Singapore Airlines

OCBC on 13 Nov 2013

Singapore Airlines’ (SIA) 2QFY14 results exceeded our expectations following a lower fuel bill and much better-than-forecasted associate performance and one-off gains. (Management also declared an interim dividend of 10 S cents vs. 6 S cents for 1H13). However, despite the improved performance, passenger yields remained depressed as sustained competitive pressures necessitated a prolonged extension of promotional fares. Although management has indicated advance bookings for 3QFY14 to be higher YoY, we feel that the increase is seasonal rather than structural and yields are still likely to stay depressed as a result. Maintain SELL on SIA with an unchanged fair value estimate of S$9.50.

2QFY14 boosted by lower fuel & better associate performance
Although Singapore Airlines’ (SIA) 2QFY14 revenue was in line with our expectations (+2.8% YoY to S$3.9b), a lower fuel bill resulted in an improvement in its operating profit (+23.4% to S$86.9m). We had originally factored in a 3% YoY increase in fuel costs but 2Q14 saw a 0.5% dip instead. In terms of its bottom-line, PATMI came in higher by 78.2% to S$160.6m following a much better-than-forecasted associate performance (+82.7% to S$63.2m) and one-off gains of S$12.5m (versus S$4.2m loss in 2Q13). Management declared an interim dividend of 10 S cents (vs. 6 S cents for 1H13).

Yields continue to fall for parent airline
Despite the growth in passenger carriage outpacing capacity expansion (+4.9% vs. +3.2%), passenger yields for the parent airline still fell QoQ for the third straight quarter (-3.5% YoY & -0.9% QoQ to 11.0 S¢/pkm) as sustained competitive pressures necessitated a prolonged extension of promotional fares. As for SilkAir, yields also fell (-5.2% YoY and QoQ to14.0 S¢/pkm) following the failure of passenger demand to absorb capacity injections from new routes. Lastly, the removal of four freighters did not improve cargo yields fell (-1.8% YoY and QoQ to32.1 S¢/tkm) as demand remained soft.

No inflection point yet
Management has indicated advance bookings for 3QFY14 to be higher YoY. However, we feel that the increase is seasonal in nature (due to year-end holidays and on-going fare promotions) rather than structural. In addition, there is a risk that planned capacity expansions related to network adjustments may outpace passenger demand, especially with increased competition. That said, we expect the operating environment to remain challenging in the coming months, and yields are likely to stay depressed. Maintain SELL on SIA with an unchanged fair value estimate of S$9.50. 

Petra Food

OCBC on 13 Nov 2013

Petra Foods’ 3Q13 results met our expectations: revenue increased 10.4% YoY to US$126.9m while core operating profit and PATMI grew 5.4% to US$20.9m and 3.9% to US$14.8m, respectively. For 4Q13, we expect Petra to end the year on a positive note. An expected Indonesian ruppiah appreciation should stem currency losses and aid its gross profit margin while demand should stay stable at current levels on a QoQ basis in its key markets of Indonesia and the Philippines. In terms of its share price, we feel that Petra has over-corrected since its lacklustre 2Q13 results. With our forecasts largely unchanged, we leave our fair value estimate of S$3.95 unchanged and upgrade Petra to BUY on valuation grounds.

3Q13 results in-line with expectations
Petra Foods’ 3Q13 results met our expectations with revenue increasing 10.4% YoY to US$126.9m. However, on a QoQ basis, the increase was only 1%, which reaffirmed our notion that sales growth this year would be slightly subdued following a fuel hike in Indonesia during 1H13. Similarly, 3Q13 core operating profit grew 5.4% YoY (-1.5% QoQ) to US$20.9m while PATMI improved 3.9% YoY (+0.2% QoQ) to US$14.8m.

Slight margin dip not a concern
In terms of gross margin, we deem 3Q13's 32.4% (-1.3ppt YoY; -0.5ppt QoQ) to be reasonable in light of the higher cost inflation in its key markets (e.g. fuel hikes in Indonesia, weakening regional currencies). A gross margin of 32.0% remains our comfort threshold. That said, with Indonesia's central bank unexpectedly raising its key interest rate yesterday to address a burgeoning current account deficit, we can hopefully see GP margin inching higher for 4Q13.

Petra should end FY13 on a positive note
As we head towards 4Q13, the negative impact of the fuel hike on Indonesian consumers should start to wear off. Recent surveys indicate that this possibility as consumer confidence remains high and has, in some instances, actually recovered since dipping slightly a quarter ago. Furthermore, the Indonesian rate hike should not have any impact on chocolate confectionery consumption viś-a-viś other more expensive consumer discretionary products. In fact, Petra could also benefit via an appreciation of the Indonesian ruppiah.

Upgrade to BUY on valuation grounds
In over view, Petra's share price has over-corrected since its lacklustre 2Q13 results (-13.8% since mid-Aug). With our FY14/15F forecasts largely intact, we leave our fair value estimate unchanged at S$3.95 and upgrade Petra to BUY on valuation grounds. 

Boustead

PHILLIP SECURITIES RESEARCH, Nov 12

BOUSTEAD operates market-leading infrastructure-related businesses: geospatial technology (29 per cent profit before tax), industrial property design and build and property portfolio (42 per cent), water and wastewater engineering (one per cent) and energy-related engineering (28 per cent). Boustead also generates strong excess cash.

H1 FY2014 results saw revenue increase 7.3 per cent y-o-y (year-on-year) as energy contracts led the way, but Ebitda (earnings before interest, taxes, depreciation and amortisation) rose only 4.9 per cent y-o-y as margin expansion from energy engineering and greater recurring rental income were offset by margin compression at the design and build level (greater competition) and geospatial business, which was impacted by the change of the Australian government, further compounded by currency depreciation.

Final profit after tax and minority interests (Patmi) was artificially depressed 3 per cent y-o-y due to an unusually low tax rate in FY2013 giving rise to higher base effects. Main drag was geospatial, but we view this as a one-off event and expect revenues and margins there to normalise once the present government settles in. We continue to be positive on the core underlying businesses and emphasise key developments below.

Maintain "buy" with a raised TP (target price) of S$2.05 from S$1.935 as:

• Orderbooks are at record levels: S$445 million versus S$288 million y-o-y.
• More than 60,000 sq m of industrial portfolio are in the development pipeline, progressively ramping up recurring earnings from rentals (S$15.3 million, S$20.6 million, S$26.9 million estimated y-o-y till FY2016) and taking Boustead more than two-thirds of the way to unlocking its real estate value (estimated S$419 million) in a Reit (real estate investment trust).
• Exciting industrial property development in Iskandar Malaysia, as Boustead recently took a 35 per cent stake in a JV with Malaysian builder AME (35 per cent), Tat Hong (25 per cent) and CSC (5 per cent), with plans to develop 120,000 sq m of prime industrial land in Nusajaya.
• High net cash and free cash generation raises the prospect of more industrial properties to be added.
• Boustead is deeply undervalued but with realisable catalysts above - P/E ex net cash ex properties is 4.8 times for the energy, design and build, and geospatial business.

