Friday, January 30, 2015

Tuan Sing

Tuan Sing ($0.415): 4Q net profit slipped 4% y/y to $24.3m, mostly due to lower non-recurring fair value adjustments (FVA). Profit before tax and FVA is $26.5m (vs 4Q13 $3.5m), boosted by doubling in gross profit, one-time gain in negative goodwill ($26.9m) from the acquisition of Grand Hotel Group (GHG) and higher contribution from associates, offset by higher operating expenses and finance costs. Revenue surged 72% to $112.1m, reflecting faster progressive revenue recognition (by POC method) at three Singapore residential properties Seletar Park Residence (SPR), Sennett Residence (SR) and Cluny Park Residence (CPR) in the property segment, and maiden contribution ($12.0,) from the two five-star hotels Grand Hyatt Melbourne and Hyatt Regency Perth held under GHG. Operating expenses ballooned 15x to $22.9m due to consolidation of GHG and acquisition expenses amounting to $17.8m. Finance costs increased due to interest on additional borrowings used for acquisition of Robinson Point in 2013 and GHG in 2014. Share of profits from associates amounted to $6.1m (vs $0.4m in 4Q13, which includes $5.9m loss from corporate guarantees given to Pan-West’s bankers), contributed equally by GHG (pre-acquisition) and GulTech. Pan West continues to record accumulated losses that exceeded Tuan Sing’s cost of investment and contractual obligation. Also the result of recent acquisitions, net borrowings increased $451.8m to $1.1b and net gearing climbed from 0.80x at Sep14 to 1.34x at Dec14. Market may have priced in the high gearing as the stock is now trading at 0.6x P/BV, lowest among peers. Going forward, total order book of $763.2m (vs $750.3m in Sep14) will be progressively recognized as construction continues. SPR is expected to be completed by FY15, SR in 2016 and CPR in 2018. 43.3%-owned GulTech will commence its production run for printed circuit boards in its new plant in Wuxi, China. Tuan Sing maintained its first and final dividend at 0.5₵ per share.


Creative: Creative's 2QFY15 net loss widened to US$9.2m from US$4.2m, on weaker revenue of US$31.3m (-17%), as uncertain and difficult market conditions continued to dog sales of the group’s products. Gross margin was relatively unchanged at 30%, in line with its product mix, while total operating expenses fell 8% to US$13.8m, due to reduced R&D expenses of US$4.9m (-22%) and cost cutting action taken by management. Bottom-line was dragged by other losses of US$4.6m (2QFY14: -US$0.4m), largely as a result of US$4.4m of FX losses and a US$0.7m impairment loss on investments. Prospects moving forward remain challenging, and management expects revenue to be lower in this quarter compared to 2QFY15, with the group expecting to bleed another operating loss. Perhaps the only consolation for the group is its net-cash position of US$103.3m, which translates to S$1.85 cash per share. At the current price, Creative trades at 0.77x P/B.


Midas: JV company, Nanjing SR Puzhen Rail Transport Co (NPRT), has secured a Rmb1.73b ($374.7m) metro train contract with a consortium partner. The contract is scheduled for delivery between 2016 and 2017. The group expects that continuing development and expansion of China's passenger rail network will continue to bring about higher demand for metro train cars. Maybank-KE still has a Buy rating on Midas with TP of $0.52. The counter is a laggard but prime beneficiary of China rail investments, which could exceed Rmb1.1t in 2015. Merger of China CNR and China CSR (both are key clients) will give enlarged company more clout to compete for overseas rail projects.


SIA: Counter has outperformed MSCI Singapore Index by 9.0ppts year to date. Morgan Stanley thinks that the outperformance will continue, driven by fuel cost savings, capacity discipline and rational competition in the region. MS expects operating margins to expand from c.3.9% in FY2015 to c.15.5% in FY2016 and net profit to grow from c.$411m to c.$2.1b. Assuming SIA is able to maintain its 60% payout ratio, we are likely to see a potential dividend yield of 8.2% at current price levels. House maintains OVERWEIGHT with TP of $16.43.

Golden Agri-Resources

Golden Agri-Resources: Morgan Stanley maintains its UNDERWEIGHT rating on counter, as impairment charges of ~$0.10/sh is expected, mostly from fair-value adjustments on its biological assets, but also potentially from its underperforming China business and LT Investment portfolio hurting investor confidence. With an average age of ~14 years for its palm estate, they are near past-prime, and together with potential new regulations limiting new planting in Indonesia, Golden Agri may have limited growth. House maintains its TP of $0.39.


SingTel: Morgan Stanley expects strong operational trends in both Singapore and Australia in 3QFY15. House expects Singapore revenue to grow 4% YoY, driven by mobile ARPU growth. Optus mobile service revenue to recover and post a 3% YoY growth in AUD terms, albeit AUD devaluation would adversely impact the translated earnings. However, on the group level, strengthening THB, INR, and PHP against SGD would help to mitigate part of the FX risk. Morgan Stanley reckons SingTel has an attractive dividend yield of 4.8% for FY16e, with growth potential of 9% EPS CAGR FY2015-18e. The counter also has good diversified EM exposure, where mobile data penetration is still relatively low, while steady cash flow stream from Singapore business provides support to dividend. An upside catalyst would be an opportunity to monetize investments in its digital business. House maintains OVERWEIGHT with TP of $4.60.


SMRT: 3QFY15 net profit was in line, soaring 58.4% to $22.5m, bringing 9MFY15 net profit to $70.2m (+56% y/y) or 78% of consensus estimates. 3QFY15 revenue grew 6.8% to $313.2m, driven by growth across both fare and non-fare segments. Rail ($164.2m, +3.4%) and Bus revenue ($59.1m, +9.0%) were beneficiaries of increased ridership and average fares, while non-fare revenue ($90m, +12%) benefitted from improved rents. At the operating profit level, Rail operations clocked in operating profit of $2.4m, reversing last year’s loss ($0.2m), driven by top line with a booster from lower staff and energy costs. Bus operations narrowed last year’s operating losses by 94.7% to $0.5m. Aside top line growth, the improved performance came from lower repair and maintenance costs, as well as diesel costs. Non-fare business’ operating profit inched up 2.8% to $28m, but contributes 90% of group operating profits, due to a lower cost structure. Increased rents from positive reversions at Kallang Wave mall were offset by decreased operating profits from taxi, while engineering services swung to a net operating loss. SMRT has submitted a bid to authorities for the first package of routes tendered under the new bus contracting model, of which implementation will be in May ’16. Under the new model, profitability for bus operations is expected to significantly improve. There were no updates on the transition towards the new financing framework. The outcome materially affects SMRT, which has obligations of $2b between now and 2019. These relate to commitments for train additions to the NSL, EWL, CCL and Bukit Panjang LRT, as well as the re-signaling project on NSEWL. On that front, Maybank-KE maintains its Hold call on SMRT, with increased TP of $1.60 from $1.36, factoring increased public transport fares (+2.8%, announced 21 Jan), and lower operating costs from bus ops. SMRT is currently trading at 26.7x FY15e P/E. Latest broker ratings: Deutsche Bank maintains Buy with TP of $2.32 CIMB maintains Add with increased TP of $1.97 from $1.82 OCBC maintains Buy with increased TP of $1.90 from $1.70 UOB KayHian maintains Hold with TP of $1.73 from $1.56 Credit Suisse upgrades to Neutral from Underweight, with increased TP of $1.60 from $1.35

Frasers Hospitality Trust

Frasers Hospitality Trust: Frasers Hospitality Trust (FHT) 2H14 (14 Jul - 31 Dec) distributable income and DPU both beat IPO forecasts by 5.3%, to $35.7m and 2.97¢, respectively, attributed to lower-than-expected expenses and interest costs. Gross revenue of $50.2m came in line, while NPI outperformed by 2.3% from stronger performances of hotels in Australia, Japan and UK, but partially offset by Malaysia's The Westin Kuala Lumpur due to recent aviation mishaps. In terms of contribution from its 12 properties, FHT's NPI was derived from Singapore (33%), UK (26%), Japan (16%), Australia (14%) and Malaysia (11%). Coming up in Apr 2015 till Feb 2016, FHT has scheduled an AEI for InterContinental Singapore to boost future returns. Management expects Singapore’s hospitality industry to be facing headwinds with increasing supply of hotel rooms by end 2015, but noted that occupancy levels should be held steady, supported by the 5-7% growth in tourist arrivals. Aggregate leverage of 40.0% is at the higher end compared to other hospitality peers, with average interest cost of 1.8% and debt tenor of 4.0 years. At $0.90, we reckon that FHT is fairly valued at 1.05x P/B with an indicative yield of 7.1%, compared to peers' average of 0.95x P/B and yield of 7%.

SG Market (30 Jan 15)

Singapore shares are likely to open higher, taking cue from the relief rally in Wall Street overnight, which was led by earnings from consumer and materials shares, and a rally in crude oil. Asian shares are mostly trading lower this morning, with Tokyo (+1.0%), Seoul (+0.3%) and Sydney (+0.7%). From a chart perspective, the STI support is tipped at the breakaway gap at 3,377 with overhead resistance at 3,465, set in May 2013. Stocks to watch: *SMRT: 3QFY15 net profit soared 58.4% to $22.5m, while revenue grew 6.8% to $313.2m, driven by growth across both fare and non-fare segments. EBITDA margin improved 4.2 ppt to 25.8%. At the operating profit level, Rail ops clocked in a profit of $2.1m, reversing last year’s loss, on higher ridership, average fare, and productivity gains while Bus ops narrowed last year’s losses by 92% to $0.7m from increased ridership and average fares, lower repairs and maintenance and lower diesel costs. NAV/share at $0.547. *Frasers Hospitality Trust: 2H14 distributable income and DPU beat IPO forecasts by 5.3% to $35.7m and 2.97¢, respectively, due to lower-than-expected expenses and interest costs. Gross revenue of $50.2m was in line, while NPI outperformed by 2.3% at $41.8m, from stronger performances of hotels in Australia, Japan and UK, but partially offset by Malaysia's The Westin Kuala Lumpur due to recent aviation mishaps. Management expects Singapore’s hospitality industry to face headwinds with increasing supply of hotel rooms by end 2015, but noted that occupancy levels should hold steady supported by the 5-7% growth in tourist arrivals. Leverage of 40.0% at higher end relatively to peers, with average interest cost of 1.8% and debt tenor of 4.0 years. NAV/unit at $0.8605. *Stats Chippac: Swung to 4QFY14 net profit of US$3.5m (3Q14 net loss: US$12.1m). Revenue climbed 3% to US$406.7m, from higher wireless communications revenue driven by high-end smartphone ramps and stronger than seasonal demand in China lower tier smartphones. Gross margin expanded 1.6 ppt to 12.1%, led by higher revenue and favourable mix change in the wireless communications business. Excluding taxes, total expenses were relatively unchanged y/y. NAV/share at US$0.43. *Creative Technology: 2QFY15 net loss widened to US$9.2m from US$4.2m, on revenue of US$31.3m (-17%), with top-line weighed by uncertain and difficult market conditions which continued to affect the sales of the group’s products. Gross margin was maintained at 30%. Bottom-line was further weighed by other losses of US$4.6m, due to foreign exchange losses and impairment loss on investments. *Tuan Sing: 4Q14 net profit slipped 4% y/y to $24.5m, largely skewed by fairvalue adjustments. Barring which, 4Q core profit before tax was at $26.5m (vs 4Q13 $3.5m). Revenue swelled 72% to $112.1m on higher contribution from Property and consolidation of Grand Hotel Group (GHG) under Hotel Investments. Gross margin rose 3.5 ppt to 21.3%, led by higher margin from GHG consolidation. Order book from Dec ‘14 was at $763.2m. Final dividend unchanged from last year at 0.5¢. NAV/share at $0.68. *Thakral Corporation: Acquiring remaining 49% stake in Thakral Capital Australia (TCAP) from 4 vendors by issuing 250k new Thakral Capital Holdings (THC) shares at $80.80/share. TCAP is the group's property investment subsidiary. Upon deal completion Thakral's stake in wholly-owned TCH will be diluted by up to 25%. *Midas: 32.5% owned JV Nanjing SR Puzhen Rail Transport Co (NPRT) secured Rmb1.73b (S$374.7m) metro train contract with a consortium partner. The contract was awarded by Shanghai Rail Transit Line 13 Development for the Shanghai Metro Line 13 Phases 2 and 3, with delivery scheduled from 2016 - 2017. *Hi-P: Guides for 4Q14 revenue to be lower y/y but higher q/q due to demand drop from certain customers and lower than forecasted yields on certain new products during production ramp-up, but remains profitable at bottom line. *SingTel: Established HOOQ Digital, a 65:17.5:17.5 JV with Sony Pictures'AXN Investment and Warner Bros. Entertainment, to offer a regional over-the-top video service in Asia, where customers are able to stream and download content on their platform of choice. *YuuZoo Corp: Formed new partnership to create live game streaming services via YuuZoo's multicast social broadcasting platform. *KLW Holdings: Terminated the 45.5% proposed acquisition of property development and construction player in Suzhou, Mega Sun Development, after the MOU period lapsed. *Spackman: Premiers documentary TV series Great Story in March.

