Golden Agri-Resources

OCBC on 20 Nov 2013

Despite a disappointing set of 3Q13 results, Golden Agri-Resources’ (GAR) share price has continued to do well, likely buoyed by more signs that CPO (crude palm oil) prices are stabilizing around current levels (MYR2500/ton), aided by slightly better demand and supply factors. Note that our US$830/ton (MYR2650/ton) forecast has already taken these factors into consideration. But further CPO price upside may still be capped by the expected jump in global oilseed production. And as the market appears to be taking on a more “risk on” approach, we apply a higher 13.5x peg (versus 12.5x previously) to our FY14F EPS, thus raising our fair value from S$0.465 to S$0.50. But given the potential downside risk, we maintain our SELL rating.

CPO prices showing more signs of stabilizing
Despite a disappointing set of 3Q13 results, Golden Agri-Resources’ (GAR) share price has continued to do well, likely buoyed by more signs that CPO (crude palm oil) prices are stabilizing around current levels (MYR2500/ton); this as on by increasing expectations of a likely lower CPO supply coming out from both Malaysia and Indonesia this year. Indeed, GAR expects its CPO production to decline some 5% this year, as opposed to its earlier 5-10% growth guidance. We believe that the recent announcement by the Indonesian government to double the mandatory bio-diesel blending to 10% from next year is also supportive of CPO prices. As such, some industry experts are expecting CPO to hit MYR2700/ton early next year, or up about 5% from here. 

Likely cap on CPO price
In any case, our CPO price assumption for 2014 of US$830/ton (MYR2650/ton) has already taken into account these factors. In addition, we believe that further CPO price upside may still be capped by the expected jump in global oilseed production. In its latest forecast, the USDA is projecting for production to hit a record 499.4m tons for 2013/2014, up 4.3m tons from Sep, with higher soybean, sunflower-seed and rapeseed accounting for most of the rise. GAR is also expecting its CPO production to revert back to the usual 5-10% growth next year. In addition, we note that there could be further increases (albeit at a slower pace) in cash cost of production, driven by rising labour costs. 

Valuations still look pricey
As the market appears to be taking on a more “risk on” approach, hence warranting a higher 13.5x peg (versus 12.5x previously) to our FY14F EPS, our fair value improves from S$0.465 to S$0.50. But given the potential downside risk, we maintain our SELL rating.

Sin Heng Heavy Machinery

AmFraser Research, Nov 19

SIN Heng is one of the leading heavy lifting service providers in Singapore, focusing on the mid- to high-lifting capacity segment. Its core business is in the renting and trading of cranes, aerial lifts and other heavy lifting equipment.

It is the only crane operator among its listed peers that is actively engaged in the trading business. The trading segment, despite being a lower margin business, requires less capital to operate.

It is also an additional income source and ensures that the company's rental fleet be kept young and its crane products relevant.

Sin Heng provides an indirect opportunity for investors to gain exposure to the growth of emerging countries, and is likely to be a beneficiary of the boom in the region's infrastructure spending, with its branded crane equipment already the leading standard in the infrastructure arena.

Synergistic effects could be achieved from the partnership with Toyota Tsusho Corporation (TTC), which also holds a 27 per cent stake in the company.

The yen depreciation in the past year has benefited Sin Heng in the form of lower purchase costs. High quality Japanese cranes are also now more cost-competitive relative to China-made ones. Buyers will be more receptive to purchase these cranes from suppliers like Sin Heng due to the narrower cost disparity.

Initiate "buy" with FV (fair value) S$0.300. We forecast earnings to grow at a CAGR (compounded annual growth rate) rate of 20 per cent from 2013-15.

On a valuation of 9.4X (5-year historical mean) FY14 PE, we derive a TP of S$0.300, representing a 50 per cent upside from current level inclusive of an expected dividend yield of 3.9 per cent.

BUY

Sino Grandness Food Ind Grp

DMG & Partners Research, Nov 19

MAINTAIN "buy". We tweak our revenue assumptions given the company's good Q3 FY13 performance. Our FY13 earnings estimate is raised to CNY426.6 million from CNY387 million. We note that SFGI (Sino Grandness) had higher receivables (CNY983 million) at end-Q3 FY13 as it extended credit terms to some customers, and had a negative operating cash flow in nine-month FY13. plans for an IPO of its beverage business are on track. Our SOP-based (sum-of-parts) TP of S$0.88 assumes GF (Garden Fresh) will achieve a profit target of CNY250 million, and a 4.0x FY13 forecast PE for its canned food business. Our TP implies a PE of 6.2x for FY13 forecast (group earnings), with a 17 per cent upside from current levels.

BUY

ECS Holdings

OCBC on 19 Nov 2013

ECS Holdings (ECS) reported a 4.5% YoY increase in its 3Q13 PATMI to S$8.7m on the back of a 11.4% jump in revenue to S$999.3m. After adjusting for forex and other exceptional items, we estimate that core earnings would have increased 4.7% YoY from S$8.7m to S$9.1m. This was in-line with our expectations. Looking ahead, we expect ECS to benefit from new product launches by major IT vendors in which it has established a strong working relationship with, such as Apple and Lenovo. We finetune our assumptions and raise our fair value estimate from S$0.56 to S$0.585 as we roll forward our valuations to 6x FY14F EPS. Maintain BUY, as valuations remain undemanding, with the stock trading at FY14F P/NTA of 0.55x and PER of 5.6x.

3Q13 results met our expectations
ECS Holdings (ECS) reported a 4.5% YoY increase in its 3Q13 PATMI to S$8.7m on the back of a 11.4% jump in revenue to S$999.3m. After adjusting for forex and other exceptional items, we estimate that core earnings would have increased 4.7% YoY from S$8.7m to S$9.1m. This was in-line with our expectations. On a segmental basis, ECS’s core Enterprise Systems and Distribution segments saw YoY sales growth of 32.3% and 4.2% to S$322.8m and S$668.4m, respectively. For 9M13, revenue rose 18.5% to S$3,107.1m, forming 73.1% of our FY13 forecast. Reported PATMI grew 14.9% to S$25.9m, while estimated core earnings climbed 7.8% from S$22.7m to S$24.5m, or 75.3% of our full-year forecast. 

Deepening its relationship with major IT principals
Looking ahead, we expect ECS to benefit from new product launches by major IT vendors in which it has established a strong working relationship with. One example is Apple, which launched its iPad Air in Nov this year. We also expect some contribution from Apple’s iPhone 5S, but to a smaller extent given the Android operating system’s continued market share gains. Lenovo, another important IT vendor of ECS, highlighted during its recent 2QFY14 analyst briefing that it expects its core PC business to benefit from the corporate refresh cycle and gradual recovery in China’s PC market. This will provide a boost to ECS’s prospects, in our view. Meanwhile, industry watcher Gartner also forecasted IT spending to grow 5.5% and 8.7% in Asia-Pacific and China in 2014, respectively.

Maintain BUY
We finetune our assumptions after taking into account this latest set of results, and raise our fair value estimate from S$0.56 to S$0.585 as we roll forward our valuations to 6x FY14F EPS. ECS’s share price has performed well since we highlighted it as our top pick in the tech sector on 15 Jul 2013, rising 13.5%, as compared to the STI’s 1.0% decline during the same period. Maintain BUY, as valuations remain undemanding, with the stock trading at FY14F P/NTA of 0.55x and PER of 5.6x.

