Wednesday, August 31, 2016


CapitaLand: (S$3.08) Pivoting towards an asset-light Chinese shopping mall strategy
- Turning its sights to a more asset light strategy for its retail mall business after signing a contract to manage 95,000 sqm of retail space in Changsha, Central China
- Expected to commence operations by the end of 2018 and will double its presence in Changsha
- Pivot to China is noteworthy as retail spending growth back in Singapore slows down to a trickle
- Street is fairly bullish on the counter particularly due to its China exposure as well as undervalued domestic property portfolio


SATS: More broker downgrades on rich valuations
-CIMB downgrade to Hold from Buy
-Boost from tourist arrival and potential government grant for margin expansion priced in
-rising downside risk - Zika outbreak
-dividend yield became less compelling after strong price rally since mid-2016
-TP raised slightly to $4.64 from $4.57, but is still below current market price.
-the view is in line with Maybank KE, which has Street's only Sell rating with TP of $3.76

SG Market (31 Aug 16)

SG Market: Singapore market continue to be mired in low volumes amid weak sentiment and lack of major catalysts, with focus centred on a handful of small to mid-caps, mainly in healthcare and consumer space.

Regional markets opened lower in Tokyo (+0.8%), Seoul (flat) and Sydney (-0.7%).

STI has dipped below the support at 2,830, with next level at 2,800, while topside resistance remains at 2,880.

Stocks to watch:
*Banks: According to credit rating agency Fitch, S'pore banks will be able to withstand a property slump, due to a proactive regulator and measures to curb excessive debt. A drastic deterioration of 45% for home prices and housing NPL of 5% (2Q16:0.4%) would shave a modest 17-24% off FY15 earnings.

*Hospitality: UK, Australia, Taiwan and South Korea have all issued travel advisories for Singapore as Zika cases rise. This will have adverse impact on visitor arrivals and the hotel industry here, just when tourists are starting to flock back in. Affected counters include SIA, Genting S’pore, CDLHT, OUE HT and Far East HT.

*CapitaLand: Signed contract to manage the retail space (95,000 sqm) of Fortune Finance Center, a landmark integrated development under construction in Hunan. This marks its the start of its asset-light strategy to enlarge its mall network through third-party management contracts.

*ST Engineering: Its marine arm will partner American firm Raytheon and Saudi Arabia’s Zamil Group, to offer a full product suite in shipbuilding and systems integration. The JV, with each holding one-third stake, will bid for projects under the Saudi Arabian Naval Force’s modernisation programme. Separately, the group disclosed that former COO (Jun ’02 – Jun ’07) Han Yew Kwang has been found guilty of corruption.

*Top Glove: Acquiring a freehold industrial property, built on a 34,499 sqm land in Selangor, Malaysia, for RM51.5m, for future production expansion.

*Chip Eng Seng: Awarded a $75.9m contract by GS Engineering to supply precast concrete for the tunnels, rail and bus depot at Thomson-East Coast Line.

*Koon Holdings: 1HFY16 net profit tumbled 54.2% to $2.1m on losses from its precast operations in Indonesia. Revenue grew 4.6% to $108.9m from construction (+15.4%), pared by declines in precast (-40.9%) and electric power generation (-5.8%). Gross margin contracted to 11.6% (-3.5 ppts) on the shift in sales mix. NAV/share at $0.236.

*Serrano: Received letter of demand from Maybank for outstanding debt of $29.7m, as well as a writ of summons from supplier VGS Imports & Exports for $88.5m of unpaid goods and services.

*China Star Food: Denied all allegations made in relation to the $2.5m letter of demand from Cheong Chee Hwa.

*China Sky Chemical Fibre: Engaged counsel after it received winding-up proceedings against its subsidiary, Quanzhou Tianyu Chemical Fiber & Weaving Industry.

*Global Invacom: Obtained a patent for a new auto-assembly machine which doubles the efficiency of its satellite communications equipment line.

*Oxley: Repurchased 0.3m shares under its share buyback scheme on 30 Aug, at $0.41 apiece.

Tuesday, August 30, 2016


Ausgroup: (S$0.042) Blew A$193m hole in FY16; financial health in critical condition
- Reported a whopping 4QFY16 net loss of A$99.5m and bringing FY16 loss to A$192.7m (FY15: A$6.2m net profit), undermined by massive impairment losses.
- While FY16 revenue rose 12.7%, gross margin shrank to 4.8% from 13.9% in FY15, reflecting intense price competition in the O&G services industry.
- Balance sheet has reached critical levels, net gearing at a dangerous 3.1x.
- Notably, $110m worth of notes will be expiring on 20 Oct and group is in urgent need of fresh funding given the rapid deterioration of equity base to A$50.9m from A$241.4m a year ago.
- At the current price, Ausgroup is valued at 0.58x P/B. With significant liquidity issues in the near-term and no light at the end of the tunnel, we believe the negatives may be just beginning.
- Separately, Ezion, which owns a 17.8% stake in AusGroup, has slashed its reported 2Q16 net profit to US$8.1m from US$19.8m in view of the dreadful results of its associate.

