ThaiBev

CIMB Research on 19 March 2013

OISHI is already an integral engine of ThaiBev; its combination with Fraser and Neave (F&N) and Serm Suk is now being mapped. In a recent company visit, Oishi narrated its aggressive growth plans. We also understood how Serm Suk's returnable-bottle logistics form a formidable barrier of entry.

Weaker 2012 non-alcoholic earnings were due to temporal factors and is not a concern. We tweak our FY13-14 estimates and raise our SOP (sum of parts) target price on a higher target multiple for the non-alcoholic beverage business.

Maintain "outperform" with catalysts to come from earnings delivery by non-alcoholic beverage division.

Oishi has already embarked on an aggressive growth path that is likely to generate sales growth of >20 per cent CAGR (compound annual growth rate) in the next five years. For food, the number of Oishi restaurant chains has grown by 34 per cent in 2012. Another 48 (+31 per cent y-o-y) is likely to be set up in 2013. All these are in Thailand but the group is also open to opportunities outside Thailand. For drinks, access to Serm Suk's returnable-bottle logistics network is key to its reach.

Oishi can now sell its green tea in Serm Suk's returnable bottles; the lower price points are crucial to its reach to the rural and urban poor markets. Drinks' regional expansion may also occur faster than envisioned as management leverages on F&N's distribution strength. The complementary strengths of Oishi, Serm Suk and F&N makes sense for the three entities to be strategically seen as one. Thoughts on how this will shape up are in the works.

Oishi's FY12 margin weakness was due to residual damage from the 2011 floods in Thailand. Distribution and capacity took the bulk of 2012 to return to normal and dependence on third-party facilities and distribution gnawed on margins. This is now water under the bridge. We expect margin to normalise in FY13.

Post-visit, we are more excited with Thai Bev's non-alcoholic beverage business. We raise our fair multiple on this business from 17x to 18x, still in line with regional peers. We think this still understates the value of its business given the strong barriers to entry from ThaiBev's control of Oishi, Serm Suk and F&N.

OUTPERFORM

Tee International

OCBC Investment Research on 20 March 2013

TEE International recently announced the establishment of two wholly owned indirect subsidiaries, Tee Industrial Pte Ltd and Tee Hospitality Pte Ltd, under its real estate unit, Tee Land Pte Ltd. The principal activity of both subsidiaries will be in real estate development. The choice of names suggests that the group is preparing to expand its property business further, into the industrial and hospitality services segments. Tee's management had previously shown a willingness to move into new markets or business lines; witness its venture into Thailand's wastewater treatment industry in 2011.

Last November, the firm also said it was exploring a possible entry into Myanmar's cement industry through a joint venture with Ayeyarwaddy Cement, though the deal is still pending the results of technical studies of the project, to be completed by June 8. We are neutral on the latest announcements, which are short on details, but we expect more updates soon.

Meanwhile, a Tee executive we spoke to this week said that the group's plan to spin off its property business remains on track for an SGX listing by May. We expect more updates on the plan's progress in the coming weeks.

Tee's share price has drifted lower since going ex-dividend on March 6 and is currently near our fair value estimate, but we expect its share price to remain supported in the near term by expectations of a special dividend if its spin-off plan succeeds. We maintain our fair value estimate of S$0.30, based on 5.5x FY13 forecast earnings for its main engineering business (which still accounts for about 90 per cent of Tee's revenue), and our "hold" rating on the stock.

We have not factored in any potential gains from the spin-off in our valuation model and we prefer to remain cautious on Tee until we see stronger contributions from its real estate business, after its weak Q2 FY13 results.

HOLD

Cache Logistics Trust

OCBC on 20 Mar 2013

Cache Logistics Trust (CACHE) has exercised the call option to acquire the newly completed ramp-up logistics warehouse known as Precise Two. In a separate announcement, CACHE also launched a private placement to raise gross proceeds of S$86.8m, of which ~66.0% of the gross proceeds is expected to be used to wholly fund the proposed acquisition of Precise Two. We have earlier anticipated CACHE to fund the acquisition fully by debt, since it has recently received its maiden credit rating from Moody’s (which allows it to exceed its previous debt ceiling of 35%). With this new development, we now adjust our estimates to factor in the placement and enlarged unit base. We also forecast a reduction in leverage as we believe CACHE may pare down its debts using the remaining proceeds to cushion a near-term dilution in DPU. Our fair value is revised to S$1.33 from S$1.34 previously. Maintain BUY.

Acquisition of ramp-up warehouse

Cache Logistics Trust (CACHE) has exercised the call option to acquire Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m. As a recap, Precise Two is a newly completed ramp-up logistics warehouse which is strategically located in the Jurong Industrial Precinct and has modern and attractive technical specifications. The transaction is a sale and leaseback to PDPL on a lease agreement for six years with an option to renew for another six years, and incorporates a locked-in rental escalation of 4.0% every two years. The property’s FY12 NPI is estimated to be ~S$4.8m, implying an initial NPI yield of 8.7%. Upon completion of the acquisition (expected in early Apr), CACHE’s portfolio size is expected to increase to over S$1.0b.