Midas Holdings

OCBC on 18 Nov 2013

Midas Holdings’ 3Q13 results exceeded our expectations, with revenue jumping 48.5% YoY to CNY301.0m, or 15.8% above our forecast. While gross margin of 20.8% (-10.7 ppt YoY) disappointed, bottomline reversed from a CNY6.1m net loss in 3Q12 to a PATMI of CNY16.4m and beat our projection of CNY13.3m. Looking ahead, we expect contribution from its recent CNY167.5m high-speed railway (HSR) contract to be recognised in 4Q13 and 1Q14. We also expect Midas to secure more HSR train car related contracts in late Dec or early Jan 2014 from the second round of tender exercise by the China Railway Corporation. Our fair value estimate is increased marginally from S$0.65 to S$0.67 as we roll forward our valuations to 1.3x FY14F P/B. Maintain BUY on Midas.

Results beat expectations, but gross margin weakened sharply
Midas Holdings’ 3Q13 results exceeded our expectations, with revenue jumping 48.5% YoY to CNY301.0m, or 15.8% above our forecast. Gross margin of 20.8% (-10.7 ppt YoY) disappointed due to a change in product mix as more aluminium extrusion profile deliveries were made to the lower margin freight wagons, while there was also an increase in per unit production cost. Nevertheless, bottomline reversed from a CNY6.1m net loss in 3Q12 to a PATMI of CNY16.4m and beat our projection of CNY13.3m. This was attributed largely to a share of profit of CNY10.9m from its 32.5%-owned associated company Nanjing SR Puzhen Rail Transport (NPRT) as more train cars were delivered, versus a share of loss of CNY7.0m in 3Q12. For 9M13, revenue and PATMI increased by 20.6% and 145.6% to CNY787.5m and CNY26.4m, respectively. Current order book stands at CNY900m for Midas and CNY8.5b for NPRT.

High-speed railway train tenders gaining traction
Midas recently clinched CNY167.5m of contracts to supply aluminium alloy extrusion profiles for the manufacture of high-speed railway (HSR) train cars on 21 Oct this year. We expect the bulk of this contribution to be booked in 4Q13, with the remainder in 1Q14 due to tight delivery schedules from its customers. Meanwhile, the China Railway Corporation (CRC) recently opened the second round of HSR train car tenders on 7 Nov. This involves a total of 258 train car sets, of which 78 are of 250km/h speed and 180 are of 350km/h speed (higher value). We believe the potential market size for aluminium alloy extrusion profile suppliers may amount to ~CNY715.5m. Midas could possibly secure ~CNY325-380m of contracts from its customers from this procurement exercise in late Dec or early Jan next year, based on our estimates. 

Reiterate BUY
We raise our FY13 revenue and PATMI forecast by 11.0% and 27.0%, respectively. While our projection for Midas’ FY14 revenue is bumped up by 9.7%, we keep our earnings estimate intact due to a lower gross margin assumption. Rolling forward our valuations to 1.3x FY14F P/B, we increase our fair value estimate marginally from S$0.65 to S$0.67. Maintain BUY.

Suntec REIT

OCBC on 18 Nov 2013

Suntec REIT announced last Fri that it is seeking to acquire a 100% interest in 177-199 Pacific Highway for A$413.19m (~S$483.4m). While we are surprised by the timing of the acquisition and Suntec REIT’s move into the overseas market, we see several positives in the investment. First, as the transaction is expected to be earning accretive, this may reduce/eliminate the need to dip into CHIJMES sales proceeds to mitigate the temporary decline in DPU due to Suntec City asset enhancement. Second, the property is 100% pre-committed with the Leighton Group taking a head lease of 76% of the NLA for an average lease term of ~10 years. As such, the arrangement provides income certainty and stability to Suntec REIT. Lastly, the acquisition will be fully funded by a S$500m five-year unsecured loan facility. This dispels market fears of an equity fund raising. We raise our fair value to S$1.90 from S$1.85 after factoring the acquisition. Maintain BUY on Suntec REIT.

Proposed acquisition of landmark office tower
Suntec REIT announced last Fri that it is seeking to acquire a 100% interest in 177-199 Pacific Highway for A$413.19m (~S$483.4m), confirming the 14 Nov news by The Australian on the potential acquisition. The property is a 31-storey, Grade A freehold office tower under development and is located in one of the most prominent sites in North Sydney CBD, Australia. The tower, estimated to have 423,915 sqft NLA, is slated for completion in early 2016, and will be well-served by both major roadways and public transport.

Purchase to be earnings accretive
While we are surprised by the timing of the acquisition and Suntec REIT’s move into the overseas market, we see several positives in the investment. First, the transaction is expected to be earning accretive, as Suntec REIT will receive coupon payments at a yield of 6.32% p.a. on the progressive payments made during the construction, and a NPI yield of 6.89% upon completion of the property (adding ~0.45 S cents to DPU). Hence, this may reduce/eliminate the need to dip into CHIJMES sales proceeds to mitigate the temporary decline in DPU due to Suntec City asset enhancement. Second, the property is 100% pre-committed with the Leighton Group (Australia’s leading contractor and property development group) taking a head lease of 76% of the NLA for an average lease term of ~10 years. In addition, Leighton Holdings will provide a rental guarantee for four years for any vacant space upon completion. As such, the arrangement provides income certainty and stability to Suntec REIT. Lastly, the acquisition will be fully funded by a S$500m five-year unsecured loan facility. This dispels market fears of an equity fund raising (probably resulting in Suntec REIT’s 5.2% decline in unit price WoW).

Maintain BUY
We expect Suntec REIT’s gearing level to trend towards 41% after financing the total purchase cost. However, expected asset revaluation gains in 2013-15 are likely to provide some relief. We raise our fair value to S$1.90 from S$1.85 after factoring the acquisition. Maintain BUY. Potential risks to our forecasts include continued weakness in AUD and higher interest costs.

Singtel

OCBC on 14 Nov 2013

SingTel posted 2QFY14 revenue of S$4163.1m, down 9% YoY and 3% QoQ, again weighed by weaker regional currencies (AUD, IDR and INR depreciated 10% YoY against SGD). Reported net profit was flat YoY and down 14% QoQ at S$870.4m; excluding exceptional items, core earnings was flat YoY and +1.4% QoQ at S$884.0m. 1HFY14 revenue slipped 7% to S$8456.4m, meeting 50% of our FY14 forecast, while reported net profit gained 4% to S$1881.4m; core earnings rose 3% to S$1781.0m, or 48% of full-year forecast. SingTel declared an interim dividend of 6.8 S cents, same as 1HFY13, representing a payout ratio of 61%. Meanwhile, SingTel has kept its FY14 guidance unchanged – it expects consolidated group revenue to decline by mid-single digit level and EBITDA to decline by low single digit level; EBIT will also fall by a mid-single digit level. As the 1H results were largely in line with our expectation, we opt to leave our FY estimates unchanged. Our SOTP-based fair value also remains at S$3.81. Maintain HOLD.

Decent despite currency impact
SingTel posted 2QFY14 revenue of S$4163.1m, down 9% YoY and 3% QoQ, again weighed by weaker regional currencies (AUD, IDR and INR depreciated 10% YoY against SGD). Reported net profit was flat YoY and down 14% QoQ at S$870.4m; excluding exceptional items, core earnings was flat YoY and +1.4% QoQ at S$884.0m. 1HFY14 revenue slipped 7% to S$8456.4m, meeting 50% of our FY14 forecast, while reported net profit gained 4% to S$1881.4m; core earnings rose 3% to S$1781.0m, or 48% of full-year forecast. SingTel declared an interim dividend of 6.8 S cents, same as 1HFY13, representing a payout ratio of 61%. 

