OUE Hospitality Trust

OCBC on 6 May 2014

OUE Hospitality Trust’s (OUEHT) 1Q14 DPS of 1.68 S cents was 4.3% higher than its prospectus forecast and above our expectation. However, RevPAR of S$248 fell short of its prospectus forecast of S$257 due to lower revenue from transient guests segment. Compared to pro forma 1Q13 RevPAR of S$251, we note that RevPAR was slightly down by 1.2% due to lower room inventory as a result of ongoing renovation. Excluding this impact, 1Q14 RevPAR would have been higher at S$252. OUEHT disclosed that it has completed the refurbishment of a total of 64 guest rooms out of the 430 guest rooms to be renovated, and that the renovation programme is on track to complete in phases by end 2015. For the rest of 2014, management remains positive on the corporate travel, tourism and retail segments in Singapore. We raise our fair value from S$0.82 to S$0.85 after factoring in the better results. Maintain HOLD.

1Q14 results exceeded expectations
OUE Hospitality Trust’s (OUEHT) 1Q14 gross revenue and NPI came in 1.4% and 2.7% higher than its respective prospectus forecasts at S$28.7m and S$25.6m. The stronger topline, we note, was due to higher master lease revenue from Mandarin Orchard Singapore (MOS). While Mandarin Gallery’s effective gross rent of S$23.6 psf pm (S$23.69 in prior period) was in line with forecast, the mall benefited from lower utilities and marketing expenses, thus leading to stronger NPI growth. Coupled with lower trust expenses, DPS registered 1.68 S cents, 4.3% higher than forecast. This also exceeded our expectation, as 1Q14 distribution already formed 26.5% of FY14 DPS projection (consensus: 25.1%).

Better performance due to higher F&B sales
We understand that OUEHT’s move to increase the hotel room revenue from corporate guests segment had resulted in an increase in the number of corporate meetings held at MOS, thus contributing to higher F&B sales. In addition, F&B revenue was boosted by increased banquet sales. Expectedly, MOS also enjoyed strong occupancy and room rates in Feb, thanks to the Singapore Airshow 2014. However, 1Q14 RevPAR of S$248 fell short of its prospectus forecast of S$257 due to lower revenue from transient guests segment, though partially cushioned by higher demand from corporate and wholesale segments. Compared to pro forma 1Q13 RevPAR of S$251, we note that RevPAR was slightly down by 1.2% due to lower room inventory as a result of ongoing renovation. Excluding this impact, 1Q14 RevPAR would have been higher at S$252.

Maintain HOLD
As at Apr 2014, OUEHT disclosed that it has completed the refurbishment of a total of 64 guest rooms out of the 430 guest rooms to be renovated, and that the renovation programme is on track to complete in phases by end 2015. For the rest of 2014, management remains positive on the corporate travel, tourism and retail segments in Singapore. We now factor in the better results into our projections. This raises our fair value from S$0.82 to S$0.85. Maintain HOLD.

Thai Beverage

OCBC on 5 May 2014

Thai Beverage PLC (ThaiBev) is Thailand’s largest and leading beverage producer and distributor. Its four key product segments are Spirits, Beer, Non-Alcoholic Beverage and Food. Its current stronghold in Thailand will serve as a relatively steady income pillar as it expands beyond Thailand and into other product segments. ThaiBev, together with F&N, will have access to distribution networks in Singapore, Malaysia, Thailand and Myanmar. We think ThaiBev is well-positioned to penetrate the regional F&B markets with: 1) an enlarged distribution network waiting to be tapped upon, 2) more diversified products to capture different tastes and income level, and 3) a large war chest for marketing and capacity expansion as one of the biggest regional F&B companies. Using sum-of-the-parts, we initiate with a BUY at S$0.73 TP.

Existing stronghold in Thailand as steady income pillar
Thai Beverage PLC (ThaiBev) is Thailand’s largest and leading beverage producer and distributor. Its four key product segments are Spirits, Beer, Non-Alcoholic Beverage and Food. ThaiBev has substantial market shares in beverage segments in Thailand, accompanied by pricing power and branding. In addition, ThaiBev has 93 sales offices covering every province of Thailand. This enables faster delivery to the market. Its current stronghold in Thailand will serve as a relatively steady income pillar as it expands beyond Thailand and into other product segments.

Unfazed by political turmoil in Thailand
We note that ThaiBev’s revenue grew by 2.4% and 12.4% in 2009 and 2010 respectively despite bouts of prolonged political unrests. Hence, we think the current political unrest’s impact on ThaiBev will not be significant as long as it is contained in terms of area and number of people involved. Meanwhile, we expect ThaiBev to be able to continue executing its long-term strategy.

Exploiting synergies with F&N to become a regional F&B force
ThaiBev, together with F&N, will have access to distribution networks in Singapore, Malaysia, Thailand and Myanmar. F&N has begun distribution of Oishi green tea products in Malaysia, and plans are in place for distribution of F&N’s 100plus in Thailand. We think the cross-distribution opportunities are not exhausted yet as we examine each company’s product portfolio. Furthermore, F&N Dairies and ThaiBev can also leverage on each other’s Thailand network. We think ThaiBev is well-positioned to penetrate the regional F&B markets with: 1) an enlarged distribution network waiting to be tapped upon, 2) more diversified products to capture different tastes and income level, and 3) a large war chest for marketing, capacity expansion etc. by being one of the biggest regional F&B companies.

Initiate with BUY; TP S$0.73
Using sum-of-the-parts, we initiate with a BUY at S$0.73 TP. Our TP implies a 23.0x FY14F PER, which is in line with peers’ average in ThaiBev’s operating segments. We believe the counter is also attractive due to the diversification and liquidity provided to investor.

Tiger Airways Holdings

OCBC on 5 May 2014

Tiger Airways Holdings’ (TR) 4QFY14 revenue declined 35.1% YoY to S$161.9m due to the exclusion of Tigerair Australia, which ceased to be a subsidiary. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m largely due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. Management will be focusing on managing capacity and optimising yield ahead, which includes: 1) grounding eight aircrafts in FY15, and 2) re-assessing its stake in Tigerair Mandala. However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.

Results continue to see red
Tiger Airways Holdings’ (TR) 4QFY14 revenue came in 4.3% above expectations at S$161.9m while operating loss of S$24.2m is 62.5% worse than expectations. On a YoY basis, 4QFY14 revenue declined 35.1% due to the exclusion of Tigerair Australia, which ceased to be a subsidiary from 8 Jul-13. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. On a full year basis, Tigerair Singapore reported operating loss of S$58.6m in FY14, a 180-degree turn from its S$57.1m operating profit in FY13. This is due to the familiar story of weaker yield (-9.9% to 6.74S-cent/rpk) and lower load factor (-6.2ppt to 78.1%), in turn caused by overcapacity and insensible competition. Together with exceptional items (i.e. impairments and provisions) and losses from associates, TR’s net loss widened from S$45.4m in FY13 to S$223.0m in FY14. 

Switching from growth-mode to profitability-mode
Management will be focusing on managing capacity and optimising yield ahead. First, eight aircrafts will be grounded in FY15 (five in Indonesia and three in Philippines). We welcome this move as it will help to reduce operating costs. However, if the grounded aircrafts are unable to be re-deployed or sub-leased to other airlines for a prolonged period, we think further provisions will have to be made. Second, TR has divested its stakes in loss-making Tigerair Australia and Tigerair Philipines in FY14, and is re-assessing its stake in Tigerair Mandala. Third, capacity expansion is checked as orders for nine A320s in 2014-2015 were cancelled, replaced by deliveries further away in 2018-2025.

No turnaround in sight
We like TR’s focus on managing over-capacity and asset-light strategy of network extension through alliances (vs. owning direct stakes previously). However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.

