OCBC on 11 May 2012
Noble Group (Noble) reported 1Q12 revenue rising 14.1% YoY and 13.5% QoQ to US$22.8b – meeting 26.1% of our FY12 forecast. Net profit fell 45.8% YoY (down 1.3% QoQ) to US$110.1m, or 16.8% of our full-year estimate, versus the street’s S$166m consensus; but if we strip out profit (loss) on supply chain assets, its recurring income was just down 9.8% YoY and up 35.2% QoQ at US$135.8m (20.7% of forecast). We are paring our FY12 revenue estimate by 1.1% and earnings by 12.1% to reflect potential economic headwinds around the globe. We are also easing back our valuation peg from 11.1x to 10.5x, which in turn reduces our fair value from S$1.46 to S$1.21. Maintain HOLD.
1Q12 earnings below consensus
Noble Group (Noble) reported 1Q12 revenue rising 14.1% YoY and 13.5% QoQ to US$22.8b – meeting 26.1% of our FY12 forecast, driven by the strong performance in its Energy segment. Net profit though fell 45.8% YoY (down just 1.3% QoQ) to US$110.1m, or 16.8% of our full-year estimate; but if we strip out profit (loss) on supply chain assets, its recurring income was just down 9.8% YoY and up 35.2% QoQ at US$135.8m (20.7% of forecast); the street was looking for ~US$166m net profit.
Margin improvements seen in most segments
Meanwhile, Energy and Metals, Minerals and Ores segments saw margin improvements; the former improving from 2.04% in 1Q11 to 2.15% in 1Q12; the latter recovered from 1.36% to 2.19% over the same period. While its Agriculture segment saw solid top line performance, with revenue up 14% YoY led by its Coffee division, overall margin fell from 4.02% to 1.29%, hit by weak crush margins. Meanwhile, Noble added that it has redesigned its supply chain in the Cotton division to minimize and mitigate future risk exposures.
No decision on Agriculture spin-off
Going forward, management expects the agricultural segments’ performance to strengthen over the year and it also notes that consolidation is “clearly going on” in the agricultural industry where it plans to play a role in that process. However, Noble said that no decisions have been made regarding the spin-off of its Agri business. Separately, it notes that the proposed merger between Yanzhou Coal Mining Company and Gloucester Coal is on track, with Gloucester to convene a shareholders meeting to vote on the merger on 4 Jun.
Lower S$1.21 fair value
We are paring our FY12 revenue estimate by 1.1% and earnings by 12.1% to reflect potential economic headwinds around the globe. We are also easing back our valuation peg from 11.1x to 10.5x, which in turn reduces our fair value from S$1.46 to S$1.21. Maintain HOLD.
Monday, 14 May 2012
City Developments
OCBC on 11 May 2012
City Developments (CDL) announced 1Q12 PATMI of S$156.8m, down 44.5% YoY mostly due to the lack of gains from the disposal of The Corporate Office recognized in 1Q11. We judge 1Q12 PATMI, which constitutes 20% of our FY12 forecast, to be broadly in line with consensus and our expectations. Over 1Q12, CDL launched two developments – The Rainforest and Bartley Residences, which has sold 94% and 41% respectively, and we expect at least two more launches in the year ahead. We continue to see good numbers from the hotel segment, with 1Q12 RevPar at M&C, the hotel subsidiary of the group, up 6% YoY in constant currency terms. While management continues to execute strongly, we believe that the share prices are fully priced given uncertainty in the domestic residential market – its core business segment - and the possibility of more property curbs ahead. Maintain SELL with an unchanged fair value of S$8.92.
1Q12 results broadly within expectations
City Developments (CDL) announced 1Q12 PATMI of S$156.8m - down 44.5% YoY mostly due to the lack of gains from the disposal of The Corporate Office recognized in 1Q11. Excluding disposal gains, however, PATMI would have increased by 14.8%. We judge 1Q12 numbers, which constitutes 20% of our FY12 forecast, to be broadly in line with consensus and our expectations. Topline came in at S$846.7m - up 9.4% YoY – mainly due to maiden contributions from the Glyndebourne, 368 Thomson, Cube 8, Hundred Trees and Tree House.
Expect at least two more launches this year
Over 1Q12, CDL launched two developments – The 466-unit Rainforest and 702-unit Bartley Residences, which has sold 94% and 41% respectively. Other on-going projects continue to convert sales, with Blossom Residences and The Palette over 89% and 73% sold, respectively. Looking ahead, we expect CDL to launch the 70-unit UP@Robertson Quay, along the Singapore River, and HAUS@SERANGOON GARDEN which is a landed housing development comprising of 96 terrace houses at Serangoon way.
Steady performance seen at hotel segment
Strong numbers from the hotel segment continued with 1Q12 PBT up 30.4% YoY to S$40.3m. Overall RevPar at M&C, the hotel subsidiary, was up by 6% YoY (constant currency terms) in 1Q12. In particular, we saw good RevPar growth in key cities: Singapore (7.7%), London (7.0%) and New York (0.6%). We also saw an impressive 21.6% RevPar growth in the Rest of Asia segment, backed by double-digit growth in Kuala Lumpur, Jakarta, Beijing and Seoul. Refurbishment works at four premium hotels in Seoul, New York, Taipei and London remain on track, and the planned 325-room hotel site in Ginza, Japan, expected to complete by 2014, has began demolition works.
Maintain SELL
While management continues to execute strongly, we believe that the share prices are fully priced given uncertainty in the domestic residential market – its core business segment - and the possibility of more property curbs ahead. Maintain SELL at an unchanged fair value estimate of S$8.92.
City Developments (CDL) announced 1Q12 PATMI of S$156.8m, down 44.5% YoY mostly due to the lack of gains from the disposal of The Corporate Office recognized in 1Q11. We judge 1Q12 PATMI, which constitutes 20% of our FY12 forecast, to be broadly in line with consensus and our expectations. Over 1Q12, CDL launched two developments – The Rainforest and Bartley Residences, which has sold 94% and 41% respectively, and we expect at least two more launches in the year ahead. We continue to see good numbers from the hotel segment, with 1Q12 RevPar at M&C, the hotel subsidiary of the group, up 6% YoY in constant currency terms. While management continues to execute strongly, we believe that the share prices are fully priced given uncertainty in the domestic residential market – its core business segment - and the possibility of more property curbs ahead. Maintain SELL with an unchanged fair value of S$8.92.
1Q12 results broadly within expectations
City Developments (CDL) announced 1Q12 PATMI of S$156.8m - down 44.5% YoY mostly due to the lack of gains from the disposal of The Corporate Office recognized in 1Q11. Excluding disposal gains, however, PATMI would have increased by 14.8%. We judge 1Q12 numbers, which constitutes 20% of our FY12 forecast, to be broadly in line with consensus and our expectations. Topline came in at S$846.7m - up 9.4% YoY – mainly due to maiden contributions from the Glyndebourne, 368 Thomson, Cube 8, Hundred Trees and Tree House.
Expect at least two more launches this year
Over 1Q12, CDL launched two developments – The 466-unit Rainforest and 702-unit Bartley Residences, which has sold 94% and 41% respectively. Other on-going projects continue to convert sales, with Blossom Residences and The Palette over 89% and 73% sold, respectively. Looking ahead, we expect CDL to launch the 70-unit UP@Robertson Quay, along the Singapore River, and HAUS@SERANGOON GARDEN which is a landed housing development comprising of 96 terrace houses at Serangoon way.
Steady performance seen at hotel segment
Strong numbers from the hotel segment continued with 1Q12 PBT up 30.4% YoY to S$40.3m. Overall RevPar at M&C, the hotel subsidiary, was up by 6% YoY (constant currency terms) in 1Q12. In particular, we saw good RevPar growth in key cities: Singapore (7.7%), London (7.0%) and New York (0.6%). We also saw an impressive 21.6% RevPar growth in the Rest of Asia segment, backed by double-digit growth in Kuala Lumpur, Jakarta, Beijing and Seoul. Refurbishment works at four premium hotels in Seoul, New York, Taipei and London remain on track, and the planned 325-room hotel site in Ginza, Japan, expected to complete by 2014, has began demolition works.
Maintain SELL
While management continues to execute strongly, we believe that the share prices are fully priced given uncertainty in the domestic residential market – its core business segment - and the possibility of more property curbs ahead. Maintain SELL at an unchanged fair value estimate of S$8.92.
Goodpack
Kim Eng on 14 May 2012
In-line with expectations. 3Q12 showed a slowdown in revenue growth, which was slightly disappointing, though bottomline growth of 9% yoy was in-line expectations. The profit growth was achieved with healthy margins, which help mitigate the slower revenue growth.
Slowdown in revenue growth. Revenue grew only 4% yoy, despite an increase in fleet size. This implies a slowdown in fleet utilization which was traced back to global economic weakness during the quarter. About 70% of Goodpack’s revenue is associated with tyremakers (being the end-recipient of both natural rubber and synthetic rubber).
Unlikely to be a company-specific issue. Goodpack’s IBC fleet is generally signed on to medium/long-term contracts, with small volume variations allowed for. However, during the quarter, management shared that many tyremakers, especially factories based in China slowed down production, which in-turn meant delays in its IBC fleet movements or lower utilization. We do not think this is a company specific issue, with evidence of such a slowdown impacting various other listed companies’ result for the quarter.
Strong margins helped cushion profitability. Despite the running cost of a bigger IBC fleet (2.7m, 500k operating under lease), Goodpack achieved commendable margins (net margin of 26.5%) for the quarter, which helped grow net profit 9% yoy to US$11.5m. Profit growth for 9MFY12 so far was 8.5%, and with 4Q12 being seasonally stronger with more contribution of juice business, it is still on track to meet market expectations of 9% bottomline growth for FY12.