Keeps guidance unchanged
SingTel has kept its guidance for FY14 unchanged. As before, SingTel expects revenue from Group Consumer to decline by a high single-digit level, with lower revenues from Optus, and EBITDA to decline by a low single-digit level. Group Enterprise revenue should remain stable; but EBITDA to see a low single-digit decline. Its Group Digital Life revenue should grow by at least 50% on an organic basis; but it will continue to see startup losses. As such, it expects consolidated group revenue to decline by a mid-single digit level and EBITDA to decline by a low single digit level; EBIT will also fall by a mid-single digit level. Capex will remain at S$2.5b to support LTE coverage expansion; and the group will invest up to S$2b for digital business over the next three years.

Maintain HOLD with S$3.81 fair value
Last but not least, SingTel expects S$2b of free cash-flow, which supports our case for a continued dividend payout of at least 16.8 S cents for the full year. As the 1H results were largely in line with our expectation, we opt to leave our FY estimates unchanged. Our SOTP-based fair value also remains at S$3.81. Maintain HOLD

KSH Holdings

UOBKayhian on 18 Nov 2013

Valuation/Recommendation

• Maintain BUY and target price of S$0.71, derived from our SOTP valuation. Based on Bloomberg’s estimate, KSH has a 12-month target price of S$0.73. 
• Financial results in line with estimates. KSH reported 1HFY14 net profit of S$23.6m (+66.6% yoy) which accounts for 55% of our FY14 forecast. The rise is mainly attributed to increased contributions from property development as share of results of associates’ jumped 359.4% yoy to S$15.4m.
• Cost pressure mounts. Despite the stellar results, we noted that rising labour costs continue to threaten profitability of construction firms such as KSH. KSH saw gross profit margin drop from 16.1% in 1HFY13 to 7.2% in 1HFY14, as old projects with higher margins ended and rise in labour costs eroded profits. Cost overruns in a particular project also impacted bottom-line.

Our View/Outlook

• Strong earnings growth to continue. With locked-in sales from successful property launches, KSH is expected to continue enjoying good earnings growth and visibility. Of its eight launched projects, more than 80% of its units have been sold. Based on current sales, we expect KSH to recognise more than S$100m (>S$0.25/share) of profits over the next five years.
• Township development still in the pipeline. We understand from management that the township development of GaoBeiDian is still in the pipeline, and will be a key project for the group going forward. Gaobeidian New town development is a JV with Heeton and Tee International. Gaobeidian is 82km from Beijing city, and is well connected via rail and expressways. Gaobeidian station lies on the Batong line of Beijing Subway, and is 9 and 11 stations away from Tian’anmen East Station and Beijing International Airport respectively.
• Our view. While sentiment continues to be weak among property counters, we believe KSH offers value to investors looking for companies with good earnings growth and visibility for the next few years. KSH’s stable dividend policy also ensures investors get a piece of its growing pie. Assuming KSH maintains its FY13 dividend of S$0.025/share, this will translate to an attractive yield of 5%. The company has already announced an interim dividend of S$0.0125/share. The stock has since found some support near its book value of about S$0.47.

Sino Grandness Food

UOBKayhian on 18 Nov 2013

Valuation

• Maintain BUY with a higher target price of S$1.06, taking into account the higher-than-expected 9M13 earnings. The company is still trading at an undemanding 5.2x 2013F PE, vs Hong Kong-listed peers’ 30.5x.

What’s New

• Sino Grandness Food’s (SGF) 3Q13 net profit jumped 99% yoy to Rmb168.1m, driven by strong sales in all three business segments.Total revenue rose 56% yoy to Rmb746.3m as sales of its Garden Fresh bottled juices jumped 78.8% yoy to Rmb436.5m, while canned food revenue also expanded 94.3% yoy to Rmb61.6m. Export sales rose 22.5% yoy to Rmb248.2m
• Gross profit increased 56.2% yoy to Rmb292.4m with gross margin stabilising at 39.2%.
• SGF also kept distributing and selling expenses in check at Rmb133.5m (+18.8% yoy) as the company budgeted only 6% of sales on A&P expenses instead of the normal 7-8%.

Our View

• We believe the company is on track to achieve its Rmb250m profit target after adding points-of-sale after the Hubei trade show in October. SGF also saw strong growth in its exports as the economies where its European customers reside in continue to recover.
• Gross margins are also likely to trend higher as the company will allocate more Garden Fresh production internally than to OEM producers. We think the loquat juice segment has room for growth, capturing market share from other juice (apple and orange juices) and drinks products (soft drinks and bottled teas).
• The snacks segment is also gaining some traction after launching 20 SKUs in the recent trade show, with its mushroom chips and lotus seeds products widely accepted by distributors.
• As for the status of Garden Fresh’s listing, the company has signed with top-tier investment bankers but is unable to reveal the institutions handling the process as they have signed a non-disclosure agreement. A Big 4 auditor has been engaged for this IPO process.

Ezion Holdings

OCBC on 15 Nov 2013

Ezion Holdings reported a 97.2% YoY rise in revenue to US$76.2m (+13% QoQ) and a 137.2% increase in net profit to US$38.2m (+5% QoQ) in 3Q13, with 9M13 net profit accounting for 77.5% of our full year estimate. There were no major one-off exceptional items in the last quarter. Looking ahead, Ezion is likely to focus more on the ASEAN region as it sees good growth in this area. There will also be an emphasis on newbuilds instead of refurbished units. The group is also pursuing opportunities to support LNG related projects in Australia and its vicinity. We roll forward our valuations with an unchanged P/E of 12x (based on FY14F core earnings), which increases our fair value estimate from S$2.42 (adjusted for bonus issue) to S$2.57. Maintain BUY.

3Q13 results in line
Ezion Holdings reported a 97.2% YoY rise in revenue to US$76.2m (+13% QoQ) and a 137.2% increase in net profit to US$38.2m (+5% QoQ) in 3Q13, with 9M13 net profit accounting for 77.5% of our full year estimate. Core 9M13 net profit represented 74.6% of our full year estimate, in line with our expectations. There were no major one-off exceptional items in the last quarter. 

Healthy revenue growth and good margins
Revenue was higher in the quarter mainly due to 1) higher chartering contribution with the deployment of additional liftboats and service rigs, as well as 2) higher revenue from the offshore logistics vessels services segment with the QCLNG, APLNG and GLNG projects in Australia. Gross margin remained strong at 48.2% in 3Q13, similar to 3Q12, but higher than 2Q13’s 46.3%. Margins are likely to remain healthy as Ezion utilises more of its own vessels (therefore reducing usage of third party vessels) to execute chartering contracts in Australia. 

More assets to be deployed
Looking ahead, we are expecting three more liftboats/service rigs to contribute in 4Q13; as at end Sep, Ezion had 15 working units. A rig meant for a Chinese customer (Mar 2012 announcement) for windfarm operations has been delayed from 4Q13 to mid 1Q14 due to issues in the Chinese yard, but we have already incorporated a buffer of three months in our model.

Sticking to the same winning formula but tweaking a little
Looking ahead, Ezion is likely to focus more on the ASEAN region as it sees good growth in this area. There will also be an emphasis on newbuilds instead of refurbished units. Meanwhile, the group is also pursuing opportunities to support LNG related projects in Australia and its vicinity. Meanwhile, Ezion’s stock is up 49.8% YTD vs the STI’s 0.8% flattish performance. We roll forward our valuations with an unchanged P/E of 12x (based on FY14F core earnings), which increases our fair value estimate from S$2.42 (adjusted for bonus issue) to S$2.57. Maintain BUY.

Olam International Limited

OCBC on 15 Nov 2013

Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume. Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m. We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower. As we are keeping our FY estimates unchanged, our fair value remains at S$1.45, still based on 10x FY14F EPS. Given the limited upside, we maintain our HOLD rating. 