BUY

Wilmar International

DBS GROUP RESEARCH, Nov 12

WILMAR'S Q3 2013 core earnings came in at US$391 million or 26 per cent above our mid-range forecast. Including a US$24 million gain from the divestment of Fortune Gas Investment Holdings and other non-operating items, Wilmar posted a net profit of US$416 million, representing 36 per cent of our initial full-year forecast.

Wilmar booked sequentially higher contributions across the board. Seasonal jump in sugar top line, recovery in Oilseeds and Grains merchandising and processing (M&P) margins and higher consumer pre-tax boosted the group's Q3 2013 earnings, partly offset by a drop in associate income and flat plantations contribution.

We adjust sugarcane yields and selling prices higher, and lift Oilseeds and Grains M&P pre-tax margins and also increase consumer pre-tax margins.

Based on these revisions, we raised the counter's target price to S$3.83 (discounted cash flow, weighted average cost of capital 6.8 per cent, risk free rate 3 per cent, market risk 10.7 per cent, beta of one, terminal growth 3 per cent). Rating upgraded to "buy" for 15 per cent total return potential.

BUY

Fortune REIT

OCBC on 12 Nov 2013

FRT reported 3Q13 results that were generally in line with ours and the street's expectations. Revenue rose 10.7% YoY to HK$315.7m. Income available for distribution climbed 10.6% YoY to HK$153.3m, however, DPU increased by only 1.5% to 8.28 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug. Income from Fortune Kingswood started contribution from 9 Oct. FRT's unit price has fallen 11% since 29 Jul (closing price of HK$7.14), the day before it announced the MOU for Kingswood. We believe the counter has been oversold. We tweak our FV slightly to HK$7.01 from HK$6.95. On valuation grounds, we upgrade FRT to a BUY from Hold. We believe that the reflection of the maiden contribution by Fortune Kingswood in the 4Q13 results will be a significant positive catalyst; we forecast 4Q13 DPU of 10.0 HK cents.

Kingswood contribution only from 4Q
FRT reported 3Q13 results that were generally in line with ours and the street's expectations. Revenue rose 10.7% YoY to HK$315.7m, thus pulling net property income up 8.2% to HK$215.6m. Income available for distribution climbed 10.6% YoY to HK$153.3m, however, DPU increased by only 1.5% to 8.28 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug. Income from Fortune Kingswood started contribution from 9 Oct.

Good operational performance
Portfolio occupancy stood at 98.3% as at end Sep, due to strong recovery after the completion of AEIs. The average rental reversion for 9M13 was solid, clocking in at 20.0%. Average passing rent was higher by 8.2% to HK$34.2 psf for 9M13. The HK$20m AEI at the wet market of Fortune City One was completed with ROI surpassing 25%. There are now more trades and the layout has been improved. Occupancy of the FCO market increased to above 90% from 75% previously. The HK$15m AEI at Ma On Shan Plaza, with works to downsize and subdivide the current supermarket for more retail and F&B outlets, is due to be completed by year-end. All newly-subdivided shops have attracted commitments and the ROI is estimated to be approximately 60%.

Oversold
FRT's unit price has fallen 11% since 29 Jul (closing price of HK$7.14), the day before it announced the MOU for Kingswood. We believe the counter has been oversold. We maintain an expected market return of 13.5% and a risk-free rate of 2.3% in our DDM model; these assumptions are conservative since current expected market return is 13.3% and spot HK 10-year bond yield is 1.9%). We tweak our FV to HK$7.01 from HK$6.95. On valuation grounds, we upgrade FRT to a BUY from Hold. We believe that the reflection of the maiden contribution by Fortune Kingswood in the 4Q13 results will be a significant positive catalyst; we forecast 4Q13 DPU of 10.0 HK cents.

Sembcorp Industries

OCBC on 12 Nov 2013

Sembcorp Industries (SCI) reported a 30.8% YoY rise in revenue to S$2.97b and a 40.4% increase in net profit to S$254.4m in 3Q13, such that 9M13 revenue and net profit accounted for about 74% and 78% of our full year estimates, respectively. Stripping out one-off items, we estimate core net profit in 9M13 to be S$528.3m, accounting for about 71% of our full year estimate. The utilities business remained generally stable, but the UK side saw an impairment, mainly for power and steam assets. Meanwhile, with the deconsolidation of Sembcorp Salalah, SCI has turned from a net debt to a net cash position. We roll forward our valuation to FY14F earnings for the utilities business, and tweak our SOTP-based valuation to account for Salalah’s listing on the Muscat stock exchange, resulting in an increase in our fair value estimate to S$6.67 (prev. S$6.48). Maintain BUY.

3Q13 results largely in line 
Sembcorp Industries (SCI) reported a 30.8% YoY rise in revenue to S$2.97b and a 40.4% increase in net profit to S$254.4m in 3Q13, such that 9M13 revenue (S$7.82b) and net profit (S$596.7m) accounted for 74% and 78% of our full year estimates, respectively. Stripping out one-off items such as gains from the IPO of Salalah (S$117.1m) and impairment from Teesside (S$48.5m net of tax), we estimate core net profit in 9M13 to be S$528.3m, accounting for about 71% of our full year estimate. 

Utilities update by regions
Utilities saw a decrease of 7% in revenue to S$1.28b in 3Q13, mainly due to lower electricity sales in Singapore and lower High Sulphur Fuel Oil prices. According to management, spark spreads were down 19% YoY in 3Q13. China continued to register good revenue growth from S$35m in 2Q13 to S$45m in 3Q13, but on the UK side, there was an impairment of Teesside operations, mainly for power and steam assets. SCI is seeking to re-base existing contracts to recover costs, as well as to reflect current operating conditions. We understand that there should not be further provisions on this front in 4Q13. 

Turns net cash with Salalah deconsolidation
With the listing of Sembcorp Salalah and SCI’s corresponding drop in its stake from 60% to 40%, the former will now be accounted for as an associate of the group. The deconsolidation has also resulted in SCI turning from a net debt position of S$468m as at Jun 2013 to a net cash position of S$494m in Sep 2013.

Long-term prospects remain bright
SCI’s share price has increased by about 10% since our last report on 5 Sep, vs the STI’s ~5.5% increase over the same period. Meanwhile, we roll forward our valuation to FY14F earnings for the utilities business, and tweak our SOTP-based valuation to account for Salalah’s listing on the Muscat stock exchange, resulting in an increase in our fair value estimate to S$6.67 (prev. S$6.48). Maintain BUY.