Thursday, January 29, 2015


NOL: Deutsche maintaining its sell call on NOL but raising its TP to $0.91. The house notes that about 20% of NOL's operating costs are related to fuel. Even though industry conditions are challenging and there will be rate discounting, think it fair to assume that there will be some benefits of lower fuel retained by NOL. But after appreciating 30% over the last month to now stand at 1.1x 2015E P/B, think the earnings recovery that the street is forecasting is already in the price. Hence, do not recommend investors to chase the stock and maintaining its Sell recommendation. Expect supply growth in the industry to accelerate to 6.5% in 2015E, from 5.7% in 2014E, and this will put downward pressure on rates.

Genting SP

Genting SP: Marina Bay Sands (MBS) reported adjusted 4Q14 EBITDA (excluding a US$90.1m property tax reassessment) of US$428m (+66% y/y, +22% q/q), with total gross revenue coming in at US$839m (+27% y/y, +14% q/q) Rolling chip gross revenue gained from a more favourable hold rate of 3.58% (4Q13: 1.92%; 3Q14: 2.64%) and jumped to US$360m (+36% y/y, +49% q/q) on rolling chip volumes of US$10.8b (-27% y/y; +10% q/q). The q/q improvement in rolling chip volumes could indicate a bottoming in declining VIP business. Meanwhile, the mass market held steady, with slot handle revenue of US$150m (+2% y/y, -2% q/q) and non-rolling chip revenue of US$293m (+5% y/y, +1% q/q). MBS’ hotel business continued to fare reasonably well, with occupancy rates of 98.3% (+1.4 ppt) and average daily room rates of US$422 (-0.7%). Core adjusted EBITDA margin was at 51.0%. The latest set of data could be a positive read-through for Genting SP (GENS) upcoming 4Q14 results, which could similarly show a q/q improvement in VIP volumes. Meanwhile, some market watchers are optimistic that GENS will be able to exhibit a similar hold rate as MBS, which could allow it to retain its market share of VIP gross gaming revenue. Maybank-KE has a Hold rating on GENS with a TP of $1.13. For the upcoming 4Q14 results, the street is expecting GENS to post revenue of $775m and EBITDA of $352.0m.

Capita Retail China Trust

Capita Retail China Trust: 4Q14 DPU rose 12.7% y/y to 2.48¢, while distributable income grew 15.6% to $20.5m, bringing full year DPU and distributable income to 9.82¢ (+8.9%) and $80.9m (+15.4%) respectively. For the quarter, revenue jumped 27.7% to $52.7m, while NPI expanded 30.1% to $33.5m, due to new contributions from CapitaMall Grand Canyon and rental growth from other multi-tenanted malls, offset by lower revenue from CapitaMall Wuhu where tenancy adjustments are ongoing. For the quarter, portfolio reversions were 20.6%. Occupancy was 95.9 (-1.7ppt q/q) due to abovementioned frictional adjustments, with WALE by rental income of 6.7 years. Aggregate leverage stood at 28.7% with all-in interest cost of 3.32%. Shopper traffic fell 5.3% q/q (-0.5% y/y), though average monthly sales rose 13.3% q/q (+21.3% y/y) in the quarter Spending trends in Beijing, Shanghai and Wuhan remains momentous, and management has been actively optimizing tenant space by attracting strong retailers to boost shopper traffic. For CapitaMall Minzhongleyuan, a road closure has continually impacted accessibility to the mall. That said, accessibility is enhanced when a new subway line becomes operational in 2016. CRCT is trading at 1.1x P/B and 5.7% annualized 4Q14 yield.

SG Market (29 Jan 15)

Expect Singapore shares to open lower, following the sell-off overnight in Wall Street, which brought the Dow to its biggest two-day loss in the year. Asian shares are mostly trading lower this morning, with Tokyo (-0.7%) and Seoul (-0.5%) both down, although Sydney is up 0.2%. From a chart perspective, the STI support is tipped at the breakaway gap at 3,377 with overhead resistance at 3,465, set in May 2013. Stocks to watch: *GuocoLand: 2QFY15 net profit soared 230% y/y to $42.5m on revenue of $355.7m (+40%). Revenue was led by the recognition of office tower sales in Shanghai Guoson Centre, while bottom-line was aided by a 14.5ppt rise in gross margin to 33.9%, partially offset by a 145% rise in admin fees to $41.3m and a more than 15x rise in other expenses to $14.4m. NAV/share at $2.48. *Capita Retail China Trust: 4Q14 DPU rose 12.7% y/y to 2.48¢, bringing full year DPU to 9.82¢ (+8.9%). For the quarter, revenue jumped 27.7% to $52.7m, while NPI expanded 30.1% to $33.5m, due to new contributions from CapitaMall Grand Canyon and rental growth from other multi-tenanted malls, offset by lower revenue from CapitaMall Wuhu where tenancy adjustments are ongoing. Occupancy was 95.9 (-1.7ppt q/q) due to abovementioned frictional adjustments, with WALE by rental income of 6.7 years. Aggregate leverage stood at 28.7% with average interest cost of 3.3%. NAV/unit at $1.63. *AIMS AMP Industrial REIT: 3QFY15 DPU inched up 2.2% y/y to 2.83¢, taking 9MFY15 DPU to 8.15¢ (+1.6%). Gross revenue for the quarter was up 5.2% to $29.7m, pulling NPI up 4% to $20.5m, thanks to new rental contribution from 20 Gul Way Phases 2E and 3, as well as 103 Defu Land 10. Portfolio occupancy was 95.9% (-0.7ppt q/q), with WALE of 3.4 years. Aggregate leverage at 31.7% (0.5ppt q/q) with average debt cost at 4.63%. NAV/unit at $1.5349 *CitySpring Infrastructure Trust: 3QFY15 core cash earnings shrank 17.7% y/y to $12.1m. After accounting for a $25.5m one-off dispute settlement and bond refinancing costs at Basslink, actual losses would have been at $13.5m. Revenue fell 7.3% to $120.0m due to lower gas tariffs at City Gas ($92.4m vs $99.5m) and higher negative commercial risk sharing mechanism at Basslink ($17.4m vs $19.7m). CityNet ($1.0m vs $0.7m) was the small bright speck, mainly due to completion of acquisition of OpenNet. DPU maintained at 8.2¢, paid out of accumulated earnings. NAV/unit at $0.14.6. *Terratech: Acquiring 100% stake in Meilian Changchi (MC), a Chinese company producing/selling marble tiles and marble mosaic tiles, via $15.4m in consideration shares. The acquisition will enable the group to undertake in-house processing of marble slabs to gain greater efficiencies and costs savings, while expanding the sales and marketing of its products to other overseas markets via MC's established customer base and sales network. #Ntegrator: Clinched four new orders worth $10.7m for projects in Vietnam, Singapore and Myanmar to supply high-performance batteries, supply, installation and testing of transmission equipment and network expansion. *Oceanus: Announced business restructuring initiatives, including cutting China operations costs by 50% in two months *IHC: In discussions with prospective vendor for potential acquisition of a retail mall in Penang.

Wednesday, January 28, 2015

ST Engineering (technical)

ST Engineering: Price consolidation after hitting previous high of $3.45 shows formation of bullish ascending triangle. Breakout at current market price of $3.40 is needed, but even then the upside may be limited to the price range of $3.51-3.52 in view of the small size of the triangle.

Starhill Global

Starhill Global: 4Q14 results were largely in line, with DPU rising 4.9% y/y to 1.29¢ and taking FY14 DPU to 5.05¢ (+5.0%). Gross revenue slipped 0.4% to $48.9m, dampened by the softer retail market in China and Japan properties, but was partially offset by stronger performance from Singapore and Australia. NPI however improved 2.0% to $39.6m, supported by positive rental reversions for the Singapore portfolio and David Jones Building in Perth, Australia. In addition, lower operating expenses incurred by the overseas properties except for the Malaysia portfolio, and reversal of provision for rental arrears in Japan contributed to the higher NPI. Operationally, Starhill's Singapore portfolio (68% of gross revenue), which comprises stakes in Wisma Atria and Ngee Ann City, enjoyed higher NPI of $26.5m (+3.9%), thanks to positive rental reversions for both the retail and office units. NPI for its Malaysian properties (15% of gross revenue) declined 1.7% to $7.1m, largely due to higher property tax expense and depreciation of the Malaysian ringgit against the Singapore dollar Meanwhile, NPI for its Australian properties (10% of gross revenue) climbed 6.8% to S3.9m, benefitting from the 6.1% rental uplift at the David Jones Building following a lease review on 1 Aug ‘14. But NPI for its China assets fell 28.5% to $1.3m, which was blamed on the contraction of the high-end and luxury retail segment, resulting from the central government’s austerity drive and intensified competition from new and upcoming retail developments in Chengdu. Overall, the REIT’s portfolio occupancy remained steady at 99.6%, with average lease expiry of 5.7 years, while leverage ratio dipped 0.5ppt to 28.6%, with average interest cost of 3.16% and debt tenor of 3.3 years. Going forward, Starhill guides that the retail landscape in Singapore remains tepid, amidst softer retail sentiment and visitor arrivals, while over in China, the high-end luxury retail segments will continue to be dampened by the slowdown in spending, with competition in Chengdu’s retail market expected to intensify, as a number of high-end retail malls are expected to enter the market in 2014. At the current price, SGREIT trades at an FY14 yield of 6.0% and 0.9x P/B versus peer average of 5.9% yield and 1.03x P/B. Latest broker ratings: Daiwa maintains Outperform with TP of $0.92.

M1 (technical)

M1: Marginally outside of overbought territory, with MACD showing inconclusive signs (MACD converging towards signal line, but not yet crossover), i.e. preferably wait for MACD to either diverge, or crossover for a clearer signal. Meanwhile, resistance at ~$3.80, while support at $3.65, followed by 200MA (strong support)at ~$3.60.

UOB (technical)

UOB: Chart shows formation of bullish falling wedge pattern and decreasing downward momentum on the MACD chart. This suggests accumulation of support, but for continuation of previous bullish trend, break out at above $23.60 is necessary. Immediate support at $22.70.

Comfort Delgro (technical)

Comfort Delgro - Technicals appear to be at overbought territory, although there is no signs of any reversal yet. Share price is trading at an all-time high, and would look towards $2.90, followed by $3.00 as the next psychological support level.