1QFY14 results mostly in line 
Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume. Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m. We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower. 

New measurement of profitability 
Business-wise, Olam noted that most segments "performed well despite the challenging industry environment", and the trajectory of the EBITDA and PATMI growth in 1QFY14 gives Olam further confidence that it will meet its plan targets for FY14. However, Olam has recalibrated its measure of profitability from GC (Gross Contribution/MT) and NC (Net Contribution/MT) to EBITDA. Hence, we believe that the market may need more time to digest the new information and track Olam's performance.

More sale and leaseback planned 
Meanwhile, Olam plans to execute more sale and leaseback of upstream assets as part of its strategy to generate incremental cashflow, help maintain profitability while enhancing the returns on invested capital. Recall that it had recently announced the sale and leaseback of its almond plantation assets in Australia for A$200m. Based on its continued efforts to drive higher operating cash-flow generation from existing businesses, unlocking value from past investments, reduced pace of fixed capital investments, Olam believes it is on track to generate positive FCFF for FY14.

Maintain HOLD and S$1.45 fair value 
As results were largely in line, we opt to keep our estimates unchanged. This also means that our fair value remains at S$1.45, still based on 10x FY14F EPS. Given the limited upside, we maintain our HOLD rating.

First Resources

DBS Group Research, Nov 13

FIRST Resources (FR) reported Q3-2013 net profit of US$51.4 million, above our expected range of US$38-40 million. This brought 9M-2013 earnings to US$152.7 million, representing 76 per cent of our full-year forecast. The better-than-expected performance was due to a 22 per cent q-o-q jump in plantations revenue and 17 per cent q-o-q rise in refining and processing revenues.

Based on our unchanged forecast fresh fruit bunch (FFB) output of two million tonnes (+5 per cent y-o-y), we expect Q4-2013 FFB output to sequentially drop by 9 per cent.

Expect sequentially lower Q4-2013 earnings on lower volumes.

Rating cut to "hold"; recent outperformance has priced in the strong earnings recovery, target price unchanged at S$2.19.

HOLD

Courts Asia

Phillip Securities Research, Nov 14

COURTS Asia is a leading electrical, IT products, and furniture retailer in Singapore and Malaysia. It also offers in-house credit facilities, generating additional revenue for the retailer. The company will be expanding to Indonesia, with the opening of a Megastore in Eastern Jakarta by FY2015.

Courts reported Q2-2014 earnings of S$7.2 million, -55 per cent lower y-o-y, but 1.6 per cent higher q-o-q. Singapore's Q2-2014 sales were 10.8 per cent higher y-o-y due to bulk sales of lower margin, older model, of digital products in preparation of new launches.

Malaysia's sales were, however, affected by credit tightening measures, which led to a -16 per cent decline in like-for-like credit sales. Sales in Malaysia decreased 11.0 per cent (8.3 per cent in local currency terms) due to single-digit growth in cash sales.

While the change in sales mix led to lower gross profit margins, we continue to be positive on the Singapore segment of the business. The launch of new products, increase in spending ability, population growth and completion of new housing units are expected to continue to drive higher sales growth. We are, however, concerned over the Malaysian segment.

We had previously forecast higher credit sales due to higher demand for credit facilities, while credit cost should remain low as Courts is able to choose its borrowers.

The new megastore in Malaysia is experiencing a slow start.

The Megastore is not in line with Courts' current branding in Malaysia thus making it in a disadvantageous position.

A high 8 per cent to 10 per cent of Malaysia standalone stores are on their watchlist, causing a drag on profitability.

We adjust our forecast to include Q2-2014 results, lowering FY14E net profit after tax by 23 per cent. Based on our discounted cash flow valuation, we derive a target price of S$0.71. Based on our concerns over Malaysia, we think more visibility is needed.

We downgrade Courts to "neutral" and remove it from our "Deep Value Play" list.

NEUTRAL

Singapore Telecommunications

UOBKayhian on 15 Nov 2013

(ST SP/HOLD/S$3.78/Target: S$3.68)
FY14F PE (x): 17.6
FY15F PE (x): 16.3
SingTel reported underlying net profit of S$884m (-0.2% yoy) for 2QFY14, in line with our expectations. Group Consumer. Revenue contraction was due to the Australia consumer business, which accounted for 78% of revenue and suffered a 10% depreciation of the A$ against the S$. Mobile revenue in Singapore grew 6.5% yoy but mobile revenue from Australia declined 5.3% yoy. SingTel gained 84,000 mobile subscribers in Singapore but lost 38,000 mobile subscribers in Australia. Maintain HOLD. Our target
price is S$3.68, based on sum-of-the-parts methodology.

Nam Cheong

DMG & Partners Research, Nov 12

NCL posted a Q3-2013 Patmi record of RM58.7 million (+86 per cent y-o-y) - driven by its historic RM1.7 billion order book on hand, with shipbuilding gross margins surprising on the upside at 22.8 per cent (Q2-2013: 17.3 per cent). Thus, we increase our top-of-street FY13F/14F/15F estimates by 4/7/5 per cent and raise our target price to S$0.41 (from S$0.39). One of our top picks, NCL combines 39 per cent growth, 25 per cent ROE, low 0.12 times net gearing and healthy cashflow on a undemanding seven times FY14F P/E.

BUY

Asian Pay Television Trust

AmFraser Securities, Nov 12

RESULTS consistent with expectations. TBC (Taiwan Broadband Communications) achieved revenue and net profit of S$78.6 million and S$18.2 million in Q3-2013, which were 2 per cent and 0.4 per cent above our forecasts.

Premium digital cable TV outperforming: Driven by its growing set-top box penetration and an increasing subscriber take-up of higher revenue generating tiers, TBC enjoyed a stellar performance in its Premium digital cable TV segment. TBC's segmental ARPU (average revenue per user) and subscriber numbers are already ahead of our expectations. As at Sept 30, 2013, Premium digital cable TV has total subscribers of 121,000 as well as an ARPU of NT$208 per month, exceeding our original full-year forecast of 121,000 subscribers and ARPU of NT$202/month. Accordingly, we raise our subscriber and ARPU forecast for the Premium digital cable TV segment to 124,000 and NT$208/month respectively.

TBC has decided to move ahead with its expansion plans across the greater Taichung area and expects its proposed expansion to be accretive to its distribution yield in the medium term. FY13 and FY14 distributions will not be negatively impacted by the planned expansion. We expect TBC's expansion across the broader Taichung area, starting FY14, to generate positive free cash flows, thus resulting in yield accretion.

Our projected FY15 DPU has increased from 8.8 cents to 9 cents. While NCC (National Communications Commission) has conditionally approved applications from VeeTime and West Coast Cable TV Co, we believe they are unlikely to pose major competitive threats to TBC. Given their relatively smaller scale, these licensees are unlikely to satisfy the 100 per cent network coverage requirement within three years, in our view.

Reiterate "buy" on fair value S$1.04. APTT has re-affirmed its distribution guidance of 4.13 cents per unit for the six months ending Dec 31, 2014, that is payable in March 2014. With a projected FY14 yield of 10.7 per cent, we cannot stress enough the attractiveness of APTT as a high-yielding play.

Moreover, APTT offers strong growth upside that is supported by continued up-selling and bundling initiatives, increasing set-top box penetration and greater availability of digital content.