Private placement to raise S$86.8m
In a separate announcement, CACHE also launched a private placement of 70m new units to raise gross proceeds of S$86.8m. According to management, the placement saw strong participation from new and existing institutional investors. The issue price has been fixed at S$1.24 per unit, which is at the low end of the indicative price range of S$1.24-S$1.265. We view the placement as opportunistic as the issue price represents a considerable 29.2% premium to its NAV and only a 5.3% discount to the last transacted price prior to the announcement. CACHE intends to use ~66.0% (S$57.3m) of the gross proceeds to wholly fund the proposed acquisition of Precise Two, another 31.0% (S$26.9m) to fund potential acquisitions or pare down debt, and the balance for estimated fees/working capital purposes.

Maintain BUY
We have earlier anticipated CACHE to fund the acquisition fully by debt, since it has recently received its maiden credit rating from Moody’s (which allows it to exceed its previous debt ceiling of 35%). With this new development, we now adjust our estimates to factor in the placement and enlarged unit base. We also forecast a reduction in leverage as we believe CACHE may pare down its debts using the remaining proceeds to cushion a near-term dilution in DPU. Our fair value is revised slightly down to S$1.33 from S$1.34 previously. Maintain BUY.

Singapore Press Holdings

Kim Eng on 21 Mar 2013

Just the first step into property. We raise our target price to SGD4.95 after factoring in REIT benefits. BUY SPH. This is just the first step of what is likely to turn out to be a multi-year value unlocking process. SPH’s confirmation of a retail REIT spin-off in the future adds another, more exciting dimension to the stock. We have long speculated that it could become more aggressive on the property front, and this has materialised. The greatest concern right now is its limited supply of sponsor assets, which can be overcome by introducing new partners, more acquisitions or expanding overseas.

Immediate benefits from spinoff. We believe the proposed REIT can fetch a potential distribution yield of 5.6%, relatively attractive when compared to the average S-REIT yield of 5.3% at this end of the yield compression cycle and even lower returns from fixed income. The market now expects a special dividend from the spinoff, which we have estimated at SGD1b (SGD0.63 a share) assuming tax savings from a REIT structure and debt repayment.

Looking beyond. However, we believe that the market has not yet fully factored the upside from property in the long term. Options include (1) roping in asset owner partners to expand the asset pipeline, (2) directly acquiring suitable assets in Singapore, and/or (3) expanding outside Singapore to other countries. Partners are likely to be smaller asset owners that cannot form their own REIT and that may find it more convenient to work with a big player who can provide the financial heft and management muscle.

Thinking outside the box. BUY. We maintain BUY on SPH, with a raised target price of SGD4.95 based on SOTP. Dividend yield still looks attractive at 5.7% even after recent share price surge. We believe we are the first broker to highlight the possibility of potential partners that would address concerns that, as sponsor, it does not have a long enough tail of injectable assets, and extend SPH’s attraction as a property play to augment its waning media business.

Hafary Holdings

UOBKayhian on 20 Mar 2013

Valuation

·          Hafary Holdings (Hafary) is trading at 3.19x FY12 PE and 1.58x FY12 P/B.

·          As at 30 Jun 12, the Low family owned 66.11% of Hafary. With the management being also the major shareholder of the company, we believe their interests will be more aligned with shareholders.

·          Share price catalysts include strong earnings growth supported by buoyant public housing demand.

Investment Highlights

·          Hafary is a leading supplier of surfacing materials toSingapore’s construction sector. Revenue contribution from the general (retail) and project (project developers, construction companies) segments are 60% and 40% respectively.

·          Market leader for supply of tiles. Hafary is a major player in the supply of tiles in Singapore. There is no close competitor in Singapore that is of similar size and carries the wide range of products that Hafary offers. With its involvement in the supply of tiles to HDB upgrading flats and the new build-to-order (BTO) launches, Hafary would be a beneficiary of the construction boom. 50,000 BTO units were launched in 2011 and 2012. With 3,346 new BTO flats launched in January, and another 3,890 units expected in Mar 13, the public housing construction demand is expected to remain strong this year. 

·          Scarcity premium. As one of only two local tile suppliers listed on SGX, we believe Hafary may be able to command a scarcity premium, attracting investors who want to invest in the local housing construction boom.

·          Valuation backed by tangible assets. As at end-FY12, Hafary held four leasehold properties, which are held at cost on balance sheet. As at 31 Dec 12, NAV of Hafary was S$0.27. Value of the four leasehold properties held at cost is worth S$0.15/share.

·          Future plans: Growing sanitary business segment to drive growth. While supply of tiles continues to be the top revenue contributor for Hafary, management is looking to grow its sanitary business segment with its in-house brand, ilife.

Financial Highlights

·          Net profit for 1HFY13 was boosted by a one-time gain of S$23.8m from sale of its development property at 79 Aljunied road.

·          Excluding the one-time gain, 1HFY13 profit before tax would be S$5.2m, a 51.4% gain over the prior year. 

·          Revenue from general and project segment increased 16.5% and 58.9% yoy respectively.

OSIM International

Kim Eng on 20 Mar 2013

Don’t look back in anger. We are upgrading our TP to a Street high, as we complete a successful US NDR. We are now even more optimistic about the take-up of new massage chair launches in 2013. Looking back, we think 2013 will turn out to be a milestone year for two reasons. 1) We believe this will be the first time in OSIM’s history where they will launch major hits in two different ranges of massage chair and 2) OSIM will garner new customers from an untapped segment.

uAngel appears to be a major hit. Historically, the majority of OSIM’s massage chair sales have been derived from its flagship higher-end chair (currently uDivine). The uAngel was launched in 1Q2013. Based on our channel checks and anecdotal evidence, we believe this new lower-end model has been extremely well-received, especially from new buyers, due to its attractive price point and well-functioned massage despite a smaller size profile.

