 2 per cent. Average loan maturity is 3.5 years and 71 per cent of interest costs are hedged.

We continue to like Magic for its quality assets and stable cashflow. With the latest organic income growth, we estimate that FW is trading at an annualised implied NPI yield of 4.8 per cent while GP is trading at an NPI yield of about 5.9 per cent. This represents an attractive 280 and 170 basis point spread over the respective country risk free rate.

However, with our economist's latest revision in the 10-year bond rate projections for HK and China, which lifted the blended average risk free rate assumptions for the trust by 30 basis points, our DCF-backed TP is lowered to $0.97, translating to a total return of only 10 per cent. Hence, we lower our call to "hold" on valuation grounds.

HOLD

Soilbuild Business Space REIT

OCBC on 4 Nov 2013

Soilbuild Business Space REIT (Soilbuild REIT) reported a stronger-than-expected set of 3Q13 results. As at 30 Sep, portfolio occupancy inched up to 99.8% from 99.7% (at listing date) due to expansion by an exiting tenant at Eightrium. We also understand that Soilbuild REIT has achieved 100% retention rate for its leases since listing, and has fully addressed its lease expiries for the year by renewing three leases at rental rates 7.9% higher than the preceding average passing rents. This reflects the keen leasing demand at Soilbuild REIT’s portfolio assets, in our view. While we maintain our view that the industrial market may potentially face downward pressures in rental and occupancy rates going forward, we note that only 17.3% of Soilbuild REIT’s portfolio NLA is due for renewal in 2014. As such, we believe its financial performance is likely to stay firm. Maintain BUY with unchanged S$0.82 fair value.

3Q13 scorecard above view
Soilbuild Business Space REIT (Soilbuild REIT) reported a stronger-than-expected set of 3Q13 (period from listing date on 16 Aug to 30 Sep) results. NPI came in at S$6.9m, 2.0% higher than its prospectus forecast of S$6.8m due to higher income contribution and lower property expenses from Eightrium and Tuas Connection. Distributable income of S$6.1m was also 3.1% above the prospectus forecasts due to higher net income and lower finance expenses. As a result, DPU stood at 0.76 S cents, 3.0% above its prospectus forecast. This also exceeds our FY13F DPU of 0.72 S cents, on a pro-rated basis. 

Improvements on all fronts
We understand that Soilbuild REIT has achieved 100% retention rate for its leases since listing, and has fully addressed its lease expiries for the year by renewing three leases (2.2% of portfolio NLA) at rental rates 7.9% higher than the preceding average passing rents. As at 30 Sep, portfolio occupancy inched up to 99.8% from 99.7% (at listing date) due to expansion by an exiting tenant at Eightrium. This reflects the keen leasing demand at Soilbuild REIT’s portfolio assets, in our view. A look at URA REALIS latest 3Q13 statistics also appear to paint a positive picture, with the industrial property rental index and occupancy rates registering sequential improvements in most submarkets, after seeing pockets of weakness in 2Q. Going forward, however, we maintain our view that the industrial market may potentially face downward pressures in rental and occupancy rates with the influx of industrial space supply. Nevertheless, given that only 17.3% of Soilbuild REIT’s portfolio NLA is due for renewal in 2014, we believe its financial performance is likely to stay firm.

Solid financial position
Soilbuild REIT’s aggregate leverage and all-in interest costs are currently robust at 29.4% and 3.11% respectively. ~75.0% of its debts is also hedged into fixed rates. This provides Soilbuild REIT with ample firepower for future acquisitions, while limiting its exposure to interest rate volatility. We are raising our FY13F DPU by 2.8% to account for the better results. Maintain BUY with unchanged S$0.82 fair value.

DBS

OCBC on 1 Nov 2013

DBS posted 3Q13 net earnings of S$862m which were slightly better than market expectations. Net Interest Income touched a new high of S$1.41b. Loans grew 19% to S$242b as of Sep 2013. Net Interest Margin (NIM) eased off 2bp from the last quarter to 1.60% in 3Q13. Non-interest Income increased 11% YoY to S$744m. The positive uptrend for several growth units remained intact; namely Wealth Management, Trade and Transaction Services and Treasury customer flows. Cost/income came off from 45% in FY12 to 43% in 9M13. Despite the muted outlook for the global economic, management remains generally positive and expects its loans book to grow 8-10% in 2014. We are leaving our FY13 and FY14 net earnings largely intact, with some minor line adjustments. We are also keeping our fair value estimate of S$18.28. DBS remains our top pick in the sector. BUY.