Goodpack

OCBC on 12 Nov 2013

Goodpack’s 1QFY14 results came in within expectations with revenue increasing 7.7% YoY to US$52.1m following greater demand by customers in the rubber industry. The company also managed to keep operating margins relatively stable despite incurring higher depreciation and financing costs from having a larger IBC fleet. As a result, operating profit and PATMI grew by 11.8% YoY to US$19.3m and 7.2% to US$13.9m, respectively. For the remaining quarters, we expect top-line growth to sustain as its key clients’ synthetic rubber (SR) operations in Singapore ramp up operations. In terms of margins, we had previously factored in some margin deterioration but the decent 1QFY14 performance gives us some cause for optimism for the rest of year. Nonetheless, we leave our conservative FY14F projections intact but incorporate a slower pace of debt repayments. This causes our DCF-derived fair value to rise to S$1.87 (S$1.69 previously). However, Goodpack’s share price has risen by more than 23% since late-Aug, we believe that much of the upside has been priced in at this point. Downgrade to HOLD.

Decent set of 1Q14 results
Goodpack’s 1QFY14 results came in within expectations with revenue increasing 7.7% YoY to US$52.1m following greater demand by customers in the rubber industry. The company also managed to keep a lid on the pace of operating costs increases – despite incurring higher depreciation and financing costs from having a larger IBC fleet – and operating profit and PATMI grew by a corresponding 11.8% YoY to US$19.3m and 7.2% to US$13.9m, respectively. Although this bottom-line increase was partially aided by one-off foreign currency gains (US$860K gain vs. US$679K loss in 1QFY13), there was improvement on a core basis QoQ, which gives us comfort that opex increases have remained in check. 

Top-line growth to continue; opex should be manageable
For the remaining quarters, we expect top-line growth to sustain as its key clients’ synthetic rubber (SR) operations in Singapore ramp up operations. In terms of margins, we had previously projected some deterioration in 1QFY14 as a result of having a larger IBC fleet but 1QFY14 margins have held up well on a YoY basis so there is some cause for optimism for the rest of the year. In addition, we also expect leasing costs to taper off gradually as Goodpack continues to shift towards purchasing a larger proportion of IBC additions. As for financing costs, the bulk of its debts have fixed rates so we are unconcerned over a potential hike in rates. 

Downgrade to HOLD
We leave our FY14F top-line forecasts intact but incorporate a slower pace of debt repayments. This causes our DCF-derived fair value to rise to S$1.87 (S$1.69 previously). With Goodpack’s share price increasing by more than 23% since late-Aug, we believe that much of the upside has been priced in at this point. Therefore, we downgrade Goodpack to HOLD.

Valuetronics Holdings

UOBKayhian on 12 Nov 1013

Valuation

• Valuetronics Holdings Ltd (Valuetronics) is trading at 6.7x FY13 PE  and 0.8x P/B.

Results

• 1HFY14 revenue flat but gross profit up 11%. While revenue remained flat in 1HFY14, gross profit increased 11.4% yoy due to a higher contribution from the industrial and commercial electronics (ICE) segment. Gross margin improved from 12.0% in 1HFY13 to 13.1% in 1HFY14.
• Growing ICE segment. 1HFY14 revenue from the ICE segment increased 16.5% yoy with contributions from 2 new customers.
• No more profit drag from discontinued operation. With the termination of the licensing business in FY13, Valuetronics will not be incurring further expenditure for the loss-making business. Excluding the impact of the discontinued licensing business, profit from continuing operations increased 8.8% yoy for 1HFY14.

Investment highlights

• Net cash forms half of market cap. Valuetronics has a net cash position of S$0.127/share, which forms about 54% of its current market cap. Besides maintaining a strong net cash position for working capital requirements, Valuetronics’ strong balance sheet also serves as a form of reassurance to its existing and new customers with regard to the stability of its manufacturing capabilities and its ability to continue as a going concern.
• Stable dividend payout with attractive yield. Valuetronics has been paying out dividends to shareholders since its listing in FY07. Despite seeing a huge decline in profits after it discontinued its licensing business in FY13, Valuetronics still paid a dividend of HK$0.08/share (S$0.013/share), which translates into an attractive yield of 5.5%. Given that Valuetronics’ 1HFY14 net profit already forms 92.7% of its FY13 net profit, we expect to see a rise in dividends in FY14.
• Valued OEM partner of the world’s leading electronics brands. With 20 years of operating history, Valuetronics is a valued original equipment manufacturer (OEM) for several listed leading brands in the consumer, industrial and commercial electronics sectors. With its strategic relationships and quality production, Valuetronics has remained profitable, even during the 2008 economic downturn.
• Key risks. Rising labour and material costs continue to be a key concern for Valuetronics, as wages continue to rise in China.

SIA Engineering

CIMB Research, Nov 8

SIE still offers steady earnings growth and yields of 4.5 per cent, backed by net cash of S$495 million. However, we believe its near-term positives have been priced in, as its share price has nicely recovered since our upgrade in September, now at 19 times 2014 P/E, +1.5 standard deviations above its five-year mean.

H1 2014 core EPS was in line, at 49 per cent of our FY14 forecast. A 7-cent interim dividend has been declared, similar to H1 2013 levels. We keep our target price, still based on blended valuations (19 times P/E and DCF). However, we downgrade the stock to "neutral" from "outperform" in view of limited catalysts for a further re-rating in the near term.

H1 2014 revenue was stable at S$583 million. Hangars have been booked out for the next six months, mainly for more-intensive C checks, especially of A380 aircraft. In H1 2014, SIE's line-maintenance unit handled 65,500 flights (+17 per cent yoy), thanks to the aggressive growth of LCC (low cost carrier) volume at Changi Airport. Operating costs were up 1.5 per cent yoy, mainly due to a 5.5 per cent yoy increase in staff costs on higher foreign-worker levies and annual increments, which is not alarming.

Only 10 per cent of SIE's workforce of 5,500 comprises foreigners. Management expects a "stable" performance ahead as the group leverages its diversified MRO (maintenance, repair, overhaul) services and presence in key markets.

Associate and joint venture profit rose 19 per cent yoy in H1 2014, led by the engine segment. SAESL continued to benefit from strong growth of Rolls-Royce engine volume. Eagle Services also received more jobs transferred from Pratt & Whitney's ceased US operations in Cheshire. Smaller associates/JVs are also past their gestation periods and have started to contribute.

We see limited catalysts for a further re-rating in the near term. Upside risk could come from a major accretive M&A, which we do not foresee in the near future.

NEUTRAL

Saizen Reit

AmFraser Securities, Nov 11

FOR the quarter ending September 2013, Saizen reported a 6.2 per cent and 5.3 per cent y-o-y increase in its gross revenue and net property income, respectively. This was supported by the acquisitions of five properties between November 2012 and June 2013. We note that Saizen Reit's Q1FY14 results were broadly within our expectations, with actual revenue and net property income 0.7 per cent and 2 per cent higher than our forecasts, respectively.