Short-term earnings weakness does not affect value proposition. We see short-term earnings weakness as a good buying opportunity. Goodpack has strong long-term pricing power and stable free cash flow. In our scenario analysis, its free cash flow over the next five years and residual value of IBC fleet already gives us a price of $1.62, which should form a strong floor to share price. Our earnings estimates are trimmed by 2-3% and we reiterate BUY with a TP of $2.50, pegged to 20x FY13 PER.
In-line with expectations. 3Q12 showed a slowdown in revenue growth, which was slightly disappointing, though bottomline growth of 9% yoy was in-line expectations. The profit growth was achieved with healthy margins, which help mitigate the slower revenue growth.
Slowdown in revenue growth. Revenue grew only 4% yoy, despite an increase in fleet size. This implies a slowdown in fleet utilization which was traced back to global economic weakness during the quarter. About 70% of Goodpack’s revenue is associated with tyremakers (being the end-recipient of both natural rubber and synthetic rubber).
Unlikely to be a company-specific issue. Goodpack’s IBC fleet is generally signed on to medium/long-term contracts, with small volume variations allowed for. However, during the quarter, management shared that many tyremakers, especially factories based in China slowed down production, which in-turn meant delays in its IBC fleet movements or lower utilization. We do not think this is a company specific issue, with evidence of such a slowdown impacting various other listed companies’ result for the quarter.
Strong margins helped cushion profitability. Despite the running cost of a bigger IBC fleet (2.7m, 500k operating under lease), Goodpack achieved commendable margins (net margin of 26.5%) for the quarter, which helped grow net profit 9% yoy to US$11.5m. Profit growth for 9MFY12 so far was 8.5%, and with 4Q12 being seasonally stronger with more contribution of juice business, it is still on track to meet market expectations of 9% bottomline growth for FY12.
Short-term earnings weakness does not affect value proposition. We see short-term earnings weakness as a good buying opportunity. Goodpack has strong long-term pricing power and stable free cash flow. In our scenario analysis, its free cash flow over the next five years and residual value of IBC fleet already gives us a price of $1.62, which should form a strong floor to share price. Our earnings estimates are trimmed by 2-3% and we reiterate BUY with a TP of $2.50, pegged to 20x FY13 PER.
Amtek
Kim Eng on 14 May 2012
Maintain BUY on higher TP. 3Q12 results came in above expectations despite seasonal weakness. We have raised our full year forecast and target price to SGD1.11 (based on 11x FY13 EPS). Amtek is attractive for its improving outlook with 30+% earnings rebound expected in FYJun13, sub-sector valuations of 6x earnings and attractive dividend yield of almost 7%.
Above expectations. 3Q12 net profit fell 21% YoY to USD7.8m on seasonal weakness. 9M12 net profit of USD24.9m (-30% YoY) comprised 79% of full year forecast, which we have raised by 4%. Also, we believe FY13/14 forecasts are now biased on the upside, even after considering rising wage pressures. Also above expectations was the interim DPS of SGD0.023. Although payout was only 40% of 9M12 net profit, management maintained intent to pay least 50% for the full year.
Improved outlook. Despite the ongoing European crisis, we believe prospects are getting better. After five quarters of QoQ decline, we expect to see a turnaround in 4Q12 and an improving trend in future quarters. One key indicator is rising tool & die sales, which rose to 9.2% of revenue in 3Q12, the highest since 1Q10. While this has depressed short term margins, we see this leading to higher revenue and margin improvement over the next few quarters.
Gaining traction. Overall, 65% of the revenue base should be resilient or see improvement. Amtek was optimistic on a key account in Casing & Enclosure (25% of sales ) where it is gaining access to new business segments. Also, Consumer Electronics (15% of sales) is recovering from overstocking and the largest two customers are now increasing shipments again. Also, it is gaining new products and new customers in Automotive and Imaging & Printing (25% of sales).
Maintain BUY on higher TP of SGD1.11. We continue to value Amtek at 11x FY13 EPS, which has been slightly raised, leading to a higher target price of SGD1.11. Currently, Amtek is trading at 6.4x FY13 PER, significantly below Venture’s valuation of 12-13x earnings. Also, we have raised our FY12 DPS to SGD0.042 (55% payout), yielding an attractive 6.6% at the current level.
Maintain BUY on higher TP. 3Q12 results came in above expectations despite seasonal weakness. We have raised our full year forecast and target price to SGD1.11 (based on 11x FY13 EPS). Amtek is attractive for its improving outlook with 30+% earnings rebound expected in FYJun13, sub-sector valuations of 6x earnings and attractive dividend yield of almost 7%.
Above expectations. 3Q12 net profit fell 21% YoY to USD7.8m on seasonal weakness. 9M12 net profit of USD24.9m (-30% YoY) comprised 79% of full year forecast, which we have raised by 4%. Also, we believe FY13/14 forecasts are now biased on the upside, even after considering rising wage pressures. Also above expectations was the interim DPS of SGD0.023. Although payout was only 40% of 9M12 net profit, management maintained intent to pay least 50% for the full year.
Improved outlook. Despite the ongoing European crisis, we believe prospects are getting better. After five quarters of QoQ decline, we expect to see a turnaround in 4Q12 and an improving trend in future quarters. One key indicator is rising tool & die sales, which rose to 9.2% of revenue in 3Q12, the highest since 1Q10. While this has depressed short term margins, we see this leading to higher revenue and margin improvement over the next few quarters.
Gaining traction. Overall, 65% of the revenue base should be resilient or see improvement. Amtek was optimistic on a key account in Casing & Enclosure (25% of sales ) where it is gaining access to new business segments. Also, Consumer Electronics (15% of sales) is recovering from overstocking and the largest two customers are now increasing shipments again. Also, it is gaining new products and new customers in Automotive and Imaging & Printing (25% of sales).
Maintain BUY on higher TP of SGD1.11. We continue to value Amtek at 11x FY13 EPS, which has been slightly raised, leading to a higher target price of SGD1.11. Currently, Amtek is trading at 6.4x FY13 PER, significantly below Venture’s valuation of 12-13x earnings. Also, we have raised our FY12 DPS to SGD0.042 (55% payout), yielding an attractive 6.6% at the current level.
Sembcorp Industries
Kim Eng on 14 May 2012
Strong delivery from Utilities. Sembcorp Industries (SCI) delivered a good set of 1Q12 results, where a strong pickup in Utilities business compensated nicely for the decline in the Marine business. Group revenue rose to SGD2.4b (+21% YoY, +8% QoQ) while net profit came in at SGD176.7m (+10% YoY, -30% QoQ). We raise our SOTP-based target price to SGD6.20, and upgrade SCI to a BUY.
Further additions to earnings streams. Utilities business surpassed that of the Marine business, accounting for 54% of total net profit, versus 38% from the latter. Additional gas sales in Singapore and higher High Sulphur Fuel Oil prices contributed to the strong performance. Development pipelines for its Utilities business are on track, with the Salalah IWPP and Jurong Island IWWT plant expected to be completed in 2Q12 and 3Q12 respectively. Looking further into 2013 and 2014, we see further additions to income streams from other projects, namely, Banyan Cogen and Multi-utilities facility on Jurong Island, Andhra Pradesh coal-fired power plant in India and Fujairah desalination plant in UAE.
Growing its renewable energy portfolio. Last week, SCI also announced the acquisition of 4 wind power assets and a coal-fired power plant in China for USD85.5m, adding to its renewable energy portfolio, which currently makes up 5% of its energy portfolio. SCI aims to grow this proportion to 10-15%, in line with major power players, so that it would be in a balanced position if carbon taxes are being imposed on its non-renewable energy business.
Still positive on Marine business. We continue to be positive on its Marine business and emphasise that the lower 1Q12 numbers were a result of timing issues and not underperformance. We expect record order wins for the Marine business this year. Current net orderbook is already at SGD7.4b with SGD3.0b in contract wins YTD.
Looking attractive, upgrade to BUY. We raise our SOTP-based target price to SGD6.20, according higher valuation to its Marine and Utilities businesses. The recent pull-back in share price has also made the stock look attractive from a valuation perspective.
Strong delivery from Utilities. Sembcorp Industries (SCI) delivered a good set of 1Q12 results, where a strong pickup in Utilities business compensated nicely for the decline in the Marine business. Group revenue rose to SGD2.4b (+21% YoY, +8% QoQ) while net profit came in at SGD176.7m (+10% YoY, -30% QoQ). We raise our SOTP-based target price to SGD6.20, and upgrade SCI to a BUY.
Further additions to earnings streams. Utilities business surpassed that of the Marine business, accounting for 54% of total net profit, versus 38% from the latter. Additional gas sales in Singapore and higher High Sulphur Fuel Oil prices contributed to the strong performance. Development pipelines for its Utilities business are on track, with the Salalah IWPP and Jurong Island IWWT plant expected to be completed in 2Q12 and 3Q12 respectively. Looking further into 2013 and 2014, we see further additions to income streams from other projects, namely, Banyan Cogen and Multi-utilities facility on Jurong Island, Andhra Pradesh coal-fired power plant in India and Fujairah desalination plant in UAE.
Growing its renewable energy portfolio. Last week, SCI also announced the acquisition of 4 wind power assets and a coal-fired power plant in China for USD85.5m, adding to its renewable energy portfolio, which currently makes up 5% of its energy portfolio. SCI aims to grow this proportion to 10-15%, in line with major power players, so that it would be in a balanced position if carbon taxes are being imposed on its non-renewable energy business.
Still positive on Marine business. We continue to be positive on its Marine business and emphasise that the lower 1Q12 numbers were a result of timing issues and not underperformance. We expect record order wins for the Marine business this year. Current net orderbook is already at SGD7.4b with SGD3.0b in contract wins YTD.