OSIM International

OCBC on 5 May 2014

OSIM International Ltd (OSIM) has grown from strength to strength over the past several years, establishing a strong brands portfolio and delivering solid operational performance via management’s competent execution capabilities. Its latest flagship product is the OSIM uDiva, a triple enjoyment sofa-lounger-massager which is endorsed by popular Korean actor Lee Min Ho. Meanwhile, we expect the full conversion of OSIM’s convertible bonds (CBs) to occur before 5 Jul this year. This would propel OSIM into a solid net cash position of S$300.8m, based on our estimates. We trim our EPS forecasts by 6.8%/6.4% to account for the dilution. Nevertheless, given OSIM’s strengthened balance sheet and investment merits as highlighted earlier, we believe it deserves to command a higher PER target peg of 20x (previously 18x). Applying this to our blended FY14/15F EPS forecasts, we raise our fair value estimate from S$2.90 to S$3.18. Maintain BUY.

Building a strong brand equity
OSIM International Ltd (OSIM) has grown from strength to strength over the past several years, establishing a strong brands portfolio and delivering solid operational performance via management’s competent execution capabilities. Its PATMI increase of 22% during its last 4Q13 results meant that it has now achieved 20 consecutive quarters of YoY earnings growth, which is a remarkable feat amid the uncertain macroeconomic backdrop. From FY09 to FY13, OSIM’s PATMI recorded a stellar CAGR of 44.4%.

Constantly rolling out innovative products
OSIM’s success story has been driven by its ability to constantly introduce cutting-edge innovative new products to the market. Its latest flagship product is the OSIM uDiva, a triple enjoyment sofa-lounger-massager which is compact in size and equipped with a 3D Power-Ball massage technology. Retailing at an introductory price of S$2,588, it is endorsed by popular Korean actor Lee Min Ho. OSIM spends approximately 6-7% of its sales on advertising and promotion activities, with a key strategy on engaging renowned celebrities in Asia.

Robust financial position
We expect the full conversion of OSIM’s convertible bonds (CBs) to occur before 5 Jul this year, the date which OSIM is able to recall the CBs. OSIM’s last closing share price of S$2.90 is significantly above the conversion price of S$1.87. Assuming full conversion, we estimate this would propel OSIM into a solid net cash position of S$300.8m (S$0.38 per share), giving it the ammunition to drive future M&A activities which we expect to be EPS accretive in nature. We raise our FY14 /FY15 PATMI projections by 1.5%/1.9%, but trim our EPS forecasts by 6.8%/6.4% to account for the dilution. Nevertheless, given OSIM’s strengthened balance sheet and investment merits as elaborated earlier, we believe it deserves to command a higher PER target peg of 20x (previously 18x). Applying this to our blended FY14/15F EPS forecasts, we raise our fair value estimate from S$2.90 to S$3.18. Maintain BUY. Key risks to our estimates include a slowdown in macroeconomic growth and launch of imitation products by competitors.

SMRT

OCBC on 5 May 2014

SMRT reported 4QFY14 revenue of S$289.5m (+2.9% YoY) and PATMI of S$16.9m, with the latter a reversal from a net loss of S$11.9m suffered in 4QFY13. For FY14, revenue climbed 4.0% to S$1,163.9m. PATMI dipped 25.7% to S$61.9m but still exceeded our expectations by 11.9%. Looking ahead, we expect improvement from its loss-making Fare business, given the recently implemented fare adjustment exercise and efforts to manage its costs and bolster productivity gains. Although there is still a lack of details on the rail financing framework which has generated much hype, we believe there will eventually be an overall net benefit to SMRT. We increase our FY15 PATMI forecast by 6.7% and introduce our FY16 projections. Rolling forward our DDM valuation, we bump up our fair value estimate from S$1.06 to S$1.25. Given our belief that the worst may be over for SMRT, we upgrade the stock to HOLD.

4QFY14 earnings exceeded our expectations
SMRT reported a 2.9% YoY growth in its 4QFY14 revenue to S$289.5m. PATMI of S$16.9m was a reversal from a net loss of S$11.9m in 4QFY13. Excluding a one-off S$17.3m impairment of interest in an associate in 4QFY13, SMRT’s 4QFY14 PATMI still grew by 215.2%. For FY14, revenue climbed 4.0% to S$1,163.9m, in line with our forecast of S$1,166.7m. PATMI dipped 25.7% to S$61.9m but still exceeded our expectations by 11.9% due largely to higher-than-expected ‘other operating income’. A final DPS of 1.2 S cents was declared, bringing FY14 dividends to 2.2 S cents/share (yield of 1.8%). This was lower than the 2.5 S cents DPS paid out in FY13 but ahead of our 1.8 S cents/share forecast.

Fare business a drag, but mitigated by Non-Fare business
SMRT raked in an operating loss of S$25.0m in FY14 from its Fare business (FY13: operating profit of S$32.3m) but this was mitigated by a 12.4% growth in operating profit from its Non-Fare business to S$106.4m. We expect improvement from its Fare business ahead, given the recently implemented fare adjustment exercise and efforts to manage its costs and bolster productivity gains.

Rail financing framework a likely positive, but details unclear
Most of the questions raised during the analyst briefing were directed to updates on the rail financing framework. Management said that it has already submitted a detailed proposal to LTA in early Apr, but stopped short of giving a timeframe on when it would materialise as there are many issues to be discussed. Although there is still a lack of details, we believe there will eventually be an overall net benefit to SMRT as the very purpose of the rail financing framework is to enhance the sustainability of the sector. Taking into account this latest set of results, we increase our FY15 PATMI forecast by 6.7% and introduce our FY16 projections. Rolling forward our DDM valuation, we bump up our fair value estimate from S$1.06 to S$1.25. Given our belief that the worst may be over for SMRT, we upgrade the stock toHOLD.

Sembcorp Marine

OCBC on 5 May 2014

Sembcorp Marine (SMM) posted a 27% YoY rise in revenue to S$1.34b and a 3% increase in net profit to S$122.48m in 1Q14, both accounting for about 20% of our full year estimates, We judge this to be largely in line with expectations, mainly due to the lumpy nature of revenue recognition in rigbuilding. Looking ahead, we would continue to monitor closely the outlook of the ultra-deepwater and deepwater floater markets, which have seen a softening in dayrates. We have lowered our P/E for SMM (based on blended FY14/15F earnings) in our SOTP valuation from 16x to 15x due to the softer floater market, resulting in a lower fair value estimate of S$4.90 (prev. S$5.26). However, given the upside potential of about 24% (includes 3.2% dividend yield), we maintain our BUY rating on the stock.

1Q14 results largely in line
Sembcorp Marine (SMM) posted a 27% YoY rise in revenue to S$1.34b and a 3% increase in net profit to S$122.48m in 1Q14, both accounting for about 20% of our full year estimates, We judge this to be largely in line with expectations, mainly due to the lumpy nature of revenue recognition in rigbuilding (revenue +33% YoY, -33% QoQ) which accounted for 60% of total turnover in the quarter. Group operating margin at 11.1% was similar to that in 4Q13, but lower than the 13.7% registered in 1Q13.

Ship repair disappoints, but small impact on total revenue
In 1Q14, ship repair revenue saw a mere 1% YoY increase in ship repair revenue to S$158m in the quarter (-3% QoQ) despite the opening of the new integrated yard at the end of last year. As such, we pare our revenue estimates for this segment by ~19% to S$771m for FY14. However, this only has a small impact on our group revenue estimates (drops by ~3%), as ship repair accounts for about 12% of total revenue. 

Softer ultra-deepwater and deepwater floater segment
Meanwhile, day rates in the ultra-deepwater and deepwater floater markets have softened, and though we are seeing more mixed views from long-time customers of SMM, there is undeniably a more muted outlook for these segments in general. However, sentiment in the jack-up market remains relatively strong. YTD, SMM has been able to secure S$1.6b worth of new orders (vs. our FY14F estimate of S$4b), bringing its net order book to S$12.9b. 