OUE-HT: which holds the prized assets Mandarin Orchard (hotel) and Mandarin Gallery (retail), reported 4Q distributable income (+7.5% y/y) of $23.6m and DPU of 1.78¢ (+6.6%), largely in line with its IPO forecast. FY2014 DPU of 6.74¢ yields 7.2%. Higher revenue ($30.4m, +4.8%) and net property income ($27.0m, +5.5%) in 4Q were in line with guidance, driven by both the hotel ($20.9m, +4.5%) and retail ($9.5m, +5.4%) segments. In hospitality, occupancy and room rates were higher, leading to higher RevPAR ($255, +1.2% q/q and +2.4% y/y) and F&B sales. In retail, rental reversion is positive. Average rental rates at $23.60psf/month were higher y/y (+2.2%) but dipped q/q (-1.3%) due marginal decrease in occupancy (4Q14 98.2% vs 3Q14 98.2%). As of January 2015, Mandarin Gallery is fully committed for occupation. Post asset enhancement, Mandarin Gallery also added outdoor advertising space which contributed new income. Balance sheet changes from Sep14 to Dec14 are minimal. Aggregate leverage and cost of debt remained at 32.7% and 2.2% respectively, with interest rate risks completely hedged. Without any changes to debt profile, the term to maturity has been reduced to 2.6 years and the first refinancing requirement comes in Jul16. Despite the satisfactory results and strong balance sheet, the outlook for OUE-HT may be muted. Firstly, the tourism and retail outlook for FY2015 is uncertain, given China’s slowing economy, and is highly susceptible to regional events. Secondly, the completion of Crowne Plaza Changi Airport acquisition in Feb15 may push leverage up to 42% if fully debt-funded, and lower RevPAR ($241), increase in property expenses as well as finance expenses will weigh on margins, though DPU is still expected to be accretive. Among peers, OUE-HT has the highest current yield and above-average P/BV of 1.04x. But trading at 52-week high now, upside may be limited. Latest broker reports: OCBC maintains Hold with TP of $0.85 Goldman Sachs maintains Sell with TP of $0.87


CDL HT: 4Q14 DPU and distributable income rose 7.2% y/y to 3.13¢ and $3.5m respectively, bringing full year DPU to 10.98¢ (+0.1%). Meanwhile, 4Q14 revenue grew 14.4% y/y to $45.1m while NPI increased 6% to $38.6m, from a full quarter’s revenue recognition from Jumeirah Dhevanafushi (acquired Dec ’13) and rental boost from Angsana Velavaru, offset by reduced rents from Singapore Hotels, loss of rent from Claymore Link Mall due to AEI, and reduced contributions from Australia hotels due to the weakened AUD. Singapore hotels achieved occupancy of 90% (+3ppt y/y, -2ppt q/q) in the quarter but RevPAR dipped $2 y/y (-$7 q/q) to $185 from increased competition, exacerbated by muted corporate spending. Meanwhile, management guided that Australia hotels RevPAR remained weak, though it was mildly boosted from the G20 Leaders Summit in Brisbane in November. Meanwhile, management also flagged an 8.8% y/y decline in Maldives resorts RevPAR due to the sharp weakening of the ruble and the strengthening USD. Aggregate leverage increased 1.5ppt q/q to 31.7%, implying debt headroom of $339m assuming a threshold of 40%. All-in interest cost of 2.3%. Two new Japanese hotels are expected to contribute towards performance beginning 1Q15. Otherwise, structural trends would continue to influence the trust’s performance (i.e. competition from new supply in Singapore, muted economy in Australia, unfavorable global outlook weighing demand in Maldives). Claymore Link Mall is expected to resume operations in 2Q15 post-AEI. CDLHT is currently trading at 6.1% FY14 yield, and 1.1x P/B.

SG Market (28 Jan 15)

Singapore shares could pull back to consolidate recent gains following the selldown on Wall Street as investors wait for the policy statement from the FOMC meeting today. From a chart perspective, the STI support is tipped at the breakaway gap at 3,377 with overhead resistance at 3,465, set in May 2013. Stocks to watch: *CDL HT: 4Q14 DPU rose 7.2% y/y to 3.13¢, taking full year DPU to 10.98¢ (+0.1%). Gross revenue for the quarter was at $45.1m (+14.4%) and NPI at $38.6m (+6.0%), led by the recognition of full hotel revenue of Jumeirah Dhevanafushi and rental boost from Angsana Velavaru in the Maldives. This was however partially offset by reduced rent contribution from the Singapore Hotels, loss of rental income from Claymore Link Mall and lower contributions from Australia properties due to the weakened AUD. The group’s Singapore hotels achieved occupancy of 90% in the quarter but RevPAR dipped 1.1% to $185. Aggregate leverage increased 1.5ppt to 31.7%, with average debt cost of 2.3%. NAV/unit at $1.645. *Starhill Global: 4Q14 DPU rose 4.9% y/y to 1.29¢, taking FY14 DPU to 5.05¢ (+5.0%). Although gross revenue slipped 0.4% to $48.9m due mainly to the softening retail market in China and reversal of provision for rental arrears in Japan, NPI improved 3.9% to $26.5m, led by higher rental reversions at Wisma Atria Retail (17%), Singapore offices (+3.1%) and the David Jones Building (Australia). In addition, lower operating expenses incurred by the overseas properties except for the Malaysia portfolio contributed to the higher NPI. Portfolio occupancy remained steady at 99.6%, with WALE of 5.7 years, while leverage ratio lowered 0.5ppt to 28.6%, with average debt cost of 3.16% and tenor of 3.3 years. NAV/unit at $0.94. *OUE Hospitality REIT: 4Q14 DPU rose 6.6% y/y to 1.78¢, taking FY14 DPU to 6.74¢ (+2.6% ahead of group's forecast). Gross revenue was at $30.4m (+4.8%) and NPI at $27.0m (+5.5%), as Mandarin Orchard posted a higher RevPAR of $255 during the quarter compared to $249 in 4Q13, led by both higher occupancy and room rates, while the hotel also recorded better F&B sales from higher patronage. Meanwhile, Mandarin Gallery saw its average rental psf increasing to $23.60 compared to $23.10 in 4Q13, with an occupancy rate at 98.2%. Portfolio WALE stood at 1.85 years, with leverage ratio maintained at 32.7%, while average debt cost was at 2.2% and tenor of 2.7 years. NAV/unit at $0.90. *Mapletree Greater China Commercial Trust: 3QFY15 DPU rose 9.5% y/y to 1.66¢ taking 9MFY15 DPU to 4.82¢ (+10.6%). Gross revenue for the quarter was at $73.6m (+12.0%) led by strong rental reversions in Festival Walk and Gateway Plaza, while NPI came in at $59.3m (+10.2%), due to a 20.5% rise in property operating expenses to $14.3m. Gearing ratio was maintained at 37.9% with average debt cost at 2.1%, while portfolio occupancy was at 99.4% with WALE at 2.4 years. NAV/unit at $1.06. *Cache Logistics Trust: 4Q14 DPU was flattish at 2.15¢ (+0.4% y/y), taking FY14 DPU to 8.57¢ (-0.8%). 4Q14 gross revenue was also flattish at $20.6m (-0.4%), while NPI fell 1% to $19.4m, as a result of the decrease in revenue from vacancies and tenant rent free period, and higher property expenses incurred for property maintenance and lease management. Portfolio occupancy stood at 97.9% with WALE of 4.1 years. Aggregate leverage was at 31.2% with average debt cost at 3.3% and tenor at 4.1 years. NAV/unit at $0.98. *Parkway REIT ($2.43): 4Q DPU rose 2.9% y/y to 2.90¢, taking FY14 DPU to 11.52¢ (+7.1%). 4Q revenue rose 1.5% to $25.1m due to new contribution from Japan properties acquired in 2H13 and 2H14, and rental growth from the Singapore properties, offset partially by a weaker JPY. NPI was at $23.5m (+1.3%), as property expenses rose 4.5% to $1.6m. Portfolio occupancy at 100% with WALE of 9.42 years. Leverage ratio rose 2.2 ppt to 35.2%, while average debt cost was at 1.4%, with tenor of 3.7 years. NAV/unit at $1.68. *Tritech: Received conditional non-binding expression of interest to commit up to US$3b over five years for water and environment projects in China and Asia Pacific region *CDW: Entered into agreement with six other parties to acquire 8.33% interest in Suzhou Pengfu Photoelectric Technology from Mr Deng Changguo and subsequently inject Rmb10m into Pengfu. *Intraco: Expecting FY14 loss due to low margins from the trading segment, which is partially offset by the newly acquired KA Group *UE E&C: Regarding the voluntary conditional offer, the 90% threshold to delist the company has been met, and it will be suspended from 9am, 29 Jan ‘15

Tuesday, January 27, 2015

Halcyon Agri

Halcyon Agri: Finalized the terms for its proposed acquisition of Centrotrade Rubber Group. The US$12m deal, subject to audited NAV at end-2014, will entrench the group's position as a world-leading sourcing and distribution network for natural rubber products. The purchase is expected to bolster Halcyon's assess to the EU and US markets- the two largest Standard Indonesian Rubber and Standard Malaysian Rubber consumer markets in the world, where the world’s top tyre companies are based. Centrotrade Rubber Group is a leading rubber products distributor known for its strong technical capabilities and operates several warehouses and storage tanks in Europe and US. Together with the recent acquisition of New Continent Enterprises, which recorded sales of 250,000 tonnes in 2013, Halcyon’s current capacity is expected to grow by 52% to an estimated 1.1m tonnes. At $0.565, Halcyon is valued at 9.1x forward P/E. The street has 1 Buy and 1 Hold rating, with 12-month TP of $0.64 for the rubber distributor.


Innovalues: Innovalues is profiting from USD strength, as 90% of its revenue is based on the greenback compared to 31% of its raw materials. Maybank-KE estimates a 0.7% gain to gross profit for every 1% appreciation in USD versus SGD. In addition, prices of stainless steel, its major input, are depressed by low oil prices, reinforcing efforts to improve margins. Maybank-KE expects FY14 core net profit to swell 118% to $14m. In 2015, the house is projecting 24% earnings growth, which could be further buttressed by the strong USD, giving Innovalues a competitive edge over its US-based rivals. The RMB strength should also hasten its productivity programmes in China to improve returns. On its growth plans, Innovalues is considering a new project for 2016 with an automaker. If this goes ahead, it will have to make a big investment in capacity. But given the potentially large orders and the start of a significant relationship, it could catapult Innovalues into the big league. Maybank-KE maintains its BUY rating with TP of $0.65. The company is scheduled to release its FY14 results end Feb.

Tiger Airways

Tiger Airways: OCBC remains cautious despite yesterday's encouraging results. House believes the longer-term success of Tigerair hinges on driving growth and managing costs through the alliance with Scoot as well as Singapore Airlines. However, one profitable quarter does not guarantee the success of its turnaround strategy. House prefers to wait and see if these improvements can be sustained. OCBC maintains SELL, but raised TP to $0.23 (from $0.18).


Tigerair: rallied 23% yesterday to $0.320 as it posted the first core profit after eight consecutive quarters of losses. Operating momentum improved on the back of reduction in capacity, reduced competition from major rivals and recovery of tourist demand to SEA post political instability. Both passenger yield and load factor increased, amidst lower capacity. Costs were checked by lower fuel price and staff costs. Furthermore, earnings would have been higher if not for fuel hedging losses at ~US$112/bbl (vs ~US$65/bbl now). Tigerair had hedged ~ 35% of its fuel requirements Jan15 through Mar16. Morgan Stanley sees positive read through for SIA, which adopts the same capacity management. Upsides in passenger yields could be anticipated. However, it kept Underweight rating for Tigerair with TP $0.22. JPMorgan, on the other hand, believes the worst is nearly over for Tigerair, as the turnaround came after it disposed its loss-making associates. Completion of rights issue and potential synergies with Scoot also supports turnaround. The house rates Tiger as Overweight with TP $0.41. Catalysts include: acceleration in ancillary revenue, increased traffic feed from other airlines in Changi Airport, tie-up with Scoot and potential takeover by SIA.


Noble: UBS upgrades Noble from Sell to Neutral as prices have corrected significantly since Jun14. Though industry outlook remains bleak, market volatility and a shift to contango structure may become beneficial for traders. Lower energy prices risks write-downs due to asset revaluations with Oil, Gas and Power as the largest contributor to Noble’s energy business (~70% Revenue/82% operating income). Lower refining margins pressure core margins. However, volatility may generate trading interest and contango and the availability of storage facilities should lift Noble’s trade book. Catalysts are trading gains, risks are sustained depression in energy prices. TP based on P/B is $1.07.

Mapletree Industrial Trust

Mapletree Industrial Trust: UBS downgrades MINT from Neutral to Sell, rationalizing that valuations after the 12% rally since Oct2014 have become lofty. Stock is trading at 1.3x P/BV, more than 2SD above its historical mean, and forward yield is coming under pressure (~6.7%) at a time when the industrial sector is softening. As such, continuous growth in the short-term is challenging. DCF-derived TP is $1.43 (up from $1.36).