Looking attractive, upgrade to BUY. We raise our SOTP-based target price to SGD6.20, according higher valuation to its Marine and Utilities businesses. The recent pull-back in share price has also made the stock look attractive from a valuation perspective.
OCBC
Kim Eng on 14 May 2012
Hold maintained. Coming in at 32-34% of our full-year forecast and consensus, OCBC’s 1Q12 results were a clear beat, with upside surprise from the insurance division and investment income. We however remain wary of rising NPL trends. Our net profit forecasts are raised by 8-9% for 2012-13 while our TP is raised to SGD8.30 (2012 P/BV of 1.27x) from SGD8.00 (+4%) on higher 2012 ROE estimates of 12.2% (from 10.9% before).
1Q12 net profit jumped 32% YoY to SGD832m. Primary beat came from non-interest income and insurance income. Treasury income from customer flows rose 26% YoY, while net trading income jumped 98% YoY due to higher income from forex and gains from securities trading. GE, meanwhile, saw its life assurance profit increase 47% YoY on higher investment income from its non-participating fund. The offset, however, was that provisions were larger than expected.
Loan growth stalls. While Singapore loan growth was decent at 3% YTD or 12% annualized, overall loan growth was flat QoQ as the bank scaled back on USD trade financing lines and its Malaysian loan book contracted 1% QoQ. The overall pace of expansion todate has lagged management’s guidance of low teens growth.
NIM expansion less than peers. While NIM stabilized QoQ, the 1 bp improvement was less than the 3-4 bps for its peers, as its Malaysian operations saw NIMs contract 13 bps QoQ amid stalled loan growth. Deposits continued to expand, contributing to a significant decline in Malaysia’s loan/deposit ratio to 77% end-Mar from 87% end-Dec 11.
NPLs rise. The negative aspect this quarter is that NPLs rose in absolute and percentage terms to 1% from 0.9% end-Dec 11. This is despite what was supposed to have been a group-wide spring cleaning of its loan book in 4Q11, which contributed to a rise in NPLs back then. Malaysia saw its NPL ratio increase for the second quarter running to 3% from 2.1% as at end-4Q11. Consequently, the group’s credit charge rose to 27 bps in 1Q12 from 21 bps in 4Q11.
Hold maintained. Coming in at 32-34% of our full-year forecast and consensus, OCBC’s 1Q12 results were a clear beat, with upside surprise from the insurance division and investment income. We however remain wary of rising NPL trends. Our net profit forecasts are raised by 8-9% for 2012-13 while our TP is raised to SGD8.30 (2012 P/BV of 1.27x) from SGD8.00 (+4%) on higher 2012 ROE estimates of 12.2% (from 10.9% before).
1Q12 net profit jumped 32% YoY to SGD832m. Primary beat came from non-interest income and insurance income. Treasury income from customer flows rose 26% YoY, while net trading income jumped 98% YoY due to higher income from forex and gains from securities trading. GE, meanwhile, saw its life assurance profit increase 47% YoY on higher investment income from its non-participating fund. The offset, however, was that provisions were larger than expected.
Loan growth stalls. While Singapore loan growth was decent at 3% YTD or 12% annualized, overall loan growth was flat QoQ as the bank scaled back on USD trade financing lines and its Malaysian loan book contracted 1% QoQ. The overall pace of expansion todate has lagged management’s guidance of low teens growth.
NIM expansion less than peers. While NIM stabilized QoQ, the 1 bp improvement was less than the 3-4 bps for its peers, as its Malaysian operations saw NIMs contract 13 bps QoQ amid stalled loan growth. Deposits continued to expand, contributing to a significant decline in Malaysia’s loan/deposit ratio to 77% end-Mar from 87% end-Dec 11.
NPLs rise. The negative aspect this quarter is that NPLs rose in absolute and percentage terms to 1% from 0.9% end-Dec 11. This is despite what was supposed to have been a group-wide spring cleaning of its loan book in 4Q11, which contributed to a rise in NPLs back then. Malaysia saw its NPL ratio increase for the second quarter running to 3% from 2.1% as at end-4Q11. Consequently, the group’s credit charge rose to 27 bps in 1Q12 from 21 bps in 4Q11.
Friday, 11 May 2012
Genting Singapore
OCBC on 11 May 2012
Genting Singapore (GS) posted 1Q12 revenue of S$787m (-14.7% YoY), meeting 21.3% of our full-year forecast – slightly softer than expected. Net profit came in around S$211.5m (-30.9% YoY), or 20.8% of our FY estimate, as overall revenue was affected by lower win percentage and lower business volume in the premium player business. Going forward, management plans to focus on boosting its visitor numbers to its theme park and remains positive on the prospects of IMA over the longer term. Since 1Q12 results were slightly below our forecast, we opt to trim our FY12 estimates by 5-5.3% and FY13 by 2.3-2.4%, noting the impact of IMAs will likely be felt in 2013. This also eases our DCF-based fair value from S$2.02 to S$1.97. And with a sizable cash pile, we believe that an acquisition is likely on the card, although an IR in Japan has slipped down GS’ priority list. Maintain BUY.
1Q12 results slightly under
Genting Singapore (GS) posted 1Q12 revenue of S$787m (-14.7% YoY), meeting 21.3% of our full-year forecast. Revenue was slightly softer than expected, as overall revenue was affected by lower win percentage and lower business volume in the premium player business. But GS noted that overall casino gross revenue grew by 9% QoQ as a result of higher business volume in all gaming business segments. Net profit came in around S$211.5m (-30.9% YoY), or 20.8% of our FY estimate, affected by the lower revenue and higher depreciation expense as GS continues to expand the IR. However, this was mitigated by lower finance costs.
Near-term focus on USS
USS saw daily visitor numbers of 8.2k with an average spend of S$88, with the successful launch of the Transformers the Ride in Dec 2011. Since the break-even point is ~6-7k daily visitors, GS revealed that a number higher than that falls very quickly to the bottom line. Hence, GS will continue to focus on drawing visitors to USS. Additionally, GS is also positive on the issue of the IMA (International Marketing Agent) licenses and revealed that one has started operating in the first week of May. While it does not expect to see any significant revenue boost in the near term, it is hopefully of seeing more approvals over the next 12-18 months, especially for some bigger and better-funded operators.
BUY with new S$1.97 fair value
Since 1Q12 results were slightly below our forecast, we opt to trim our FY12 estimates by 5-5.3% and FY13 by 2.3-2.4%, noting the impact of IMAs will likely be felt in 2013. This also eases our DCF-based fair value from S$2.02 to S$1.97. And with a sizable cash pile, we believe that an acquisition is likely on the card, although an IR in Japan has slipped down GS’ priority list. Maintain BUY.
Genting Singapore (GS) posted 1Q12 revenue of S$787m (-14.7% YoY), meeting 21.3% of our full-year forecast – slightly softer than expected. Net profit came in around S$211.5m (-30.9% YoY), or 20.8% of our FY estimate, as overall revenue was affected by lower win percentage and lower business volume in the premium player business. Going forward, management plans to focus on boosting its visitor numbers to its theme park and remains positive on the prospects of IMA over the longer term. Since 1Q12 results were slightly below our forecast, we opt to trim our FY12 estimates by 5-5.3% and FY13 by 2.3-2.4%, noting the impact of IMAs will likely be felt in 2013. This also eases our DCF-based fair value from S$2.02 to S$1.97. And with a sizable cash pile, we believe that an acquisition is likely on the card, although an IR in Japan has slipped down GS’ priority list. Maintain BUY.
1Q12 results slightly under
Genting Singapore (GS) posted 1Q12 revenue of S$787m (-14.7% YoY), meeting 21.3% of our full-year forecast. Revenue was slightly softer than expected, as overall revenue was affected by lower win percentage and lower business volume in the premium player business. But GS noted that overall casino gross revenue grew by 9% QoQ as a result of higher business volume in all gaming business segments. Net profit came in around S$211.5m (-30.9% YoY), or 20.8% of our FY estimate, affected by the lower revenue and higher depreciation expense as GS continues to expand the IR. However, this was mitigated by lower finance costs.
Near-term focus on USS
USS saw daily visitor numbers of 8.2k with an average spend of S$88, with the successful launch of the Transformers the Ride in Dec 2011. Since the break-even point is ~6-7k daily visitors, GS revealed that a number higher than that falls very quickly to the bottom line. Hence, GS will continue to focus on drawing visitors to USS. Additionally, GS is also positive on the issue of the IMA (International Marketing Agent) licenses and revealed that one has started operating in the first week of May. While it does not expect to see any significant revenue boost in the near term, it is hopefully of seeing more approvals over the next 12-18 months, especially for some bigger and better-funded operators.
BUY with new S$1.97 fair value
Since 1Q12 results were slightly below our forecast, we opt to trim our FY12 estimates by 5-5.3% and FY13 by 2.3-2.4%, noting the impact of IMAs will likely be felt in 2013. This also eases our DCF-based fair value from S$2.02 to S$1.97. And with a sizable cash pile, we believe that an acquisition is likely on the card, although an IR in Japan has slipped down GS’ priority list. Maintain BUY.
SIA
OCBC on 11 May 2012
SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss. For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.
SIA misses consensus estimate in FY12
In our last report on 3 Feb 2012, we highlighted that Singapore Airlines’ (SIA) FY12 PATMI will likely miss consensus estimate. True enough, SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss arising from the early withdrawal of the last of Boeing 747 aircraft within the SIA fleet. Management also recommended a final dividend of S$0.10/share.