3Q net earnings was above both street and our expectations
DBS generated 3Q13 net earnings of S$862m which were slightly better than consensus estimate of S$839.4m (based on Bloomberg). Net Interest Income rose 6% YoY or 2% QoQ to a new high of S$1.41b. Loans grew 19% to S$242b as of Sep 2013. Net Interest Margin (NIM) eased off slightly from 1.62% in the previous quarter to 1.60% in 3Q13. Non-interest Income increased 11% YoY to S$744m. This benefited from several contributors including Fee Income (+9% YoY to S$462m) and Trading Income (+45% YoY to S$188m). The former was led by better contributions from Trade and Transaction Services, Wealth Management and Cards. On trading income, the delay in Fed tapering in Sep led to lower income, but this was mitigated by increased business from customers’ trades. Core Equity Tier 1 ratio was 13.3%, Tier 1 was 13.3%, Total Capital Adequacy Ratio was 15.9% as of Sep 2013. 

Improvement was fairly across the board; positive uptrend
On the Non-interest Income front and based on quarterly averages, Wealth Management income grew from a quarterly average of S$71m in FY12 to S$100m in 9M13. Trade and Transaction Services improved from S$118m to S$135m for the same period. For Treasury customer flows as a percentage of total treasury income, this grew from 27% in 2009 to 49% for 9M13. It also saw lower expenses, resulting in cost/income ratio of 43% in 9M13 versus 45% in FY12. NPL ratio remained stable at 1.2%. 

Management is positive; maintain BUY
Despite challenging market conditions, DBS delivered an above expectations 3Q results scorecard. Management’s tone remains generally positive, although it expects the mortgage book to ease off in 2014. It does not expect NPLs to build up and will be watching costs against the current backdrop of muted global economic growth outlook. Management has guided for 8-10% growth for its loans book in 2014. We are leaving our FY13 and FY14 net earnings largely intact, with some minor line adjustments. We are also keeping our fair value estimate of S$18.28. BUY.

CapitaLand

OCBC on 1 Nov 2013

CapitaLand (CAPL) reported 3Q13 PATMI of S$135.5m which decreased 8.7% YoY mostly due to lower portfolio gains recognized over the quarter. We judge this to be mostly within expectations as 9M13 PATMI now cumulates to S$706.9m which constitutes 80.3% of our full year forecast. The group sold an impressive 1151 residential home units in Singapore over 9M13 versus 329 units in 9M12, and we continue to be positive on management’s focus on realistic pricing and generating sales. That said, with significant uncertainty in the residential space and 1239 unsold units in its pipeline, we see the group’s FY14 domestic sales likely easing from current levels. Residential sales in China continued the firm rate of sales seen over the year so far with 2398 homes sold in 9M13 versus 1978 homes in 9M12. Maintain BUY with an unchanged fair value estimate of S$3.77.

3Q numbers within expectations
CapitaLand (CAPL) reported 3Q13 PATMI of S$135.5m which decreased 8.7% YoY mostly due to lower portfolio gains recognized over the quarter. We judge this to be mostly within expectations as 9M13 PATMI now cumulates to S$706.9m which constitutes 80.3% of our full year forecast. 3Q13 topline came in at S$1047.1m, up 52.5% YoY mainly due to stronger contributions from development projects and higher rental revenue from retail malls, which is again broadly in line with our forecast; 9M13 revenue of S$2892.3m forms 73.0% of our FY13 estimates.

Firm launch at Sky Vue condominium
The group sold an impressive 1151 residential home units in Singapore over 9M13 versus 329 units over 9M12. 38% of YTD sales were from the Sky Vue launch, which saw 433 units (out of a total 694 units) sold at a median selling price of S$1.4k psf. CAPL also made progress in selling major projects Sky Habitat, d’Leedon and The Interlace which are 34%, 82% and 80% sold, respectively, as at end Sep 13. After a lackluster FY12 in terms of domestic residential sales, we are positive on management’s focus on realistic pricing and generating sales. That said, with significant uncertainty in the residential space and 1239 unsold units in its pipeline, we see the group’s FY14 domestic sales likely easing from current levels.