Andy Lau on a “Super Bowl slot”. Importantly, we believe the success of uAngel will only have minimal cannibalization effect on its flagship range, as the new chair to be launched mid-2013 will get a major facelift and functional enhancements. With ever-increasing marketing budget as a result of higher revenue, OSIM will be taking up TV ads on a popular program, the China equivalent of Super Bowl advertising slots, reaching out to more than 200 million viewers.

Building blocks for international business. With an improving product which has now surpassed Japanese peers technologically, management now believes OSIM may have potential for worldwide appeal. As a result, they have started thinking about strategies of expanding internationally. On a longer-term basis, this may become another exciting source of growth.

Reiterate BUY. We are upgrading our revenue and profit estimates for FY13F by 5% and 7% respectively. 2013 will be a milestone year both for potential profit growth as well as a foundation for future growth. Our higher TP of SGD2.60 is also a Street-high, with an upside of 38%. It remains pegged to 18x FY13F (translates to 20X upon exercise of convertible bonds), which is in-line with comparable peers in the region.

Sembcorp Marine

DMG & Partners on 18 March 2013

SEMBCORP Marine (SMM)'s PPL Shipyard has secured two new jackup rig orders from Mexico-based Oro Negro for U$417 million. The price of the rigs at U$208.5 million per rig is similar to Perisai's option unit exercised in February 2013 but is 4 per cent lower than Oro Negro's first two jackup orders in December 2012. We believe the share price will react positively to the news.

However, we maintain "neutral" on the stock as we see limited upside to our TP of S$4.76, which values the stock at 17.2x FY13 forecast P/E.

NEUTRAL

Ascendas REIT

OCBC on 19 Mar 2013

Ascendas REIT (A-REIT) yesterday announced the proposed acquisition of The Galen at 61 Science Park Road for a purchase consideration of S$126.0m. The Galen is a six-storey multi-tenanted science park building located within Singapore Science Park II and has a NLA of 234,384 sqft. It is currently 97.5% occupied, with Ascendas Land and the REIT manager taking up c. 22.5% of the lease space. The property, we note, was first mentioned as a potential acquisition asset when it raised S$406.4m through a private placement of 160m new units on 8 Mar. According to A-REIT, the asset is expected to generate a NPI yield of 6.8% and add 0.052 S cents to its DPU on an annualised basis, assuming the acquisition is fully funded using the proceeds from the placement. This is in line with our initial assumptions made on the transaction. We maintain HOLD on A-REIT with an unchanged fair value of S$2.60.

Proposed acquisition of The Galen
Ascendas REIT (A-REIT) yesterday announced the proposed acquisition of The Galen at 61 Science Park Road from Singapore Science Park Ltd, a wholly-owned subsidiary of Ascendas Land (S) Pte Ltd. The purchase consideration was S$126.0m, representing a marginal discount to the independent valuations of S$126.8m-S$127.0m by JLL and CBRE.

Details of transaction
The Galen is a six-storey multi-tenanted science park building located within Singapore Science Park II and has a NLA of 234,384 sqft. It is currently 97.5% occupied, with Ascendas Land and the REIT manager taking up c. 22.5% of the lease space. The property, we note, was first mentioned as a potential acquisition asset when it raised S$406.4m through a private placement of 160m new units on 8 Mar. According to A-REIT, the asset is expected to generate a NPI yield of 6.8% and add 0.052 S cents to its DPU on an annualised basis, assuming the acquisition is fully funded using the placement proceeds. This is in line with our initial assumptions made on the transaction.

Stronger footprint in Science Park segment
A-REIT expects the property to complement and strengthen its foothold in the science park segment in Singapore, and in turn allow A-REIT to enjoy enhanced operational efficiency and economies of scale. Upon completion of the acquisition (expected by end-Mar), we understand that a land lease of 66-year tenure will be granted to A-REIT. As mentioned in our 11 Mar report, the upfront land premium is not applicable as the annual land rent payable has been waived by the Singapore government.

News factored in; maintain HOLD
We now make minor adjustments to our forecasts to factor in the projected time of completion and reported operating/property details. There is no change to our fair value of S$2.60. At current price level, we believe the acquisition news have been factored in. As such, we maintain HOLD on A-REIT.

Singapore Post

OCBC on 19 Mar 2013

In recent months, Singapore Post (SingPost) has been acquiring stakes in companies to build its non-mail businesses – it completed the 100% acquisition of General Storage Company Pte Ltd (GSC) in end Jan for S$37m and the 62.5% acquisition of Famous Holdings Pte Ltd (FH) in end Feb this year for S$60m. We see synergies with the group’s logistics and e-commerce businesses, but note that these acquisitions remain on a relatively small scale as we await news of larger acquisitions. Meanwhile, the stock has been trading in a range of S$1.18-S$1.23 since we downgraded it to HOLD on 28 Jan. We like SingPost’s stable operating cash flows and consistent dividends, but see few re-rating catalysts for now. Maintain HOLD with S$1.23 fair value estimate.