Stability remains the key element at play. We are continuing to witness improvements in rent reversions from new contracts inked at Saizen Reit. Overall rent reversions of new contracts entered into Q1FY14 were marginally lower by about 0.3 per cent from previous contracted rates (Q1FY13 and Q4FY13: lower by about 1.3 per cent and 0.4 per cent, respectively).

More notably, rent reversions have improved to positive 0.04 per cent and 0.7 per cent in August 2013 and September 2013, respectively - an improvement from a negative reversion of 1.9 per cent in July 2013. Average occupancy rates have also held steady at 91.2 per cent in Q1FY14, compared with 91.7 per cent in Q1FY13.

Yen depreciation remains a key risk. As it seeks to minimise the impact of the volatility in the yen/Singapore dollar rate on its upcoming distributions, Saizen Reit has entered into a hedge for its distribution payment ending Dec 31, 2013, at S$81.15/yen. For the subsequent distribution for the period ending June 2014, it has also been hedged at a rate between a cap of JPY82/S$ and JPY76.18/S$.

We expect Saizen Reit's H1FY14 DPU to increase by 8.7 per cent y-o-y in yen terms. However, this will be offset by a 8.2 per cent increase in the hedged rate compared with the corresponding period in H1FY13. Hence, in S$ terms, we expect Saizen Reit's H1FY14 DPU to be largely flattish compared with its H1FY13 DPU.

With a cash pile of 5.4 billion yen, Saizen Reit could certainly engage in acquisitions to accelerate its distribution growth. We are currently pencilling in 2.3 billion yen of acquisitions at a 6 per cent NPI (net property income) yield.

Unit consolidation completed. On Oct 30, 2013, Unitholders approved the consolidation of every five existing Units into one Unit, and this was completed on Nov 8, 2013. We adjust our FV and projected DPU accordingly to S$0.96 and 6.72 cents, respectively.

Maintain "hold" on FV S$0.96. We lower our exchange rate assumption from JPY76.9/S$ to JPY79.3/S$ and our projected FY14 DPU of 6.72 cents translates into a yield of 7.3 per cent. Our fair value of S$0.96 translates into limited capital upside of 3.7 per cent. Together with its projected yield of 7.3 per cent, this gives us a potential total return of 11 per cent. Hence, we maintain HOLD on FV of S$0.96.

HOLD

United Envirotech Ltd

OCBC on 11 Nov 2013

United Envirotech Ltd (UEL) reported 1HFY14 climbing 11.7% to S$96.0m, meeting 45.9% of our FY14 forecast, but net profit slipped 7.9% to S$12.9m, or 28.9% of our full-year estimate, mainly due to higher-than-expected operating and interest expenses. Due to the persistent nature of the ESOS expenses (70m option shares outstanding) and higher amortization of the convertible bonds, we pare our earnings estimates for FY14 by 22.5% and FY15 by 10.5%. Our fair value dips from S$0.975 to S$0.83, even as we roll forward our 13x peg from FY14F to blended FY14F/FY15F EPS. Maintain HOLD; we would be buyers closer to S$0.80 or below. 

 

1HFY14 earnings below forecast
United Envirotech Ltd (UEL) reported 2QFY14 revenue of S$52.0m, down 3.6% YoY but up 17.9% QoQ, driven by higher recurring water treatment revenue (+56.6% YoY, +20.1% QoQ) to S$15.5m. While net profit was down 11.7% YoY to S$7.1m, it was up 24.4% QoQ. For 1HFY14, revenue climbed 11.7% to S$96.0m, or 45.9% of our FY14 forecast, while net profit slipped 7.9% to S$12.9m, meeting 28.9% of our full-year estimate, mainly due to higher-than-expected operating (extra S$1.3m from ESOS) and interest (recently issued some bonds from its MTN program) expenses. 

Still looking to add to portfolio
Speaking of which, cash balance is back up to S$82.3m as of end 2QFY14, boosted by the receipt of S$63m from the bond issue. Based on its usual 40% equity/60% debt financing strategy, UEL can acquire up to S$205m worth of water treatment plants. Indeed, we understand that management is currently looking at viable TOT projects in both municipalities and textile-related industrial parks. Separately, it is also tendering in some EPC projects collectively worth up to RMB800m. Current EPC order book is around S$100m, which UEL expects to deliver into Sep 2014. 

Paring earnings estimates 
Due to the persistent nature of the ESOS expenses (70m option shares outstanding) and higher amortization of the convertible bonds, we need to pare our earnings estimates for FY14 by 22.5% and FY15 by 10.5%. And even as we roll forward our 13x peg from FY14F to blended FY14F/FY15F EPS, our fair value dips from S$0.975 to S$0.83. Nevertheless, we note that UEL should still see improving net margins as it takes on more recurring treatment revenue (EBITDA margin of nearly 60%). Maintain HOLD. We would be buyers again closer to S$0.80 or below.

Far East Hospitality Trust

OCBC on 11 Nov 2013

Far East Hospitality Trust (FEHT) announced 3Q13 results that were in line with ours and the street’s expectations. 9M13 distribution per stapled security of 4.22 S cents formed 74% of ours and 73% of the street’s prior FY13 forecasts. Gross revenue for was S$31.5m or 9.4% lower than management’s forecast (based on IPO prospectus and the circular for the acquisition of Rendezvous). RevPAR for the hotels, excluding the Rendezvous property (which was acquired on 1 Aug), was S$167.1, down 2.7% YoY mostly due to price competition in the sector. Net property income was 9.4% below forecast at S$28.5m. Income available for distribution was S$24.2m or 7.4% below forecast. 3Q13 distribution per stapled security was 1.41 S cents or 7.8% lower than forecast. However, we emphasize that the results were within expectations for the market. We maintain our FV of S$0.92 and HOLD rating on FEHT.

3Q13 as expected
Far East Hospitality Trust (FEHT) announced 3Q13 results that were in line with ours and the street’s expectations. 9M13 distribution per stapled security of 4.22 S cents formed 74% of ours and 73% of the street’s prior FY13 forecasts. Gross revenue for was S$31.5m or 9.4% lower than management’s forecast (based on IPO prospectus and the circular for the acquisition of Rendezvous). Net property income was 9.4% below forecast at S$28.5m. Income available for distribution was S$24.2m or 7.4% below forecast. 3Q13 distribution per stapled security was 1.41 S cents or 7.8% lower than forecast. However, we emphasize that the results were within expectations for the market.