Viva Industrial Trust

Viva Industrial Trust: 4Q14 DPU slightly missed its own forecasts by 0.7%, coming in at 1.70¢, taking FY14 DPU to 6.83¢ (-0.5%). Gross revenue for the quarter was at $16.6m (+8.7%) and NPI at $11.0m (+8.6%) versus forecasts, driven by higher actual rental contribution from new business park space tenancies at UE BizHub EAST and partial rental contributions resulting from the acquisition of Jackson Square and Jackson Design Hub. This was partially offset by lower revenue from Technopark@Chai Chee, due to preparations ahead of the proposed asset enhancement initiative where certain lettable areas, which will be affected by the proposed AEI, were not marketed to potential tenants. Bottom-line was weighed by a 40.9% rise in finance expenses to $3.7m, due to the issuance of a $100m medium term notes on Sept ’14 Going forward, Viva Industrial Trust (VIT) guided that the outlook of the industrial property market is expected to be mixed, taking into account the fragile global economic outlook and lingering risks, such as potential global Ebola outbreak and repercussions from plunging oil prices. On the leasing front, rents for properties with higher building specifications, such as those located within business parks, and independent high-specs buildings, could see some upside potential due mainly to a tightening in supply. Leverage ratio stands at 44.3% with average interest costs at 3.8%, and portfolio occupancy is at 80.5% with a WALE of 3.8 years. At the current price, VIT trades at 8.5% FY14 yield and 1.06x P/B versus its industrial peer average of 7.3% yield and 1.1x P/B.


OUE CT: 4Q14 DPU of 1.44¢ was 5.1% better than forecast, while distributable income was 5.5% higher than forecast at $12.6m. Revenue was 12% higher than guided at $19.6m while NPI was 14.9% ahead at $14.4m, due to better occupancy and rental reversions than budgeted. Occupancy improved 0.8ppt q/q to 98% with WALE of 2.8 years. Aggregate leverage at 38.3% with average cost of debt of 2.8%. While the performance at OUE Bayfront would likely be sustained in 2015 due to a lack supply of prime office space, management does flag a subdued rent outlook for Lippo Plaza in Puxi, Shanghai, given an expected onslaught of supply. OUECT is currently trading at 7% annualized 4Q14 yield and 0.75x P/B

Keppel Corp

Keppel Corp: After a three-day trading halt, spanning its FY14 results, Keppel Corp (KEP) finally cobbled out a two-tier cash offer for its 54.6% owned property arm Keppel Land (KPLD) between $4.38 (base price) and $4.60 (privatisation price), representing 20-26% premium to its last close of $3.65 but at a 7-12% discount to its book value of $4.95. This compares to the 21% premium which CapitaLand paid for CapitaMalls Asia in July last year. KEP has indicated that there will be no chain offer for Keppel REIT and it does not intend to revise the offer prices, which will include the 14¢ dividend declared by KPLD. This is not the first time that KEP is privatising its listed entities. Back in 2001, the group took both Keppel Hitachi Zosen and Keppel FELS private but that was when KEP was a pure holding company with no core operating business and was flushed with cash after the sale of Keppel Bank. The situation is different this time round as we see no compelling case for KEP to lever up its gearing in a transaction that has little strategic value, amid a rising interest rate environment, softening property market and significant headwinds in the O&M industry. KEP has cited positive long term prospects in the property sector, unlocking of value, a more balanced earnings base and ability to leverage the group’s strengths to achieve synergies and higher returns as the key rationale behind the offer. However, there was nothing that had prevented KEP from achieving the same objectives to grow its property arm in the past. In fact, it is for this very reason that KEP is not required to seek shareholder approval given its controlling interest as KPLD constitutes a significant portion of its revenue and earnings. Property business is capital intensive and it is always useful to have additional access to funding. Moreover, the deal structure and manner in which it was executed (three-day trading halt, last minute rescheduling of results briefing, key press release with no letterhead) speaks of a management that is half-hearted and tentative. At its best, the $3.2b transaction is an opportunistic move by KEP to buttress its earnings and plug a potential O&M earnings gap should rig orders dry up. At its worst, KEP will end up with an increased shareholding in KPLD and a much weakened balance sheet to face the oncoming O&M storm. Recall KEP made botched privatisation offer for Keppel T&T in 2001, which resulted in it holding an 80% stake the logistics/telecom operator. Implications of the transaction: 1) The deal would be EPS (+13% to $1.18), ROE (+12% to 21%) and NAV (+4% to $5.94) accretive, but these are bought through debt 2) KEP will be able to book a negative goodwill gain of $245.5m (100% privatisation) or up to $311.8m (assuming 89.9% acceptance level) in FY15 3) Net gearing will rise from 0.11x to 0.41x 4) Less transparency for its property division and more diversified portfolio will widen its conglomerate discount 5) Less support for its share buyback following the expected cash drain. The group kicked off its share buyback scheme last year and has since purchased back 5.5m shares Perhaps the bigger question that shareholders might want to ask is whether there will be a shift in KEP’s focus from building businesses, which the previous management has so painstakingly built up over the years, to an asset management model, banked on financial engineering and deal making. Time will quickly tell. Latest broker ratings: Maybank-KE maintains Hold with TP of $8.60 CLSA maintains Sell, cuts TP to $6.60 from $7.85 Morgan Stanley maintains Equal-Weight but cuts TP to $7.80 from $9.60 Nomura maintains Reduce with TP of $7.95 Goldman Sachs maintains Neutral with TP of $8.60 Deutsche maintains Neutral with TP of $8.80 JPMorgan maintains Neutral with TP of $8.80 OCBC maintains Buy but cuts TP to $9.14 from $9.89 CIMB maintains Add but cuts TP to $9.31 from $9.90 Credit Suisse maintains Outperform but cuts TP to $10.00 from $12.50 Barclays maintains Overweight but cuts TP to $11.30 from $11.70

SG Market (27 Jan 15)

Singapore shares could pull back a little to consolidate recent gains following the muted close on Wall Street as investors wait for the policy statement from the FOMC meeting this Tue/Wed. From a chart perspective, the STI may close the breakaway gap at 3,377, which now acts as a support, before resuming its march. Overhead resistance is at at 3,465 set in May 2013. Stocks to watch: *OUE Commercial REIT: 4Q14 DPU of 1.44¢ was 5.1% ahead of IPO forecast, while distributable income was 5.5% higher than forecast at $12.6m. Revenue was 12% higher than guided at $19.6m while NPI was 14.9% ahead at $14.4m, due to better occupancy and rental reversions than budgeted. Occupancy improved 0.8ppt q/q to 98% with WALE of 2.8 years. Aggregate leverage lowered 1.5ppt to 38.3% with average cost of debt of 2.81%. BVPU at $1.10. *Ascendas India Trust: 3QFY15 DPU and distributable income rose 6% to 1.16¢ and $11.9m respectively. Revenue grew 10% to $31.8m from positive rental reversions and a stronger rupee, while NPI climbed 3% from one-off accounting items. Occupancy stood at 96%. Aggregate leverage stood at 23% with all-in cost of debt of 6.5%. BVPU at $0.60. *Viva Industrial Trust: 4Q14 DPU was at 1.701¢ (-0.7% from IPO forecasts), taking FY14 DPU to 6.833¢ (-0.5%). Gross revenue for the quarter was at $16.6m (+8.7%) and NPI at $11.0m (+8.6%), driven by higher-than-anticipated rental contribution from new business park space tenancies at UE BizHub EAST and partial rental contributions resulting from the acquisition of Jackson Square and Jackson Design Hub. Bottom-line was weighed by a 40.9% rise in finance expenses to $3.7m, from the issuance of medium term notes. Leverage ratio stands at 44.3% with average interest costs at 4.9%. Portfolio occupancy is at 80.5%, with WALE at 3.8 years. NAV/unit at $0.758. *Halcyon Agri: Proposed to acquire US$12m Centrotrade Rubber Group, a leading distributor of rubber products with several warehouses and storage tanks in Europe and US, known for its technical capabilities. The intended acquisition would spearhead Halcyon into a world-leading sourcing and distribution network for natural rubber products. *Gallant Venture: Proposed to issue $75m 7% notes due 2017, under its US$500m euro MTN programme. *CH Offshore: Falcon Energy extended the closing date for its $0.495/share voluntary conditional offer from 26 Jan to 9 Feb. To-date, group has received 1.32% valid acceptances from the offer, bringing Falcon's holdings in CH Offshore to 30.42%. *Sincap Group: Proposed to place up to 351m new shares (50% enlarged share capital) at $0.10 each. The fund raising is intended to fund group's $38.5m proposed acquisition of LTN Land, which owns a land parcel in South Perth. *Dragon Group International: Proposed placement of 27.8m new shares (8% enlarged share capital) at $0.09 apiece to Asia Green Technology. *Hock Lian Seng: Awarded contract from LTA to design and construct the stabling at Gali Batu Depot for $137.4m, scheduled to complete by Nov ’19. *Lian Beng: 51%-owned Goldprime Land had been awarded the tender for land parcel at Tampines North Drive 1 at $64.4m. *Smartflex: Pilot launch for its eco.SIM technology in Indonesia with local partner, PT Cipta Srigati Lestari. The technology is a cost-effective way to manufacture SIM cards. *Capitaland: CapitaMalls Malaysia REIT acquired Tropicana City Mall, (448k sf NLA) and fully occupied Tropicana Office Tower (101k sf NLA), both in Petaling Jaya for RM540m. *Manufacturing Integration Technology: Expects to return to profitability in FY14, from its loss position in FY13. The expected sales and profit growth was mainly due to the successful introduction of its new series of vision scanning solutions and sales of high-end die sorters. In addition, the delivery of 24 units of solar equipment and contract equipment manufacturing sales also boosted bottom line.

Monday, January 26, 2015

Keppel Land

Keppel Land: The market has spoken. Share price of Keppel Land (KPLD), the privatisation target of parent Keppel Corp (KEP), gapped up this morning to $4.52, surpassing the higher effective offer price of $4.46 ($4.60 less $0.14 dividend), making the cash offer irrelevant. We postulate some reasons why market has responded as such: 1) The base offer price of $4.38 (effectively $4.24, less the final dividend) and higher privatisation offer price of $4.60 are at 12% and 7% discounts to the book NAV of $4.95, and at a steeper 16-20% discount to street RNAV of $5.48, which are at the low end of recent privatisation offers. For instance, CapitaLand acquired CapitaMalls Asia in July 2014 after paying a 26% premium to its NAV. 2) KPLD traded to a peak of $7.00 in 2007 prior to the global financial crisis and there could be long term investors who purchased at those levels and are unwilling to throw in the towel at the offer prices. 3) Judging by today’s price action, there could be big investors or interested third parties who may be `blocking’ the privatisation deal, perhaps unconvinced about the merits of merging KPLD with its parent and wanting to keep the listing status of KPLD. Given that KPLD is now trading above the higher effective offer prices by KEP, shareholders who wish to take profit, or are concerned about the uncertain property outlook in Singapore and China, should consider selling into the market, bearing in mind that should the privatisation fail, prices may correct back to pre-offer levels.