Building its non-mail businesses
In recent months, Singapore Post (SingPost) has been acquiring stakes in companies to build its non-mail businesses – it completed the 100% acquisition of General Storage Company Pte Ltd (GSC) in end Jan for S$37m and the 62.5% acquisition of Famous Holdings Pte Ltd (FH) in end Feb this year for S$60m.

Acquired self-storage company and freight-forwarding firm
GSC operates a self-storage business in Singapore, under the Lock+Store brand. This is not a new business area for SingPost, which has been offering self-storage solutions through S3 (Self Storage Solutions) since 2009. The acquisition will add storage facilities in Tanjong Pagar and Chai Chee for SingPost. Meanwhile, FH is a Singapore-based sea freight consolidator and freight-forwarder. SingPost acquired a 62.5% stake, and there is also an option to transact the remaining 37.5% stake at the end of 2015. Founded in 1988, FH has a regional network with offices in six countries. 

Synergies with logistics and e-commerce
Self-storage solutions offer synergies with SingPost’s existing businesses in logistics and e-commerce – delivery and other value-added services can be added to storage solutions. With its network of properties including post offices and delivery bases, SingPost is able to provide integrated services spanning warehousing, fulfillment, delivery and distribution. The self-storage business is also a good usage option for SingPost’s properties that are industrial-zoned. Meanwhile, FH’s freight-forwarding capabilities complement SingPost’s e-commerce logistics capabilities in regional fulfillment and warehousing, as well as its postal & parcel delivery networks.

Maintain HOLD
SingPost had S$661.5m in cash and cash equivalents, along with financial assets worth S$36.5m, as at Dec 2012. In comparison, these acquisitions remain on a relatively small scale and we are awaiting news of larger acquisitions. Meanwhile, the stock has been trading in a range of S$1.18-S$1.23 since we downgraded it to HOLD on 28 Jan. We like SingPost’s stable operating cash flows and consistent dividends, but see few re-rating catalysts for now. Maintain HOLD with S$1.23 fair value estimate.

CDL Hospitality Trusts

OCBC on 18 Mar 2013

We believe that CDLHT’s Singapore hotels are best classified as being in the Mid-tier/Upscale range, because their FY12 RevPAR was S$211, close to the mean of S$264 and S$171, which are the RevPAR averages for Singapore Upscale and Mid-tier hotels respectively. As detailed in our hospitality sector report dated 5 Mar 2013, we project that for 2013-2015, the Economy, Mid-tier and Upscale/Luxury categories will grow +5.9% p.a., +8.5% p.a. and +4.4% p.a. respectively. As a group, the Mid-tier/Upscale/Luxury segment will grow 5.8% p.a., the same rate that the overall supply will grow. This rate is lower than the projected room demand of 5.4% p.a. over the same period, indicating that competition is likely to intensify in the segments that CDLHT is represented in. Adjusting our assumptions and removing the 10% discount to RNAV to better reflect the worth of CDLHT’s hotel properties, we are raising our fair value from S$1.93 to S$2.11; but maintain a HOLD rating since CDLHT is trading near our fair value.

STB targets for 2013 are out 
In 2012, Singapore registered visitor arrivals of 14.4m (+9.1%) and tourism receipts of S$23b (+3.1%). For 2013, STB is targeting 14.8m-15.5m arrivals (+2.9% to +7.7% YoY) and tourism receipts of S$23.5b-24.5b (+2.2% to +6.5% YoY). The government has noted that the next phase of growth will have to come from increasing the spend per visitor, as opposed to just adding more visitors. However, STB seems to be incorporating slightly lower spend per visitor arrival assumptions for 2013 compared to 2012, based on the implied YoY growth rates of the 2013 targets. We believe that this highlights the challenge of converting arrivals into increased spending, and supports our thesis that the 1H13 outlook for Singapore hospitality is muted.

Blended exposure to Upscale and Mid-tier 
We believe that CDLHT’s Singapore hotels are fairly evenly exposed to the Mid-tier and Upscale segments, because their FY12 RevPAR was S$211, close to the mean of S$264 and S$171, which are the RevPAR averages for Singapore Upscale and Mid-tier hotels respectively. As detailed in our hospitality sector report dated 5 Mar 2013, we project that for 2013-2015, the Economy, Mid-tier and Upscale/Luxury categories will grow +5.9% p.a., +8.5% p.a. and +4.4% p.a. respectively. As a group, the Mid-tier/Upscale/Luxury segment will grow 5.8% p.a., the same rate that the overall supply will grow. This rate is lower than the projected room demand of 5.4% p.a., indicating that competition is likely to intensify in the segments that CDLHT is represented in. We also note that 1Q13 results are probably going to be weak due to the lack of the biennial Singapore Airshow and the fact that Chinese New Year is in Feb this year instead of Jan (corporate travel picks up after CNY). 

Maintain HOLD
Adjusting our assumptions and removing the 10% discount to RNAV to better reflect the worth of CDLHT’s hotel properties, we are raising our fair value from S$1.93 to S$2.11; but maintain a HOLD rating since CDLHT is trading near our fair value.