Lowering fair value to S$4.90
We have lowered our P/E for SMM (based on blended FY14/15F earnings) in our SOTP valuation from 16x to 15x due to the softer floater market, resulting in a lower fair value estimate of S$4.90 (prev. S$5.26). However, given the upside potential of about 24% (includes 3.2% dividend yield), we maintain our BUY rating on the stock.

Cache Logistics Trust

OCBC on 2 May 2014

Cache Logistics Trust (CACHE) remains one of the most resilient landlords within the industrial REIT subsector. In 1Q14, CACHE delivered a firm set of results, driven by contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within its portfolio. Going forward, management said it will continue its pursuit to grow the portfolio via quality, accretive acquisitions in its key markets. We believe CACHE may possibly conclude at least one acquisition this year, which is likely to propel its growth. In mid-Apr, CACHE also secured an agreement to develop and lease a ramp-up warehouse. This will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse. Maintain BUY and S$1.25 fair value on CACHE. Potential risks ahead include short-term headwinds in the industrial market and renewal risk in 2015.

Solid portfolio and favourable lease structure
Cache Logistics Trust (CACHE) remains one of the most resilient landlords within the industrial REIT subsector. Of the 13 logistics warehouses owned by CACHE, we note that 12 are on triple-net master lease arrangements, which are structured with longer lease durations and locked-in annual rental escalations of 1.25%-2.5%. This has helped CACHE maintain its portfolio occupancy at 100% since its listing in Apr 2010, while providing it with predictable income stream.

Future earnings profile likely to be enhanced
In 1Q14, CACHE delivered a firm set of results, driven by contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within its portfolio. Going forward, management said it will continue its pursuit to grow the portfolio via quality, accretive acquisitions in its key markets (Singapore, China and Malaysia). We believe CACHE may possibly conclude at least one acquisition this year, which is likely to propel its growth. In mid-Apr, CACHE also secured an agreement with DHL Supply Chain to develop and lease a ramp-up warehouse at Tampines LogisPark. This will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse (currently nine in portfolio). According to Colliers International, only ~28.1% of Singapore’s total warehouse stock as of 4Q13 was ramp-up warehouse space. As such, we expect the demand to remain robust.

Potential risks ahead; CACHE well positioned
Nonetheless, the industrial market in Singapore is expected to face some headwinds over the short term, given the government cooling measures and substantial supply (~18% of total stock) of warehouse space in 2014-16. This is likely to put downward pressure on the rental and occupancy rates. There is also renewal risk in 2015, as the master leases for several of its IPO assets expire (34% of portfolio GFA). However, given that CACHE is already in talks to address the lease expiries and that the underlying tenancy is close to full occupancy, we believe CACHE’s performance to remain strong. Maintain BUY and S$1.25 fair value.

COSCO Corp

OCBC on 2 May 2014

COSCO Corp reported a set of in-line results, with a 42% YoY rise in revenue to S$1.04b and a 30% increase in net profit to S$12.6m in 1Q14. We note, however, that an accounting change led to an increase of about S$9.39m in pre-tax profit in the quarter. Arbitration for the drillship is still ongoing, and the group is in talks with potential buyers of the vessel. Meanwhile, COSCO has secured new orders of about US$210m YTD vs our full year estimate of US$2b. Management continues to expect “difficult and challenging” business and operating conditions this year, which does not augur well for a company with a net gearing of 1.1x and is still scaling the offshore learning curve. Maintain SELL with S$0.61 fair value estimate.

Decent 1Q14 results helped by accounting change
COSCO Corp reported a set of in-line results, with a 42% YoY rise in revenue to S$1.04b and a 30% increase in net profit to S$12.6m in 1Q14, accounting for 27% and 27.9% of our full year estimates, respectively. Excluding one-offs such as a S$4.8m fair value loss on forward currency contracts and a S$2.98m reversal of expected losses on construction contracts, core net profit looked decent at S$14.4m. We note, however, that a revision in the estimated useful lives of certain assets had led to an increase of about S$9.39m in pre-tax profit by way of a decrease in depreciation charge in the quarter. 

Hoping to sell deepwater drillship soon
For the deepwater drillship contract that was terminated by Dalian Deepwater Development, arbitration in London is still ongoing. We understand that the contract was cancelled due to a delay in delivery of the vessel (now completed and sitting on COSCO’s books at about US$630m), and the first instalment of US$110m has been refunded to the ship owner, along with interest payment of US$8.1m. However, we still do not have clarity on the eventual financial impact of the arbitration. Meanwhile, COSCO is in talks with potential buyers of the drillship.

Still a risky proposition
As at 31 Mar 2014, the group’s order book stood at US$7.6b, but many orders are likely to be executed at low margins. YTD, COSCO has secured new orders of about US$210m vs our full year estimate of US$2b. Management continues to expect “difficult and challenging” business and operating conditions this year, which does not augur well for a company with a net gearing of 1.1x and is still scaling the offshore learning curve. Maintain SELL with S$0.61 fair value estimate, based on 1x FY/14/15F P/B.

Yangzijiang Shipbuilding

OCBC on 2 May 2014

Yangzijiang Shipbuilding (YZJ) reported a 24% YoY rise in revenue to RMB3.55b and a 11% increase in net profit to RMB799.2m, such that 1Q14 revenue and net profit accounted for about 25% and 29% of our full-year forecasts, respectively. This was due to a higher-than-expected gross profit margin of 29.5% in the quarter vs our expectations of 28%, as well as a lower tax rate of 21%. For the next few quarters, management prefers to be more circumspect on the outlook for margins, while there should be a tax credit in 2Q14 to bump up earnings. Looking ahead, management’s focus will be on order execution. Rolling forward to 9x blended FY14/15F core earnings, our fair value estimate rises from S$1.21 to S$1.29, and with the relatively weak stock performance YTD, we now see an upside potential of about 21% (includes 3.6% dividend yield). Upgrade to BUY.

1Q14 PATMI slightly above
Yangzijiang Shipbuilding (YZJ) reported a 24% YoY rise in revenue to RMB3.55b and a 11% increase in net profit to RMB799.2m, such that 1Q14 revenue and net profit accounted for about 25% and 29% of our full-year forecasts, respectively. The latter was slightly better than our expectations, as well as that of the street’s (forming 33% of Bloomberg’s full year consensus). This was due to a higher-than-expected gross profit margin of 29.5% in the quarter vs our expectations of 28%, as well as a lower tax rate of 21%. We understand that several large ships with better margins were delivered in the quarter, and the group also released contingencies with the delivery of its first 10,000 TEU containership (previously recognized single-digit margins on this 15%-margin project). For the next few quarters, management prefers to be more circumspect on the outlook for margins. 

Expect tax credit in 2Q14
Meanwhile, YZJ’s subsidiary, Jiangsu New Yangzi Shipbuilding, has been accredited as a High/New Tech Enterprise, allowing it to enjoy a preferential corporate tax rate of 15% (from 25%) for a period of three years starting from 2013. We expect a tax credit of about RMB350m which will bump up earnings in 2Q14. 

Focus on order execution
Despite an improving shipbuilding market, YZJ has limited capacity to take on new orders – its yard capacity will be highly utilized till 2016 (US$5.19b orderbook). As such management’s focus is now on the successful execution of projects rather than securing new orders. We have adjusted our earnings estimates, taking into account the lower tax rates. Rolling forward to 9x FY14/15F core earnings, our fair value estimate rises from S$1.21 to S$1.29, and with the relatively weak stock performance YTD, we now see an upside potential of about 21% (includes 3.6% dividend yield). Upgrade to BUY on valuation grounds. 