BUY

City Developments Ltd

Maybank Kim Eng Research, Nov 13

ANOTHER soft quarter. Excluding the S$5.8 million of investment gains, CDL's Q3-2013 core Patmi (profit after tax and minority interests) came in at S$115 million. 9M-2013 core Patmi of S$291.3 million came in below at 53 per cent of our full-year estimate, due mainly to the timing of profit recognition and continued weak hotel earnings. We lower our FY13 core Patmi forecast by 8.6 per cent as we adjust our profit recognition model. Maintain "sell", with a revised target price of S$9, pegged to a 30 per cent discount to RNAV, adjusted for the market value of its stake in M&C (Millennium & Copthorne Hotels).

Residential was the biggest profit contributor in Q3-2013, accounting for 50 per cent of profit before tax, with a number of pre-sold projects yet to contribute to earnings. Recent launches - The Venue Residences and The Inflora at Flora Road - had mixed responses, achieving sell-through rates (percentage of units sold) of 25 per cent and more than 95 per cent respectively, with pricing being a determinant of demand. Management is in no rush to launch South Beach Residences (S$3,000 psf), perhaps biding its time to gauge the response at the upcoming launch of DUO Residences nearby.

Asia continues to underperform for M&C. In Q3-13, Asian RevPAR (revenue per available room) for M&C fell by 4.2 per cent y-o-y (on constant currency), led by a 7.1 per cent decline in Singapore where rising labour cost remains a concern. US was a bright spot, boosted by higher room rates at ONE UN New York. M&C has inked a Collective Sales Agreement for Tanglin Shopping Centre, in which it has a 34 per cent interest. This will be the third time the property is put up for en-bloc sale, valuing the property at S$4,000 psf of allowable GFA (gross floor area). We believe the reserve price has to be lowered significantly to make it commercially viable for any prospective buyer.

Growth opportunities are getting limited. With limited opportunities in Singapore due to high land costs, CDL has made its first acquisition in London, acquiring a multi-storey carpark in Knightsbridge for £80 million (S$158.7 million) with the intention of redeveloping it into a luxury residential development. However, London land costs are also rising. In China, the group is likely to focus on launching at least one project in 2014 before acquiring new sites, in our view.

SELL

ComfortDelgro

OCBC on 14 nov 2013

ComfortDelGro’s (CDG) 3Q13 results exceeded our expectations with revenue increasing 8.6% YoY to S$978.4m while operating profit and PATMI grew 4.8% YoY to S$122.4m and 5.4% YoY to S$76.7m, respectively. The newly acquired Metroline West bus service in UK was the main contributor to the improved results although the group also enjoyed a better showing by SBS Transit. We expect ComfortDelgro to end FY13 with another record PATMI figure as continued strong performances from its taxi, bus and vehicle inspection operations should offset any weakness in the other segments such as rail (due to the DTL start-up costs) and driving centre operations. Based on our higher adjusted FY13/14 earnings, our fair value estimate increases to S$2.20 (S$1.95 previously). Maintain BUY.

3Q13 results exceed expectations
ComfortDelGro’s (CDG) 3Q13 results exceeded our expectations. Revenue grew 8.6% YoY to S$978.4m on the back of higher bus/rail ridership and taxi rentals while operating profit grew 4.8% YoY to S$122.4m. Although operating profit margin fell 0.5ppt to 12.5%, we are comforted by the lower-than-projected pace of operating expense increases. PATMI for 3Q13 came in 5.4% YoY higher to S$76.7m.

UK bus business main catalyst
The newly acquired Metroline West bus service in UK was the main contributor to the improved results, adding S$54.2m to the group’s top-line. The group also benefited from a better showing by SBS Transit, which narrowed its core operating loss to S$0.9, from -S$1.8m over the same period last year.

ComfortDelgro to end year on a high
On account of the better 3Q13 performance, we raise our FY13/14 revenue by 3% and incorporated better operating margins, resulting in higher earnings. We expect ComfortDelgro to end FY13 with another record PATMI figure as continued strong performances from its taxi, bus and vehicle inspection operations should offset any weakness in the other segments such as rail (due to the DTL start-up costs) and driving centre operations. In addition, recent events in NSW, Australia have been favourable to ComfortDelgro where the tender process for other routes has been delayed and current operators have the opportunity to renegotiate terms. While this means that ComfortDelgro will not secure new bus routes in the near-term, the renegotiation allows them to hold on to existing contracts i.e. stability in Australian operations.

Maintain BUY
We raise our fair value estimate from S$1.95 to S$2.20 based on our adjusted higher earnings, and maintain BUY on the counter. Its recent share price weakness should create an attractive opportunity for investors to allocate into this fundamentally strong company with stable earnings.

Tat Hong

OCBC on 14 Nov 2013

TTat Hong’s 2QFY14 results remained weak as expected. Revenue fell 14.2% YoY to S$185.3m while operating profit declined by 33.9% to S$18.6m. Despite the poorer showing, management declared an interim dividend of 1 S cent vs. 1.5 S cents last year. Entering 2HFY14, we expect Tat Hong’s performance to stay weak. Its Australian operations are unlikely to produce any turnaround until early FY15 (at its earliest) as sentiment remains poor. Nonetheless, some positives from stability in Singapore, Hong Kong and China operations should help to cushion some of the declines. As the street had factored in expectations for a weakened performance, we should not see sustained selling pressure on the counter. Adjusting our forecasts downwards slightly, our fair value falls to S$0.90 (S$0.96 previously). Maintain HOLD.

Weak 2QFY14 results was expected
Tat Hong’s 2QFY1 results remained weak as deterioration in business activity in its key market of Australia caused revenue to fall 14.2% YoY to S$185.3m. Three out of its four operating segments – crane rentals, general equipment rentals and distribution – suffered from this drop-off and recorded double digit declines in revenue. Although management managed to keep a lid on operating expenses for the quarter with a S$2.7m improvement, the pace of revenue declines still forced operating margin to fall by 3ppt to 10.0% and operating profit to decline 33.9% to S$18.6m. Despite the poorer showing, management declared an interim dividend of 1 S cent (1.5 S cents last year).

More of the same for 2HFY14
As previously mentioned, we expect Tat Hong’s performance to stay weak for the remainder of FY14. The slowdown in general construction projects, lack of mining and infrastructure initiatives and time needed to convert improvement in business confidence into actual spending will see its Australian operations remaining subdued for 2HFY14. At its earliest, we only expect a recovery to occur by early FY15.

Some positives to take away
Nonetheless, we take comfort from some developments in 1HFY14. There was general stability in contributions from the Singapore, Hong Kong and Thailand markets where Tat Hong is involved in longer-term infrastructure projects (rail and road bypass projects). In addition, utilization rates for tower cranes in China improved by more than 3ppt to 76.2%, which should help to temper concerns over a possible slowdown. We remain hopeful for sustained improvement in tower crane utilization rates due to the longer lease terms.

Maintain HOLD
The weak set of results should not surprise the street but we could still see some initial selling pressure on the counter. Adjusting our forecasts downwards slightly, our fair value falls to S$0.90 (S$0.96 previously). Maintain HOLD. 

Swiber Holdings

OCBC on 13 Nov 2013

Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Management shed more light on the proposed disposal of Kreuz, including reasons such as sharpening its focus on the core EPCIC business. As of Nov 2013, Swiber’s order book stood at US$900m, half of which will be recognised in FY14. We are lowering our gross margin assumption of 16.8-17% for FY13-14F to 15-16% with a seemingly more toned-down approach by management, resulting in a lowering of our fair value estimate from S$0.86 to S$0.72. Downgrade to HOLD.

So-so set of 3Q13 results
Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Stripping out one-off items, 9M13 recurring net profit was 64% of our full year estimate. Gross margin was 14.2% in 3Q13 vs. 15.3% in 2Q13 and 14.1% in 3Q12.