Sheng Siong Group

Kim Eng on 19 Mar 2013

Moving into B2C e-commerce. Sheng Siong will launch its e-commerce platform in 1H13. Despite being a latecomer to online retailing, we believe this move is a step in the right direction as shopping on the Internet will inevitably erode traditional grocery shopping in the future. We expect Sheng Siong’s e-commerce platform will complement its warehouse capabilities and serve as a supplementary sales channel to its traditional brick and mortar channels. Maintain BUY with our street high TP unchanged at SGD0.70.

First movers do not always have the advantage. Both NTUC FairPrice and Cold Storage have been operating online as early as the 1990s. Various Internet start-ups have also appeared in recent years in response to changing consumer habits and an increasingly cosmopolitan population that finds online shopping a breeze. While Sheng Siong may be a late comer, it has had ample opportunity to study the online grocery shopping model to (1) avoid spending excessive investment and (2) get the products offering right.

Inventory software ready to go. Sheng Siong has set aside approximately SGD20m of the net proceeds from its IPO for the development and expansion of grocery retailing in Singapore and overseas. Sheng Siong will implement its E-Commerce model in stages to ease it into its current “Pick to Light” inventory System that is currently in use at its Mandai warehouse. Initial stages would include Call to Delivery and Online Selection, following which the customers will pick up their ordered goods through a drive-in or a simple walk in. Eventually, this could become a full home delivery service if the demand justifies it.

Low initial investment. The initial stage will not require much investment, as it will leverage on its warehouse capabilities, then systematically picked by workers in stores. Trial period will last at least two to three quarters with Home Delivery to be considered next. The initial offering of Store pick-up is likely to be at Thomson outlet, where there is limited parking, and will be ideal as it is situated around several residential estates.

Still our favourite neighbourhood supermarket. We expect the online channel will take at least a couple of quarters to gain momentum and will be rolled out progressively by district. We have a Street-high TP of SGD0.70 on our favourite supermarket due to its healthy FY13 growth and 4+% yield on the back of a 90% fixed payout for the next two years.

Sarin Technologies

Kim Eng on 18 Mar 2013

Bright future prospects, maintain Buy. Sarin’s share price surged by 17% to a high of SGD1.465 over 3 weeks after its 4Q12 results before retreating lower. We believe that the optimism displayed was a reflection of increased confidence in Sarin’s future prospects and to a lesser extent, a reaction to the improved 4Q12 numbers. We spoke to management on plans for Sarine-Light when they were in Singapore in end-Feb and were pleased with its developments. Maintain Buy, TP unchanged at SGD1.48.

Rough prices rising faster than polished. In the rough diamond market, DeBeers’ February Sight closed with an estimated sale of USD550m. Rough diamond prices increased by about 4% from the previous Sight, after falling by about 12% in 2012. Without a corresponding increase in polished diamond prices, this may not bode well for manufacturers as the price differential between rough and polished narrows.

Short-term pain or long-term gain. Given that manufacturers’ margins are the most tightly squeezed, a narrowing price gap would be detrimental to short-term liquidity, and would affect short-term capex spending decisions. However, we believe that it should also trigger the motivation to seek long-term improvements in margins by investing in value-adding technologies such as those offered by Sarin.

Hong Kong Jewellery show well-received. According to Rapaport, the recent Hong Kong Jewellery Show ended on 9 March with much better business than a year ago and exceeding most expectations. This supports the cautiously positive outlook for luxury goods despite the uncertainties in the global economy. While there are no signs of increase in polished diamond prices yet, we think that an improved demand may shift pricing power to the retailers. Furthermore, a rise in rough diamond prices would also trigger manufacturers to seek higher prices. These factors may eventually push polished prices higher. This should support Sarin in marketing its Sarine-LightTM.

Sarine-light - slow takeoff but strong earnings later. We think that the Sarine-light may take some time to take off but once endorsed by the industry, could form a strong recurring income source for Sarin.

Singapore Land Limited

DBS GROUP RESEARCH on 13 March 2013

INCREASING accumulation of Singland shares by its major shareholder UIC in recent months has renewed investor interest and the realisation of the deep embedded value in the company has prompted us to take a deep-dive look at Singland.

We believe it has significant hidden value through its 53.06 per cent stake in unlisted Marina Centre Holdings (MCH), in addition to its large portfolio of 2.1 million sq ft of directly owned, centrally located, and suburban office space.

The group has also increased its land bank and now has 788,364 sq ft of residential gross floor area (GFA) in Singapore, to be developed over the next few years. We anticipate these growth engines to continue to be ramped up in the coming years.

Our see-through look at the value of MCH reveals that there is significant hidden value in its hotels and investment properties that are not reflected in its current book value.

The hotels are carried at cost, which we believe is below current replacement cost, while valuation of the investment properties is conservative. If marked to market, this could add 97 cents to our RNAV for Singland to $13.61.

As one of the largest hotel room owners in the Marina enclave, with 1,880 hotel rooms or about 4 per cent of total stock, there is a scarcity-value premium that can be attached.

In addition, there is more value creation through the redevelopment of the Marina Bayfront office block into an extension of the Marina Square retail space to improve the visibility and frontage of the shopping complex.

In addition, the current 20 per cent valuation disparity between office and retail space would also mean potential for value optimisation through space conversion.

We believe the makeover is timely and would enable the group to benefit from the rejuvenation of the Marina area, in tune with the AEI at Suntec City and completion of South Beach by 2015.