Most segments were less profitable
Most of SIA’s business segments were less profitable in 4QFY12 than a year ago. The parent airline recorded an operating loss of S$9m, from a profit of S$93m a year ago, after passenger yields fell while fuel prices remained high. SilkAir’s operating profit slipped 3% YoY to S$39m while SIA Cargo swung from a small profit to an operating loss of S$48m. SIA Engineering provided some cheers by recording a 6% YoY growth in operating profit to S$33m.
Capacity will increase in FY13
For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Advance bookings in the current quarter are higher YoY but air travel in 1QFY12 was notably disrupted by last year’s earthquake in Japan. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12.
Maintain HOLD
We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.
SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss. For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.
SIA misses consensus estimate in FY12
In our last report on 3 Feb 2012, we highlighted that Singapore Airlines’ (SIA) FY12 PATMI will likely miss consensus estimate. True enough, SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss arising from the early withdrawal of the last of Boeing 747 aircraft within the SIA fleet. Management also recommended a final dividend of S$0.10/share.
Most segments were less profitable
Most of SIA’s business segments were less profitable in 4QFY12 than a year ago. The parent airline recorded an operating loss of S$9m, from a profit of S$93m a year ago, after passenger yields fell while fuel prices remained high. SilkAir’s operating profit slipped 3% YoY to S$39m while SIA Cargo swung from a small profit to an operating loss of S$48m. SIA Engineering provided some cheers by recording a 6% YoY growth in operating profit to S$33m.
Capacity will increase in FY13
For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Advance bookings in the current quarter are higher YoY but air travel in 1QFY12 was notably disrupted by last year’s earthquake in Japan. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12.
Maintain HOLD
We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.
Singtel
OCBC on 11 May 2012
SingTel reported its 4QFY12 results this morning, with revenue rising 3% YoY (but down 1% QoQ) to S$4,780m. Revenue was 6.1% ahead of our forecast, lifted by the 4% YoY strengthening of the AUD against the SGD. Core net profit (excluding exceptionals and tax credit) came in around S$1,023m, up 2.5% YoY and 14.3% QoQ, but smack on our forecast. For FY12, revenue gained 4.2% to S$18,825m, or 1.5% ahead of our estimate, while core net profit fell 3.3% to S$3,676m, again smack on our forecast. SingTel has recommended a final dividend of S$0.09/share, bringing the total dividend for this year to S$0.158, representing a payout ratio of 68%. Going forward, SingTel expects consolidated revenue in FY13 to grow at a low single-digit level and EBITDA to remain stable. Free cash flow is estimated to be around S$2.6b, after spending around S$950m of capex in Singapore and A$1.1b in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70%. We maintain BUY but slightly tweaked to S$3.68 from $3.69 to reflect the divestment of Far Eastone.
4QFY12 results in line with forecast
SingTel reported its 4QFY12 results this morning, with revenue rising 3% YoY (but down 1% QoQ) to S$4,780m. Revenue was 6.1% ahead of our forecast, lifted by the 4% YoY strengthening of the AUD against the SGD. Core net profit came in around S$1,023m, up 2.5% YoY and 14.3% QoQ, but smack on our forecast. For FY12, revenue gained 4.2% to S$18,825m, or 1.5% ahead of our estimate, while core net profit fell 3.3% to S$3,676m, again smack on our forecast. SingTel has recommended a final dividend of S$0.09/share, bringing the total dividend for this year to S$0.158, representing a payout ratio of 68%.
Restructured business entity from 1QFY13
Going forward, the group will continue to transform its business to sustain competitiveness, innovation and growth. It has also reorganised itself by customer segments to exploit growth opportunities globally. From the analyst teleconference, we got a sense that management is particularly upbeat about the mobile advertising market, which it had earlier described as “nascent”, and has great potential in the emerging markets in Asia.
Eyes mild EBITDA margin pressure
Back to specifics, SingTel expects consolidated revenue in FY13 to grow at a low single-digit level and EBITDA to remain stable; although this implies potential EBITDA margin pressure, which could arise from initial start-up costs associated with its Group Digital Life segment. Meanwhile, free cash flow (excluding associate dividends) is estimated to be around S$2.6b, after allocating S$950m of capex in Singapore and A$1.1b in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70%.
Maintain BUY with S$3.68 fair value
To reflect the latest guidance, we have raised our FY13 revenue forecast by 1.1% and earnings by 3.4%. Our SOTP-based fair value is slightly tweaked to S$3.68 from $3.69 to reflect the divestment of Far Eastone. Maintain BUY.
SingTel reported its 4QFY12 results this morning, with revenue rising 3% YoY (but down 1% QoQ) to S$4,780m. Revenue was 6.1% ahead of our forecast, lifted by the 4% YoY strengthening of the AUD against the SGD. Core net profit (excluding exceptionals and tax credit) came in around S$1,023m, up 2.5% YoY and 14.3% QoQ, but smack on our forecast. For FY12, revenue gained 4.2% to S$18,825m, or 1.5% ahead of our estimate, while core net profit fell 3.3% to S$3,676m, again smack on our forecast. SingTel has recommended a final dividend of S$0.09/share, bringing the total dividend for this year to S$0.158, representing a payout ratio of 68%. Going forward, SingTel expects consolidated revenue in FY13 to grow at a low single-digit level and EBITDA to remain stable. Free cash flow is estimated to be around S$2.6b, after spending around S$950m of capex in Singapore and A$1.1b in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70%. We maintain BUY but slightly tweaked to S$3.68 from $3.69 to reflect the divestment of Far Eastone.
4QFY12 results in line with forecast
SingTel reported its 4QFY12 results this morning, with revenue rising 3% YoY (but down 1% QoQ) to S$4,780m. Revenue was 6.1% ahead of our forecast, lifted by the 4% YoY strengthening of the AUD against the SGD. Core net profit came in around S$1,023m, up 2.5% YoY and 14.3% QoQ, but smack on our forecast. For FY12, revenue gained 4.2% to S$18,825m, or 1.5% ahead of our estimate, while core net profit fell 3.3% to S$3,676m, again smack on our forecast. SingTel has recommended a final dividend of S$0.09/share, bringing the total dividend for this year to S$0.158, representing a payout ratio of 68%.
Restructured business entity from 1QFY13
Going forward, the group will continue to transform its business to sustain competitiveness, innovation and growth. It has also reorganised itself by customer segments to exploit growth opportunities globally. From the analyst teleconference, we got a sense that management is particularly upbeat about the mobile advertising market, which it had earlier described as “nascent”, and has great potential in the emerging markets in Asia.
Eyes mild EBITDA margin pressure
Back to specifics, SingTel expects consolidated revenue in FY13 to grow at a low single-digit level and EBITDA to remain stable; although this implies potential EBITDA margin pressure, which could arise from initial start-up costs associated with its Group Digital Life segment. Meanwhile, free cash flow (excluding associate dividends) is estimated to be around S$2.6b, after allocating S$950m of capex in Singapore and A$1.1b in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70%.
Maintain BUY with S$3.68 fair value
To reflect the latest guidance, we have raised our FY13 revenue forecast by 1.1% and earnings by 3.4%. Our SOTP-based fair value is slightly tweaked to S$3.68 from $3.69 to reflect the divestment of Far Eastone. Maintain BUY.
UE E&C
OCBC on 11 May 2012
UE E&C (UEEC) reported its 1Q12 results last evening. 1Q12 revenue and net profit fell by 35% and 19% YoY to S$56.6m and S$4.0m respectively, mainly due to lower contribution from existing projects. That said, we note that revenue recognition of construction contracts are usually lumpy in nature, and may not be an accurate reflection on the progress made on DBSS/EC projects. Looking ahead, we fear that labour costs could rise given the stricter foreign manpower quota. Therefore, we eased our gross margin assumption to 17-18% (previously: 20%). This in turn lowered our SOTP-derived fair value to S$0.71 (previously S$0.82). Maintain BUY.
1Q results
UE E&C (UEEC) reported its 1Q12 results last evening. 1Q12 revenue and net profit fell by 35% and 19% YoY to S$56.6m and S$4.0m respectively, mainly due to lower contribution from existing projects. That said, we note that revenue recognition of construction contracts are lumpy in nature, and may not be an accurate reflection on the progress made on DBSS/EC projects. During the quarter, administrative cost also fell by 13.1% YoY to S$2.6m (1Q11: S$3.0m) due to an absence of listing expenses. Other income jumped to S$1m (1Q11: negligible) from fair value gains on investments.
Lumpy revenue recognition
Revenue recognition on construction contracts typically follows the percentage-of-completion (POC) method. However, INT FRS 115 requires the use of completion-of-construction (COC) method for DBSS and EC projects. This inevitably leads lumpy recognition of revenue (and profit) after a DBSS/EC project obtained TOP. To illustrate, UEEC’s FY11 net profit doubled to S$64.4m (9 months: S$30.2m) after its DBSS project, Park Central @ AMK, had obtained TOP in 3Q11. Looking ahead, we expect UEEC to begin work on its latest EC project in Pasir Ris (‘Watercolours’) in 2H12 and complete it by 2015. This also implies that the construction work done on the project may not be fully recognized until 2015.
Labour crunch
Besides the Pasir Ris EC project, UEEC is also working on the Austville Residences, National Continuing Education & Training Campus and MGM Grand Ho Tram projects. Although overall gross margin improved slightly to 15.1% (1Q11: 14.0%), we fear that labour costs could rise given the stricter foreign manpower quota for the construction industry. Therefore, we eased our gross margin assumption to 17-18% (previously: 20%). This in turn lowered our SOTP-derived fair value to S$0.71 (previously S$0.82). Maintain BUY.