Explains rationale for proposed Kreuz disposal
According to management, the main reasons for the proposed disposal are: 1) sharpen focus on core EPCIC business, 2) realize investment value of Kreuz, 3) Kreuz will require intensive capex for growth and expansion, and 4) enhance shareholder interest by improving key ratios.

A “good” deal given current circumstances?
In our view, given Swiber’s high net gearing of about 1x, it is not easy for the group to support a significant expansion in Kreuz’s capabilities and venture into deeper-water EPCIC for its core business at the same time. Meanwhile, we note that Kreuz accounted for about 46% of Swiber’s operating profit before interest and tax in FY12, and it is also estimated to contribute about half of our FY13F EPS forecast of 11.5 S cents, hence the loss of future earnings is not small. From what we understand, Swiber is planning to use the cash proceeds of ~US$100m to reduce debt (hence lowering interest cost) and enhance its assets (e.g. installing DP systems on some of its vessels).

Lower gross margin assumptions; downgrade to HOLD
As of Nov 2013, Swiber’s order book stood at US$900m, half of which will be recognised in FY14. According to management, US$40m out of the order book figure belongs to Kreuz. Meanwhile, unlike previously when management was guiding gross margins of 15-20%, we sensed a more toned-down approach of 14-15%. As such, we are lowering our gross margin assumption of 16.8-17% for FY13-14F to 15-16%, resulting in a lowering of our fair value estimate from S$0.86 to S$0.72. Downgrade to HOLD.

Yangzijiang Shipbuilding

OCBC on 13 Nov 2013

Yangzijiang Shipbuilding (YZJ) reported a 2% YoY rise in revenue to RMB3.67b and a 6% decrease in net profit to RMB820.7m, such that both 9M13 revenue and net profit accounted for about 80% of our full year forecasts, slightly better than our expectations. Gross profit margin remained healthy at 29.6% in 3Q13 vs 29.4% in 3Q12. Despite an improving shipbuilding market, YZJ has limited capacity to take on new orders – its yard capacity will be highly utilized till 2016. The group has also decided to divert resources meant for O&M to its core shipbuilding business for now. This is likely to result in better execution and more vessel deliveries in 2014, raising our fair value estimate to S$1.22 (prev. S$1.04). Maintain HOLD. 

3Q13 results slightly above
Yangzijiang Shipbuilding (YZJ) reported a 2% YoY rise in revenue to RMB3.67b and a 6% decrease in net profit to RMB820.7m, such that both 9M13 revenue and net profit accounted for about 80% of our full-year forecasts, slightly better than our expectations. Gross margin remained healthy at 29.6% in 3Q13 vs. 29.4% in 3Q12 and 27.5% in 2Q13, while administrative expenses were contained at about 2% of revenue in the quarter.

Improving market, but YZJ’s capacity is mostly full
As mentioned in our previous report, newbuild prices for bulk carriers in Chinese yards have improved. For YZJ, payment terms are also now 30-70 or 40-60 instead of the earlier 20-80. Despite an improving shipbuilding market, YZJ has limited capacity to take on new orders – its yard capacity will be highly utilized till 2016. Management has also admitted that it will be in YZJ’s best interest that some of the lower-priced options (among the 28 options that it has) are not exercised as it would prefer to take on new orders from the market that are priced higher.

Less focus on offshore & marine (O&M) for now
Instead of building the O&M arm (rig building) as an independent pillar, management has decided to combine it as part of the core shipbuilding segment as YZJ believes that the risk of entering this business now is too high, exacerbated by the low down-payments of less than 10% offered by certain Chinese yards. This seems to be a change in strategic direction for now; the more than 100 O&M engineers in YZJ will be deployed to support the mainstay shipbuilding business.

Maintain HOLD
We favour YZJ’s decision to divert its resources meant for O&M and focus on its competitive strengths for now, while looking to develop its other business pillars. As such, we expect more vessels to be delivered in 2014 - raising our FY14F earnings estimates by about 11%. Maintain HOLD with S$1.22 fair value estimate (prev. S$1.04), based on 9x FY14F earnings. 

CDL

OCBC on 13 Nov 2013

3Q13 PATMI decreased 10.4% YoY mostly due to the absence of disposal gains booked in 3Q12 for the sale of several industrial strata assets. Due to slower than anticipated recognition at development projects, 9M13 PATMI cumulates to only 66.3% of our FY13 forecast and we judge the latest quarter to be a miss. We lower our FY13 PATMI forecast by 11.4% to S$617.0m. Management indicates that it is turning increasingly cautious of the domestic residential space and will focus on developing its overseas growth engines in London and China. In particular, the group is actively pursuing acquisition opportunities in London and is confident of securing more sites in due course. Maintain HOLD with a lower fair value estimate of S$9.98 (30% RNAV disc.), versus S$11.38 previously, as we opt to raise our RNAV discount closer in line with those at listed peers and to reflect a softer domestic residential outlook.

3Q13 numbers below view
3Q13 PATMI decreased 10.4% YoY mostly due to the absence of disposal gains booked in 3Q12 for the sale of several industrial strata assets. Due to slower than anticipated recognition at development projects, 9M13 PATMI cumulates to only 66.3% of our FY13 forecast and we judge the latest quarter to be a miss. We lower our FY13 PATMI forecast by 11.4% to S$617.0m. 3Q13 topline also decreased 1.2% YoY to S$822.7m mainly due to a weaker contribution from the property development segment which dipped 6.4% YoY to S$326.3m. We note, however, that the group has not to date recognized any profits from its three EC projects which will be booked fully only upon attaining TOP.

Cautious on the domestic residential space
Leasing activities for the office component of the South Beach project has begun though CityDev will likely take a wait-and-see stance for the launch of the residential units. Completion for the project is on track for 2015. Management indicates that it is turning increasingly cautious of the domestic residential space and will focus on developing its overseas growth engines in London and China. In particular, the group is actively pursuing acquisition opportunities in London and is confident of securing more sites in due course.

Hotel margins hit by higher operating costs
3Q13 PBT for the hotel segment decreased by 11.4% YoY to S$49.3m due to higher operating costs and difficult trading conditions in most Asian destinations. That said, revenues from the segment increased marginally (up 3.3% YoY) to S$393.8m due to contributions from the newly opened W Singapore Sentosa Cove Hotel and recently refurbished hotel rooms being re-instated into the supply.

Maintain HOLD; lowering FV to S$9.98
Maintain HOLD with a lower fair value estimate of S$9.98 (30% RNAV disc.), versus S$11.38 previously, as we opt to raise our RNAV discount closer in line with those at listed peers and to reflect a softer domestic residential outlook.

Singapore Residential Property

OCBC on 13 Nov 2013

While the Fed Fund rate is expected to stay at low levels until at least 2015, we expect increasing caution to set in as the overhang from government measures remains in play and the market grapple with an onerous pipeline of physical supply ahead. Over FY14, we forecast for mass-market residential prices to dip 5%-15% and for high-end residential prices to dip 0%-10%. In light of the subdued outlook for the domestic residential sector, we favor large-cap developers with strong balance sheets and diversified exposure across regional real estate markets. Our top picks in the space are CapitaLand, rated BUY with a fair value estimate of S$3.77 (30% RNAV disc.), and Keppel Land, rated BUY with a fair value estimate of S$4.09 (30% discount to RNAV).