Conservatively, assuming similar valuations for the additional retail space when completed, we reckon the group could recognise a further three cents to RNAV.

We have raised our call to "buy" with an adjusted TP of $9.53, pegged at a 30 per cent discount to RNAV of $13.61.

Share price is currently trading at a 32 per cent discount to book NAV and 38 per cent below our RNAV estimate. We believe the stock continues to offer good value backed by a portfolio of quality assets.

Furthermore, with a lowly geared balance sheet and strong recurrent cash flow from leasing activities, Singland is in a good position to maintain a reasonable dividend yield, currently at 2.4 per cent.

The risk to our view for a potential closing of price gap to RNAV is if the major shareholder does not raise its stake further or if there is no recognition of the underlying value of MCH given its unlisted status.

BUY

Midas Holdings

OCBC on 15 Mar 2013

We view China’s latest railway reforms as a mid-to-long term positive for the sector, which would likely benefit industry suppliers such as Midas Holdings (Midas). While we are cognisant that there may be some near-term uncertainties over the timeline of new high-speed railway (HSR) contract tenders, we note that the Chinese government has reaffirmed its railway investment targets for 2013. Its 12th Five-Year Plan for the sector also remains unchanged. Meanwhile, Midas recently won CNY109.6m worth of metro contracts in China. We expect management to continue its drive to secure more orders from the metro/subway, international rail transport, power and industrial machinery industries to act as a near-term buffer for the lack of clarity on when the resumption of HSR contract tenders would materialise. Reiterate BUY and S$0.595 fair value estimate on Midas, still pegged to 1.2x FY13F P/B.

China railway reforms augur well for mid-to-long term prospects
We view news of China’s Ministry of Railways’ (MOR) dissolution and subsequent restructuring as a mid-to-long term positive for the railway sector, as it is targeted at rooting out corruption, improving safety aspects of railway projects and cutting down on bureaucracy which may result in improved efficiencies. This would likely benefit industry suppliers such as Midas Holdings (Midas). However this reform may result in some near-term uncertainties over the timeline of new high-speed railway (HSR) contract tenders. China’s Minister of Railways Mr. Sheng Guangzu also recently said that there were sufficient high-speed train cars currently. Nevertheless, we believe that as rail passenger traffic continues to grow and more railway tracks are added in 2013 and beyond, there is a good likelihood that more high-speed train cars would be required. The Chinese government also reaffirmed its railway investment targets for this year, while its 12th Five-Year Plan for the sector remains unchanged.

CNY109.6m of contract wins, more to come? 
Midas recently secured a total of CNY109.6m worth of contracts to supply aluminium alloy extrusion and fabricated parts to five metro projects in China. The value of each contract ranges from CNY10.6-31.7m, with four of these awarded by Midas’ 32.5%-owned JV company Nanjing SR Puzhen Rail Transport (NPRT). As NPRT previously had seven projects which it had yet to award contracts to aluminium alloy extrusion suppliers, we see potential for more order wins by Midas from NPRT in the near future for the remaining three projects. We estimate that total contract value for these projects could amount to ~CNY75m.

Maintain BUY
While there is still a lack of clarity on when the resumption of HSR contract tenders would materialise, we expect management to continue its negotiation process for more contracts from the metro/subway, international rail transport, power and industrial machinery industries to act as a near-term buffer. Reiterate BUY and S$0.595 fair value estimate on Midas (1.2x FY13F P/B), which implies total potential returns of 16.5%. Key risks to our estimates include a longer-than-expected delay in new HSR contract tenders.

STX OSV

OCBC on 15 Mar 2013

At the close of its mandatory offer for STX OSV shares on 13 Mar 2013, Fincantieri received only 4.88% valid acceptances, bringing its total shareholdings to 55.63% (pre-offer: 50.75%). The low acceptance level is unsurprising given that the Board of Directors has recommended shareholders to reject Fincantieri’s offer as it is not compelling enough. Looking ahead, we believe there will be better clarity in terms of corporate identity, board leadership and senior management. Fincantieri has also stated that it has no intention to (i) introduce any major changes to STX OSV, (ii) re-deploy the fixed assets or (iii) discontinue the employment of its employees. Maintain BUY with unchanged S$1.52 fair value estimate.

4.9% valid acceptances received
At the close of its mandatory offer for STX OSV shares on 13 Mar 2013, Fincantieri received only 4.88% valid acceptances, bringing its total shareholdings to 55.63% (pre-offer: 50.75%). The low acceptance level is unsurprising given that the Board of Directors has recommended shareholders to reject Fincantieri’s offer as it is not compelling enough. 

Och-Ziff has disposed off its shares
According to disclosures announced in SGX, funds affiliated with hedge fund Och-Ziff has aggressively cut their shareholding in STX OSV after the announcement of the offer (on 21 Dec 2012) such that they controlled only 1.13% of STX OSV as of 13 Mar 2013, down from 12% pre-announcement. Unlike traditional long-only funds, Och-Ziff’s primary investment strategies include event-driven investing which attempts to realize gain from corporate events such as spin-offs and other corporate restructurings. With Och-Ziff disposing off its investment in STX OSV, we believe much of the share overhang would have been removed going forward.