Soilbuild Business Space REIT

OCBC on 2 May 2014

Soilbuild Business Space REIT (Soilbuild REIT) delivered a strong set of 1Q14 results, with NPI of S$14.2m and DPU of 1.562 S cents coming in 5.3% and 6.1% higher than its respective prospectus forecasts. We note that the portfolio occupancy has reached 100% following the expansion of space by one tenant and new take up by another tenant at Eightrium during the quarter. In addition, positive rental reversions were achieved. Looking ahead, management believes that it is well placed to deliver on the forecasts set out in its prospectus. As announced in Mar, Soilbuild REIT has entered into an agreement to acquire 39 Senoko Way, an industrial property in Woodlands. With the deal expected to be yield-accretive, we believe its earnings profile will be further enhanced upon its expected completion in 2Q. We maintain BUY with a marginally higher fair value of S$0.88 on Soilbuild REIT.

1Q14 results above prospectus forecasts
Soilbuild Business Space REIT (Soilbuild REIT) delivered a strong set of 1Q14 results, with NPI of S$14.2m and distributable income of S$12.6m coming in 5.3% and 6.1% higher than its respective prospectus forecasts. The better performance was mainly attributable to higher revenue, a one-off pre-termination income of S$0.4m from a tenant, and lower property and finance expenses. Similarly, DPU of 1.562 S cents was 6.1% higher than its forecast. Excluding the one-off item, we note that DPU would have been circa 1.51 S cents, largely within market expectations (25.2% of consensus and our FY14F DPU).

Further improvements in operating metrics
Soilbuild REIT’s portfolio occupancy reached 100% (4Q13: 99.9%), following the expansion of space by one tenant and new take up by another tenant at Eightrium during the quarter. Consistent with our channel checks, the 29,041 sqft space at Eightrium that was vacated by Barclays upon its lease expiry in Mar has been taken up by DBS Bank (two year lease tenure signed at market rates). In our view, this is a positive development given that the rental market at Changi Business Park has become increasingly competitive. For the three lease expires in 1Q, we understand that an average rental reversion of 6.6% was achieved. Notably, Soilbuild REIT has also forward-renewed five leases (2.8% of portfolio NLA) expiring in 1Q15 at rents 13.9% higher than preceding contracted rates.

Maintain BUY
Looking ahead, management believes that it is well placed to deliver on the forecasts set out in its prospectus, underpinned by its continued focus on early renewals for its lease expiries and cost containment. As announced in Mar, Soilbuild REIT has entered into an agreement to acquire 39 Senoko Way, an industrial property in Woodlands. With the deal expected to be yield-accretive, we believe its earnings profile will be further enhanced upon its expected completion in 2Q. We maintain BUY on Soilbuild REIT, but raise our fair value marginally higher to S$0.88 from S$0.87 after incorporating the positive 1Q showing.

Venture Corp

OCBC on 2 May 2014

Venture Corp (VMS) reported 1Q14 revenue of S$591.0m (+11.4% YoY) and constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m, and was slightly below our expectations, forming 21.1% of our full-year forecast. Encouragingly, all of VMS’s product segments recorded a positive YoY revenue increase, but we believe this growth also came off the back of a low base in 1Q13. VMS highlighted that the business sentiment of most customers has generally been positive. However, there are still underperforming customers within each of its business segments and hence management cautioned that it is still too early to project a broad-based sustainable recovery. We trim our FY14 PATMI forecast slightly by 2.4% but opt to keep our FY15 projections intact. Consequently, our fair value estimate is lowered from S$7.98 to S$7.78 (15x FY14F EPS). Downgrade VMS to HOLD as upside potential appears limited at this juncture.

1Q14 earnings slightly below expectations
Venture Corp (VMS) reported 1Q14 revenue of S$591.0m, which translated into a YoY growth of 11.4% and constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m, and was slightly below our expectations, forming 21.1% of our full-year forecast. Encouragingly, all of VMS’s product segments recorded a positive YoY revenue increase, with the strongest growth and contribution coming from its Test & Measurement/Medical/Others segment (+24% YoY; 31% of 1Q14 revenue). Nevertheless, we believe this growth also came off the back of a low base in 1Q13. 

More positive sentiment from customers
VMS highlighted that the business sentiment of most customers has generally been positive. However, there are still underperforming customers within each of its business segments and hence management cautioned that it is still too early to project a broad-based sustainable recovery. We believe management has opted to remain relatively cautious in its outlook statement given the following reasons: 1) still uncertain macroeconomic environment despite modest recovery in the developed markets, 2) normalisation of business activities for some customers after exceptional order intake in the past, and 3) uncertainty in orders caused by customers’ restructuring and M&A activities. 

Downgrade to HOLD
We trim our FY14 PATMI forecast slightly by 2.4% but opt to keep our FY15 projections intact. Applying the same 15x PER peg to our FY14F EPS, we derive a lower fair value estimate of S$7.78 (previously S$7.98). VMS’s share price has outperformed the STI by 6.2 ppt since we last upgraded it to a ‘Buy’ on 14 Aug 2013. As upside potential appears limited at this juncture (estimated total returns of 8.0% including FY14F dividend yield of 6.5%), we downgrade VMS to HOLD. The stock trades ex-dividend on 5 May 2014.

Oversea-Chinese Banking Corporation

UOBKayhian on 2 May 2014

FY14F PE (x): 10.6
FY15F PE (x): 10.1
Net profit at S$899m was way above our forecast of S$732m. Significant margin
expansion. Loans expanded 18% yoy and 3.3% qoq. Loan growth was driven by
overseas market, such as Malaysia +5%, Indonesia +7.3% and Greater China +8.6%.
Net interest margin expanded by a significant 6bps qoq to 1.70% due to improved
spread loans and higher yield from interbank loans in China. Net interest income
increased by a hefty 19.2% yoy. Maintain BUY. Our target price of S$11.14 is based
on the conservative assumption that OCBC raised equity capital of S$5,770m to bring
fully loaded CET-1 CAR on a post- acquisition basis from 7.4% to 10.5%.

DBS Group Holdings

UOBKayhian on 2 May 2014

FY14F PE (x): 10.7
FY15F PE (x): 9.6

Core net profit at S$1,033m was way above our forecast of S$868m. Bottom-line would
have been S$1,231m if we include gains of S$223m from the divestment of the
remaining stake in the Bank of Philippine Islands and S$25m donation to the National
Gallery Singapore. Maintain BUY. Our target price of S$22.60 is based on P/B ratio of
1.54x, which is derived from the Gordon Growth Model (ROE: 11.2%, required return:
7.8% and constant growth: 1.5%).

Starhill Global REIT

OCBC on 30 Apr 2014

Starhill Global REIT (SGREIT) announced 1Q14 DPU of 1.24 S cents, 9.5% lower YoY. However, after stripping out the Toshin net arrears in 1Q13, DPU would have registered a 5.1% increase. The Singapore portfolio again hit a high note in 1Q, clocking a 7.6% growth in NPI (excluding Toshin arrears) as a result of improved occupancies and high secured rentals from both the retail and office segments. Notably, Wisma Atria retail achieved a strong 8.9% rental reversion, while the Singapore offices saw a 11.7% reversion. Looking ahead, SGREIT disclosed that it will continue to refine its portfolio and explore potential asset enhancement initiatives (AEIs). We are also positive on SGREIT’s recent move to divest Holon L in Japan. We do not rule out more divestments going forward, which would not only turn SGREIT into a more Singapore-centric landlord but also provide it with resources to implement its AEIs. Maintain BUY and unchanged S$0.90 fair value on SGREIT.

1Q14 growth distorted by Toshin arrears
Starhill Global REIT (SGREIT) released its 1Q14 results last evening. Gross revenue came in at S$49.2m, down 8.3% YoY, while NPI tallied S$39.1m, down 6.7%. The headline growth figures, we note, were distorted by one-off receipt of net rental arrears from Toshin master lease in 1Q13. Excluding this, revenue and NPI would have climbed 1.8% and 2.5%, respectively. Similarly, DPU of 1.24 S cents was 9.5% lower. However, after stripping out the Toshin payout, DPU would have registered a 5.1% increase. We deem the results to be in line with expectations, as the quarterly distribution met 24.1%/24.8% of our/consensus full-year projections.