UE E&C (UEEC) reported its 1Q12 results last evening. 1Q12 revenue and net profit fell by 35% and 19% YoY to S$56.6m and S$4.0m respectively, mainly due to lower contribution from existing projects. That said, we note that revenue recognition of construction contracts are usually lumpy in nature, and may not be an accurate reflection on the progress made on DBSS/EC projects. Looking ahead, we fear that labour costs could rise given the stricter foreign manpower quota. Therefore, we eased our gross margin assumption to 17-18% (previously: 20%). This in turn lowered our SOTP-derived fair value to S$0.71 (previously S$0.82). Maintain BUY.
1Q results
UE E&C (UEEC) reported its 1Q12 results last evening. 1Q12 revenue and net profit fell by 35% and 19% YoY to S$56.6m and S$4.0m respectively, mainly due to lower contribution from existing projects. That said, we note that revenue recognition of construction contracts are lumpy in nature, and may not be an accurate reflection on the progress made on DBSS/EC projects. During the quarter, administrative cost also fell by 13.1% YoY to S$2.6m (1Q11: S$3.0m) due to an absence of listing expenses. Other income jumped to S$1m (1Q11: negligible) from fair value gains on investments.
Lumpy revenue recognition
Revenue recognition on construction contracts typically follows the percentage-of-completion (POC) method. However, INT FRS 115 requires the use of completion-of-construction (COC) method for DBSS and EC projects. This inevitably leads lumpy recognition of revenue (and profit) after a DBSS/EC project obtained TOP. To illustrate, UEEC’s FY11 net profit doubled to S$64.4m (9 months: S$30.2m) after its DBSS project, Park Central @ AMK, had obtained TOP in 3Q11. Looking ahead, we expect UEEC to begin work on its latest EC project in Pasir Ris (‘Watercolours’) in 2H12 and complete it by 2015. This also implies that the construction work done on the project may not be fully recognized until 2015.
Labour crunch
Besides the Pasir Ris EC project, UEEC is also working on the Austville Residences, National Continuing Education & Training Campus and MGM Grand Ho Tram projects. Although overall gross margin improved slightly to 15.1% (1Q11: 14.0%), we fear that labour costs could rise given the stricter foreign manpower quota for the construction industry. Therefore, we eased our gross margin assumption to 17-18% (previously: 20%). This in turn lowered our SOTP-derived fair value to S$0.71 (previously S$0.82). Maintain BUY.
Fortune Real Estate Investment Trust
OCBC on 11 May 2012
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while 5.2ppt was due to the one-and-a-half months contribution from Belvedere Square and Provident Square, which were acquired in mid Feb. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contribution from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU. We maintain our BUY rating and raise our fair value from HK$4.88 to HK$5.22.
Surpassing forecasts
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while the other 5.2ppt was from two properties acquired in mid Feb. Retail continues to remain a bright spot in the HK economy. Average passing rent for the original portfolio rose 11% YoY due to good rental reversions in 2011. Net property income margin declined from 73.6% to 71.5% mainly due to one-off costs associated with the acquisition. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contributions from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU.
Strong financial position
As of 31 Mar, Fortune’s effective interest cost is at 2.87%, down by 78bps from 31 Dec 2011. Management believes that it can keep interest cost below 3%. It has an interest cover of 5.3x and a comfortable gearing ratio of 26% and debt headroom of HK$2.6b before reaching the 35% gearing limit. The REIT has no refinancing needs till 2015.
AEIs still on track
By the end of 2012, Fortune City One would have completed its HK$100m asset enhancement initiative (AEI) and looks likely to exceed its ROI target of 15%. Fortune defines ROI conservatively, looking at returns quantifiable within only the first year. Fortune will also undertake a HK$12m AEI at Jubilee in 3Q. We view AEI as a good way to generate returns for unitholders.
Maintain BUY; raise fair value
Fortune is trading at a P/B of 0.5x (NAV per unit of HK$7.81) and an estimated FY12 dividend yield of 7.6%. We maintain our BUY rating and raise our fair value estimate from HK$4.88 to HK$5.22.
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while 5.2ppt was due to the one-and-a-half months contribution from Belvedere Square and Provident Square, which were acquired in mid Feb. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contribution from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU. We maintain our BUY rating and raise our fair value from HK$4.88 to HK$5.22.
Surpassing forecasts
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while the other 5.2ppt was from two properties acquired in mid Feb. Retail continues to remain a bright spot in the HK economy. Average passing rent for the original portfolio rose 11% YoY due to good rental reversions in 2011. Net property income margin declined from 73.6% to 71.5% mainly due to one-off costs associated with the acquisition. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contributions from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU.
Strong financial position
As of 31 Mar, Fortune’s effective interest cost is at 2.87%, down by 78bps from 31 Dec 2011. Management believes that it can keep interest cost below 3%. It has an interest cover of 5.3x and a comfortable gearing ratio of 26% and debt headroom of HK$2.6b before reaching the 35% gearing limit. The REIT has no refinancing needs till 2015.
AEIs still on track
By the end of 2012, Fortune City One would have completed its HK$100m asset enhancement initiative (AEI) and looks likely to exceed its ROI target of 15%. Fortune defines ROI conservatively, looking at returns quantifiable within only the first year. Fortune will also undertake a HK$12m AEI at Jubilee in 3Q. We view AEI as a good way to generate returns for unitholders.
Maintain BUY; raise fair value
Fortune is trading at a P/B of 0.5x (NAV per unit of HK$7.81) and an estimated FY12 dividend yield of 7.6%. We maintain our BUY rating and raise our fair value estimate from HK$4.88 to HK$5.22.
Kingsmen Creatives
Kim Eng on 11 May 2012
Strong 1Q results. Kingsmen Creatives kickstarts FY12 with a strong set of first quarter results. The group achieved sales of SGD46.9m, up 29.9% YoY, and net profit of SGD2.0m, up 50.7% YoY. Workflow was impressive this quarter and the order book looks solid for the coming year. Though illiquid, the group’s steady earnings stream and attractive dividend yield of 6.3% is hard to stay away from.
Exhibition’s back this quarter. The Exhibitions and Museum division performed exceptionally well, rising 73.7% YoY to SGD22m. This is largely attributed to various exhibitions showcased this quarter, from Art Stage, the Singapore Airshow and Asia Pacific Maritime among other exhibitions and events. The Interior division achieved the same numbers at SGD20m, suggesting workflow is still steady with revenue generated from key customers such as Aldo, Burberry and Coach.
Margins lower; not a worry. Gross margins fell 2.6ppts to 27.2% and net margin declined by 3ppts to 4.2%. This is mainly a seasonality issue as the quarter coincides with Chinese New Year, which means higher salary expenses and a salary adjustment period.
Positive MICE industry outlook. We are impressed with the group’s ability to procure projects not only in Singapore but also several in other countries. The group has confirmed SGD167m in contract orders as of May 2012. This includes exhibitions and events, such as Food and Hotel Asia, Tax Free Asia Pacific, BMW event launches and Yeosu Expo 2012. Its existing projects are also progressing well, with projects at Garden by the Bay, Universal Studios, Sotheby’s Visitor Centre in Hong Kong and more.
Maintain BUY, TP at SGD0.85. We have tweaked our earnings estimates down by 1%. Kingsmen’s current ex-cash valuation is at 7.8x FY12F PER. Our target price is unchanged at SGD0.85 on a SOTP valuation, implying 9.4x FY12F PER. Reiterate BUY.
Strong 1Q results. Kingsmen Creatives kickstarts FY12 with a strong set of first quarter results. The group achieved sales of SGD46.9m, up 29.9% YoY, and net profit of SGD2.0m, up 50.7% YoY. Workflow was impressive this quarter and the order book looks solid for the coming year. Though illiquid, the group’s steady earnings stream and attractive dividend yield of 6.3% is hard to stay away from.
Exhibition’s back this quarter. The Exhibitions and Museum division performed exceptionally well, rising 73.7% YoY to SGD22m. This is largely attributed to various exhibitions showcased this quarter, from Art Stage, the Singapore Airshow and Asia Pacific Maritime among other exhibitions and events. The Interior division achieved the same numbers at SGD20m, suggesting workflow is still steady with revenue generated from key customers such as Aldo, Burberry and Coach.
Margins lower; not a worry. Gross margins fell 2.6ppts to 27.2% and net margin declined by 3ppts to 4.2%. This is mainly a seasonality issue as the quarter coincides with Chinese New Year, which means higher salary expenses and a salary adjustment period.
Positive MICE industry outlook. We are impressed with the group’s ability to procure projects not only in Singapore but also several in other countries. The group has confirmed SGD167m in contract orders as of May 2012. This includes exhibitions and events, such as Food and Hotel Asia, Tax Free Asia Pacific, BMW event launches and Yeosu Expo 2012. Its existing projects are also progressing well, with projects at Garden by the Bay, Universal Studios, Sotheby’s Visitor Centre in Hong Kong and more.
Maintain BUY, TP at SGD0.85. We have tweaked our earnings estimates down by 1%. Kingsmen’s current ex-cash valuation is at 7.8x FY12F PER. Our target price is unchanged at SGD0.85 on a SOTP valuation, implying 9.4x FY12F PER. Reiterate BUY.
City Developments Limited
Kim Eng on 11 May 2012
Results in line. City Developments Limited (CDL) reported a 1Q12 net profit of SGD156.8m, down 44.5% YoY. Excluding one-off items, core PATMI decreased by 22% YoY mainly due to lower development profit recognized. Coming in at approximately 17% of our full-year estimate, CDL’s 1Q12 results are largely in line with expectations. Without any foreseeable positive catalysts, we are maintaining our HOLD rating.
Recognising profits from projects with lower margins. While property development continues to account for the bulk of CDL’s earnings at 41% of PBT, overall margins appear to be declining from 38.8% in 1Q11 to 22.3% in 1Q12 as high-margin projects such as One Shenton and Cliveden at Grange were completed in 2011. As of 1Q12, profits from H2O Residences, Buckley Classique, The Palette, Bartley Resdences, Blossom Residences and The Rainforest have not been recognized due to their early stages of construction.