Rebranding and board changes
Meanwhile, STX OSV announced that it will be rebranded as VARD. A proposal for a new name for the group holding company, STX OSV Holdings Limited, will be formally tabled for resolution at the upcoming AGM in Apr 2013. Separately, three STX-nominated directors, including the Chairman, have resigned from the board. We expect Fincantieri to appoint three new members to replace the outgoing directors. 

Maintain BUY
With the mandatory offer now over, we believe there will be better clarity going forward in terms of corporate identity, board leadership and senior management. Fincantieri has stated that it has no intention to (i) introduce any major changes to STX OSV, (ii) re-deploy the fixed assets or (iii) discontinue the employment of its employees. Maintain BUY with unchanged S$1.52 fair value estimate.

KS Energy

OCBC on 14 Mar 2013

KS Energy (KSE) recently announced that it will undertake a renounceable underwritten rights issue to raise gross proceeds of about S$42.1m. The last day for the trading of “nil-paid” rights is this Wed (20 Mar 2013). The group also earlier announced that it will issue S$45m in principal amount of new convertible bonds. Together with internal funds, KSE has more than sufficient funds to satisfy the early redemption of its old convertible bonds. With this resolved, we believe that an earlier overhang on its stock should be cleared with these developments. After obtaining more details from management, we fine-tune our estimates, and maintain our HOLD rating with a revised fair value estimate of S$0.70, based on 1.2x FY13/14F P/NTA.

Wed is last day of rights trading
KS Energy (KSE) recently announced that it will undertake a renounceable underwritten rights issue to raise gross proceeds of about S$42.1m – the company is offering up to 111.65m new ordinary shares at an issue price of S$0.41 for each rights share, on the basis of one rights share for every four existing shares. The last day for the trading of “nil-paid” rights is this Wed (20 Mar 2013). 

S$45m new convertible bonds issue
KSE also earlier announced that it has entered into a purchase agreement with Oversea-Chinese Banking Corporation Ltd (OCBC) and TAEL One Partners Ltd (TAEL One) for the proposed issue of new convertible bonds. KSE will issue S$45m in principal amount of new convertible bonds, of which OCBC will subscribe for S$30m and TAEL One the remaining S$15m. The initial conversion price is S$0.83/share, and the maturity date is three years later, on or about 21 Mar 2016. 

Sufficient funds for early redemption of old convertible bonds
As at 6 Mar 2013, bondholders of KSE’s earlier issue of convertible bonds (due 2015, but early redemption Mar 2013) have tendered notices for an early redemption. 70% of the S$107m in principal amount of the convertible bonds are being redeemed, hence KSE will have to prepare S$76.125m in funds. This will be satisfied by: 1) S$40.9m from the rights issue, 2) S$30m from the issue of new convertible bonds and 3) S$5.2m from internal resources. OCBC and TAEL One currently hold S$28.5m and S$33.5m in principal amount of the convertible bonds due 2015, respectively. 

Early redemption issue resolved; overhang over
We are encouraged to see that the group has resolved the early redemption issue of its old convertible bonds, and believe that an earlier overhang on its stock should be cleared with these developments. After obtaining more details from management, we fine-tune our estimates, and maintain our HOLD rating with a revised fair value estimate of S$0.70, based on 1.2x FY13/14F P/NTA.

Tat Hong Holdings

OCBC on 14 Mar 2013

Tat Hong’s PATMI grew by 63% to S$42m in FY12 (financial year ended Mar 2012) and is expected to increase by a further 65% to S$70m in FY13F. The sharp improvements were mainly due to improved crane utilization and higher charter rates. With current crane utilization at around 70% levels, we think that FY14-15F PATMI growth will moderate to around 10-30%, mainly driven by crane fleet expansion. On this point, we note that Tat Hong had completed a share placement of S$82m (in Sep-2012), half of which was earmarked for fleet expansion. We remain positive on the group’s outlook over the medium term and keep our BUY rating and S$1.75 fair value estimate unchanged. Risks to our projection include (i) a sharp slowdown in its Australia business and (ii) unexpected delays in Chinese infrastructure projects.

Growth to continue
Tat Hong’s PATMI grew by 63% to S$42m in FY12 (financial year ended Mar 2012) and is expected to increase by a further 65% to S$70m in FY13F. The sharp improvements were mainly due to improved crane utilization and higher charter rates. With current crane utilization at around 70% levels, we think that FY14-15F PATMI growth will moderate to around 10-30%, mainly driven by crane fleet expansion. On this point, we note that Tat Hong had completed a share placement of S$82m (in Sep-2012), half of which was earmarked for fleet expansion. 

Robust crane demand
Demand for cranes is expected to remain strong over the medium term, supported by the roll-out of various infrastructure projects across the region. In Singapore, the government announced plans to build 700,000 new homes and to double the rail network length to 360km by 2030. Other major projects include the SLNG Plant on Jurong Island, the North-South Expressway and the Ophir-Rocher mixed development. In Hong Kong, major projects such as the Central-Wan Chai Bypass, Guangzhou-Shenzhen-Hong Kong XRL and Shatin-Central Link continue to come on-stream in the next few years. Infrastructure developments in Malaysia and Thailand are also expected to remain strong, underpinned by a number of oil & gas and MRT projects. Given such robust activity, we expect Tat Hong to add about 50+ cranes per year and its crane utilization rate to rise to around 75% for FY14-15F (Dec 12: 71%).