SG Banks

SG Banks: Barclays is positive on Singapore Banks but believe the positivity is partially reflected in the recent run-up in valuations. The house downgrades UOB from Overweight to Equal-weight and upgrades OCBC from Underweight to Equal-weight, while keeping DBS as the top pick with Overweight. Singapore Banks are seen as positively geared to rising interest rates and defensive towards capital outflows due to its strong funding franchise, high household savings rate and strong credit ratings, giving them access to cheap funding. Specifically, rate hikes will drive positive margin returns. Rising rate environment is usually positive for banks, though with a time lag of about three months, as banks with less than 100% loan-deposit-ratio use excess funds generate higher returns. All three Singapore banks have SGD LDR less than 90%. In particular, DBS’s net interest margins are the most highly positively correlated with SIBOR due to its high exposure (est. 86%) to US-geared markets such as Singapore and Hong Kong. OCBC and UOB are more geared towards ASEAN peers, where interest rates are less related to the U.S. Singapore’s high domestic household savings rate, high concentration of wealth as well as its position as an offshore wealth management centre makes it well-placed among regional peers even in times of a global liquidity tightening. Meanwhile, asset quality is strong and with strong earnings since the Asian Financial Crisis, breakeven credit costs (when the pre-provision earnings is wiped out by bad-debt) of all the banks have risen. Home mortgage delinquencies should be low or tolerable given low unemployment rate and availability of the CPF scheme to finance housing loans. On capital management, DBS and UOB are well capitalized while OCBC plans to boost its core Tier 1 via divestments of non-core assets and earnings generation. Given its optimism in Singapore banks, the house raised TPs across all three banks. DBS is raised to $22.00 (from $19.00) UOB is raised to $24.10 (from $23.60) OCBC is raised to $10.70 (from $10.00)


CMT: Credit Suisse downgrades to Neutral, citing stretched valuations post recent rally. FY14 DPU of $0.1084 was broadly in line, driven by contribution from Westgate and stronger performances in Plaza Sing, Atrium and Bugis Junction, partially offset by lower occupancy at IMM and JCube. Management is cautious on outlook of rent reversions given challenging operating environment. Meanwhile, occupancy costs increased 180bp y/y to 17.6%. However, there is potential for interest savings from refinancing the remaining $391m MTN due 2014. The house likes the resilient “necessity” shopping positioning of CMT’s malls but prefers better entry points due to limited upside post the recent rally, TP at $2.37 ( ~5% upside).

Keppel Corp

Keppel Corp: may face a bigger conglomerate discount, says Credit Suisse, though the house thinks the counter-cyclical investment may stand to benefit KEP in the longer term and offset risks in O&M. Morgan Stanley is concerned about weak property market and expensive inventory from KPLD as well as larger potential discount shareholders will attribute to KEP, property conglomerates being the most discounted (~33% to RNAV) sector. The privatization seems almost counter-intuitive, as most conglomerates spin-off their property segment to unlock value. Also, KEP’s and KPLD’s discount to NAV and liquidity do not seem to justify privatization. JPM also applies a conglomerate discount and foresees a shareholder shake-up (as KEP’s current shareholders are mostly O&M focused), but sees the privatization as potentially offsetting the emerging headwinds for O&M. Latest broker ratings: Credit Suisse reiterates Outperform with TP lowered to $10.00 (from $12.50) Morgan Stanley reiterates Equal-Weight with TP lowered to $7.80 (from $9.60) JPMorgan reiterates Neutral with TP at $8.80.

HPH Trust

HPH Trust: JP Morgan upgraded HPHT to Overweight and raised TP to US$0.86 (from US$0.75). The upgrade reflects the anticipated tariff hikes in both Hong Kong and Yantian. HPH Trust has widely been viewed as ex-growth, hence the de-rating since its IPO. However, JPM sees re-rating potential on the back of stronger-than-expected 2014 volume growth in Yantian (+8% y/y), which appears to be sustainable from 2015 onwards, and tariff hikes which will have a substantial positive impact on HPH Trust's operational outlook.


SingTel: Morgan Stanley rates SingTel Overweight, given improving trends in Singapore and Optus, supported by M1's recent 4Q results, which show continued ARPU increase in Singapore, whereas Optus' mobile revenue decline stopped in 2QFY15 and should recover from 3Q. While the market has been concerned about recent currency movements, especially weakness in AUD, house reckons only a modest 1% negative impact on 3QFY15 PBT. This is because S$ also depreciated 3.5% vs the US$, which reduces the translation risk for SingTel. Moreover, the INR and THB actually appreciated vs the S$, partially mitigating the impact of AUD weakness. Counter pays dividend yield of 4.8% and EPS CAGR of 9% make the stock attractive.

Fraser Centrepoint Trust

Fraser Centrepoint Trust: 1QFY15 DPU met the lower end of estimates, rising 10% y/y to 2.75¢, while distributable income increased 22.1% to $25.2m. Revenue climbed 18.3% to $47.2m, while NPI grew 16.2% to $32.9m, from the addition of Changi City Point, plus increased revenue from Causeway Point. In the quarter, renewable leases clocked in an average rental reversion of 7.7%> Occupancy dipped to 96.4% from 99.1% q/q, due to transitional vacancies at Northpoint, Changi City Point, and Bedok Point. WALE stood at 1.7 years. Aggregate leverage stood at 29.3%, implying some $270m debt headroom. All-in borrowing costs was 2.7%. CIMB cites 22% of leases are set to expire this year, with majority from larger malls like Causway Point and Central City Point. Given their attractive location, there is still room for positive rental reversions. Trading at 1.1x P/B and 5.5% annualized 1QFY15 yield. Latest broker ratings: CIMB maintains Add with TP of $2.18 JP Morgan maintains Underweight with TP of $1.85

SG Market (26 Jan 15)

Singapore shares are likely to take a short pause after an unexpected rally took the STI above the psychological 2,400 level last week on several positive factors - ECB’s massive quatitative easing, sliding oil prices which fuelled airline and shipping stocks, an impending fare hike that pushed the land transport operators and finally, Keppel Corp’s cash offer for its property arm, which lifted the property sector. All eyes will be on Keppel Corp and Keppel Land shares this morning, following a three-day trading halt, which may have a bearing on the index performance. In short, we view the half-hearted privatization attempt as a financial engineering deal that offers little strategic value. And the bigger question that shareholders might want to ask is whether there will be a shift in focus from buildining businesses to an asset management model marked by deal making. But what is a bane for Keppel Corp may be a boon for the other conglomerates (Sembcorp Industries, ST Engineering) and property counters (CapitaLand). From a chart perspective, the STI has broken past the key 3,400 psychological mark and is headed towards the next summit at 3,465 set in May 2013. Downside support is now raised to the previous resistance at 3,375. Stocks to watch: *Keppel Corp/Keppel Land: Parent Keppel Corp launched a voluntary unconditional cash offer for 54.6% owned property arm Keppel Land in a two-tier price approach, with base offer price of $4.38/share, or privitisation offer price of $4.60/share. The base and higher offer prices translate to discounts of 11.5% and 7% to Keppel Land's latest NAV/share of $4.95 and compares to consensus RNAV of $5.48. The offer price will include Keppel Land’s FY14 DPS of 0.14¢. Keppel Group will not be revising its offer prices. *Tiger Airways: 3QFY15 results turned around to deliver net profit of $2.2m from loss of $118.5m a year ago, due to the absence of impairment on associates ($58m), disposal loss ($30m) and share of associates' loss ($23m). Meanwhile, revenue grew 5.9% to $182.3m due to better yields and higher traffic volume, while lower expenses lifted group into operating profitability of 2.2%. BVPS of $0.0911. *Fraser Centrepoint Trust: 1QFY15 DPU and distributable income surged 10% y/y and 22.1% to 2.75¢ and $25.2m. Revenue climbed 18.3% to $47.2m, while NPI grew 16.2% to $32.9m, mainly boosted by the addition of Changi City Point, as well as step-up rents and positive rental reversion from Causeway Point. Occupancy dipped 2.5ppt q/q to 96.4%, with WALE of 1.7 years. Aggregate leverage stood at 29.3% with all-in borrowing cost of 2.7%. BVPU at $1.85. *K1 Ventures: 2QFY15 net profit surged from $0.6m to $31m, on revenue of $51.5m (2QFY15: $2.8m), boosted by sale of China Grand Automotive ($45.6m), which resulted in a gain of $27.4m. With cash per share of 3.07¢, group has determined not to make any new investments, but will focus its efforts on managing the current portfolio and realise them. Interim DPS of 1.5¢ declared (2QFY14: nil). BVPS of $0.11. *F&N: Secured 11 year 7 month licensing agreement with NestlĂ©, to manufacture and distribute Carnation, Bear Brand, Bear Brand Gold, Ideal Milk and Milkmaid in ASEAN, including Singapore, Thailand, Malaysia and Brunei. The agreement comes with an option to extend the licenses for an addition 10 years until 31 Jan 2037. *United Fiber System: Received SGX’s approval-in-principle for its proposed RTO acquisition of PT Golden Energy Mines. The long-stop date for the acquisition has been extended from 31 Dec 2014 to 3 Jun 2015. *Popular Holdings: Appointed PrimePartners Corporate Finance as its independent financial adviser for the voluntary conditional cash offer of $0.32/share by Grand Apex Holdings. *International Healthway Corporation: Established $500m multi-currency MTN programme, which will be used to fund general corporate purposes including financing investments, debt repayment, working capital and capex requirements. *CSC Holdings: Issued profit warning for 3QFY15.

Friday, January 23, 2015

Keppel Land

Keppel Land: (S$3.65) Parent makes cash offer of $4.38/4.60, below book value After a long three-day silence, parent Keppel Corp finally launched a voluntary unconditional cash offer for its property unit in a hastily prepared press release with no letterhead. There will be a two-tier price approach to the offer: 1) Base offer price of $4.38 or; 2) Higher offer price of $4.60, if acceptances breaches the 90% compulsory threshold The higher offer price, will be paid to all shareholders who accept the offer, including those who have accepted at base offer price, if Keppel Corp succeeds in privatizing its 54.6% owned property subsidiary. Keppel Corp does not intend to revise the offer price, which will include Keppel Land's FY14 dividend of 14¢ per share. The base offer and higher offer prices translate to discounts of 11.5% and 7% to Keppel Land's latest NAV/share of $4.95. This compares to market consensus RNAV of $5.48. As a comparison, Capitaland's recent privatisation of CapitaMalls Asia was transacted at a 21% premium to its book value.

Keppel Corp/Kep Land

Keppel Corp/Kep Land: $4.60 is the price Keppel Corp will pay for each Kep Land shares if ownership corsses 90% mark, allowing Keppel Corp to compulsorily acquire Keppel Land. Otherwise, should acceptances fall below the 90% mark, the price will be $4.38

Keppel Corp

Keppel Corp: 4Q14 revenue of $3.9b (+9.1% y/y) and net profit of $725.9m (+6.1%) were broadly in line with street expectations, though lifted by one-off gains from disposal of infrastructure and property assets and divestments of associates. Final dividend proposed is $0.36 (vs $0.30 in 2013), bringing full year to $0.40 (vs FY13 $0.48). The offshore & marine (O&M) sector, assumed to be badly hit by plunging oil prices, is the key focus. Revenue grew 14.6% y/y but operating margin fell (by 1.8ppt) for the first time since 2Q12. Net profit was almost flat at $286.8m (+0.88%), but order book is robust at $12.5b. Results from the property sector were distorted by one-off gains of MBFC, Equity Plaza and Al Mada Tower in Jeddah, offset by lower fair value gains on its investment properties. As such, while revenue surged 70.8%, profit at operating and net level dropped 34.5% and 46.8% respectively to $343.1m and $261.4m. Infrastructure sector recorded a 28.8% drop in revenue ($685.4m) due to its power general plants, partially offset by improvements in data centre and logistics business. Operating profits ($304.7m) were boosted by divestment of the two more profitable data centres to Keppel DC REIT, which is now an associate. Looking ahead, management admits the O&M large environment is challenging in view of lower oil prices and projected oversupply of rigs. Nonetheless, net order book of $12.5b as at end of 2014 should keep yards busy through 2016. Keen competition in the power generation and electricity market is likely to stay. Exposure to Brazil, a key concern of investors due to Petrobras’ corruption scandal, makes up 13.9% of external sales and 3.3% of fixed assets. With FY14 EPS $1.038 and NAV $5.67 per share, KEP trades at 7.8x FY14 P/E and 1.43x P/BV. Both Keppel Corp and Keppel Land are halted pending announcement today. Latest broker ratings: Maybank-KE maintains Hold with TP of $8.60 Credit Suisse maintains Outperform with TP of $12.50 Barclays maintains Overweight with TP of $11.70 BNP maintains Buy with TP of $10.00 CIMB maintains Add with TP of $9.90 UOBKH maintains Neutral with TP of $8.80 JPMorgan maintains Neutral with TP of $8.80 Nomura maintains Reduce with TP of $7.95

Giken Sakata

Giken Sakata: Counter will halt trading from 28 Jan till 12 Feb, as part of group’s restructuring efforts following the court approval for its scheme of arrangement.