Two launches on the way. CDL is preparing to launch the 70-unit UP@Robertson Quay very shortly. Part of a mixed development with a 300-room lifestyle hotel called M Social, UP@Robertson Quay will have an array of smaller-sized riverside apartments. CDL will also be rolling out 96 units of terrace houses in the development known as HAUS@Serangoon Garden. We think that demand should be quite strong given its location and the limited supply of landed housing.
Confidence in China reaffirmed. As expected, CDL remains confident about its investments in Chongqing, as demand will continue to be driven by progressive urbanization, strong economic growth and pro-business policies, even under new Party Secretary Zhang Dejiang. CDL will still continue to seek further acquisitions in China.
Near-term upside limited. We maintain our belief that the possibility of further property cooling measures in Singapore remains high and further upside in CDL’s share price is likely to be limited even if current valuations are inexpensive. Maintain HOLD with a target price of $9.45, pegged at a 25% discount to RNAV.
Results in line. City Developments Limited (CDL) reported a 1Q12 net profit of SGD156.8m, down 44.5% YoY. Excluding one-off items, core PATMI decreased by 22% YoY mainly due to lower development profit recognized. Coming in at approximately 17% of our full-year estimate, CDL’s 1Q12 results are largely in line with expectations. Without any foreseeable positive catalysts, we are maintaining our HOLD rating.
Recognising profits from projects with lower margins. While property development continues to account for the bulk of CDL’s earnings at 41% of PBT, overall margins appear to be declining from 38.8% in 1Q11 to 22.3% in 1Q12 as high-margin projects such as One Shenton and Cliveden at Grange were completed in 2011. As of 1Q12, profits from H2O Residences, Buckley Classique, The Palette, Bartley Resdences, Blossom Residences and The Rainforest have not been recognized due to their early stages of construction.
Two launches on the way. CDL is preparing to launch the 70-unit UP@Robertson Quay very shortly. Part of a mixed development with a 300-room lifestyle hotel called M Social, UP@Robertson Quay will have an array of smaller-sized riverside apartments. CDL will also be rolling out 96 units of terrace houses in the development known as HAUS@Serangoon Garden. We think that demand should be quite strong given its location and the limited supply of landed housing.
Confidence in China reaffirmed. As expected, CDL remains confident about its investments in Chongqing, as demand will continue to be driven by progressive urbanization, strong economic growth and pro-business policies, even under new Party Secretary Zhang Dejiang. CDL will still continue to seek further acquisitions in China.
Near-term upside limited. We maintain our belief that the possibility of further property cooling measures in Singapore remains high and further upside in CDL’s share price is likely to be limited even if current valuations are inexpensive. Maintain HOLD with a target price of $9.45, pegged at a 25% discount to RNAV.
Noble
Kim Eng on 11 May 2012
Look past the 46% net profit decline. 1Q12 was generally in-line with market expectations. Although headline net profit showed a 46% yoy decline to USD110m, this was largely due to a USD78m swing in nonrecurring asset profit. Excluding this, recurring net profit was USD136m, which was a 10% decline yoy but a good improvement from 4Q12.
Usual quarterly run-rate. Profitability appears to be back on track to its usual quarterly run-rate of USD150m-USD200m. The USD26m loss for supply chain assets relates mainly to its long-term equity portfolio as well as miscellaneous charges. For the same quarter last year, there was a USD53m gain from disposal of its fleet management business. This is more commendable taking into account an addition seasonal effect at its agricultural business. Going forward, we are likely to experience weaker 1st quarters given the addition of its two newly acquired sugar mills in Brazil. for its
Additional seasonal effect. This set of results is more commendable taking into account an addition seasonal effect at its agricultural usiness. Going forward, we are likely to experience weaker 1st uarters given the addition of its two newly acquired sugar mills in Brazil. Production season is usually April-Dec. As a result of this as well as continued weak margins for soybean crushing, the agriculture segment showed weakness with a 63% yoy decline in gross profit.
Risk-off mode probably helped. Other businesses showed healthy profitability. Noble has remained at conservative VaR levels since late last year, which we believe helped protect profitability in this period of market volatility. The due diligence process for the Gloucester and Yancoal has been recently completed, and now awaits a Gloucester shareholder meeting to vote through, this is expected to add about 5% to its book value and free up A$412m.
Maintain BUY. While volatility in commodity prices may represent some earnings risk, we see the current share price as a good opportunity to accumulate for the long-term. It is trading at 1.15x P/B, for a company which has consistently generated ROE above 15%. We trim our earnings by 5-9% but maintain BUY with a TP of $1.67 (pegged to 12.5x FY12, average mean).
Singapore Airlines
Kim Eng on 11 May 2012
Core earnings in line, maintain HOLD. We had warned in our results preview that Singapore Airlines (SIA) would suffer from a disappointing 4Q2012, dragged down by high fuel prices and global economic headwinds. SIA’s marginal SGD 5.2 mil operating loss played out broadly in line with our expectations. A SGD 50 mil loss on a disposal of SIA’s final 747-400 aircraft brought its Net Loss for 4Q2012 to SGD 38.2 mil. FY2012 NPATMI at SGD 336 mil was a 70% decline YoY.
Yielding to competition. Passenger yields have come under pressure in 4Q2012 (-3.3% YoY) as well as FY2012 (-0.8% YoY). In the face of intense competition amongst airlines, SIA will continue promotional activities which are expected to place downward pressure on such yields especially in Europe and the US. Figure 2 shows that SIA has almost 20% of FY2012 revenue derived from both these regions.
Fuel pushes passenger break-even loads to 78%. Fuel prices have contributed to push SIA’s break-even passenger load factors to 78% (Figure 3) in FY2012 (FY2011: 75%). Such high break-even loads are unsustainable in the long term when put in context with SIA’s 10-year historical average load factor achieved of 76.8%. Poor profitability will persist if these break-even loads are not brought down by prudent cost and yield management.
Cargo isn’t helping. SIA Cargo reported an operating loss of SGD 119 mil for FY2012, versus a SGD 151 mil profit in FY2011, suffering from a sharp 5.7 percentage point increase in break-even load factor to 67.3%. SIA expects air freight to only gradually recover possibly in the second half of the year.
Getting worse before getting better, Maintain HOLD. All these point to headwinds that will persist in the near term for the aviation sector, especially with the increasingly uncertain political environment in Europe. We maintain our HOLD call, with TP pegged at SIA’s historical mean P/B of 1.0x, but also stand by our belief that SIA remains fundamentally well positioned for a sector-wide recovery, which unfortunately, is not yet in sight.
Core earnings in line, maintain HOLD. We had warned in our results preview that Singapore Airlines (SIA) would suffer from a disappointing 4Q2012, dragged down by high fuel prices and global economic headwinds. SIA’s marginal SGD 5.2 mil operating loss played out broadly in line with our expectations. A SGD 50 mil loss on a disposal of SIA’s final 747-400 aircraft brought its Net Loss for 4Q2012 to SGD 38.2 mil. FY2012 NPATMI at SGD 336 mil was a 70% decline YoY.
Yielding to competition. Passenger yields have come under pressure in 4Q2012 (-3.3% YoY) as well as FY2012 (-0.8% YoY). In the face of intense competition amongst airlines, SIA will continue promotional activities which are expected to place downward pressure on such yields especially in Europe and the US. Figure 2 shows that SIA has almost 20% of FY2012 revenue derived from both these regions.
Fuel pushes passenger break-even loads to 78%. Fuel prices have contributed to push SIA’s break-even passenger load factors to 78% (Figure 3) in FY2012 (FY2011: 75%). Such high break-even loads are unsustainable in the long term when put in context with SIA’s 10-year historical average load factor achieved of 76.8%. Poor profitability will persist if these break-even loads are not brought down by prudent cost and yield management.
Cargo isn’t helping. SIA Cargo reported an operating loss of SGD 119 mil for FY2012, versus a SGD 151 mil profit in FY2011, suffering from a sharp 5.7 percentage point increase in break-even load factor to 67.3%. SIA expects air freight to only gradually recover possibly in the second half of the year.
Getting worse before getting better, Maintain HOLD. All these point to headwinds that will persist in the near term for the aviation sector, especially with the increasingly uncertain political environment in Europe. We maintain our HOLD call, with TP pegged at SIA’s historical mean P/B of 1.0x, but also stand by our belief that SIA remains fundamentally well positioned for a sector-wide recovery, which unfortunately, is not yet in sight.
Singtel
Kim Eng on 11 May 2012
Within expectations. FY12 results and dividends were in line with market expectations. FY13 looks set to be a repeat of FY12, but with the additional dampener of start-up losses from its new Digital L!fe division to contend with. Guidance was subdued, with no catalysts to drive either growth or yield. We maintain our SELL call, with a SOTP-derived target price of $2.82. The dividend yield of 4-5% is not attractive when compared to M1 or StarHub’s better yields and higher potential for earnings upside.
Nothing much to shout about. Underlying net profit of SGD3,676m (down 3% YoY) for FY12 and SGD1,023m (up 3% YoY) for 4Q12 were in line with expectations as 4Q12 benefited from seasonally lower operating costs. However, free cashflow declined YoY to SGD3.5b on the back of lower dividend contributions from associates and higher capex in Singapore and Australia. As a result, final dividend was kept at SGD0.09 a share (68% full year payout).
Subdued guidance. FY13 guidance was subdued, with Singapore and Australia revenue to grow in the low single digits and EBITDA to remain stable. Management expects margins to stay under pressure this year as the Digital L!fe division will still be in start-up stage. Australia is preoccupied with fend off competitors willing to sacrifice margins for market share, while in Singapore, TV content cost could be a source of downside to earnings as the Barclay’s Premier League and other “iconic” content comes up for bidding. The current slide in the Indian rupee could also turn into a longer-lived trend.