Top picks: CapitaLand and Keppel Land
While the Fed Fund rate is expected to stay at low levels until at least 2015, we expect increasing caution to set in as the overhang from government measures remains in play and the market grapple with an onerous pipeline of physical supply coming ahead. Over FY14, we forecast for mass-market residential prices to dip 5%-15% and for high-end residential prices to dip 0%-10%. In light of the subdued outlook for the domestic residential sector, we favor large-cap developers with strong balance sheets and diversified exposure across regional real estate markets. Our top picks in the space are CapitaLand, rated BUY with a fair value estimate of S$3.77 (30% RNAV disc.), and Keppel Land, rated BUY with a fair value estimate of S$4.09 (30% discount to RNAV).

Physical oversupply situation lies ahead
One significant headwind for the residential sector lies in the large physical supply expected over FY14-16. Including HDB, DBSS and EC completions, we anticipate that 50.0k, 49.7k and 73.6k homes will come into the physical supply in FY14, FY15 and FY16, respectively. Assuming a 6.0m population target by 2020 from the latest Population White Paper, we forecast average population growth at ~86k individuals p.a. from 2014-20, which translates to an average incremental demand of ~29k physical homes per year. In our view, this mismatch points to a fairly clear physical oversupply situation ahead.

Three reasons why a crash is unlikely
That said, barring a macro crisis, we do not believe headline prices will correct excessively (>20%) in 2014. This is due to three reasons: 1) The direct impact of a physical oversupply (of homes which are already sold) is first on vacancy rates and subsequently on rental prices. While falling rents will pressure home prices, we do not see many home-owners force-selling into a softening market given that a negative rental carry is the norm in Singapore historically and that the average individual balance sheet remains fairly benign. 2) The level of unsold pipeline held by developers (which forms the primary supply) is currently at 36k units. This is lower than the 10-year historical average of 43k units and is not overly onerous. While developers will likely ease prices ahead to move inventory, a fire-sale situation is unlikely to ensue given relatively strong balance sheets. 3) Finally, we believe the data currently point to a fairly high price elasticity of demand. That is, significant numbers of buyers will come into the market at every incremental price dip. This is illustrated when CapitaLand introduced discounts at its 1715-unit d’Leedon in 1Q13 and subsequently saw 543 more units sold by 3Q13. Similarly, developers which set lower prices at recent new launches (Sky Vue at Bishan and Thomson Three at Bright Hill Dr.) saw firm performances, despite the Jul-13 TDSR measures.

KSH Holdings

OCBC on 13 Nov 2013

2QFY14 PATMI came in at S$12.2m, up 24% YoY and 6% QoQ, mostly due to stronger contributions from both the property development and construction segments. These results were spot on with our expectations as 1HFY14 PATMI now makes up 49.7% of our full year estimates. An interim dividend of 1.25 S-cents per share was declared. Despite a market cap of S$205m, KSH now holds S$76m in cash with a low net gearing of 6.4%. This provides sizable capital headroom for growth, and we continue to like management’s ability to execute on accretive growth opportunities (LTM ROE: 24%) and balanced approach for capital allocation (FY14F dividend yield: 4.8% yield). Maintain BUY with an unchanged fair value estimate of S$0.73. Our fair value is based on 5 times FY14F construction earnings and 40% discount to the property segment’s RNAV.

Earnings momentum continues – 2QFY14 PATMI up 24% YoY
2QFY14 PATMI came in at S$12.2m, up 24% YoY and 6% QoQ, mostly due to stronger contributions from both the property development and construction segments. These results were spot on with our expectations as 1HFY14 PATMI now makes up 49.7% of our full year estimates. Topline for the quarter increased 55.4% YoY to S$89.1m mostly due to higher construction revenue and a larger recognition from Lincoln Suites. An interim dividend of 1.25 S-cents per share was declared.

Healthy order book of S$405.0m
The construction order book stands at S$405.0m as at end Sep-13, which we deem to be a fairly healthy level translating to about 1.6 times LTM construction revenues. Management continues to show ability in replenishing the order book, with new order wins of S$332m in YTD 2013 versus S$163m in 2012. The last contract awarded in Aug-13 was worth S$98.4m for the construction of the NEWest development which is expected to complete within 30 months.

Looking forward to Beijing condo launch
We are keeping close tabs on the anticipated launch of KSH’s 45% Beijing condo project (Liang Jing Ming Ju Phase 4), which will be particularly significant as it is slated to contribute an estimated $23m net earnings upon TOP (est. FY15). KSH’s Singapore developments have performed fairly well to date. As at end Sep-13, the 136-unit NeWest and 142-unit KAP Residences are almost completely sold.

Maintain BUY with unchanged fair value estimate S$0.73
Despite a market cap of S$205m, KSH now holds S$76m in cash with a low net gearing of 6.4%. This provides sizable capital headroom for growth, and we continue to like management’s ability to execute on accretive growth opportunities (LTM ROE: 24%) and balanced approach for capital allocation (FY14F dividend yield: 4.8% yield). Maintain BUY with an unchanged fair value estimate of S$0.73. Our fair value is based on 5 times FY14F construction earnings and 40% discount to the property segment’s RNAV.

Golden Agri Resources

OCBC on 13 Nov 2013

Golden Agri-Resources (GAR) continued to feel the blunt of weaker CPO prices and suffered another disappointing quarter, resulting in 9M13 earnings meeting just 51% of our original forecast. While it expects to see the sequential growth in CPO production in 4Q13, GAR now guides for a 5% contraction in CPO production this year (versus earlier 5-10% growth guidance); although it is likely to revert to this usual growth forecast next year. While our FY13 earnings estimate is probably one of the lowest on the street, we need to slash it further by 31% (FY14 by 12%), while keeping our revenue forecasts largely unchanged. No doubt that the worst may be over, we note that the recent price rally looks overdone. As such, we maintain our SELL rating with an unchanged fair value of S$0.465 (based on 12.5x FY14F EPS versus 11x blended FY13/FY14F EPS).

3Q13 showing below our forecast
Golden Agri-Resources (GAR) continued to feel the blunt of weaker CPO prices (ASP of US$806/ton versus US$811/ton in 2Q13), with 3Q13 revenue falling 6% YoY (-7% QoQ) to US$1570.8m. Coupled with higher cost of production, reported net profit tumbled 65% YoY (down 33% QoQ) to US$30.2m. 9M13 revenue grew 3% to US$4683.1m, meeting 75% of our original FY13 forecast, but due to higher-than-expected salary costs, net profit slipped 47% to US$188.3m, or just 51% of our full-year estimate. GAR declared an interim dividend of 0.585 S cent/share versus 0.6 S cents a year ago.

Guides for lower CPO production this year
While CPO production saw a 17% QoQ growth in 3Q13, and should continue to see seasonal improvement in 4Q13, management now expects a contraction of 5% versus its earlier guidance of 5-10% growth for 2013. Capex remains at US$550m for this year, with the bulk of it going towards plantation expansion, downstream and logistics capacity increases. Nevertheless, GAR believes that CPO production should revert to the usual 5-10% growth next year. It is also generally positive about the CPO market next year, where prices should recover further. However, it warns that rising wage pressures could push cash cost of production higher again next year, although the lower fertilizer cost could mitigate the extent of the increase.

Paring earnings estimate further
While our FY13 earnings estimate is probably one of the lowest on the street, we need to slash it further by 31% (FY14 by 12%), while keeping our revenue forecasts largely unchanged. No doubt that the worst may be over, we note that the recent price rally looks overdone. As such, we maintain our SELL rating with an unchanged fair value of S$0.465 (based on 12.5x FY14F EPS versus 11x blended FY13/FY14F EPS). 