Keeping momentum in Chinese sales
Residential sales in China continued the firm rate of sales seen over the year so far with 2398 homes sold in 9M13 versus 1978 homes in 9M12. We understand that the take-up rate has stayed fairly healthy at 78% and the group has ~650 units launch ready for 4Q13 ahead. The group’s retail mall subsidiary, CapitaMalls Asia, also reported firm numbers with 3Q13 PATMI of S$64.8m increasing 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Maintain BUY on CAPL with an unchanged fair value estimate of S$3.77 (30% RNAV disc.).

OSIM International Ltd

OCBC on 1 Nov 2013

OSIM International Ltd (OSIM) reported a 16.1% YoY jump in its 3Q13 PATMI to S$22.8m on the back of a 7.5% increase in revenue to S$153.0m. Bottomline closely matched our forecast of S$23.0m although revenue was 5.3% below our projection. An interim dividend of S$0.01/share was declared, in-line with our forecast. We are positive on OSIM’s recent increase in effective shareholding in TWG Tea to a controlling stake as we believe the latter has strong growth prospects. We take into account the consolidation of TWG Tea’s financials in our model. Our fair value estimate is raised from S$2.40 to S$2.56 as we lift our FY14 PATMI forecast by 2.0% and roll forward our valuations on OSIM to 16.5x FY14F EPS. Reiterate BUY.

3Q13 sales slightly below but PATMI within expectations
OSIM International Ltd (OSIM) reported a 16.1% YoY jump in its 3Q13 PATMI to S$22.7m on the back of a 7.5% increase in revenue to S$153.0m. Bottomline closely matched our forecast of S$23.0m although revenue was 5.3% below our projection. This was largely due to higher-than-estimated share of profits of associated companies (mainly from TWG Tea) and a lower effective tax rate. Management updated us that China contributed strongly during the quarter despite its high-end uInfinity massage chair being launched there only in Sep. Hence, we expect this momentum to continue for OSIM’s largest market in 4Q13, as there will be a full quarter of contribution from uInfinity. An interim dividend of S$0.01/share was declared, in-line with our forecast and this brings YTD declared dividends to S$0.04/share. For 9M13, revenue and PATMI grew 4.9% and 15.0% to S$469.1m and S$74.0m, respectively.

Now holds a controlling stake in TWG Tea
OSIM recently announced that it has increased its shareholding in TWG Tea Company from 45% to 53.7%, thus effectively granting it a controlling stake in TWG Tea. The purchase consideration was US$7.2m, which implies an equity valuation of ~S$103.4m for TWG Tea. Based on our channel checks, we note that TWG Tea recently turned profitable in FY13 (FYE Mar), with revenue of S$42m and net profit of S$5.6m. We believe this point of inflection presents immense growth potential for OSIM ahead, given that TWG Tea is still very much in a nascent stage of growth, in our view.

Maintain BUY
We take into account the consolidation of TWG Tea’s financials in our model. Our FY13 revenue forecast is trimmed only marginally by 0.2% as 4Q (calendar year) is seasonally TWG Tea’s strongest quarter (due to festive Christmas period). Our FY13 PATMI forecast is raised by 0.5%. For FY14F, our revenue and PATMI projections are lifted by 4.6% and 2.0%, respectively. We also roll forward our valuations on OSIM to 16.5x FY14F EPS, which correspondingly raises our fair value estimate from S$2.40 to S$2.56. Reiterate BUY.

SMRT

OCBC on 1 Nov 2013

As expected, SMRT's 2QFY14 revenue grew 5.3% YoY to S$296.3m on account of higher rail and bus ridership but operating profit fell 50.7% YoY to S$20.0m and net profit declined 57.1% YoY to S$14.3m. Higher staff costs and depreciation expenses were the main causes, and we expect them to continue weighing down SMRT’s financial performance for 2HFY14. Furthermore, the lack of a fare increase will ensure the continued gap between top-line growth and operating expenses for the time being. Nonetheless, despite this weak set of 2Q14 results, we do not expect SMRT’s share price to slide further as its woes have been well-documented over the past year. That said, SMRT remains an unattractive investment at this juncture as it remains susceptible to downside moves in response to bad press and/or service disruptions. Maintain HOLD with an unchanged fair value estimate of S$1.30.