RevPAR down 2.7% YoY
RevPAR for the hotels, excluding the Rendezvous property (which was acquired on 1 Aug), was S$167.1, 10.2% below forecast and down 2.7% YoY mostly due to price competition in the sector. Average room rates were lower by 1.9% YoY, while occupancy was ~0.7 ppt softer YoY at 86.7%. FEHT's mid-tier hotels saw RevPAR decline 0.4% YoY, while RevPAR for its upscale hotels fell 10.1%, affected by lower corporate spending. Management anticipates a subdued 4Q13, although RevPAR could show moderate growth in 2014. Rendezvous property is tracking in line with its expectations. FEHT's hotels continued to perform relatively well compared to the industry. Mid-tier and upscale categories in industry-level data demonstrated declines of ~2% and ~12% respectively. The serviced residences registered RevPAU that was higher by 2.3% YoY at S$227.1, although it was 0.6% lower than forecast. Management is seeing increased competition for stays of 6-months or longer, and is warns that competition could increase further next year. 

AEI plan
Management has plans for ~10% of their room inventory to undergo AEI starting from next year, and will spend ~S$10m in capital expenditure. This is also in line with our expectations.

Maintain HOLD
We maintain a FV of S$0.92 and HOLD rating on FEHT. We forecast a FY13 yield of 6.3%.

UOL Group

OCBC on 11 Nov 2013

3Q13 PATMI increased 6% YoY to S$93.5m with higher contributions from ParkRoyal on Pickering and Pan Pacific Serviced Suites Beach Road (which opened in 1Q13 and 2Q13, respectively) and profits from JV companies. We judge these results to be mostly within expectations, and YTD core PATMI, adjusted for one-time items, now cumulates to 70% of our FY13 forecast. UOL is looking to launch both remaining domestic land bank sites (Sengkang West Way and St. Patrick’s Garden) as early as 1Q14 after a fairly successful launch at Thomson Three, which is now ~76% sold with ASPs just shy of S$1.4k psf. In addition, the group reports that it has now launched all four blocks of the Esplanade in Tianjin China, achieving a ~90% take-up rate, and its Jalan Conley project in Kuala Lumpur continues to be on target for its launch in 4Q13. Upgrade to BUY on valuation grounds with an unchanged fair value estimate of S$7.16 (20% RNAV disc.).

Steady numbers reported for 3Q13
3Q13 PATMI increased 6% YoY to S$93.5m with higher contributions from ParkRoyal on Pickering and Pan Pacific Serviced Suites Beach Road (which opened in 1Q13 and 2Q13, respectively) and profits from JV companies. We judge these results to be mostly within expectations, and YTD core PATMI, adjusted for one-time items, now cumulates to 70% of our FY13 forecast. 3Q12 topline was S$261.8m, down 6% YoY due to a decline in property development revenues as Double Bay Residences and Waterbank at Dakota achieved TOP in 3Q12 and 2Q13, respectively. This was partially offset by increasing revenues from hotel ownership and operation (up 15% YoY to S$105.2m) and property investments (up 12% YoY to S$46.6m).

Two residential launches expected in 1H14
For their domestic residential segment, the group is looking to launch both remaining domestic land bank sites (Sengkang West Way and St. Patrick’s Garden) as early as 1Q14 after a fairly successful launch at Thomson Three, which is now ~76% sold with ASPs just shy of S$1.4k psf. In terms of replenishing its land-bank ahead, we expect UOL to take an active yet fairly prudent stance ahead; management indicated that they remain ready to seize opportunities as land prices are expected to soften head with increasing uncertainties in the sector.

One KM now 70% pre-committed
Management reports that the pre-commitment at One KM, slated for opening in 3Q14, is now ~70% and they would like to achieve ~75% level by the end of FY13. In addition, the group reports that it has now launched all four blocks of the Esplanade in Tianjin China, achieving a ~90% take-up rate, and its Jalan Conley project in Kuala Lumpur, Malaysia continues to be on target for its launch in 4Q13. 

Upgrade to BUY on valuation grounds
Upgrade to BUY on valuation grounds with an unchanged fair value estimate of S$7.16 (20% RNAV disc.).

Venture Corp

OCBC on 11 Nov 2013

Venture Corp’s (VMS) 3Q13 revenue fell 3.4% YoY to S$588.5m but PATMI rose 7.7% to S$35.1m. Results were within our expectations, with 9M13 revenue of S$1,706.7m (-4.9%) and PATMI of S$93.1m (-8.4%) constituting 74.2% and 69.1% of our FY13 forecasts, respectively. We are expecting further sequential improvement in its financial performance in 4Q13. While VMS’s Printing & Imaging division was its weakest performer on a YoY basis with revenue falling 28%, we believe the situation is stabilising. Meanwhile, management remains focused on growing its market share with existing customers and penetrating new businesses with exciting growth prospects in light of the current uncertain macroeconomic environment. We roll forward our valuations on VMS to 15x FY14F EPS, and derive a higher fair value estimate of S$8.50 (previously S$7.94). Coupled with an attractive prospective dividend yield of 6.4%, we reiterate our BUY rating on VMS.

3Q13 results within expectations

Venture Corp’s (VMS) 3Q13 revenue fell 3.4% YoY to S$588.5m but PATMI rose 7.7% to S$35.1m. This was due largely to a higher gross margin of 23.9% (+2.1 ppt) and lower forex adjustment loss, but partially offset by a gain on disposal of associate of S$1.6m in 3Q12. Sequentially, topline was flat but bottomline jumped 16.6%. This set of results was within our expectations, with 9M13 revenue of S$1,706.7m (-4.9%) and PATMI of S$93.1m (-8.4%) constituting 74.2% and 69.1% of our FY13 forecasts, respectively. We are expecting further sequential improvement in VMS’s financial performance in 4Q13.

Strategies to deal with macro uncertainties
On a segmental basis, VMS’s weakest performer came from its Printing and Imaging (P&I) division, which recorded a 28% YoY decline in revenue to S$78.2m. Nevertheless, we believe the situation is recovering as HP, one of its key customers in this segment, recently highlighted that it managed to grow its printing hardware unit sales for the first time since 2011, while topline is also stabilising. Besides HP, VMS has 18 other P&I customers (as at end 2012), and management updated us that it is also seeing signs of improvement in these customers. While the global economic recovery remains modest, management’s strategy would be to focus on i) increasing its market share with existing customers, ii) capturing new customers, iii) penetrating new business segments with growth potential and iv) enhancing R&D efforts to come up with innovative products. 

Roll forward our valuations and maintain BUY
VMS’s share price has rebounded 9.1% since we upgraded the stock to a ‘Buy’ on 14 Aug 2013, outperforming the STI’s 2.1% decline during the same period. We trim our FY13 PATMI forecasts marginally by 2% but retain our FY14 projections. Rolling forward our valuations to 15x FY14F EPS, we derive a higher fair value estimate of S$8.50 (previously S$7.94). VMS is currently trading at 13.8x FY14F PER, which is approximately one standard deviation below its 3-year average forward PER of 15.5x. Coupled with an attractive prospective dividend yield of 6.4%, we reiterate our BUY rating on VMS.