No upside for dividends. Also, with free cashflow expected to remain stagnant and SingTel already paying out 83% of free cashflow as dividends, there is unlikely to be further upside to dividends. Further, capex is expected to rise further this year on the back of heavy investments in expansion of 4G network coverage and new investments in data centers to support new business initiatives, such as a new cloud computing service targeted at SMEs.
Within expectations. FY12 results and dividends were in line with market expectations. FY13 looks set to be a repeat of FY12, but with the additional dampener of start-up losses from its new Digital L!fe division to contend with. Guidance was subdued, with no catalysts to drive either growth or yield. We maintain our SELL call, with a SOTP-derived target price of $2.82. The dividend yield of 4-5% is not attractive when compared to M1 or StarHub’s better yields and higher potential for earnings upside.
Nothing much to shout about. Underlying net profit of SGD3,676m (down 3% YoY) for FY12 and SGD1,023m (up 3% YoY) for 4Q12 were in line with expectations as 4Q12 benefited from seasonally lower operating costs. However, free cashflow declined YoY to SGD3.5b on the back of lower dividend contributions from associates and higher capex in Singapore and Australia. As a result, final dividend was kept at SGD0.09 a share (68% full year payout).
Subdued guidance. FY13 guidance was subdued, with Singapore and Australia revenue to grow in the low single digits and EBITDA to remain stable. Management expects margins to stay under pressure this year as the Digital L!fe division will still be in start-up stage. Australia is preoccupied with fend off competitors willing to sacrifice margins for market share, while in Singapore, TV content cost could be a source of downside to earnings as the Barclay’s Premier League and other “iconic” content comes up for bidding. The current slide in the Indian rupee could also turn into a longer-lived trend.
No upside for dividends. Also, with free cashflow expected to remain stagnant and SingTel already paying out 83% of free cashflow as dividends, there is unlikely to be further upside to dividends. Further, capex is expected to rise further this year on the back of heavy investments in expansion of 4G network coverage and new investments in data centers to support new business initiatives, such as a new cloud computing service targeted at SMEs.
Wilmar
Kim Eng on 11 May 2012
Yet another shocker of a quarter. Wilmar’s 1Q12 results were significantly below expectations, with operating profit down 51% yoy to US$205.6m. This is against consensus expectations of single-digit profit growth this year. In recent quarters, despite healthy volume growth, Wilmar’s profitability has exhibited volatile swings, which we believe has dealt a blow to investor confidence.
This time its Oilseeds & Grains. These profit swings have originated mainly from the “Merchandising & Processing” segment, which comprises of Palm & Laurics and Oilseeds & Grains”. This quarter, the weakness came from Oilseeds & Grains which swung from a US$192m pre-tax profit to a US$53m pre-tax loss. This can be traced back to the continuing situation of overcapacity in China, with “poor timing of beans purchases” cited as well.
Trading traits. As we have argued earlier, although Wilmar is positioned as an upstream/ midstream commodity firm, a lot of profitability hinges on this segment, where profitability behaves very much like a trading firm with no real visibility. This is especially so in a period of volatile commodity prices, which should be taken into account. This is not helped by the situation in China, where we estimate the soybean crushing industry is only running at a utilization rate of 50%
Other divisions. The revised Indonesian export duty structure which came into effect in mid-September 2011 benefited its refineries in Indonesia but penalized its Malaysian refineries. Overall we expect neutral effects should the latter implement retaliatory tax rules. The consumer division grew pre-tax profit 37% yoy to US$50m, benefiting from price increases in China and the declining raw material prices, though this segment only accounted for 4% of Group profit last year.
Expect de-rating, earnings risk. We expect further de-rating of the stock as the market recognizes its trading traits as well as its relative lack of growth prospects in existing businesses given its dominant market shares. We also see earnings risk, as we had warned earlier. Our estimates are lowered by 10-15% and our TP lowered to $3.60 based on 14x FY12F (1x PEG). Maintain SELL.
Yet another shocker of a quarter. Wilmar’s 1Q12 results were significantly below expectations, with operating profit down 51% yoy to US$205.6m. This is against consensus expectations of single-digit profit growth this year. In recent quarters, despite healthy volume growth, Wilmar’s profitability has exhibited volatile swings, which we believe has dealt a blow to investor confidence.
This time its Oilseeds & Grains. These profit swings have originated mainly from the “Merchandising & Processing” segment, which comprises of Palm & Laurics and Oilseeds & Grains”. This quarter, the weakness came from Oilseeds & Grains which swung from a US$192m pre-tax profit to a US$53m pre-tax loss. This can be traced back to the continuing situation of overcapacity in China, with “poor timing of beans purchases” cited as well.
Trading traits. As we have argued earlier, although Wilmar is positioned as an upstream/ midstream commodity firm, a lot of profitability hinges on this segment, where profitability behaves very much like a trading firm with no real visibility. This is especially so in a period of volatile commodity prices, which should be taken into account. This is not helped by the situation in China, where we estimate the soybean crushing industry is only running at a utilization rate of 50%
Other divisions. The revised Indonesian export duty structure which came into effect in mid-September 2011 benefited its refineries in Indonesia but penalized its Malaysian refineries. Overall we expect neutral effects should the latter implement retaliatory tax rules. The consumer division grew pre-tax profit 37% yoy to US$50m, benefiting from price increases in China and the declining raw material prices, though this segment only accounted for 4% of Group profit last year.
Expect de-rating, earnings risk. We expect further de-rating of the stock as the market recognizes its trading traits as well as its relative lack of growth prospects in existing businesses given its dominant market shares. We also see earnings risk, as we had warned earlier. Our estimates are lowered by 10-15% and our TP lowered to $3.60 based on 14x FY12F (1x PEG). Maintain SELL.
Thursday, 10 May 2012
Neptune Orient Lines
OCBC on 10 May 2012
Neptune Orient Lines (NOL) reported a net loss of US$254m in 1Q12. Logistic revenue grew 7% YoY to US$394m but was unable to offset the 4% fall in Liner revenue to US$2.0b. Group revenue slipped 3% YoY to US$2.4b. Liner revenue shrank despite a volume gain of 4% YoY because average revenue per 40-foot unit (FEU) came in at 7% lower. Management said NOL’s Efficiency Leadership Programme is on track to achieve US$500m of cost savings in 2012. Freight rates have so far in 2Q12 averaged 33% higher QoQ and current rates should see NOL return to profitability in 2Q12. And with NOL expected to turn profitable, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
Still loss making
Neptune Orient Lines (NOL) released its 1Q12 results and remained in the red with a net loss of US$254m. Despite a 7% YoY growth in Logistic revenue to US$394m, group revenue in 1Q12 slipped 3% YoY to US$2.4b. Liner revenue fell 4% YoY to US$2.0b because average revenue per 40-foot unit (FEU) came in 7% lower YoY at US$2,420, which more than offset its volume gain of 4%.
Efficiency leadership programme on track
At its 4Q11 results briefing, management revealed its plans to achieve US$500m of cost savings in 2012 by improving operational efficiencies under its Efficiency Leadership Programme (ELP). Management said the ELP is on track to achieve its objectives and the programme has helped to reduce total bunker consumption by ~10% even though volume increased by 4% in 1Q12. However, cost of sales per FEU (COS/FEU) in 1Q12 increased by 3% with bunker prices 31% higher YoY. Without the higher bunker price, COS/FEU should have eased 3% lower.
NOL should turn profitable after rate hikes
Plagued by weak freight rates and high bunker prices, 1Q12 has proved to be very challenging for NOL. However, The Shanghai (Export) Containerised Freight Index has so far in 2Q12 averaged 33% higher QoQ. In addition, the transpacific, Asia-Europe and intra-Asia shipping lanes are also averaging 24%, 69% and 36% higher QoQ respectively. Furthermore, Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index is currently averaging 2% lower QoQ, indicating that the previously unrelenting rise in bunker fuel prices has finally ended.
Maintain BUY
With NOL expected to turn profitable in 2Q12, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
Neptune Orient Lines (NOL) reported a net loss of US$254m in 1Q12. Logistic revenue grew 7% YoY to US$394m but was unable to offset the 4% fall in Liner revenue to US$2.0b. Group revenue slipped 3% YoY to US$2.4b. Liner revenue shrank despite a volume gain of 4% YoY because average revenue per 40-foot unit (FEU) came in at 7% lower. Management said NOL’s Efficiency Leadership Programme is on track to achieve US$500m of cost savings in 2012. Freight rates have so far in 2Q12 averaged 33% higher QoQ and current rates should see NOL return to profitability in 2Q12. And with NOL expected to turn profitable, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
Still loss making
Neptune Orient Lines (NOL) released its 1Q12 results and remained in the red with a net loss of US$254m. Despite a 7% YoY growth in Logistic revenue to US$394m, group revenue in 1Q12 slipped 3% YoY to US$2.4b. Liner revenue fell 4% YoY to US$2.0b because average revenue per 40-foot unit (FEU) came in 7% lower YoY at US$2,420, which more than offset its volume gain of 4%.
Efficiency leadership programme on track
At its 4Q11 results briefing, management revealed its plans to achieve US$500m of cost savings in 2012 by improving operational efficiencies under its Efficiency Leadership Programme (ELP). Management said the ELP is on track to achieve its objectives and the programme has helped to reduce total bunker consumption by ~10% even though volume increased by 4% in 1Q12. However, cost of sales per FEU (COS/FEU) in 1Q12 increased by 3% with bunker prices 31% higher YoY. Without the higher bunker price, COS/FEU should have eased 3% lower.