Maintain BUY with S$1.75 fair value
We remain positive on the group’s outlook over the medium term and keep our BUY rating and S$1.75 fair value estimate unchanged. Risks to our projection include (i) a sharp slowdown in its Australia business and (ii) unexpected delays in Chinese infrastructure projects.

Far East Orchard

Kim Eng on 15 Mar 2013


SBF Centre – Next price catalyst. FEOR has recently sold 113 out of 138 office units released (total 192 units) at SBF centre (20% stake) with prices starting from SGD3,200 psf. Given the strong sales momentum in strata commercial space lately (Alexander Central, Paya Lebar Square, PS100 etc.), this is within expectation. 65% of the office buyers are companies, entrepreneurs and professionals offering services spanning trading, legal services, consulting and secretarial services, and financial advisory. The Singapore Business Federation (SBF) will be a major occupier in the development, though the amount of space it will take, and whether it will lease or purchase the space, is yet to be announced. The whole-floor office units have also not been released, but pricing (psf basis) is expected to be higher given the superior views they offer.

Mediplex@SBF. On the medical suite front, 27 of the 48 suites have been sold. Prices for medical suites, which are located at levels 3 to 5, start from SGD3,800 psf. This represents a favorable price, although the SBF Centre is not within walking distance to any medical hospital. Previous 2012 transactions at Parkway Novena (Mount E Novena), Novena Medical Centre and Novena Specialist Centre were contracted at SGD3,700-SGD4,201 psf. FEOR believes that medical services have yet to make inroads into this high-density urban centre. Far East Organization (FEO) and FEOR won the site in Sep 2012 with a bid of
SGD311m (SGD882 psf ppr) F&B outlets interest. There is also intense interest from potential buyers in the F&B outlets and alfresco dining areas on the ground floor. We think prices could fetch north of SGD5,000 psf. Nonetheless, the developer is considering holding these back and offering them for lease so that it can control the choice of F&B tenants and draw traffic to the area.

Investment thesis intact. We continue to like FEOR for the following reasons: (1) Possible synergies with its parent - Far East Organisation (FEO), who is Singapore's largest private developer (built 1-in-6 private homes in SG) with purportedly the largest onshore asset and land bank (~80m sqft) [Note: FEO sold the most number of dwelling units in 2012] (2) Clear focus post-restructuring, with emphasis on residential development (24% GAV), healthcare (21% GAV) and hospitality management (22% GAV). (3) FEO will inject future healthcare assets into FEOR, which we expect to benefit from rising medical tourism. (4) Undervalued in our view, with net cash already at SGD1.11. Reiterate BUY with an attractive SOTP valuation of SGD2.50.

Keppel Corp

CIMB Research on 12 March 2013

WE believe that Keppel's pipeline of orders is still strong. This has given the company the freedom to cherry-pick its projects, as it walked away from the two semi-submersibles contract (US$1.2 billion) with Ukraine's Naftogaz. We maintain our "outperform" rating.

We are not surprised by the move as management had dropped hints in its Q4 2012 results briefing that the group was prepared to not pursue the contract if certain conditions were not met. Keppel has already won about $570 million worth of new contracts YTD, or 10 per cent of our full-year $5.5 billion. Near-term catalysts could come from jack-up rig contracts from Mexican Grupo R (about $1 billion in total). We retain our revalued net asset value-based target price.

OUTPERFORM

Biosensors International

Maybank Kim Eng Research on 13 March 2013

WE cut FY2013-15 net profit forecasts by 9-11 per cent as we turn more cautious in our forecasts and on lower-than-expected licensing revenue. Our sum-of-parts-based target price (TP) is consequently reduced to $1.28. We downgrade Biosensors to a "hold" as we see limited upside to our revised target price. While we like the long-term growth potential, we believe that near-term uncertainties may limit share price appreciation. The commercialisation of BioFreedom could be a positive catalyst but this will be an event for 2014.

Weak licensing revenue dragged down Biosensors' Q3 FY2013 results, resulting in management revising down their FY2013 forecast revenue y-o-y growth guidance to 15-20 per cent (from 20-30 per cent). Biosensors is collaborating with Terumo to regain market share but with increased pricing pressures, intensifying competition and added cost of more aggressive marketing, we deem it hard to see a net positive effect in the next one to two quarters.

Biosensors is likely to seek out M&As this year as it would fit into its long-term strategy of transforming into a multi-product medical equipment company. We suspect that the recent drawdown of $300 million from its medium-term note programme despite being in a net cash position could be for this purpose. Depending on the specifics of any potential deals, this could be viewed positively or negatively. But we do caution that transactions in the healthcare sector are typically done at high valuation multiples. We will revisit our recommendation and TP on better clarity.

BioFreedom has received CE mark approval. More clinical trials will be conducted to further prove its efficacy. Full commercial launch is only expected in 2014 and we think that it is too far ahead to provide positive share price trigger.

While Biosensors looks cheap at 12.6 times FY2014 forecast PE, we do not expect its licensing revenue with Terumo to last forever. This is the key reason why our target price is lower than consensus. We value it separately using discounted cash flow but we have attributed a fair 18 times PE multiple on its core business.

HOLD