Wilmar

OCBC on 8 Nov 2013

Wilmar International Limited’s (WIL) 9M13 core earnings of US$950m met 76% of our FY13 forecast, even though revenue of US$32,463m only came up to 66% of our full-year estimate. Reflecting the latest results, we pare our FY13 and FY14 revenue forecasts by 10% and 13% respectively, while keeping our earnings estimates largely unchanged. Our fair value also improves from S$3.33 to S$3.55, as we roll forward our 12.5x valuation to FY14F EPS. But we believe that the recent run-up in price has captured most of the positives. As such, we maintain our HOLD rating and would be buyers closer to S$3.30.

No surprises in 2Q14
SIA Engineering Company's (SIAEC) 2Q14 results were in line with ours and the street's expectations. 1H14 basic EPS of 12.60 S cents formed 50% of ours and 49% of the street's prior FY14 estimates. 2Q14 revenue rose 3.3% YoY to S$293.9m, chiefly due to an increase in airframe and component overhaul work. Operating profit contracted 9.8% YoY to S$28.5m due to higher staff and subcontract services costs. Operating profit margin at 9.7% was similar to the 9.6% clocked in 1Q14. Share of profits from associated and JV companies expanded 25.0% YoY to S$48.5m, representing a contribution of 60.0% of the group's pre-tax profits. 2Q14 PATMI thus rose 5.8% YoY to S$71.0m. However, we note that 1H14 PATMI and basic EPS are only up 2.0% and 1.0% at S$140.0m and 12.60 S cents respectively. The company has declared an interim dividend of 7 S cents per share, the same as last year. 

37% of SIAEC’s 1H14 revenue is non-SIA
For 1H14, 63% of SIAEC’s revenue came from Repair & Overhaul, with the remainder from Line Maintenance. This is comparable with 1H13, when Repair & Overhaul accounted for 65% of revenue. Operating profit margin for Repair & Overhaul fell from 5.5% in 1H13 to 4.1%, while the margin for Line Maintenance declined from 21.8% last year to 19.0% in 1H14. For 1H14, the percentage of non-SIA work for SIAEC, its subsidiary companies and its JVs and associated companies are as follows: 37%, 64% and 69%. On a combined revenue basis, non-SIA work is 63%.

Business to remain stable
Management expects that the group's business will remain stable despite the challenging operating environment arising from uncertainties in the world economy. SIAEC will continue focusing on improving productivity and minimizing costs.

Maintain HOLD
Making slight adjustments to our model, we raise our FV from S$5.00 to S$5.14 (based on EPS forecast of 25.7 S cents for FY14 and the same 20.0x peg). Maintain

SIA Engineering

OCBC on 8 Nov 2013

SIA Engineering Company's (SIAEC) 2Q14 results were in line with ours and the street's expectations. 1H14 basic EPS of 12.60 S cents formed 50% of ours and 49% of the street's prior FY14 estimates. 2Q14 revenue rose 3.3% YoY to S$293.9m, chiefly due to an increase in airframe and component overhaul work. Operating profit contracted 9.8% YoY to S$28.5m due to higher staff and subcontract services costs. Share of profits from associated and JV companies also expanded 25.0% YoY to S$48.5m. 2Q14 PATMI thus rose 5.8% YoY to S$71.0m. However, we note that 1H14 PATMI and basic EPS are only up 2.0% and 1.0% respectively. Making slight adjustments to our model, we raise our FV from S$5.00 to S$5.14 (based on EPS forecast of 25.7 S cents for FY14 and the same 20.0x peg). Maintain HOLD on SIAEC.

No surprises in 2Q14
SIA Engineering Company's (SIAEC) 2Q14 results were in line with ours and the street's expectations. 1H14 basic EPS of 12.60 S cents formed 50% of ours and 49% of the street's prior FY14 estimates. 2Q14 revenue rose 3.3% YoY to S$293.9m, chiefly due to an increase in airframe and component overhaul work. Operating profit contracted 9.8% YoY to S$28.5m due to higher staff and subcontract services costs. Operating profit margin at 9.7% was similar to the 9.6% clocked in 1Q14. Share of profits from associated and JV companies expanded 25.0% YoY to S$48.5m, representing a contribution of 60.0% of the group's pre-tax profits. 2Q14 PATMI thus rose 5.8% YoY to S$71.0m. However, we note that 1H14 PATMI and basic EPS are only up 2.0% and 1.0% at S$140.0m and 12.60 S cents respectively. The company has declared an interim dividend of 7 S cents per share, the same as last year. 

37% of SIAEC’s 1H14 revenue is non-SIA
For 1H14, 63% of SIAEC’s revenue came from Repair & Overhaul, with the remainder from Line Maintenance. This is comparable with 1H13, when Repair & Overhaul accounted for 65% of revenue. Operating profit margin for Repair & Overhaul fell from 5.5% in 1H13 to 4.1%, while the margin for Line Maintenance declined from 21.8% last year to 19.0% in 1H14. For 1H14, the percentage of non-SIA work for SIAEC, its subsidiary companies and its JVs and associated companies are as follows: 37%, 64% and 69%. On a combined revenue basis, non-SIA work is 63%.

Business to remain stable
Management expects that the group's business will remain stable despite the challenging operating environment arising from uncertainties in the world economy. SIAEC will continue focusing on improving productivity and minimizing costs.

Maintain HOLD
Making slight adjustments to our model, we raise our FV from S$5.00 to S$5.14 (based on EPS forecast of 25.7 S cents for FY14 and the same 20.0x peg). Maintain HOLD on SIAEC.

ST Engineering

OCBC on 8 Nov 2013

Singapore Technologies Engineering (STE) reported 3Q13 results that missed ours and the street's expectations. While revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. Highlights include: 1) lower gross profit from Aerospace and Land Systems; 2) an impairment of S$23.7m for ROPAX due to the prolonged softness in the shipping market in Europe, partially offset by a write-back of warranty provisions of S$14.4m that were no longer required; 3) an increase in net finance costs of S$5.1m (driven by a S$3m lower FX gain and a S$2.8m lower gain on disposal of investments). 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. We adjust our assumptions and cut our FY13F EPS to 18.0 S cents from 19.6 S cents. Using the same peg of 21x against FY14F EPS of 20.6 S cents (as opposed to FY13 EPS previously), our fair value rises to S$4.32 from S$4.11. Maintain HOLD on STE. FY14F dividend yield is 4.1%.

3Q13 below expectations
STE reported 3Q13 results that missed ours and the street's expectations. 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. While 3Q13 revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. PBT margin for the group declined from 12% to 11%. Highlights include: 1) lower gross profit from Aerospace and Land Systems; 2) an impairment of S$23.7m for ROPAX due to the prolonged softness in the shipping market in Europe, partially offset by a write-back of warranty provisions of S$14.4m that were no longer required; 3) an increase in net finance costs of S$5.1m (driven by a S$3m lower FX gain and a S$2.8m lower gain on disposal of investments). STE's order book fell slightly from S$12.7b as of end Jun to S$12.5b, of which S$1.5b is expected to be delivered in 4Q13. Management indicated that the US government shutdown may indirectly push some milestone completions and contract wins from 4Q13 into 2014 due to slower approval of permits, etc.