SGX: The positive was that SGX’s 2Q15 result was inline with expectations. The negative was that increased cost guidance will lead to downgrades. Bulls pointing to the positives of derivative volumes and the board lot reduction will ultimately be disappointed in CLSA's eyes…and early signs support that view. House reckons there will be disappointment in the cost guidance for the year, which rose from $330-340m to $360-370m, with higher royalties, the consolidation of EMC and costs associated with market outages to blame. More recent upgrades from the street have FY15 NPAT coming in in the $350-370m range. With 1H15 only hitting $165m, CLSA would have expected downgrades even without the higher cost guidance. CLSA maintains SELL with TP of $7.00.

Venture Corp

Venture Corp: Since 3Q14, Venture’s customers have generally turned more positive. On the macro level, tailwinds in 2015 include 1) an overall improving US economy; 2) efforts to develop higher value-added manufacturing customers are starting to bear fruit, and 3) beneficial non-core gains from the stronger US$. CIMB believes that Venture has weathered the worst from consolidation at its customers end. Going forward, while customer M&As cannot be entirely ruled out, the frequency should be low. At the same time, customers have turned more positive. Venture's balance sheet remains in net cash (3Q14: $165m) and CIMB expects its free cashflow to sustain its DPS of 50¢, translating into an attractive 6.4% yield. House expects its share price to re-rate in the coming weeks as investors focus their attention on the dividend.

Keppel Land/ Keppel Corp

Keppel Land (KPLD)/ Keppel Corp (KEP): Are on trading halt. CLSA speculates this could most likely stem from a restructuring of jointly held assets between KPLD and KEP. A move by Keppel Corp to divest its 70% stake in Keppel Bay Pte Ltd to Keppel Land is most logical as it offers further streamlining impact to the group. However, such a move would also raise questions over KEP’s need for cash and KPLD’s increased exposure to the challenging Singapore residential market. While house don’t rule out privatization offer for Keppel Land which can see 19% upside based on past take out P/B multiple of 0.88x, CLSA thinks the likelihood is low. Pending further announcements, CLSA reiterated its Underperform rating on KPLD and continue to view KPLD’s operating environment as challenging.

SG Market (23 Jan 15)

Stocks to watch: *Keppel Corp: 4Q14 in line, on net profit growth of 6.1% y/y to $725.9m, as revenue improved 9.1% to $3.9b, boosted by one-off gains in disposal of infrastructure and property fixed assets and divestments of subsidiaries and associates. Segment-wise, O&M margin slipped 1.8ppts, while infrastructure gained from divestments, property, on fair value gains offset by one-off gains from disposal of MBFC Tower 3. FY14 EPS $1.038 (1.5%), final DPS $0.36 brought FY14 total to $0.40 (FY13: $0.48). NAV of $5.67. *Capitamall Trust: 4Q14 distributable income climbed 5% y/y to $99.1m, in tandem with the rise in DPU to 2.86¢, bringing FY14 DPU to 10.84¢ (+5.6%). Gross revenue inched 2.2% to $165.2m, mainly from the completion of AEI works at Bugis Junction, but got outpaced by higher property expenses (+15.9%), which resulted in a fall in NPI to $106m (-4.1%). Portfolio occupancy held steady at 98.8%, while gearing ratio lowered 0.3ppt to 33.8%, with average debt cost of 3.5% and tenor of 4.7 years. BVPS at $1.81 *Frasers Commercial Trust: 1QFY15 results beat, distributable income and DPU rose 22% and 20% y/y to $16.7m and 2.46¢, respectively. Revenue leaped 23.3% to $35.6m, while NPI jumped 15% to $25.4m, significantly boosted by new underlying leases at Alexandra Technopark following the expiry of the master lease, as well as higher occupancies at China Square Central and 55 Market Street. Portfolio occupancy held steady at 96.6% with WALE 3.7 years, while aggregate leverage maintained at 37.2% with cost of debt of 2.7%. BVPU of $1.59. *Suntec REIT: 4Q14 results in line, distributable income jumped 11% y/y to $64.6m, while DPU edged 0.6% to 2.577¢, bringing FY14 total DPU to 9.4¢ (+0.8%). Meanwhile, gross revenue and NPI grew 7.3% and 6.5% to $76.8m and $53m, respectively, boosted by the opening of Suntec Singapore (Convention) and completion of Phase 2 of Suntec City’s AEI, as well as positive rental reversion (+4%) from offices. Office portfolio remained full, while retail occupancy improved 1.3ppt to 99.7%. Committed occupancy for Suntec City’s Phase 3 AEI is at 91.3%, which is expected to open “soon”. Aggregate leverage stood at 35.5%, with average debt cost of 2.44% and tenor of 3.63 years. BVPU of $2.117. *Creative: Announced Sound Blaster JAM, a lightweight Bluetooth headset for mobile devices which can be also connected PC/Mac via USB, which will be available for sale at end-Jan. *Ascendas REIT: 3QFY15 in line with estimates, as DPU inched up 1.4% y/y to 3.59¢, while distributable income climbed 1.6% to $86.4m. Revenue rose 11.2% to $171.7m while NPI increased 5.6%to $114.6m, as HIC and Aperia contributed to income streams, coupled with improved occupancy at Nexus@ one-north and A-REIT City@Jinqiao. Overall occupancy stood at 86.8% (+1.2ppt q/q) with WALE of 3.9 years. Aggregate leverage stood at 33.6% with all in borrowing cost of 2.7%. BVPS at $2.03 *United Engineers: Disposed entire 60% shareholding in Tangshan UE Shengxing Renewable Resources for Rmb6m. *CNA: Received statutory demand notice from First Gulf Bank for a claim of AED55.5m ($20.2m), owed from credit facilities.

Thursday, January 22, 2015

First Resources (technical)

First Resources, the downtrend started in July after breaking the head and shoulders bearish pattern and the impulsive rebound in December may suggest that prices have bottomed out, taking a breather only because it had met resistance at the 38.3% Fibonacci retracement level. Near-term support at $1.90

Giken Sakata

Giken Sakata: Counter is up 5.8% today to $0.275, after the company announced the appointment of Sakae Corporate Advisory, a unit of Sakae Holdings, to be its corporate adviser. The advisory firm believes in Giken’s growth potential, and intends to market the company to investors in Europe, America and other internationals investors. The move is expected to spearhead Giken’s corporate access and visibility to participants in the global capital markets, supported by Sakae’s newly-formed partnership with Religare Capital Markets- an Asia and India focused mid-market institutional equities and investment banking platform, empaneled with over 400 institutional investors. Market watchers are expecting a transformational year for Giken in 2015, after having acquired a 53.7%-stake in upstream O&G producer in Indonesia, Cepu Sakti Energy (CSE). Financial contribution from the new entity is expected to kick in from 1QFYAug15. Observers have cited that Giken’s market cap of $128m only prices in its stake in CSE’s two of five oil fields, which have 2P reserves and 2C resources of 7.6m barrels of oil equivalent (boe) and 3.8m boe, respectively. The remaining three fields are currently being commissioned for a qualified personnel report, anticipated to be released soon. Upside catalysts for Giken include higher-than-expected oil reserves (2P) for the three oil fields, further acquisition of new matured oil fields to scale production numbers and value unlocking of its legacy machining business. However, we caution investors that since the plunge in oil price from Jun ’14, a key risk would be the contracted selling price for oil that Giken has with Pertamina, as any downward adjustment would have a direct impact the company’s margins and bottom line.

Ascott REIT

Ascott REIT: (S$1.275) 4Q14 within expectations; Commendable 2014 Ascott REIT (ART) 4Q14 DPU surged 62% y/y to 2.16¢, while distributable income jumped 26% to $33.1m, buoyed mainly by one-off items and a right-issue adjustment in 2013. Otherwise, DPU improved 13.4% to 1.76¢. Meanwhile, revenue and gross profit rose 13% and 10%, respectively, boosted by additional contribution from nine properties acquired in 2014, as well as stronger performance from UK properties. For the year, ART paid out a DPU of 7.61¢ (+6%), adjusted for rights issue and excluding one-off items, on distributable income of $33.1m (+9%). Revenue and gross profit edged 13% and 12% to $357.2m and $180.2m, respectively. In 2014, ART’s expansion was commendable. The reit boosted its portfolio by 13.7% to the current $4.1b in value, located across 37 cities in 13 countries. The nine additional properties acquired were across Australia, China, Japan and Malaysia, of which five cities within which were maiden forays. The expansion helped offset the dismal performance from serviced residences in Singapore and Vietnam, which dragged overall RevPAU down 4% to $124/day, as well as lower average daily rate from the China properties acquired in Aug 14. ART lowered its leverage from 40.0% to 38.5% q/q, as debt tenor increased from 3.8 to 4.4 years, with an average borrowing rate of 3%. The reit maintains its focus to deepen its presence in key hospitality markets in Asia Pac and Europe, but remains watchful on a challenging operating environment in 2015, as geopolitical risks and disappointing economic prospects remain a concern. ART is valued at 0.93x P/B, below hospitality peers’average of 0.95x. Bloomberg consensus has 7 Buys, 4 Holds and 1 Sell on ART, with an average 12-month TP of $1.35. The street expects the hospitality reit to yield 6.2% in FY15.


SMRT/Comfort/SBS: The Public Transport Council announced a 2.8% fare hike starting 5 April 2015 for trains and buses, the result of -0.6% adjustment in 2014 and +3.4% adjustment carried over from 2013’s fare review. The formula for fare review comprise of inflation (40%), wage changes (40%) and energy costs (20%). However, the impact on valuation of the two public transport companies, ComfortDelgro (which owns 75% of SBS) and SMRT, should be limited. Taking into consideration their respective $5.5m and $8m contributions to Public Transport Fund to subsidize the needy, the fare hike is estimated to rake in $16.4m and $18.6m more for SBS and SMRT, which represent only 1.8% and 1.6% of their last 12-months top line earnings. Furthermore, a fare reduction may be in the books next year, as hinted by transport minister Lui Tuck Yew in a parliamentary reply to MP Gan Thiam Poh three days ago. He explained that the lower energy prices since 2H14 will be accounted for in the 2015 fare review exercise, which sets public transport fares in 2016. Meanwhile, current lower oil prices is likely to benefit SMRT more than CD, the former has a relatively unhedged book while the latter is 70% hedged for its FY15 fuel requirements. Maybank-KE is Neutral on the sector and recommends Hold for both SMRT and CD. SMRT has TP of $1.36 with higher operating margins as a possible catalyst. CD has TP of $2.50, with taxi fleet expansion as possible catalyst.

Keppel Land

Keppel Land: Keppel Land’s 4Q14 results came below estimates, mainly due to lower-than-expected overall margins and sales in China, as net profit fell 21.6% y/y to $444.5m, dragged by 34% fall in fair value gain on investment properties, while revenue improved 39.5% to $705.4m. The strong top line was mainly driven by property trading of $645.4m (+44%), buoyed by the divestment of Al Mada Towers in Jeddah, as well as new contribution from Phase 1 of Seasons Residence in Shanghai and Phase 1 of Park Avenue Heights in Chengdu. This was partially offset by the absence of revenue from The Lakefront Residences in Singapore and The Springdale in Shanghai. The group’s other segments improved 3.2% overall, contributed by fund management (+50%) and hotels and resorts (+11%), but weighed by property investment (-39%) and others (-25%). This brought FY14 net profit to $752.5m (-15%), on revenue of $1,497.2m (+2.5%). Excluding fair value gains, group’s core earnings fell 5.4% to $552m. Management cited that 2015 is likely to be another challenging year as the economic conditions in its core markets (S'pore & China) are not expected to improve significantly. Meanwhile, group will maintain its focus in its two growth markets- Indonesia and Vietnam, where demand has proved to be strong, supported by urbanisation and improving sentiments. Group also declared a final dividend of 14¢, slightly ahead of forecast, which translates to 3.8%. However, street’s expectation of a special dividend following the $1b divestment of several office towers in Singapore was shattered. Still, based on the last closing price of $3.65, Keppel land is valued at an attractive 26% discount to NAV and 33% discount to consensus RNAV of $5.48.