Street expected drop in 2QFY14 results
SMRT's 2QFY14 revenue grew 5.3% YoY to S$296.3m on account of higher rail and bus ridership but operating profit fell 50.7% YoY to S$20.0m – as a result of higher staff costs and depreciation expenses – and net profit declined 57.1% YoY to S$14.3m. Despite the bottom-line drop-off, SMRT’s results were expected by the street as the group is in the midst of its first full-year of higher wages for its non-executives (e.g. bus drivers and ground staff) and is also absorbing the costs associated with its ongoing upgrading works.

Non-fare segments continue to support group
As fares have yet to adjust, operating profitability of the rail and bus segments continued to fall during the quarter. Rail operating profit fell by 97.6% YoY to only S$590K while bus operations extended its consecutive loss making quarters to twelve. Fortunately, the non-fare segments (i.e. rental, advertising et al) performed well (+14.7% YoY to S$26.5m) due to an increase in average lettable space from the new Woodlands Xchange and higher rental renewal rates. 

Weakness to persist for remainder of year
The lack of a fare increase will ensure the continued gap between top-line growth and operating expenses for the time being, and we expect SMRT’s 2HFY14 operating profit to fall further. We also do not foresee a change in its operating model to new rail financing framework in FY14.

Not attractive but flaws accounted for already
Despite the weak set of 2QFY14 results, we do not expect SMRT’s share price to slide further as its woes have been well-documented over the past year. That said, SMRT remains an unattractive investment at this juncture as it remains susceptible to downside moves in response to bad press and/or service disruptions. Maintain HOLD with an unchanged fair value estimate of S$1.30.

Global Premium Hotels

OCBC on 31 Oct 2013

The 3Q13 results for Global Premium Hotels (GPH) were in-line with our expectations. Total revenue climbed 5.7% YoY to S$15.7m and gross profit rose 5.7% to S$13.6m. Finance costs declined 13.6% to S$2.0m due to partial repayment of term loans and lower average interest rate. 3Q13 net profit climbed 18.7% to S$4.9m. 9M13 revenue and EPS came to 75% and 77% of our prior respective full-year estimates. RevPAR was flat YoY at S$97.1. Average occupancy rate was up 1 ppt YoY to 91.6%. Using a 15% discount to RNAV, we maintain our fair value of S$0.33 and BUY rating on GPH.

3Q13 results as expected
The 3Q13 results for Global Premium Hotels (GPH) were generally in-line with our expectations. Total revenue climbed 5.7% YoY to S$15.7m and gross profit rose 5.7% to S$13.6m. Other operating income fell by 27.3% YoY to S$160k due to lower income earned from a smaller fixed deposit balance placed with financial institutions and partially offset by higher income from the hotels' auxiliary services. Finance costs declined 13.6% to S$2.0m due to partial repayment of term loans and lower average interest rate. 3Q13 net profit climbed 18.7% to S$4.9m. 9M13 revenue and EPS came to 75% and 77% of our prior respective full-year estimates.

RevPAR stable despite challenging industry
3Q13 hotel room revenue increased 6.1% YoY to S$15.5m. This was mainly due to the contribution of S$0.7m by Fragrance Hotel-Ruby post asset enhancement works. The remaining hotels contributed S$0.2m of the increase in hotel room revenue. There was a closure of a commercial unit at Fragrance Hotel-Bugis which was converted into four hotel rooms with effect from 1 Aug. RevPAR was flat YoY at S$97.1. Average occupancy rate was up 1 ppt YoY to 91.6%. GPH's operational performance figures were stronger than its peer group's. RevPAR for Singapore hotels in the Economy category saw RevPAR in Jul and Aug fall by 10.7% and 8.1%% YoY respectively, according to the STB. We believe GPH's continued outperformance is a testament to its strong market position in the Economy hotel space.

Confident of longer term prospects
Management expects the industry landscape to become more challenging with the growth in hotel room supply over 2013-2015. However, it is confident of longer term prospects for the industry, especially with the tourist offerings and the soon-to-be completed Sports Hub.

Maintain BUY
Using a 15% discount to RNAV, we maintain our fair value of S$0.33 and BUY rating on GPH.