Aerospace and Land Systems
Three of the four sectors registered higher revenue YoY in 3Q13: Aerospace (+1%), Electronics (+2%), Land Systems (-11%; all three business groups recorded lower revenue) and Marine (+25%). PBT for two of the sectors rose YoY: Aerospace (-6%; absence of a S$10.1m write-back of allowance for inventory obsolescence recognised in 3Q12), Electronics (+7%), Land Systems (-9%) and Marine (+12%).

Lower FY13 guidance
STE has lowered its FY guidance and now anticipates achieving comparable revenue and PBT for FY13 versus FY12 (as opposed to expecting higher revenue and PBT as it did previously). 

Maintain HOLD
We adjust our assumptions and cut our FY13F EPS to 18.0 S cents from 19.6 S cents. Using the same peg of 21x against FY14F EPS of 20.6 S cents (as opposed to FY13 EPS previously), our fair value rises to S$4.32 from S$4.11. Maintain HOLD on STE. FY14F dividend yield is 4.1%.

Yoma Strategic Holdings

OCBC on 8 Nov 2013

Yoma reported 2QFY14 PATMI of S$3.3m versus a loss of S$4.2m in 2QFY13. The return to profitability was mainly due to the sale of two buildings in Zone B of Star City, for which Yoma recognized S$15.1m of revenue and an incentive fee of S$2.3m, and lower staff costs. YTD PATMI now cumulates to S$3.76m and is judged to be mostly within expectations, making up 48.0% of our full year forecast for FY14. We note, however, that the gross margin has slipped 2.4 ppt YoY to 44.9% over the quarter due to a lower contribution from Pun Hliang Golf Estate (a higher margin project). In terms of the topline, 2QFY14 revenues increased 132.4% YoY to S$27.0m, again mostly due to recognition of residential sales and LDR sales at Star City. Maintain HOLD with an unchanged fair value estimate of S$0.84.

2QFY14 earnings mostly in line
Yoma reported 2QFY14 PATMI of S$3.3m versus a loss of S$4.2m in 2QFY13. The return to profitability was mainly due to the sale of two buildings in Zone B of Star City, for which Yoma recognized S$15.1m of revenue and an incentive fee of S$2.3m, and lower staff costs. YTD PATMI now cumulates to S$3.76m and is judged to be mostly within expectations, making up 48.0% of our full year forecast for FY14. We note, however, that the gross margin has slipped 2.4 ppt YoY to 44.9% over the quarter due to a lower contribution from Pun Hliang Golf Estate (a higher margin project).

Revenue boost from LDR sales from Star City Zone B
As at end Sep-13, 523 (out of 528 total units) at Star City’s Building A3 and A4 were sold, up marginally from 513 units sold as at end Jun-13. We understand that Building 5 is expected to be retained for rental purposes and that going forward management would focus on selling Zone B, for which it would receive incentive fees if certain sales targets to end buyers are met. As of end Sep 14, the LDRs for three out of five buildings in Star City have been sold. Building B1 was launched in April and is currently 90% sold; in addition, Buildings B2 – B5, both launched in July, are more than 65% sold.

Longstop deadline for Landmark Project ahead
Recall that the long stop deadline for the completion of the Landmark Project acquisition in Yangon falls on 31 Dec 2013, which means we would likely obtain an update regarding this issue over the next two months. As this development is a key driver for the company currently, we believe there could be some volatility ahead, in terms of the share price, as we get more color shortly. Maintain HOLD with an unchanged fair value estimate of S$0.84.

StarHub

OCBC on 8 Nov 2013

StarHub Ltd reported 3Q13 revenue easing 1.2% YoY (down 1.4% QoQ) to S$578.8m, versus our S$592m forecast; net profit slipped 0.9% YoY (down 5.2% QoQ) to S$95.3m, as compared to our S$100m estimate. Quarterly dividend of S$0.05/share was declared as expected. As 9M13 revenue of S$1745.7m (down 1.2%) met just 69% of our full-year forecast, we need to pare our FY13 estimate by 6% (FY14 by 5%). Note that StarHub now expects to see a lower operating revenue (but flat service revenue) in 2013, as opposed to an earlier guidance for low single-digit revenue growth. Our DCF-based fair value remains at S$3.82. Maintain SELL.

3Q13 slightly below forecast
StarHub Ltd reported 3Q13 revenue easing 1.2% YoY (down 1.4% QoQ) to S$578.8m, versus our S$592m forecast. Besides lower handset sales (most subscribers were probably waiting for the much-anticipated launch of the new Apple iPhone 5s and Samsung Note 3 in Oct), we also saw some softening in broadband revenue (down 4.9% YoY and 3.4% QoQ) and also Pay TV sales (down 3.7% YoY, -0.1% QoQ). While service EBITDA margin improved to 33.3% in the quarter (versus 31.2% in 2Q13 and 32.2% in 3Q12), net profit slipped 0.9% YoY (down 5.2% QoQ) to S$95.3m, as compared to our S$100m estimate. 

Lowering guidance for operating revenue
For 2013, StarHub now expects to see a lower operating revenue (but flat service revenue), as opposed to an earlier guidance for low single-digit revenue growth; this again citing a challenging overall market, especially in the broadband space, where it continues to see intense competition coming from the smaller players. On the other hand, it raised its service EBITDA margin outlook from 31% to 32%, although still lower than the 33.7% achieved in 9M13 (allowing for year-end promotion opportunities). It left capex unchanged at 13% of revenue and kept its annual cash dividend of S$0.20/share or S$0.05/quarter.

Better margin assumptions for FY13 and FY14 
As 9M13 revenue of S$1745.7m (down 1.2%) met just 69% of our full-year forecast, we need to pare our FY13 estimate by 6% (FY14 by 5%); this to reflect lower equipment sales trend and also higher competition in the broadband market. However, StarHub’s strategy of focusing on margins rather than revenue growth should continue to gain traction, thus we are raising our FY13 earnings forecast by 8% (FY14 by 11%).

Hyflux

OCBC on 8 Nov 2013

In 3Q13, Hyflux saw revenue jumped 26% YoY to S$187.7m and net profit rose 74% to S$25.3m, such that 9M13 revenue of S$450.7m met 68% and earnings of S$51.0m met 75% of our FY13 forecasts, respectively. But with the completion of Tuaspring in 3Q, Hyflux believes that 4Q is likely to be slow. Nevertheless, management remains largely upbeat about its prospects, as it is working on tenders for various projects in MENA potentially worth S$2b. As we roll forward our 20x multiple from blended FY13/FY14 to FY14F EPS, our fair value inches up from S$1.215 to S$1.23. But we opt to keep our HOLD rating on the stock until we see better clarity on its project wins.