MCT ($1.485): Beating expectations, 3QFY15 distributable income climbed 13.0% y/y (or $5.1m) to $43.8m, lifting DPU by 11.5% to $2.08. YTD DPU increased 10.7% y/y to $0.06 to yield 5.4% trailing 12months on yesterday's close. 3QFY15 revenue rose 6.5% (or $4.5m) to $72.9m. All four properties contributed with positive rental reversions and step-up rents in existing leases, but the biggest increases come from VivoCity (+$3.4m) and PSAB (+$0.6m). NPI rose a faster 10.7% (or $5.3m) to $54.7m on utilities savings (-$0.5m) and prudent cost management in marketing and promotional events. Portfolio occupancy (99.5%) as at Dec14 is at historical high, with MLHF and Mapletree Anson fully occupied, PSAB slightly down to 98.4% (from 99.4%) and VivoCity up to 99.7% (from 98.7%). Shopper traffic and tenant sales at VivoCity YTD improved 0.7% and 0.5% y/y despite a challenging retail environment. 84% of all leases expiring by Mar15 have been committed, WALE is 2.0 years. As at Dec2014, MCT has $1.55b debt, of which 81% are long-term and 74% are fixed or hedged. Average term to maturity is now 3.0 years (vs 2.5 years in Mar14) after refinancing $50m debt expiring Apr2015 with 5-year fixed rate notes at 2.65% p.a., a further $200m bilateral term loan facility has been obtained in Jan15 to refinance the remaining debt. Annualized WACD is 2.18%. Gearing is reduced by 0.8pp since Mar14 to 37.9%, giving it a war chest of $293m for acquisitions and asset enhancements. During the quarter, MCT was upgraded by Moody’s from Baa2 to Baa1 for its consistently strong EBITDA growth, improvement in EBITDA margin, quality assets and active capital management. Management guides for outlook to remain relatively resilient, underpinned by low vacancy in offices and premised upon stable economic conditions in Singapore. Latest broker ratings: Credit Suisse maintains Outperform with TP $1.61 (from $1.59) Goldman Sachs maintains Buy with TP $1.59 Deutsche maintains Buy with TP $1.48 CIMB maintains Hold with TP $1.51 DBS maintains Hold with TP $1.46 Macquarie downgrades to Nuetral with TP $1.45 JPMorgan maintains Underweight with TP $1.40

Land Transport

Land Transport: Public Transport Council has announced a fare hike of 2.8% for bus and MRT rides from 5 Apr, based on a 0.6% contraction in the sector’s fare-formula output plus a positive 3.4% carried over from its previous year’s exercise. Singapore’s two public-transport operators are also required to contribute a combined $13.5m to the Public Transport Fund: SGD5.5m from SBST (Not Rated) and SGD8.0m from SMRT. The money will be used for the needy. With a fare revenue pool of SGD1.7b pa, this fare hike will translate into higher gross revenue of $48.5m for the sector. It implies net benefits of $35m, $16.4m accruing to SBST and $18.6m to SMRT. The quantum of the hike was expected, having been flagged by Transport Minister, Lui Tuck Yew, during a recent parliamentary reply. Allied with lower oil prices, this hike should provide some near-term margin relief for operators. However, Land Transport may not be a good proxy for oil-price movements in the medium term. This is because the sector’s fare-adjustment formula already takes into account changes in energy prices. In fact, in the same parliamentary reply, Minister Lui signalled that fares could be reduced by 1% in the next review. This could mute benefits for the operators.


SGX: 2QFY15 net profit was in line, rising 15.5% to $87.6m, while revenue rose 18.6% to $195.1m, driven by a 45.6% increase in derivatives revenue to $76.4m on the back of a 183% surge in China A50 futures volume. This was offset by a 1.1% decline in securities revenue to $51.7m. Daily average value rose 4%, but the dip in revenue was due clearing fees dropping 0.1bp to 3.0bps. Regarding the 5 Nov ’14 trading disruption, management expects related expenses of $3-4m, and will be recorded as incurred. Management is bringing forward the capex investment for a derivatives trading platform, which should considerably improve execution abilities when completed 2 years down the road. Meanwhile, although volatility has improved and board lot sized reduced, cash ADT has been pale thus far. Deutsche Bank sees possible dip in net profit of about 5%. 4¢ interim DPS maintained Latest broker ratings: Goldman Sachs maintains Buy with TP cut to $9.4 from $9.6 Morgan Stanley maintains Overweight with TP of $8.16 Deutsche Bank maintains Buy with TP of $8.70

SG Market (22 Jan 15)

Singapore shares are likely open higher, tracking the gains on Wall Street, as investors await the highly anticipated ECB decision on its asset purchase plans. Asian markets opened this morning with Tokyo (+0.1%), Seoul (+0.4%) and Sydney (+0.7%) all in positive territory. From a chart perspective, the STI may attempt to test the topside resistance of 3,375 in the nest few days with critical support at 3,288. Stocks to watch: *Land Transport: PTC has approved an overall 2.8% fare hike from Apr for transport operators, lower than 2014’s 3.2%. This will raise SBS Transit and SMRT’s annual revenues by $16.4m and $18.6m respectively after netting Public Transport Fund contributions. *SGX: 2QFY15 net profit rose 15.5% to $87.6m, while revenue rose 18.6% to $195.1m, driven by a 45.6% increase in derivatives revenue to $76.4m on the back of a 183% surge in China A50 futures volume. This was offset by a 1.1% decline in securities revenue to $51.7m. Daily average value rose 4%, but the dip in revenue was due to a drop in clearing fees to 3.0bps (-0.1bps). Management expects to incur $3-4m expenses for the Nov’14 trading disruption. 4¢ interim DPS maintained. . *Mapletree Commercial Trust: 3QFY15 DPU rose 11.5% y/y to 2.08¢, while distributable income rose 13% to $43.8m. Revenue rose 6.5% to $72.9m while NPI increased 10.7% to $54.7m, thanks to positive rental reversions and lower utility and marketing costs, offset by property taxes. Portfolio occupancy increased 1ppt to 99.5%. Aggregate leverage held steady at 37.9% with all in interest cost of 2.18%. BVPU at $1.17. *Ascott REIT: 4Q14 DPU surged 62% y/y to 2.16¢, while distributable income rose 26% to $33.1m, buoyed mainly by one-off items and a right-issue adjustment in 2013. Otherwise, DPU improved 13.4% to 1.76¢. Gross revenue and gross profit edged up 13% and 10%, respectively, boosted by additional contribution from nine properties acquired in 2014, as well as stronger performance from existing properties, notably in the UK. RevPAU slipped 4% to $124/day, dragged by weaker performance from properties in S'pore and Vietnam, as well as lower ADR in China. Aggregate leverage fell 1.5ppt q/q to 38.5%, as debt tenor increased from 3.8 to 4.4 years, at average borrowing rate of 3.0%. BVPU of $1.37. *Fortune REIT: FY14 DPU rose 15.8% to HK41.68¢, while distributable income rose 21.5% to HK$780.8m. Revenue increased 25.7% to HK$1.7b, while NPI rose 25.1% to HK$1.2b, its strongest growth since 2006, thanks to record rental reversions and full year income from Fortune Kingswood (accounting for 18.4% of NPI growth). Occupancy dipped 1.4ppt to 97.3% due to frictional vacancies resulting from AEI works at Belvedere Square. Aggregate leverage stood at 29.4% with all in interest cost of 2.17%. BVPU of HK$11.93. *Soilbuild REIT: 4Q14 DPU rose 5.0% y/y to 1.59¢, while distributable income rose 6.1% to $12.9m. Revenue rose 8.3% to $17.7m, while NPI increased 9% to $14.9m, thanks to additional revenue from new factories, KTL Offshore and Tellus marine, as well as higher rents from Solaris, West Park BizCentral and Tuas Connection. Full portfolio occupancy, with WALE of 4 years. Aggregate leverage stood at 35.4% with all in interest cost of 3.19%. BPVU at $0.80. *Sabana REIT: 4Q14 DPU fell 18.7% y/y to 1.78c, taking FY14 DPU to 7.33c (-21.9%). The drop in bottom-line was largely due to an increase in units issued for the Trust’s partial payment for the acquisition of 10 Changi South Street 2 in units. Gross revenue for the quarter inched 1.9% to $25.3m, although NPI fell 8.6% to $18.2m, dragged by higher property tax, maintenance, utilities, and applicable land rent expense, and lease management fees being charged to 15 properties acquired during IPO, following the expiry of the three-year waiver period in 4Q13. Portfolio occupancy was at 90.7%, with WALE at 2.5 years. Aggregate leverage of 38%, with average interest cost of 4.1%. BVPU of $1.06. *Rex: 65%-owned Lime Petroleum is awarded, via a 5% stake in a partnership, license for PL591C, an extension of PL591 which the partnership already owns and is scheduled for drilling in mid-2015. *Sakae/ Giken Sakata: Sakae Corporate Advisory has been engaged by Giken Sakata to be its corporate adviser. *ISDN: Inked agreement to acquire 49% of PT Izmi Power Mandiri for 3.9b rupiah ($0.3m). PT Izmi has a power purchase agreement to build, own and operate an 8MW mini-hydroelectric power plant in North Sumatra. *Spackman: indirect wholly-owned subsidiary, Zip Cinema, will begin filming new movie Black Priests by Feb 2015, starring Gang Dong-won and Kim Yoon-seok and directed by award-winning Jang Jae Hyun. Management guides another six films to be released in 2H15-1H16. *Oxley: Terminated the main contract for the construction of Devonshire Residences wef 6 Jan as the main contractor Admin Construction is facing winding up action. Group has appointed another contractor to complete the project.

Wednesday, January 21, 2015


OUE-CT: CLSA initiates with Outperform and TP $0.84 (note that upside is only 4% despite the rating). OUECT currently has two assets: OUE Bayfront Singapore, a Prime Grade A office building in core CBD completed in 2011 and Lippo Plaza Shanghai, a grade A office building in the traditional CBD. Key investment theses: 1. Shackles of in-place rents prevent office rent recovery from accruing to unitholders for now, but may turn beneficial when supply floods in 2016/17. 2. Steep discount unwarranted, the stock trades at 0.79x P/BV and 6.8% forward yield relative to peers' 1.00 P/BV and 5.5% forward yield 3. Accretive acquisitions in place, specifically One Raffles Place in 2015 and OUE Downtown in 2016. No.3 should be catalytic on the stock. Risks include high gearing (~39.8%), FX risks and interest rates risks.

Pacific Radiance (technical)

Pacific Radiance: Counter still in its downtrend. In the near term, selling pressure look to potentially carry on, as the formation of a bearish MACD crossover has almost completed. Support at $0.70, resistance at $0.80 region.

China EverBright Water

China EverBright Water: Maybank-KE views the recent placement of 120.7m new shares to International Finance Corporation (IFC) (49.7m shares) and RRJ Capital (71m shares), at $0.94 apiece, positively. Given China Everbrigh Water’s (CEW) strong balance sheet and low gearing, CEW is not in dire need of capital, but the deal gives it access to two strategic investors. IFC and RRJ are not new to the company, with IFC being an existing lender to the group, while RRJ is active in the water sector and is a minority shareholder of China Everbright International (257 HK) and SIIC Environment. Despite the placement price being at a 9.2% discount to the CEW’s last traded price of $1.035, prior to the announcement being made, Maybank-KE opines that CEW could benefit from potentially cheaper debt from IFC to fund its future growth. Overall, CEW (Buy: TP $1.26) remains the house top sector pick. After a 12-month M&A lull, CEW is cash-rich and hungry for good assets. Maybank-KE expects acquisitions to contribute to an additional 1m tons/day of capacity for FY15E-16E each.