Singapore Post

OCBC on 31 Oct 2013

Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of our full year estimates. Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations. We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As. However, margins are expected to remain pressured in the medium term. As expected, the group has proposed an interim quarterly dividend of 1.25 S cents/share. Despite a challenging business environment, SingPost is still delivering a good ROE of about 43%. We also like its consistent dividends which are backed by stable operating cash flows, but see few re-rating catalysts for now. Maintain HOLD with S$1.32 fair value estimate.

2QFY14 results in line
Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of our full year estimates. Excluding contributions from acquisitions, the group saw a 9.6% rise in revenue, on the back of growth in e-commerce related activities. Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations. 

Topline growth but even higher expenses
Labour-related, volume-related and admin expenses continued to rise on both a YoY and QoQ basis, mainly due to the change in the group’s business model to a more diversified one, as well as growth in the lower-margin businesses. EBITDA margin was lower at 26.6% in 2QFY14 compared to 31.1% in 2QFY13 and 28.5% in 1QFY14. Due to changing mail profile, high service expectations, keen competition and rising operating costs, the postal industry remains challenging. Meanwhile, cashflow generation remained strong, with net operating cashflow amounting to S$59.7m in the quarter vs. S$48.5m in 2QFY13. 

Margins to be pressured in the medium term
We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As. However, at the same time, the group is also experiencing the impact of developmental spending and investments. This is in addition to a rising cost environment and the fact that logistics, one of the key areas in which SingPost is growing, has a relatively lower margin compared to its mail business.

Haven for yield seekers
In line with its usual practice, the group has proposed an interim quarterly dividend of 1.25 S cents/share. Despite a challenging business environment, SingPost is still delivering a good ROE of about 43%. We also like its consistent dividends which are backed by stable operating cash flows, but see few re-rating catalysts for now. Meanwhile, the share price is likely to remain supported by investors seeking yield (~4.8% FY14F). Maintain HOLD with S$1.32 fair value estimate.

Neptune Orient Lines

OCBC on 31 Oct 2013

Neptune Orient Lines's (NOL) 3Q13 results confirmed our expectations of an absent peak season. Weaker freight rates caused a larger-than-expected drop-off in revenue (-10.4% to US$2.06b) and negated cost savings from its efficiency initiatives and efforts to manage capacity (headhaul utilisation rates remained at ~90%). As a result, 3Q13 core EBIT declined by 72.1% YoY to US$18.0m. Looking ahead, 4Q13 is likely to remain weak given the historical tendency for rates to fall QoQ (average drop of 8.8% for past three years). In addition, collective industry action remains far from ideal. With a lacklustre medium-term outlook over freight rates, we adjusting our projections downwards and our FY14F PATMI falls to a US$22m loss (+US$64m previously). Maintain our SELL on NOL with an unchanged fair value estimate of S$0.95.

No 3Q13 peak season
Neptune Orient Lines's (NOL) 3Q13 results confirmed our expectations of an absent peak season. Weaker freight rates caused a larger-than-expected drop-off in revenue (-10.4% to US$2.06b) and negated cost savings from its efficiency initiatives and efforts to manage capacity (headhaul utilisation rates remained at ~90%). As a result, 3Q13 core EBIT declined by 72.1% YoY to US$18.0m. 

Loss-making 4Q to close out the year?
4Q freight rates for NOL have fallen by an average of 8.8% QoQ for the past three years so FY13 should prove no exception. In addition, with demand typically tapering off in 4Q, the ability of liners to implement rate hikes should subside as well. Therefore, despite the rhetoric of the larger liners insisting on another round of rate hikes for Nov, it is our view that actual enforcement will be lacking. Substantial collective action remains wanting – especially with liners clinging on to the notion of protecting their respective market shares – and so we expect freight rates to stay soft. 

2014 turnaround optimistic at best
The unwillingness of the major liners to cut capacity further and idle ships to address dropping rates pose significant problems for a 2014 turnaround. Even NOL’s own projections back in 2Q13 show a demand-supply gap till end-2014. With the addition of larger ships and pre-crisis ordered vessels coming on board, the industry will continue to suffer from its bad decisions well into 2015. 

No catalysts ahead; maintain SELL
With a lacklustre medium-term outlook over freight rates, we adjusting our projections downwards and our FY14F PATMI falls to a US$22m loss (+US$64m previously). Maintain our SELL on NOL with an unchanged fair value estimate of S$0.95.