Strong 3Q13 results
Hyflux Ltd reported 3Q13 revenue jumping 26% YoY (36% QoQ) to S$187.7m, mainly due to the completion of projects in the quarter (likely Tuaspring which was commissioned on 18 Sep). Gross margin also improved significantly to 62%, versus 41.6% in 2Q13 and 41.8% in 3Q12, thus allowing net profit to surge 74% YoY and 43% QoQ to S$25.3m. For 9M13, revenue eased 4% to S$450.7m, meeting 68% of our full-year forecast, while net profit rose 28% to S$51.0m, or 75% of our FY13 estimate.

But expects a slow 4Q
However, Hyflux warns that 4Q13 may not be as strong seasonally, given the completion of Tuaspring in 3Q13, and will be mostly working on the EPC portion of the co-generation power plant at Tuaspring. In addition, management notes that the financial close of its Dahej project in India is likely to be in 1Q14, along with the financing package. As such, we deem it prudent to reduce our FY13 revenue estimate by 5% and earnings by 6% (also to account for a higher depreciation expense).

Prospects for 2014 remain upbeat
Nevertheless, management remains largely upbeat about its prospects. For one, it will focus on tendering for various large projects in MENA in 4Q, and some would be in places like Saudi Arabia (1m m3/day capacity), Kuwait (500k m3/day) Oman (400k m3/day), Nigeria (300k m3/day), which could potentially be worth some S$2b in project value. It adds that it is actively pursuing desalination and water recycling opportunities in the industrial water space. 

Maintain HOLD with higher S$1.23 fair value
While our fair value inches up from S$1.215 to S$1.23 as we roll forward our 20x multiple from blended FY13/FY14 to FY14F EPS, we opt to keep our HOLD rating on the stock until we see better clarity on its project wins.

ST Engineering

UOBKayhian on 8 Nov 2013

(STE SP/SELLS$4.20/Target: S$3.65)
FY13F PE (x): 22.6
FY14F PE (x): 22.5

Tapering blues hit revenue; expect a weaker 4Q. Revenue grew a paltry 0.5% yoy in 3Q13 (2Q13: 2% yoy) and STE attributed the decline on “pessimistic business sentiment due to speculation of the US's QE tapering, along with a challenging European environment and softening of the China economy ". The marine segment saw the best growth (+25% yoy) and offset the decline at land systems (-11% yoy). Revenue out of
Europe fell 21% yoy, while that out of the US fell 8% yoy. 9M13 net profit is clearly below expectations as consensus full-year net profit implies a 33% yoy growth in net profit for 4Q13. Orderbook declined for the second consecutive quarter to S$12.5b vs peak orderbook of S$13.0b.Downgrade to SELL; lower target price by 7% to S$3.65. Despite a record orderbook, STE is impacted by the political gridlock in the US and economic malaise in Europe and China. Given the heightened risks, we downgrade the stock to SELL and lower our target price by 7%. Our target price is DDM-based with a required rate of return of 6.6% and terminal growth of 1.5%.

StarHub

UOBKayhian on 8 Nov 2013

(STH SP/BUY/S$4.36/Target: S$4.65)
FY13F PE (x): 22.6
FY14F PE (x): 20.2

StarHub reported net profit of S$95.3m for 3Q13 (-1.0% yoy), slightly lower than our forecast. Targeting enterprises to generate growth. The mobile business added 24,000 post-paid subscribers to expand its post-paid subscriber base by 6% yoy. The boost came from new corporate accounts.

Postpaid ARPU increased 1.4% yoy but declined 2.8% qoq to S$70. The sequential decline in ARPU was due to lower outbound roaming. The proportion of post-paid subscriber base on tiered data plans increased
from 32% to 38%. Data usage increased 19% ytd. Maintain BUY. Our target price is S$4.65, based on DCF (required rate of return: 6.7%, terminal growth: 1%). We have factored in positive impact from the
improvement in working capital management into our cash flow projections.

SIA Engineering

UOBKayhian on 8 Nov 2013

(SIE SP/SELL/S$5.06/Target: S$4.65)
FY14F PE (x): 20.0
FY15F PE (x): 19.0

Operating profit declined 9.8% yoy on higher labour costs. The 3.3% yoy revenue growth was driven by higher airframe and component work. Full segmental breakdown will be provided during an analyst briefing later today. It appears that SIA Engineering (SIAEC) did not benefit from higher line maintenance revenue, despite a 7% rise in flight arrivals at Changi during the same period. Not surprisingly, labour costs were a key factor in the lower operating profit, with staff costs and subcontract costs rising 6.6% and 11% respectively.

Maintain SELL. We continue to value SIAEC on a DDM basis and our target price implies a fair value yield of DDM basis (COE - 6.9%, Terminal Growth rate 1%). At our target price, the stock offers a dividend yield of 4.8%.

Yoma Strategic Holdings

DBS Group Research, Nov 7

Q2 FY2014 (year-end: March) net profit of $3.3 million was slightly ahead, compared to net loss of $4.1 million in Q2 FY2013 and net profit of $0.4 million in Q1 FY2014. Excluding $0.8 million of forex losses, core profit would have been $4 million versus our $3.2 million estimate. Revenue surged 132 per cent y-o-y and 77 per cent q-o-q to $27 million.

Property sales remains brisk, while construction picks up pace. Yoma reported $15.1 million of Land Development Rights for block B2 and B5 in Star City and $2.25 million incentive fees for meeting the sales target of block B1. In Q2 FY2014, Yoma sold 10 units in blocks A3 and A4. Together with Zone B sales for the LDR investor, we estimated Yoma sold about 265 units this quarter, up from 174 units in Q1 2014. Average selling price was stable at US$150 per square foot.

Meanwhile, construction pace has improved markedly as Yoma recognised $4 million from sale of development properties in just this quarter, compared to a total of $7.2 million recognised in previous periods.

Staff costs continued to expand to $2.4 million from $0.8 million due to increase in staff strength to meet business expansion.

Star City continues to shine. Given the strong take up rate of Zone B so far, we expect Yoma to sell LDRs of the two remaining blocks soon. The company would also receive more incentive fees accordingly.

Furthermore, Yoma has about $49 million of unrecognized revenue in Star City to be recognised over the next 15-21 months as construction progresses.

Despite the delay in securing a new 70 years Master Lease for Landmark, development on the ground appears active. Yoma recently inked an MOU with Mitsubishi Group to invest and jointly develop Landmark. This is Yoma's second tie-up with an established corporation, after an earlier agreement with The Hongkong and Shanghai Hotels Limited to develop a Peninsula hotel in Yangon.

We believe the completion of this purchase would accelerate development and unveil more opportunities for Landmark.

Maintain "buy", target price is unchanged at $1.02. This is overall a good quarter with improvement in property sales and construction. We expect Star City to continue to provide earnings visibility and growth while the Landmark project remains a wildcard.

BUY