NOL should turn profitable after rate hikes
Plagued by weak freight rates and high bunker prices, 1Q12 has proved to be very challenging for NOL. However, The Shanghai (Export) Containerised Freight Index has so far in 2Q12 averaged 33% higher QoQ. In addition, the transpacific, Asia-Europe and intra-Asia shipping lanes are also averaging 24%, 69% and 36% higher QoQ respectively. Furthermore, Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index is currently averaging 2% lower QoQ, indicating that the previously unrelenting rise in bunker fuel prices has finally ended.
Maintain BUY
With NOL expected to turn profitable in 2Q12, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
ST Engineering
OCBC on 10 May 2012
ST Engineering (STE) released its 1Q12 financial results which were in line with consensus and our estimates. STE’s 1Q12 revenue slipped 2% YoY to S$1.5b but PATMI jumped 21% higher to S$134m. The higher PATMI can primarily be attributed to 1) a 2.2ppt gain in gross margin to 21% and 2) a 173% jump in share of profits of associated companies. Aerospace and Electronics segments displayed stable revenue and pre-tax profit growth in 1Q12. But Land Systems revenue and pre-tax profit contracted 11% and 7% respectively. Marine segment’s pre-tax profit rose 20%, despite recording 10% lower revenue. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish its healthy order book of S$12.2b at end-1Q12. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
1Q12 financials in line with market expectations
ST Engineering (STE) 1Q12 revenue slipped 2% YoY to S$1.5b but PATMI jumped 21% higher to S$134m. This set of results is aligned with the market’s expectations, with both its 1Q12 revenue and PATMI meeting 24% of consensus and our full-year estimates. STE’s higher PATMI in 1Q12 can primarily be attributed to two factors – 1) a 2.2ppt gain in gross margin to 21% and 2) a 173% jump in share of profits of associated companies which, according to management, was boosted by contribution from its associated company that organised the biannual Singapore Airshow.
Most segments remain healthy
STE’s Aerospace and Electronics segments displayed stable growth in 1Q12. Aerospace and Electronics revenues and grew 1% and 2% respectively to S$456m and S$452m, while their pre-tax profits 5% and 4% to S$60m and S$34m. However, STE’s Land Systems revenue and pre-tax profit contracted 11% and 7% respectively to S$317m and S$24m. This contraction was due to the completion of deliveries of Warthog vehicles to the British military in 1H11. On a positive note, Marine segment’s pre-tax profit rose 20% to S$29m, despite recording 10% lower revenue of S$244m. The Marine segment’s improved margin was the result of a more favourable sales mix, coupled with loss provisions made in 1Q11 to a Ropax ferry shipbuilding contract with Louis Dreyfus Armateurs.
Maintain Buy
Management remains optimistic and maintained its guidance of revenue and pre-tax profit growth for FY12. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish, or even grow, its healthy order book of S$12.2b at end-1Q12. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
ST Engineering (STE) released its 1Q12 financial results which were in line with consensus and our estimates. STE’s 1Q12 revenue slipped 2% YoY to S$1.5b but PATMI jumped 21% higher to S$134m. The higher PATMI can primarily be attributed to 1) a 2.2ppt gain in gross margin to 21% and 2) a 173% jump in share of profits of associated companies. Aerospace and Electronics segments displayed stable revenue and pre-tax profit growth in 1Q12. But Land Systems revenue and pre-tax profit contracted 11% and 7% respectively. Marine segment’s pre-tax profit rose 20%, despite recording 10% lower revenue. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish its healthy order book of S$12.2b at end-1Q12. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
1Q12 financials in line with market expectations
ST Engineering (STE) 1Q12 revenue slipped 2% YoY to S$1.5b but PATMI jumped 21% higher to S$134m. This set of results is aligned with the market’s expectations, with both its 1Q12 revenue and PATMI meeting 24% of consensus and our full-year estimates. STE’s higher PATMI in 1Q12 can primarily be attributed to two factors – 1) a 2.2ppt gain in gross margin to 21% and 2) a 173% jump in share of profits of associated companies which, according to management, was boosted by contribution from its associated company that organised the biannual Singapore Airshow.
Most segments remain healthy
STE’s Aerospace and Electronics segments displayed stable growth in 1Q12. Aerospace and Electronics revenues and grew 1% and 2% respectively to S$456m and S$452m, while their pre-tax profits 5% and 4% to S$60m and S$34m. However, STE’s Land Systems revenue and pre-tax profit contracted 11% and 7% respectively to S$317m and S$24m. This contraction was due to the completion of deliveries of Warthog vehicles to the British military in 1H11. On a positive note, Marine segment’s pre-tax profit rose 20% to S$29m, despite recording 10% lower revenue of S$244m. The Marine segment’s improved margin was the result of a more favourable sales mix, coupled with loss provisions made in 1Q11 to a Ropax ferry shipbuilding contract with Louis Dreyfus Armateurs.
Maintain Buy
Management remains optimistic and maintained its guidance of revenue and pre-tax profit growth for FY12. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish, or even grow, its healthy order book of S$12.2b at end-1Q12. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
Sembcorp Marine
OCBC on 10 May 2012
Sembcorp Marine (SMM) reported a 13.7% YoY rise in revenue to S$942.6m and a 24.9% fall in net profit to S$113.1m in 1Q12, such that net profit accounted for 15.6% and 16.5% of ours and the street’s full year estimates, respectively. Margins were lower in 1Q12 due to the initial lower margin from new design rigs; more higher margin projects should be recognised in the upcoming quarters. Meanwhile, enquiries for deepwater rigs remain strong. We tweak our margin assumptions and update the market value of SMM’s stake in COSCO Corp. As such, our fair value estimate falls from S$5.70 to S$5.12. Maintain HOLD.
Soft 1Q12 results
Sembcorp Marine (SMM) reported a 13.7% YoY rise in revenue to S$942.6m and a 24.9% fall in net profit to S$113.1m in 1Q12, such that net profit accounted for 15.6% and 16.5% of ours and the street’s full year estimates, respectively. The increase in revenue was due to the initial revenue recognition for several rigbuilding as well as ship conversion and offshore projects, compared to the same period last year. However, gross profit margin was lower due to the initial lower margin from new design rigs.
Margins dip
The group saw a dip in gross margin to 16.7% in 1Q12 vs 21.8% in 4Q11 and 23.5% in 1Q11. Operating margin was also correspondingly lower at 12.8% in 1Q12. Management previously guided operating margins of 15% or lower for FY12, and is still comfortable with this level as more higher margin projects should be recognised in the upcoming quarters.
Enquiries for deepwater rigs remain strong
SMM has a net order book of S$7.4b with deliveries stretching till 2Q15, and this includes S$3b of orders secured YTD (excluding ship repair). According to management, enquiries for deepwater rigs remain strong and the earliest delivery slots for jack-ups and semis are 2014 and 2015, respectively. However, there is still the possibility of a 2013 jack-up delivery should the price be right.
Maintain HOLD
We lower our operating margin assumptions from 15.5% to 15.0% for FY12 given the soft 1Q12 results, while noting that subsequent quarters should see an increase in margins, starting in 2Q12 when the US$218.5m rig for Gulf Drilling starts initial revenue recognition. We also update the market value of SMM’s stake in COSCO Corp. As such, our fair value estimate falls from S$5.70 to S$5.12. The stock price has dropped by 8.6% since we downgraded it in late Feb vs the STI’s 2.3% slide, but given limited upside potential we maintain our HOLD rating for now.
Sembcorp Marine (SMM) reported a 13.7% YoY rise in revenue to S$942.6m and a 24.9% fall in net profit to S$113.1m in 1Q12, such that net profit accounted for 15.6% and 16.5% of ours and the street’s full year estimates, respectively. Margins were lower in 1Q12 due to the initial lower margin from new design rigs; more higher margin projects should be recognised in the upcoming quarters. Meanwhile, enquiries for deepwater rigs remain strong. We tweak our margin assumptions and update the market value of SMM’s stake in COSCO Corp. As such, our fair value estimate falls from S$5.70 to S$5.12. Maintain HOLD.
Soft 1Q12 results
Sembcorp Marine (SMM) reported a 13.7% YoY rise in revenue to S$942.6m and a 24.9% fall in net profit to S$113.1m in 1Q12, such that net profit accounted for 15.6% and 16.5% of ours and the street’s full year estimates, respectively. The increase in revenue was due to the initial revenue recognition for several rigbuilding as well as ship conversion and offshore projects, compared to the same period last year. However, gross profit margin was lower due to the initial lower margin from new design rigs.
Margins dip
The group saw a dip in gross margin to 16.7% in 1Q12 vs 21.8% in 4Q11 and 23.5% in 1Q11. Operating margin was also correspondingly lower at 12.8% in 1Q12. Management previously guided operating margins of 15% or lower for FY12, and is still comfortable with this level as more higher margin projects should be recognised in the upcoming quarters.
Enquiries for deepwater rigs remain strong
SMM has a net order book of S$7.4b with deliveries stretching till 2Q15, and this includes S$3b of orders secured YTD (excluding ship repair). According to management, enquiries for deepwater rigs remain strong and the earliest delivery slots for jack-ups and semis are 2014 and 2015, respectively. However, there is still the possibility of a 2013 jack-up delivery should the price be right.
Maintain HOLD
We lower our operating margin assumptions from 15.5% to 15.0% for FY12 given the soft 1Q12 results, while noting that subsequent quarters should see an increase in margins, starting in 2Q12 when the US$218.5m rig for Gulf Drilling starts initial revenue recognition. We also update the market value of SMM’s stake in COSCO Corp. As such, our fair value estimate falls from S$5.70 to S$5.12. The stock price has dropped by 8.6% since we downgraded it in late Feb vs the STI’s 2.3% slide, but given limited upside potential we maintain our HOLD rating for now.
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