Noble Group

OCBC on 13 Nov 2013

Noble Group (Noble) reported its 3Q13 results last evening, with revenue rising 13% YoY to US$25,595m, buoyed by revenue growth from all three business segments. Excluding non-cash Associate loss of US$103m, core earnings would have come in around US$113.0m. 9M13 revenue of US$73,524m met 74% of our full-year forecast; core earnings of US$194.1m would have met around 64% of our FY13 estimate. Going forward, management says it will continue to focus on long-term efficiency gains made from recent initiatives to reduce SAO and finance cost; also taking full advantage of the current downturn to add significant off-take and marketing agreements. We are upgrading our call from Sell to HOLD with higher S$1.03 fair value (versus S$0.76 previously) to reflect improved outlook.

3Q13 Associate loss is non-cash
Noble Group (Noble) reported its 3Q13 results last evening, with revenue rising 13% YoY to US$25,595m, buoyed by revenue growth from all three business segments. Although reported net profit slipped 70% to US$22.9m, Noble noted that core earnings would have come in around US$113.0m if the non-cash charge of US$103m from its share of Yancoal's loss was excluded. 9M13 revenue of US$73,524m met 74% of our full-year forecast; core earnings of US$194.1m would have met around 64% of our FY13 estimate.

Agriculture business back in the black
As expected, the Energy segment was still its star performer. In addition, we note that its Agriculture business has done well, going back into the black with US$14m of operating profit (versus losses of US$54m in 2Q13 and US$67m in 1Q13). Noble noted the improved performance came from some recovery in crush margins and reduced disruption to the grains and oilseeds origination flows. However, management remains cautious as to the medium-term outlook.

Still focused on cost efficiencies
Going forward, management says it will continue to focus on long-term efficiency gains made from recent initiatives to reduce SAO and finance cost; this after revealing that SAO and gross finance cost in the past four quarters fell by a total of US$128m versus comparable prior period. Noble adds that it is taking full advantage of the current downturn to add significant off-take and marketing agreements.

Raising FV to S$1.03; upgrade to HOLD
As results were mostly in line, we opt to keep our estimates largely unchanged. Our fair value though rises from S$0.76 to S$1.03 (based on 11x FY14F EPS versus 10x blended FY13/FY14F previously to reflect an improved outlook). We also upgrade our call from Sell to HOLD.

Biosensors International

OCBC on 13 Nov 2013

Biosensors International Group (BIG) turned in another poor set of results, with 2QFY14 core PATMI plunging 60.6% YoY to US$11.5m despite a 4.1% growth in revenue to US$83.0m. This was significantly below ours and the street’s expectations, as 1HFY14 core PATMI of US$23.6m (-59.0%) formed only 30.0% of our original FY14 estimates (27.4% of Bloomberg consensus). BIG also lowered its FY14 revenue guidance. While we had previously cautioned that management would have difficulty meeting its previous 15% topline growth guidance and that BIG was also facing mounting cost pressures, the situation appears to be worse than we had expected. In light of the challenging conditions surrounding BIG, we slash our FY14 and FY15 core PATMI projections by 26.9% and 19.1%, respectively. Our DCF-derived fair value estimate consequently declines from S$0.96 to S$0.80. Downgrade BIG from Hold to SELL.

2QFY14 core PATMI a gap below expectations
Biosensors International Group (BIG) turned in another lacklustre set of results, with 2QFY14 core PATMI plunging 60.6% YoY to US$11.5m despite a 4.1% growth in revenue to US$83.0m. This was significantly below ours and the street’s expectations, as 1HFY14 core PATMI of US$23.6m (-59.0%) formed only 30.0% of our original FY14 estimates (27.4% of Bloomberg consensus). 1HFY14 revenue was down marginally by 3.8% to US$159.7m, or 43.0% of our full-year forecast. Disappointingly, there was also no sequential pickup after a poor 1QFY14 as core PATMI slipped 4.9% QoQ.

Revenue guidance lowered; in-line with our prior warning
Despite continued momentum in its core drug-eluting stent sales growth in the EMEA and APAC regions (including a strong recovery in China from 1QFY14), BIG lowered its FY14 revenue guidance, highlighting that it now expects only moderate growth in total revenue. This can be attributed to ASP pressures and delays in royalty income improvement in Japan. While we had previously cautioned that management would have difficulty meeting its previous 15% topline growth guidance and that BIG was also facing mounting cost pressures, the situation appears to be worse than we had expected. Management acknowledged that operating expenses as a percentage of product revenue was on the high side, but said that it was targeting to bring this figure down by enhancing its operational efficiencies and restructuring its cost compositions.

Downgrade to SELL
In light of the challenging conditions surrounding BIG, we slash our FY14 and FY15 core PATMI projections by 26.9% and 19.1%, respectively. Our DCF-derived fair value estimate consequently declines from S$0.96 to S$0.80. Downgrade BIG from Hold to SELL, with further de-rating catalysts likely to come from continued malaise in its near-term financial performance and successful new product launches by competitors.

Nam Cheong

OCBC on 13 Nov 2013

Nam Cheong Limited reported a solid set of 3Q13 results, with revenue surging 140.4% YoY to MYR341.2m and PATMI jumping 86.0% to MYR58.7m. This was the highest ever bottomline achieved by Nam Cheong since its RTO listing in May 2011. Revenue was in-line with our expectations but PATMI exceeded, with 9M13 revenue of MYR851.3m (+71.1%) and PATMI of MYR135.2m (+54.9%) forming 72.4% and 83.4% of our FY13 forecasts, respectively. Looking ahead, we believe that Nam Cheong will be able to leverage on the robust industry outlook to capitalise on growth ahead. We rework our financial model and assumptions following a change in analyst coverage, and derive a new fair value estimate of S$0.37 (previously S$0.35) on Nam Cheong, which is premised on 8.5x FY14F EPS (representing one standard deviation above its historical average forward PER). Maintain BUY.

3Q13 PATMI exceeded expectations
Nam Cheong Limited reported a solid set of 3Q13 results, with revenue surging 140.4% YoY to MYR341.2m and PATMI jumping 86.0% to MYR58.7m. This was the highest ever bottomline achieved by Nam Cheong since its RTO listing in May 2011. Revenue was in-line with our expectations but PATMI exceeded, with 9M13 revenue of MYR851.3m (+71.1%) and PATMI of MYR135.2m (+54.9%) forming 72.4% and 83.4% of our FY13 forecasts, respectively. This strong set of results was driven by both its Shipbuilding and Vessel Chartering divisions. The former saw a 141.9% YoY increase in revenue to MYR319.7m for 3Q13, while the latter’s revenue jumped almost threefold to MYR21.5m.

Robust industry outlook to drive growth ahead
Looking ahead, the increase in demand for rigs and replacement cycle of older OSVs depicts a robust outlook for Nam Cheong, in our view. We believe this positive trend has underpinned Nam Cheong’s strong order book growth, which now stands at MYR1.7b, of which MYR1.4b remains unrecognised (as at 30 Sep 2013). Nam Cheong remains confident of the demand for small and mid-sized AHTS as well as mid-sized PSVs. According to management’s internal estimates, Nam Cheong commands 12% of the global OSV market share (in terms of vessels constructed) and it aims to grow this figure by enhancing its design capabilities for the vessels under its shipbuilding programme.

Reiterate our BUY rating
We rework our financial model and assumptions following a change in analyst coverage. We now forecast Nam Cheong to record a sturdy 46.9% and 37.1% increase in its revenue and PATMI for FY13, followed by another 31.9% and 24.3% growth in FY14, respectively. Ascribing a 8.5x target peg (representing one standard deviation above its historical average forward PER) to our FY14 projections, we derive a new fair value estimate of S$0.37 (previously S$0.35). Maintain BUY.