Keppel Land

Keppel Land: Share price surged to a 52-week high yesterday, with the Business Times alluding it to market chatter of a potential privatization by parent Keppel Corp. Some analysts have however been quick to dismiss the rumours, citing a lack of business synergy between Keppel Corp and Keppel Land. While Keppel Corp certainly has deep enough pocket to take its property arm private, doing so now will force it to take on debt at a time when both the offshore rig and property cycles are tipping into a downturn, while interest rates are heading higher. If this materializes, there are concerns that Keppel Corp may to trade at an even deeper conglomerate discount. Keppel Corp owns 54.6% of Keppel Land, and an acquisition of the remaining stake will cost ~$4.2b, assuming the deal is transacted at Keppel Land’s RNAV, or $2.6b based on market cap. Meanwhile, analysts are attributing the recent rise in Keppel Land’s share price to a possible special dividend, which could be announced in the group’s FY14 results release today. Keppel Land recently disclosed that it had made divestment gains of about $94.5m from the sale of its one-third stake in MBFC Tower 3, and a $65.9m gain from its 30% stake sale in two date centres to Keppel DC REIT. Elsewhere, the group booked a net gain of $59.5m from its divestment of Equity Plaza in Aug ’14, and is expected to receive net proceeds of $68.4m from the divestment of its 51% stake in Al Mada Towers in Saudi Arabia. Keppel Land and Keppel Corp are on trading halt this morning.

Keppel T&T

Keppel T&T: 4Q14 net profit rose 10x y/y to $193.4m and operating profit 18x y/y to $250.9m, mostly the result of $238.5m gross gains on disposals of two data centres and divestments of a subsidiary and associated companies. Stripping disposal gains, 4Q14 operating profit of $12.3m is comparable to $10.9m in 4Q13. Normal operating revenue in 4Q expanded 57.6% y/y to $70.9m, boosted by contributions from Data Centre and Logistics divisions, but offset by lower revenue in the Investments division. Gross margins improved 1pp to 21.1% Higher taxation and non-controlling interests is in line with the disposal of subsidiary and dividends paid. For the full year, revenue rose 34.6% y/y to $224.6m and bottom line almost tripled to $246.7m due to disposal gains. Management emphasized the high occupancy at its Logistics facilities and encouraging throughput at integrated ports in China. Looking ahead, completion of and new contributions from warehouses at Tampines Logistics Park in Singapore, Vietnam Singapore Industrial Park in Vietnam and Tianjin Eco-city Distribution Centre in China is much anticipated. The company maintained final dividend of 3.5cents and proposed special dividend of 11.5cents, yielding 10.1% on yesterday’s close and 9.6% on today's open. The stock opened 5.7% higher today at $1.570. CIMB, the only broker that covers the stock, maintains Add with TP $1.93

CapitaCommercial Trust

CapitaCommercial Trust: CapitaCommercial Trust (CCT) 4Q14 results beat estimates, with distributable income and DPU up 5.7% y/y and 2.9% to $63.6m and 2.15¢, respectively, bringing FY14 DPU to 8.46¢ (+3.9%) and distributable income to $249.2m (+6.4%). The outperformance was driven by higher rents (+5.9%) across its portfolio and lower interest expense for the quarter, despite an enlarged unit base from a partial conversion of convertible bonds and absence of yield protection income for One George Street. Meanwhile, gross revenue grew 3.1% to $66.4m, while NPI improved 3% to $50.6m. CCT's portfolio occupancy stood at 99.5%, excluding the recently-TOP CapitaGreen, with weighted average lease to expiry of 8.1 years. Including that, portfolio occupancy stands at 96.8%, or 125k sf of available net lettable area (NLA) for lease in 2015. Leases for 69.3% of NLA at CapitaGreen has been secured till-date, exceeding the 50% target. Management now targets 100% committed occupancy for the building by end-2015. Aggregate leverage lowered 0.9 ppt q/q to 29.3%, with average debt cost of 2.3% (-0.3 ppt) and debt tenor of 3.9 years. Assuming a 40% leverage ratio, CCT has ample debt headroom of $1.3b. However, CCT is still the most expensive office REIT in terms of valuation, (P/B 1.07x vs peers average 0.92x), due to its stronger operational capabilities, room for organic growth from its relatively lower occupancy rate and lowest gearing. At the current price, CCT has an indicative forward yield of 4.7%, below peers'average of 5.6%.


MINT: 3QFY15 DPU rose 6.4% y/y (+2.7 q/q) to 2.67¢, bringing 9MFY15 DPU to 7.85¢ (+5.9% y/y), slightly ahead of estimates. Distributable income rose 9% y/y (+1.2% q/q) to $46m. NPI rose 5.4% y/y (+3.2% q/q) to $58m, while revenue climbed 3.3% y/y (+0.3% q/q) on positive rental reversions from renewed leases in flatted factories, business park buildings, and stack-up/ramp-up buildings. Newly completed Hi-Tech developments (Toa Payoh North 1, Woodlands Central and K&S Corporate HQ) also contributed to top line. Passing rents rose 1¢ q/q to $1.83 psf/month Occupancy stood at 90.8% (2QFY15: 91.5%) due to the progressive relocation of tenants from the Telok Blangah cluster, which will be redeveloped as a BTS project for Hewlett Packard. Some 69% of existing tenants have committed to alternative MINT clusters. WALE stood at 2.6 years. Aggregate leverage stood at 32.8% with all in funding cost of 2.2%. Assuming a 40% threshold, MINT has debt headroom of $400m. Management have also increased interest rate hedge ratio to 86% from 77% in the quarter via interest rate swaps. The BTS 7-storey data centre Equinix will be completed in 1QCY15, and is now fully committed. Its lease structure comes embedded with annual rental escalation. Meanwhile for the Hewlett-Packard BTS, Phase 1 will be completed in 2H16, while Phase 2 will be completed in 1H17. Mapletree Industrial Trust is currently trading at 1.3x P/B, at 6.76% annualized 3QFY15 yield. Latest broker ratings: Daiwa maintains Outperform with increased TP of $1.68 from $1.65 JP Morgan maintains Neutral with TP of $1.55 Deutsche Bank maintains Hold with TP of $1.48 OCBC maintains Hold with TP of $1.43

SG Market (21 Jan 15)

Singapore shares are expected to see a flat opening despite the positive close overnight in US, as regional sentiment could be weighed after IMF made its steepest cuts to global growth outlook in three years. Asian markets are trading mixed this morning, with Tokyo (-0.4%), Seoul (+0.03%) and Sydney (+1.1%). From a chart perspective, technical signals appear rather neutral, with RSI and ADX not exhibiting any clear trends. Critical support for STI is tipped at its 200-dma at 3,288, with topside resistance seen at its 20-dma at 3,335. Stocks to watch *Mapletree Industrial Trust: 3QFY15 DPU rose 6.4% y/y to 2.67¢, taking 9MFY15 DPU to 7.78¢ (+5.0%). The quarter saw gross revenue at $78.1m (+3.3%) and NPI at $58.0m (+5.4%), led by increased rents from renewal leases in flatted factories, business park buildings and stack-up/ramp-up buildings and revenue contribution from completed development projects. Property operating expenses fell 2.4% to $20.2m, due to lower marketing commission and utility expenses. Occupancy stood at 90.8% with WALE of 2.6 years. Aggregate leverage was at 32.8% with an average interest cost of 2.2%. NAV/unit at $1.21. *CapitaCommercial Trust: 4Q14 results beat estimates, with distributable income and DPU up 5.7% y/y and 2.9% to $63.6m and 2.15¢, respectively, despite the enlarged base of CCT units due to the partial conversion of convertible bonds and absence of yield protection income for One George Street. Gross revenue grew 3.1% to $66.4m, while NPI improved 3% to $50.6m, on higher rents (+5.9%) across its portfolio. This brought FY14’s total DPU to 8.46¢ (+3.9%) and distributable income to $249.2m (+6.4%). Portfolio occupancy at 99.5%, excluding recently-TOP CapitaGreen, with WALE of 8.1 years. Aggregate leverage was at 29.3%, with average interest cost of 2.3% (-0.3 ppt) and tenor of 3.9 years. NAV/unit of $1.71. *Keppel T&T: 4Q14 net profit jumped more than 11x to $193.4m on revenue of $70.9m (+57.6%), fuelled by a $238.5m disposal gains of two data centre properties to Keppel DC REIT. Excluding these gains, operating results will be comparable to last year. Top-line was led by higher revenue from the data centre and logistics divisions, offset by lower revenue from the Investments division. Gross margin improved 1ppt to 21.1%. Final DPS of 15¢ declared (FY13: 3.5¢), comprising 3.5¢ final and 11.5¢ special dividend. NAV/share at $1.27. *Elektromotive: Proposed renounceable non-underwritten 1-for-1 rights issue of up to 1,628.2m new shares at 0.45¢ each, attached with two free detachable warrants with exercise price of 0.5¢ apiece. Estimated net proceeds of up to $7.1m intended for development and expansion of business (35%), publishing business (15%) and working capital (50%). *Blumont: Proposed private placement of 100m new shares at $0.01705 apiece, representing 3.7% of the enlarged share base, to Vigneswaran T Subramaniam, a private individual investor. The placement will raise net proceeds of ~$1.7m, to be used for general working capital. *OKH Global: Established $200m multicurrency medium term note programme, to be used for general corporate purposes, debt repayment and capital expenditure. *Rex: Completed drilling for three wells in the South Erin Block in Trinidad & Tobago. Oil-bearing sands were encountered in all wells, two of which are deemed to be commercial with substantial net pay sands. Separately, Rex raised its stake in Fram Exploration ASA from 22.3% to 30.3% for NOK13.7m (US$1.8m) through a fund raising. *QT Vascular: Started shipments for the GliderXtreme PTA catheter to China, with the initial shipment made via Shandong Weigao Medical Polymer Co. GliderXtreme is designed for the treatment of peripheral arterial blockages. *Hafary: Partial offer of 51% stake by Hap Seng Investment Holdings at $0.24/share has been declared unconditional, and will remain open for acceptance until 13 Feb. *Green Build Technology: formerly known as Youyue International, will be removed from SGX’s Watch-List, with effect from 21 Jan.

Tuesday, January 20, 2015

Keppel & SMM

Keppel & SMM - Amid a 55% plunge in oil prices, oil producers as well as midstream E&P players have endured heavy sell-offs. But while some offshore-related stocks appear to have borne the brunt of the carnage, others are stubbornly clinging on to fading hopes that oil will rebound back to the US$70-80 per barrel levels or that their business will somehow be able to weather the storm. If oil continues its downtrend or even stays at the current price of US$45-50 a barrel, many offshore projects will be unviable, putting a substantial proportion of deepwater or high cost E&P activities at risk. As such, we can expect more international oil companies to cut exploration budgets and scale back or delay development capital expenditure in 2015. Of the capex cuts announced thus far, the range hovers between 20% and 50%. For instance, Malaysian state oil firm may slash its capital investments by up to 30%. This will put utilisation and day rates under pressure at a time when the number of new rigs deliveries hitting the market is near a peak. Hence, we can expect delayed payments, renegotiation of payment structure or in a worst case scenario, project cancellations. As a foretaste of what is to come, Brazilian oil giant Petrobras-sponsored rigbuilding unit Sete Brazil is said to owe Keppel BrasFELS as much as US$500m in delayed payments. With banks now tightening financing on energy players. The double whammy of lower earnings visibility and credit tightening put highly geared offshore services players, such as Swiber and Ezra, at possible risk of financial stress. Looking at the big caps, both Keppel Corp (Keppel) and Sembcorp Marine (SMM) have skidded ~26% to $8.03 and $2.94 respectively since Jun 2014, while WTI crude slumped 58% to US$46.25 during the same period. The last time WTI was at these levels in 2008 and 2004, Keppel was hovering between $3.50 and $4.50, while SMM was trading below $2.00. However, it may be worth noting that both Keppel and SMM are in a stronger position now, backed by thick order books of ~$12.6b, which will give earnings visibility for the next two years to tide over the crude oil crisis. New orders continue to stream in for Keppel in the FLNG and ice-class vessel spaces. Apart from winning a US$705m FLNG conversion contract from Golar in late Dec, the group has also clinched a $265m contract to construct an ice-class multi-purpose vessel for Luxembourg-based Maritime Construction Services, making it its fourth ice-class vessel currently on order. Furthermore, both Keppel’s and SMM’s order mix is more skewed towards FPSO/FSO and FLNG conversions. These are production assets, which are typically tied to long term production schedules. Maybank-KE currently has a Hold rating on Keppel with TP of $9.00 and a Sell on SMM with TP of $2.65. Overall, the house is Underweight on the O&M sector, with Swiber deemed the most vulnerable (high gearing, weak cash flows, operational weakness) and Ezion the most resilient (earnings visibility due to long-term charters, strong cash flows).