Robust underlying performance
The Singapore portfolio again hit a high note in 1Q, clocking a 7.6% growth in NPI (excluding Toshin arrears) as a result of improved occupancies and high secured rentals from both the retail and office segments. While Wisma Atria retail sales efficiency of S$130 psf was a tad lower than the S$138 seen in 2013 due to ongoing tenant relocations/renovations, a strong 8.9% rental reversion was achieved. For the Singapore offices, rents for leases committed during the quarter were also 11.7% higher than preceding contracted rates. In Australia, we note that SGREIT continued to benefit from incremental income from Plaza Arcade, thereby pushing the Australia assets’ NPI up 9.9% YoY. This helped to offset lower contribution from its Malaysia and China assets, which were impacted by weaker Malaysian Ringgit and intense competition respectively.

Maintain BUY with unchanged fair value
Looking ahead, SGREIT disclosed that it will continue to refine its portfolio and explore potential asset enhancement initiatives (AEIs). The redevelopment plans to tap unutilised space between David Jones building and Plaza Arcade are now in planning stage, and may be executed in 2H14 in our view. We are also positive on SGREIT’s recent move to divest Holon L in Japan. We do not rule out more divestments going forward, which would not only turn SGREIT into a more Singapore-centric landlord but also provide it with resources to implement its AEIs. Maintain BUY and unchanged S$0.90 fair value on SGREIT.

Vard Holdings

OCBC on 30 Apr 2014

Vard Holdings Limited’s (VARD) 1Q14 PATMI slumped 51.1% YoY to NOK92m and was below our expectations. On a positive note, VARD recorded a third consecutive quarter of EBITDA margin improvement QoQ. Operations at its Brazilian yards are also improving. While we continue to expect FY14 to be a year of recovery for VARD, we see the need to pare our FY14 and FY15 PATMI projections by 10.1% and 2.2%, respectively. Nevertheless, we believe the worst is over for VARD. Given a positive industry outlook and its recent strong order wins which reflect its solid core competencies within the high-end support vessels segment, we believe VARD now deserves a higher target PER peg of 9x (previously ascribed a conservative 8x peg). Applying this to our revised blended FY14/15F EPS forecast, we derive a new fair value estimate of S$0.97 (previously S$0.84). But we maintain our HOLD rating given the limited upside potential.

1Q14 results below expectations, but not as bad as it seems
Vard Holdings Limited’s (VARD) 1Q14 revenue declined slightly by 2.7% YoY to NOK2.67b, meeting 21.3% of our FY14 forecast. PATMI slumped 51.1% YoY to NOK92m, forming just 15.5% of our full-year estimate. Although we expect a much stronger 2H, this set of earnings still came in below our expectations. This was driven largely by higher depreciation expenses and staff costs due to headcount increase at its new Promar yard (number of employees rose from 190 in 1Q13 to 1,210 in 1Q14). On a positive note, VARD recorded a third consecutive quarter of EBITDA margin improvement QoQ (1Q14: 6.4%). Its PBT was also 36.8% higher on a QoQ basis. While we continue to expect FY14 to be a year of recovery for VARD, we see the need to pare our FY14 and FY15 PATMI projections by 10.1% and 2.2%, respectively.

No provisions for contract losses made in 1Q14
VARD has continued to work through its issues in Brazil, and we believe it now has better control over the situation. Encouragingly, management highlighted that no provisions for contract losses were made in 1Q14. While Promar continued to incur start-up losses, operations are in the process of being ramped up and completion of the yard will happen in Jul 2014.

Maintain HOLD
Another positive trend was VARD’s significant orders intake of NOK5.53b (eight vessels) in 1Q14, which boosted its order book value to NOK21.84b, as at 31 Mar 2014. Management did, however, caution that this round of order wins should be considered as exceptional. Still, we believe the worst is over for VARD. Given a positive industry outlook created by increasing demand in Arctic regions and the subsea support and construction vessel segment, we believe VARD’s recent strong order wins reflect its solid core competencies within the high-end support vessels segment. Hence we believe it deserves a higher target PER peg of 9x (previously ascribed a conservative 8x peg). Applying this to our revised blended FY14/15F EPS forecast, we derive a new fair value estimate of S$0.97 (previously S$0.84). But we maintain our HOLD rating given the limited upside potential.

Far East Hospitality Trust

OCBC on 29 Apr 2014

Far East Hospitality Trust (FEHT) reported 1Q14 DPS of 1.30 S cents, down 5.8%, but came in within our expectations. For the quarter, FEHT saw the average occupancy of its hotel portfolio dip 2.1ppt YoY to 83.4%. Management disclosed that Jan was especially weak, due in part to the general weakness in the upscale and mid-tier hotel segments and also the presence of two holidays in the month. Consequently, RevPAR saw a slight decline of 1.3% to S$159 in 1Q. For the serviced residence portfolio, an increase of 1.2% in RevPAU to S$221 was achieved, thanks to higher occupancy of 87.3% which offset a 2.0% fall in average daily rate. Looking ahead, management continued to caution that the operating landscape remains competitive in the near term. However, with the expected completion of the refurbishment works at several of FEHT’s hotels in 2H14, we believe the room rates and competitive edge of the properties will be enhanced. We maintain HOLD on FEHT with a revised fair value of S$0.90.

1Q14 results within expectations
Far East Hospitality Trust (FEHT) reported its 1Q14 results this morning. NPI of S$27.6m was 6.3% higher YoY, while distributable income came in 4.5% higher at S$23.1m. We note that the better performance was mainly due to the new income stream from Rendezvous Hotel Singapore (RHS), which was acquired on 1 Aug 2013. DPS, on the other hand, was down 5.8% YoY to 1.30 S cents, but this is expected because of the enlarged stapled security base following the issue of new securities to part finance the RHS acquisition. For the quarter, DPU made up 23.4%/22.8% of our/consensus full-year forecast. This is in line with expectations given that 1Q is the seasonally weaker quarter.

Details on segmental performance
FEHT saw the average occupancy of its hotel portfolio dip 2.1ppt YoY to 83.4% in 1Q14. Management disclosed that Jan was especially weak, due in part to the general weakness in the upscale and mid-tier hotel segments and also the presence of two holidays in the month. However, the Singapore Airshow in Feb has provided a boost to demand, thereby pushing the average daily rate up 1.2%. Consequently, RevPAR saw a slight decline of 1.3% to S$159 in 1Q. For the serviced residence portfolio, an increase of 1.2% in RevPAU to S$221 was achieved, thanks to higher occupancy of 87.3% which offset a 2.0% fall in average daily rate. The star performer was the retail and office space, raking up 23.6% growth in rental revenue (18.7% contribution to gross revenue).

Maintain HOLD; fair value raised
Looking ahead, management continued to caution that the operating landscape remains competitive in the near term due to restraint in business travel budgets and concentration of hotel room supply within the mid-tier and upscale space. The stronger SGD, which cast a pall for travel originating from Malaysia, India and China in 1Q, may also persist. However, with the expected completion of the refurbishment works at several of FEHT’s hotels in 2H14, we believe the room rates and competitive edge of the properties will be enhanced. We now raise our fair value to S$0.90 from S$0.78 after adjusting our assumptions for the results and rolling our valuation to FY14. Maintain HOLD as FEHT appears fairly priced.

Starhill Global Reit

Kim Eng on 30 Apr 2014

• 1Q14 DPU rose 5.1% YoY to 1.24 SGD cts; revenue up 1.8% YoY excluding payment of Toshin’s rent arrears in 1Q13.
• Non-core Chengdu mall remains a drag on overall portfolio; divestment is essential in our view.
• Maintain HOLD with DDM-derived TP unchanged at SGD0.84.