CDL Hospitality Trusts

OCBC on 30 Oct 2013

CDLHT has reported 3Q13 results that are generally in-line with ours and the street’s expectations. 3Q13 revenue declined 0.8% YoY to S$35.9m. RevPAR for CDLHT’s Singapore hotels had declined 6.4% YoY, driven by a 5.6% drop in average room rate. As we had anticipated, the rate of RevPAR decline was less in 3Q13 than over 1H13, which saw RevPAR fall 8.1% on the back of increased supply in the sector. 3Q13 net property income fell 1.7% YoY to S$33.0m. 3Q13 DPU is 2.64 S cents (down 2.9% YoY), bringing 9M13 DPU to 8.05 S cents, versus ours and the street’s FY13 forecasts of 10.4 S cents and 11.1 S cents respectively. We maintain a fair value estimate of S$1.83 on CDLHT and BUY rating.

In-line results
CDLHT has reported 3Q13 results that are generally in-line with ours and the street’s expectations. 3Q13 revenue declined 0.8% YoY to S$35.9m. 3Q13 net property income fell 1.7% YoY to S$33.0m. 3Q13 DPU is 2.64 S cents (down 2.9% YoY), bringing 9M13 DPU to 8.05 S cents, versus ours and the street’s FY13 forecasts of 10.4 S cents and 11.1 S cents respectively.

SG RevPAR for 3Q13 falls 6.4% YoY
RevPAR for CDLHT’s Singapore hotels had declined 6.4% YoY, driven by a 5.6% drop in average room rate. As we had anticipated, the rate of RevPAR decline was less in 3Q13 than over 1H13, which saw RevPAR fall 8.1% on the back of increased supply in the sector and softness in corporate travel budgets due to a poor global economy. Average occupancy remained fell only 0.7 ppt to 87.6% as the Singapore hotels compensated for the weaker corporate demand with leisure bookings, which were secured at lower rates. For the first 27 days of Oct, RevPAR for CDLHT’s Singapore hotels fell 4.2% YoY. According to CDLHT, the supply of hotels rooms in Singapore is expected to grow at a CAGR of 5.9% from end 2012 till end 2015, reaching 61,265 rooms. 

AUD hits Australia contribution
The slowing Australian economy and mining sector affected the performance of the hotels in Brisbane and Perth, with the drag expected to continue for the near term. Fixed rate contribution from the Australian hotels was S$3.9m, down ~11% from the S$4.4m in 3Q12, due to the weakening of the AUD versus the SGD. The Maldives registered visitor arrivals growth of 17.3% YoY for 7M13. Gross revenue reported for Angsana Velavaru in 3Q13 comprises the prorated minimum amount of US$500k per month. The excess income will only be recognized in the 4Q13 results once the full year performance of the property is determined.

FV of S$1.83
We maintain a fair value estimate of S$1.83 on CDLHT and BUY rating.

CapitaMalls Asia

OCBC on 30 Oct 2013

CMA reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. CMA’s Chinese portfolio assets continue to put up firm numbers; the overall committed occupancy rate increased to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were also up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic increased 1.5%. We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.

3Q13 PATMI up 4.0% YoY
CapitaMalls Asia (CMA) reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. In terms of the topline, 3Q13 revenue is S$91.8m – down 10.1% YoY as property management fees from China declined.

Chinese retail segment shows underlying strength
CMA’s Chinese portfolio assets showed a marginal increase in its overall committed occupancy rate to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic also increased 1.5%. In addition, on a 100% basis, same-mall NPI for CMA’s Chinese malls for 9M13 grew 12.0%. The group also opened CapitaMall Jinniu (Phase 2) in Chengdu on 29 Sep 2013 and expects a respectable NPI yield of 7% after the first year of operations. Looking forward we anticipate CMA will open two more malls in FY14, and subsequently eight malls in FY15 and after.

Stable performance in Singapore
We continue to see a stable performance in the group’s Singapore malls. 9M13 tenant sales increased 3.2% and shopper traffic was up 3.6%. Same-mall NPI growth also moved up 3.8%. Execution on its Singapore pipeline remains on track with both Bedok Mall and Westgate due to open in 4Q13 (with by now nearly 100% and 85% committed occupancy, respectively). 

Maintain BUY
We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.