Health Management International

Health Management International - Maybank Kim Eng (Unrated Note)
-Operations consist of two tertiary hospitals in Malaysia - Malacca & Johor
-Adopts SG's private hospitals' business model - proven to attract and retain top doctors
-accelerating growth - core earnings grew at 3-yr CAGR of 57% as at FY6/16
-healthy balance sheet - Operating cash flow grew at 3-yr CAGR of 44%, declared first dividend in five years
-Growth plans - Doubling capacity of Johor hospital by mid-2019, increase avg bill size at Malacca hospital, explore inorganic options
-trading at 27x forward P/E, 34% discount to peers, despite stronger ROE and comparable growth

SG Market (30 Aug 16)

SG Market: Rising odds of a US Fed rate hike could give a slight lift to the banks, but cast a shadow over the broader market and economy.

Regional markets opened mixed in Tokyo (-0.3%), Seoul (+0.7%) and Sydney (+0.5%).

STI is sitting at 2,830 support, with next level at 2,800, while topside resistance remains at 2,880.

Stocks to watch:
*GL: FY16 net profit of US$67.6m (+41%) was buttressed by interest cost savings arising from refinancing, while revenue slipped 7% to US$393.9m from reduced hotel revenue as a result of the weaker GBP, as well as lower Bass Strait oil and gas royalty income due to the decline in crude price and weaker AUD/USD. First and final DPS of 2.2¢ maintained. NAV/share at US$0.809.

*Viva Industrial Trust: Secured a leading household name as the latest anchor tenant, which took up 38,000 of white space (for sports and fitness, F&B and family-oriented amenities) at Viva Business Park. This lifts pre-committed leases for white space to over 90%. Final phase of AEI works at the property, which contributed ~30% of the REIT's gross revenue growth in 2Q16, is on track for completion in 4Q16.

*Yanlord: Moody’s has placed its Ba3 long term rating on the group under review with a possible upgrade within the next 12-18 months. The ratings agency pointed out the group’s good brand name and quality products as support for its healthy gross margins.

*Ausgroup: Following a profit warning, Ausgroup reported a whopping 4QFY16 net loss of A$99.5m (4QFY15: A$0.3m net profit) as it incurred impairment losses of A$75.7m, as well as shut-down costs related to the Singapore fabrication business. While revenue rose 14.1% to A$103.4m from more projects, gross margin shrank to 3.9% from 23% in 4QFY15, reflecting intense price competition in the O&G services industry stemming from the cutback in capex spending. Cash of A$22.1m and debt of A$179.2m pushed net gearing to 3.1x, with $110m notes expiring on 20 Oct. NAV/share collapsed to A$0.069 from $0.326 a year ago.

*Healthway Medical: Proposed placement of 133.3m new shares (5.73% of existing share capital) at 3¢ apiece, or 11% above last close, to KGI Fraser Securities as its agent. Net proceeds of $3.8m are intended for expansion (55%) and working capital (45%).

*Oxley: Company bought 0.9m shares via its share buyback scheme on 29 Aug, at $0.4056 apiece.

*Micro-Mechanics: FY16 net profit slipped 1.1% y/y to $11.9m on revenue of $51.3m (-1.8%) due to the depreciation of the RMB and MYR. Gross margin expanded 1.9 ppt to 56.9% on stronger margin across its semiconductor tooling (+0.4 ppt) and CMA (+4.1 ppt) divisions. Final DPS of 3¢ with special DPS of 1¢ brought FY16 DPS to 6¢ (FY15: 5¢). NAV/share at $0.3614.

*PEC: 4QFY16 net profit of $8.1m (4QFY15: $7.8m loss) helped lift FY16 earnings into $18.8m (FY15: $6.9m loss). For the year, revenue rose to $575.1m (+15%) on higher contribution from overseas projects, while bottom line was boosted by disposal gains ($9.2m) and an absence of provision for trade receivables (FY15: $14.4m). Net cash of $132.5m or $0.52/share is 19% higher than market cap. Raised first and final DPS to 2¢ (FY15: 1¢), and special DPS of 1¢ (FY15: nil), bringing full-year payout to 3¢. NAV/share at $0.867.

*Eu Yan Sang: Righteous Crane, a consortium comprising a PE firm (42%), Temasek Holdings (30%) and founding Eu family (28%) has extended the closing date for its privatisation offer at $0.60/share for the fifth time, after failing to convince two substantial shareholders Hillhouse Capital Management and Target Asset Management, which collectively own 10.6% stake, to accept the offer. Closing date extended to 12 Sep. As of 29 Aug, the offeror has received valid acceptances of 84.05%.

Monday, August 29, 2016


Oxley: (S$0.405) 4QFY16 held up by accounting gains; gearing improves
- 4QFY16 net profit more than doubled to $73.8m (+114%), thanks to higher fair value gains on its investment properties and negative goodwill.
- This took FY16 earnings to $206m (+162%) as revenue surged 40% to $981.3m, buoyed by progressive recognition from eight of its development projects.
- Further, rental income jumped to $9.7m (FY15: $0.6m).
- Oxley is proposing a final DPS to 0.25¢, raising full year payout to 1.9¢ (FY15: 0.41¢).
- Balance sheet was in better shape, with net gearing easing to 2.2x (3QFY16: 2.9x, 4QFY15: 4.1x).
- Unbilled sales of $3b in Singapore ($1.24b) and overseas ($1.76b), of which $1.9b will be recognised over the next 12 months.
- At the current price, Oxley trades at a 64% discount to street RNAV of $1.14/share.