Results in line with expectations
Excluding the 1Q13 one-time payment of SGD5.3m in accumulated rental arrears from master tenant Toshin at Ngee Ann City, SGREIT posted a 1.8% YoY rise in 1Q14 revenue to SGD49.2m. This increase was bolstered by a 6.2% YoY uptick in revenue from its Singapore properties, offset by lower contributions from properties in Japan, China and Malaysia. Renhe Spring Zongbei Mall in Chengdu, China, continued to languish, with revenue sliding 16.5% QoQ and 29.5% YoY to SGD2.8m amid stiff competition and the slowdown in the high-end luxury retail segment. 1Q14 DPU rose to 1.24 SGD cts, up 5.1% YoY (stripping out the 0.19 SGD cts in 1Q13 from the Toshin payout). Balance sheet remained strong with a low gearing of 29.6%, with 28.6% of total borrowings due for refinancing in 2015 and 23.2% in 2016.

Upcoming lease renewals
In Malaysia, management is eyeing a ~7.2% increase in rent when the master tenancy with Katagreen Development for Starhill Gallery and Lot 10 is up for review in 2016. For Australia, it expects rent for the David Jones Building to go up by ~6% in Aug 2014. In Singapore, there is potential for leasable area expansion when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021. In our view, inorganic acquisitions have a higher chance of “moving the needle”, and management said previously that it was considering the Singapore, Malaysian and Australian markets. We also look forward to further acquisitions and divestments of its non-core assets in China and Japan in FY14E-15E. Until then, we maintain our HOLD recommendation with an unchanged DDM-derived TP of SGD0.84

Vard Holdings

Kim Eng on 30 Apr 2014

• 1Q14 results in line with PATMI of NOK92m making up 15% of our and 16% of consensus forecasts.
• EBITDA margin saw a third consecutive quarter of improvement to 6.4%.
• Selldown unwarranted. Maintain BUY and TP of SGD1.07, based on 1.4x FY14E P/BV, 1SD below its historical mean.

What’s New
Vard reported 1Q14 PATMI of NOK92m (-51.1% YoY, -18.6% QoQ), meeting 15% of our and 16% of consensus forecasts. Despite the sharp decline, we consider the results in line with our expectations and anticipate improvements over the next few quarters. On a pre-tax basis, EBT rose 36.8% QoQ as there was a NOK19m tax write-back in 4Q13. More importantly, EBITDA margin continued to climb higher for the third consecutive quarter, rising 1.3ppt to 6.4%.

What’s Our View
Following yesterday’s non-deal roadshow for Vard, we are even more confident of the company’s recovery. No further provisions were taken in the Niteroi yard while the Promar yard is ramping up according to plan. Management guided for long-term sustainable EBITDA margin of 8-10%, which is in line with our forecasts of 7.9%/9.8% for FY14E/15E.
1Q14 saw an exceptionally high level of order intake of NOK5.5b, achieving 43% of our full-year forecast of NOK12.8b. While this cannot be extrapolated, management is still optimistic on further order wins. Net orderbook is at a five-year high of NOK21.8b, providing strong earnings visibility for the next two years and support for the anticipated recovery. Vard is most positive on the OSCV market, citing opportunities even for AHTS and PSV vessels.
We keep our forecasts intact and view the selldown on the stock as unwarranted. Maintain BUY and TP of SGD1.07, pegged to 1.4x FY14E P/BV, which is 1SD below its historical mean.

Raffles Medical

Kim Eng on 29 Apr 2014

• 1Q14 results slightly below expectations on slower-than-expected revenue growth. But margins remained healthy. 
• Tight capacity at existing Raffles Hospital may curtail growth for now but significant medium-term growth beckons with completion of extension projects in 2016.
• Maintain BUY. Trim DCF-derived TP to SGD3.95, on lower earnings forecasts.

1Q14 results slightly below expectations
Raffles Medical reported 1Q14 revenue of SGD87.6m, up 8% YoY but down 1% QoQ as the first quarter is seasonally the weakest. Healthcare services grew 14.3% YoY and the hospital segment, 4.8% YoY. According to management, the hospital segment posted even growth in terms of volume and pricing, but it was still slightly below our expectations. Accordingly, we lower our revenue growth assumptions, as tight capacity at existing Raffles Hospital may curtail growth.
Margins stayed healthy as management continued to keep a tight lid on operating costs. Higher contracted services costs were largely due to a change in revenue mix, with higher growth coming from the corporate insurance business (healthcare services). This resulted in a net profit of SGD12.6m for 1Q14 (+8% YoY).

Maintain BUY
Management is still in talks with its China partners for two greenfield hospital projects. While the MOUs have a stop-date of Jun 2014, we believe this may be pushed back as the relevant parties iron out further details. We lower our FY14E-16E earnings by 3-5%. Earnings growth is likely to be below historical mid-teens over the next two years, but the company would have a significant growth trajectory once it’s Holland V and hospital extension projects are completed by 2016. We trim our DCF-based TP to SGD3.95 (previously SGD4.11). Maintain BUY.

Hutchison Port Holdings Trust

OCBC on 29 Apr 2014

HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. The trust also reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. Maintain HOLD.

Boost from divestment gain of ACT stake
HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. Management indicates the increase in average revenues per TEU in HK was due to more favorable mix of containers from liners, whereas the increase in China was due to fewer concessions to liners and a lower empty/laden container ratio. 

Outbound cargoes to US and EU showing uptrend
The trust reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. That said, we continue to see upward pressure in terms of cost of services rendered, which increased 11.0% YoY due to higher external contractor costs and inflationary pressures. Capex in 1Q14 also rose 27% YoY to HK$311m, and management indicates that it would revive expansion plans to add one berth each year at Yantian from 2015.

Maintain HOLD
We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. While conditions remain challenging due to a mix of rising labor costs and taxation increases, we see the downside to be limited here due to an attractive FY14F dividend yield of 8.1%. Maintain HOLD.

Raffles Medical Group

OCBC on 29 Apr 2014

Raffles Medical Group (RMG) reported its 1Q14 results, with both revenue and PATMI increasing by 8.0% YoY to S$87.6m and S$14.6m, such that topline and bottomline formed 23.0% and 21.4% of our FY14 forecasts, respectively. This is within our expectations as 1Q is seasonally RMG’s weakest quarter. RMG has started construction of its commercial building at Holland Village and is finalising the development plans for its Raffles Hospital extension. It is also in continued negotiations with its partners on working out the details for two separate greenfield hospital development projects in China. We keep our forecasts intact and expect RMG to record revenue and core PATMI growth of 11.7% and 12.1% in FY14, respectively. Rolling forward our valuations to 30x blended FY14/15F EPS, we derive a higher fair value estimate of S$3.90 (previously S$3.68). Maintain BUY.

1Q14 results within our expectations
Raffles Medical Group (RMG) reported its 1Q14 results, with both revenue and PATMI increasing by 8.0% YoY to S$87.6m and S$14.6m, such that topline and bottomline formed 23.0% and 21.4% of our FY14 forecasts, respectively. This is within our expectations as 1Q is seasonally RMG’s weakest quarter. On a segmental basis, revenue for RMG’s Healthcare Services division rose 14.3% YoY, aided by the addition of more corporate contracts and increased volume of healthcare insurance services. Revenue for its Hospital Services segment grew by a more modest 4.8% YoY. Management highlighted that it experienced slower growth in its Indonesian patients market, which was likely due to the weak SGD-IDR exchange rate and uncertainties caused by the upcoming presidential elections. Nevertheless, we believe this softness is transient in nature, and RMG will continue to focus on providing high quality curative healthcare services and enhancing its specialist offerings.

Update on expansion plans
RMG has started construction work on its commercial building located at Holland Village in early Apr 2014, and management hopes this will be completed by end 2015. It is also working to finalise the development plans for its Raffles Hospital extension, which will boost its capacity by another 220,000 sf. RMG is targeting construction to commence in early 2H14, with a timeframe of ~24 months to completion. Its local projects have a remaining capital commitment of ~S$240m over the next 2.5 years, which we expect RMG to finance with its internal resources and debt. On the overseas expansion front, RMG is still in negotiations with its partners on working out the details for two separate greenfield hospital development projects in China, with the regulatory framework the main focal point of discussion.

Maintain BUY
We keep our forecasts intact and expect RMG to record revenue and core PATMI growth of 11.7% and 12.1% in FY14, respectively. Rolling forward our valuations to 30x blended FY14/15F EPS, we derive a higher fair value estimate of S$3.90 (previously S$3.68). Maintain BUY.

CapitaLand

OCBC on 28 Apr 2014

CapitaLand (CAPL) reported 1Q14 PATMI of S$182.8m, down 1.7% YoY mostly due to the absence of a one-time S$58.7m divestment gain in 1Q13. 1Q14 PATMI now constitutes 20.8% of our full year forecast and we judge 1Q performance to be mostly in line with expectations. An anemic 34 residential units were sold in Singapore over 1Q14, down significantly YoY from the 544 units sold in 1Q13, due to continued headwinds in the domestic housing segment and a lack of new launches over the quarter. We expect the run-rate to pick up ahead, however, as the group pushes to sell remaining inventory by adjusting prices at slower projects. Management reports that newly operational assets, Raffles City Chengdu and Raffles City Ningbo, are gaining good traction. The retail components for both assets are already 98% and 92% committed, respectively, with tenant sales and shopper traffic showing firm double-digits YoY growth. Maintain BUY with an unchanged FV estimate of S$3.79.

1Q14 figures mostly within expectations
CapitaLand (CAPL) reported 1Q14 PATMI of S$182.8m, down 1.7% YoY mostly due to the absence of a one-time S$58.7m divestment gain in 1Q13. 1Q14 PATMI now constitutes 20.8% of our full year forecast and we judge 1Q performance to be broadly in line with expectations. In terms of the topline, 1Q14 revenues fell 3.4% YoY to S$612.6m as we saw lower contributions from Singapore development projects, partially offset by stronger development revenues in China and Vietnam, and higher rental income from investment assets. 

Focused on marketing domestic residential inventory
An anemic 34 residential units were sold in Singapore over 1Q14, down significantly YoY from the 544 units sold in 1Q13, due to continued headwinds in the domestic housing segment and a lack of new launches over the quarter. We expect the run-rate to pick up ahead, however, as the group pushes to sell remaining inventory by adjusting prices at slower projects. Already, we have seen 106 units sold in Apr-14, mostly in Sky Habitat, as prices were lowered by an additional 10% to 15% versus initial launch levels. Over in China, total residential sales in 1Q14 fell 48% YoY to 1.2k units though we also expect the rate of sales to increase ahead as the group looks to launch about 8k units over the remainder of FY14. 

Maintain BUY with unchanged S$3.79 FV
Management reports that newly operational assets, Raffles City Chengdu and Raffles City Ningbo, are gaining good traction. The retail components for both assets are already 98% and 92% committed, respectively, with tenant sales and shopper traffic showing firm double-digits YoY growth. We continue to see value in CAPL shares and are optimistic about recent key strategic moves to simplify the group’s structure and increase shareholder ROE. Even accounting for CMA’s delisting, the group’s balance sheet is likely to remain healthy with S$3.06b in cash and a net gearing of 56%. Maintain BUY with an unchanged FV estimate of S$3.79.

CDL Hospitality Trusts

OCBC on 28 Apr 2014

CDL Hospitality Trusts (CDLHT) reported a 2.2% YoY growth in 1Q14 DPU to 2.75 S cents, ahead of our expectations. Over the quarter, CDLHT witnessed RevPAR growth for both its Maldives and Singapore assets. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. The Australia hotels, which saw reduced contribution in 1Q as a result of a weaker AUD and lower full-year variable income, may also continue to be impacted by the slower Australia economy and lower activity in the mining sector. However, as we factor in the better-than-expected results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.

1Q14 results exceeded expectations
CDL Hospitality Trusts (CDLHT) reported 1Q14 gross revenue of S$43.8m, up 15.3% YoY, due to higher contribution from its Maldives resorts and stable performance from its Singapore hotels. NPI rose at a slower pace of 4.1% to S$36.7m, dragged down by higher operating expenses with the inclusion of Jumeirah Dhevanafushi into CDLHT’s portfolio. Consequently, distributable income increased 3.0% to S$29.9m, while DPU grew 2.2% to 2.75 S cents. Nevertheless, the results were ahead of expectations, as the quarterly distribution made up 26.5% of our FY14 DPU projection.

RevPAR growth for Maldives and Singapore assets
Jumeirah Dhevanafushi made its maiden revenue contribution of S$6.9m, whereas Angsana Velavaru added S$0.7m (+54.1% YoY) to rental revenue. As a whole, the two Maldives resorts registered a RevPAR growth of 10.4% YoY. For the Singapore hotels, RevPAR also improved 0.5% to S$192 on the back of a 1.2ppt increase in occupancy to 88.2% and return of the biennial Singapore Airshow in Feb. This helped to offset the loss of income from the closure of Claymore Link for refurbishment. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate.

Australia hotels hit by weaker AUD and variable income
The Australian hotels saw reduced contribution of S$5.0m in 1Q, down 21.4% YoY. This was attributable to a depreciating AUD and lower full-year variable income of S$1.1m (1Q13: S$2.0m) as a result of softer showing in 2013 and partial closure of Mercure Brisbane. Management cautioned the slower Australian economy and lower activity in the mining sector may lead to continued weakness. 

Maintain HOLD
Looking ahead, CDLHT expects the ~2,500 new rooms supply to perpetuate the competitive environment in Singapore. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. However, as we factor in the better results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.

CapitaRetail China Trust

OCBC on 28 Apr 2014

CapitaRetail China Trust (CRCT) reported 1Q14 DPU of 2.40 S cents, up 3.9% YoY. The improved performance was due to contributions from newly-acquired Grand Canyon and higher rentals from existing malls. We note that the asset enhancement works for CapitaMall Minzhongleyuan is near completion, and that ~90.0% of the mall’s total NLA has been secured or in advanced negotiations for leasing commitments. With the mall’s scheduled reopening in 2Q14, we expect it to provide additional rental uplift to CRCT’s earnings. CRCT is currently the top performer in the S-REITs sector, clocking a 13.2% gain YTD. At its present level, we believe that CRCT is justly valued, with limited upside over the near term. As such, we downgrade CRCT to HOLD from Buy. Our fair value is revised marginally from S$1.54 to S$1.55. 

 

Positive start to FY14
CapitaRetail China Trust (CRCT) reported a promising set of 1Q14 results, with gross revenue growing 15.5% YoY to RMB231.7m and NPI up 17.9% to RMB155.6m. The improved performance was due to contributions from newly-acquired Grand Canyon and higher rentals from its existing malls. In SGD terms, gross revenue and NPI grew at a faster 22.4% and 25.0% YoY to S$48.1m and S$32.3m, respectively, as a result of a stronger RMB. Distributable income rose 13.2% to S$19.6m, while DPU was up 3.9% to 2.40 S cents. This is largely in line with our expectations, as the quarterly DPU formed 25.1% of our FY14 forecast.

Strong operational performance
Leasing demand at the multi-tenanted malls remained robust. Particularly, CRCT again strengthened the occupancy and tenant mix at Grand Canyon since its acquisition in Dec 2013. Occupancy at the mall, we note, stood at 99.8%, up from 95.9% in prior quarter, and included new quality tenants such as Li Ning and Childhood Villas. Over the quarter, positive rental reversion averaging 23.0% was also achieved for the 165 leases renewed/secured at the multi-tenanted portfolio, with Grand Canyon leading the pack at 42.8% growth. Management shared that tenant sales increased 13.9% YoY, whereas shopper traffic grew 7.3%. All these activities helped to contribute to a 39.2% NPI growth for the multi-tenanted malls. For CRCT’s master-leased malls, a 10.1% NPI growth was registered, similarly respectable in our view.

Downgrade on valuation grounds
CRCT disclosed that the asset enhancement works for CapitaMall Minzhongleyuan is near completion, and that ~90.0% of the mall’s total NLA has been secured or in advanced negotiations for leasing commitments. In addition, the secured rental was 11.5% higher than budgeted. With the mall’s scheduled reopening in 2Q14, we expect it to provide additional rental uplift to CRCT’s earnings. CRCT is currently the top performer in the S-REITs sector, clocking a 13.2% gain YTD. At its present level, we believe CRCT is justly valued, with limited upside over the near term. As such, we downgrade CRCT toHOLD from Buy. Our fair value is raised marginally from S$1.54 to S$1.55 after factoring in the results.

Sheng Siong

OCBC on 28 Apr 2014

During Sheng Siong Group’s (SSG) 1Q14 results briefing, management shared updates on growth strategies and business operations. Measures to grow bottom line are: 1) renovation of three stores in FY14, and 2) actively increasing the proportion of goods sold from direct sourcing (currently 55%), which will translate into improved GP margins that are sustainable. In SSG’s usual fashion of prudence, management updated it is in talks for new stores, but would not hesitate to walk away if the price is deemed too high. Finally, the pilot phase in e-commerce has expanded to other areas with a larger base of customers. We think that if this is executed well it will make up for the challenges in opening new stores. Maintain BUY with fair value estimate of S$0.68.

Measures to grow bottom line
During Sheng Siong Group’s (SSG) 1Q14 results briefing, management shared that three stores are slated for renovations in FY14. We view this positively as it shows SSG is constantly reviewing its operations for opportunities to improve growth. Additionally, SSG is actively increasing the proportion of goods sold from direct sourcing, which will translate into improved GP margins that are sustainable. As cost of goods sold (COGS) makes up the bulk of operating cost (82.1% in 1Q14), GP margin improvement will impact profits significantly. Direct sourcing made up 55% of sales in 1Q14 (vs 50% 1Q13), which we think there is ample room for increment.

Maintains cost discipline with new store opening
Management guided that it is in talks for new stores, but would not hesitate to walk away if the price is deemed too high. We like the prudence and discipline displayed in running their business - despite the dearth of new stores in FY13, management has not succumbed to pressure to open new stores at the expense of profitability.

Strategies beyond physical stores in Singapore
The pilot phase in e-commerce has expanded to other areas with a larger base of customers, of which most are recurring. We think that if this is executed well it will make up for the challenges in opening new stores. However, we note that it will require a shift in local shopping habits. In addition, management mentioned they are still looking for a partner to operate in Malaysia.

Maintain BUY but investment risks lurk
We maintain BUY with S$0.68 fair value estimate on the stock. Nevertheless, we think there are two key risks to SSG’s operations. First, if price competition heats up, SSG will not be able to pass on food inflation. However, with a tight labour market that hinders hiring of new staff at current wages to handle higher volume, we think price competition is deterred. Second, structural changes in the retail property market might continue the drought of new stores opening, thus limiting future growth.

Sheng Siong

OCBC on 25 Apr 2014

Sheng Siong Group’s (SSG) 1Q14 revenue increased by 5.7% YoY to S$190m, forming 26.3% of our FY14 forecast. This is within expectations as 1Q results are typically stronger due to Chinese New Year. As a result of better gross profit (GP) margin, 1Q14 operating profit increased proportionally higher by 21.3% to S$15.1m (vs. 5.7% YoY increase in revenue), forming 29.0% of our FY14 forecast. GP margin improved from 22.5% in 1Q13 to 23.8% in 1Q14, which we identify as the key driver for the significant YoY increase in operating profit as COGS made up 82.1% of operating costs in the quarter. We see limited downside to the share price at the last close of S$0.60 as FY14F dividend yield at 4.7% is expected to lend strong support. Maintain BUY with fair value estimate of S$0.68.

1Q14 results within expectations
Sheng Siong Group’s (SSG) 1Q14 revenue increased by 5.7% YoY to S$190m, forming 26.3% of our FY14 forecast. This is within expectations as 1Q results are typically stronger due to Chinese New Year. 2.7% of the revenue increase was contributed by eight new stores which opened in 2012, with the remaining 3.0% from comparable same store sales growth; the latter due to longer operating hours for most stores and marketing initiatives. As a result of better gross profit (GP) margin, 1Q14 operating profit increased proportionally higher by 21.3% to S$15.1m (vs. 5.7% YoY increase in revenue), forming 29.0% of our FY14 forecast. 

Margins as key driver this quarter
GP margin improved from 22.5% in 1Q13 to 23.8% in 1Q14. Despite the seemingly small percentage increase, we identify this as the key driver for the significant YoY increase in operating profit as COGS made up 82.1% of operating costs in the quarter. The better GP margin is due to lower input costs derived from the distribution centre, higher selling prices and rebates received from suppliers in direct sourcing. On the other hand, administrative expenses were lower than expected, making up 15.8% of revenue in 1Q14 compared with an average of 16.2% for FY13. We had expected it to creep upwards as a percentage of revenue on the back of a tight labour market, but this is more than compensated for by tight cost control this quarter. 

Share price’s downside limited; maintain BUY
We see limited downside at the last closing price of S$0.60 for the following reasons: 1) FY14F dividend yield at 4.7% is expected to lend strong support, 2) bottom line will continue to be boosted by margin improvements through better sales mix, higher warehouse utilisation and direct sourcing, and 3) the group has a healthy balance sheet with net cash of S$109m, making up 13% of market capitalisation. Maintain BUY with fair value estimate of S$0.68.

Suntec REIT

OCBC on 25 Apr 2014

Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and contribution from its recent acquisition in Sydney. Over the quarter, Suntec REIT continued to make significant progress on its leasing activities. On its capital management, we note that it has also signed a S$800m five-year unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.

Encouraging set of 1Q14 results

Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and a S$1.9m contribution from its recent acquisition in Sydney. DPU was flat YoY at 2.229 S cents. However, we note that no capital distribution was made in 1Q14, as compared to S$2.7m a year ago. Excluding the capital distribution, DPU would have been up 5.7%. We judge the results to be within expectations, as the DPU constitutes ~24% of ours and consensus FY14F DPU.

Leasing activities progressing well
Suntec REIT continued to make significant progress on its lease management. Within the office segment, over 100,000sqft of leases due to expire in 2014 was renewed, leaving only 9.6% of office space due for expiry for the rest of the year. Notably, average secured rents at Suntec City office continued to trend upwards to reach S$8.97 psf pm (4Q13: S$8.65). At Suntec City retail component, management also disclosed that Phase 1 space has achieved 100% committed occupancy. Given the positive response for Phase 2 AEI, Suntec REIT has brought forward ~32,000sqft from Phase 3 and has achieved 95% pre-commitment for the enlarged area. While retail passing rents at the mall eased from S$13.09 to S$12.69 with the inclusion of Phase 2 space (comprises few anchor tenants), we believe the rates would improve with the leasing of Phase 3, which is the crown jewel of the mall. Thus far, construction costs were within budget, with Phase 2 space expected to open shortly and Phase 3 AEI to complete by 4Q14.

Maintain BUY
On its capital management, Suntec REIT announced that it has signed a S$800m five-year unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. Gearing is also expected to drop to 33.9% from 37.3% currently, while average debt term will be extended to 4.2 years. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.