Market Insights Portfolio Review

Market Insights Portfolio Review: 2014 was a challenging year for Singapore equities, weighed by tepid GDP growth, economic restructuring pains, stalled property market, dwindling Chinese tourists and a lacklustre stock market, compounded by plunging oil and commodity prices. We envisage 2015 will be offering more of the same, with the added risks of higher interest rates looming in the second half of the year. 2013/14 GVY Performance Summary: - Overall GVY portfolio total return was +6.4% vs STI benchmark of -2.4%. - Growth portfolio total return was +1.1% with main stock performance from Innovalues with a return of +39.7%. The main detractor was Midas Holdings at -48.5%. - Value portfolio returned 9.1%. Best performer here was Centurion which had a total return of +120% since inception. Underperformance came from China Minzhong Food (-47%). - Yield portfolio returned +8.4%; best performer was Sing Post (+40.5%) and worst performer was UMS Holdings (-11.9%). Our Singapore portfolio for 2015 has been re-positioned as follows with all new entries as of Dec 31 2014. All positions are equally weighted. Growth stocks *China Everbright Water – Add to portfolio. Completed RTO of HanKore and has now become the water treatment arm of state owned China Everbright. This will give it new acquisition opportunities to capitalise on the rapid ramp-up in China’s water sector, backed is by rising water tariffs and strong government support. *Centurion: Switch from value to growth portfolio following 129% gain since inclusion. Expect favourable government regulations and new capacity additions in 3Q15 to further drive leasing demand for its purpose-built worker dormitories. *China Sunsine Chemical - Keep in portfolio as 9M14 net profit has outstripped FY10 earnings record. Assuming Sunsine re-rates to a mid-cycle P/E of 7.5x, this suggests a fair value of $0.73, representing 72% upside. *Innovalues – Keep in portfolio. Earnings expected to more than double in FY14, translating to 3-year CAGR of 25%. Trades at just 8x FY15 P/E with 6% dividend yield. *GLP – Keep in portfolio. Leasing activities, particularly from third-party logistics providers show no signs of abating. Growing e-commerce trends and recent expansion into the US are expected to contribute positively to earnings. *Midas – Keep in portfolio. 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. *Singapore Post – Keep in portfolio. New partner Alibaba and roll-out of regional e-commerce platform hold a lot of promise for future growth. *Nam Cheong – Take profit 27% gain. While order book remains strong, plunging oil prices have prompted oil companies, including end client Petronas, to cut exploration budgets and moderate development capital expenditure, which may lead to reduced order flows. *Thai Beverage – Remove from portfolio with a gain of 18% Value stocks *Genting HK - Add into portfolio. Market value of 25%-owned Norwegian Cruise Lines, plus cash hoard of US$443m exceeds current market cap. This means investors are getting Star Cruise, 45% stake in Resorts World Manila, 6.6% stake Echo Australia, with combined value of US$2b (US$0.25/share), virtually for free. Falling oil price and strong USD also play in its favour as fuel accounts for significant portion of cruise costs and its cash flows are mainly in USD. *Hock Lian Seng - Add to portfolio. Boasts a burgeoning net cash hoard of $88m (55% market cap) and additional $60-70m from the impending TOP of two industrial properties. Potential for a special dividend payout, on top of its 6% forward yield. Trading at compelling 3.8x ex cash trailing P/E. *Haw Par - Add to portfolio. Compelling stub valuation. Holds equity stakes in UOB, UIC, UOL and HK-listed Hua Han Bio-Pharmaceutical, totalling a combined market value of $2.34b against its market cap of $1.88b. This means its remaining businesses and assets all come for free. *Tuan Sing - Keep in portfolio. Valuation still attractive at 0.6x P/B. Fundamentals supported by the build-up of recurring income stream from rental income in prime commercial properties in Singapore and hotel investments in Australia. *Boustead - Exit from portfolio with total gain of 42%. Following the run-up in share price, the counter is now fairly valued at 13x forward P/E although the proposed spin-off and listing of its real estate business may unlock hidden value and reduce conglomerate discount. *OUE - Exit from portfolio despite being a deep asset value play and trading at just 0.51x P/B as asset recycling story already materialised and exposure to Singapore’s high-end residential market will continue to weigh on share price performance. Yield stocks *OUE Hospitality Trust – Add to portfolio. Poised to benefit from projected uptick un tourist arrivals and higher room rates as S’pore celebrates its golden jubilee year and hosts the 2015 SEA Games. Offers the highest yield of 7.5% among hospitality REITs. *HPH Trust – Keep in portfolio. Optimistic on pick-up in US volume flows and possibility of tariff hike in its HK ports. Forward dividend yield at 7.2%. *Mapletree Great China Commercial Trust - Keep in portfolio. Well positioned to benefit from positive rental reversions at Festival Walk retail mall in HK and Gateway office tower in Beijing. Forward dividend yield at 6.6%. *Sim Lian - Keep in portfolio. Building a stable base of recurring income to smoothen the lumpy earnings from its property development division. Forward dividend yield at 5.5%. *UMS – Keep in portfolio. Offers one of the highest forward yields of 9.1% in the market. Proxy to fortunes of major shareholder and customer, US-listed Applied Materials. *Venture - Keep in portfolio. Maybank-KE is eyeing FY15 to be a turnaround year, with an expected 15% bottom-line growth. Forward dividend yield at 6.3%. *PRCT - Close out position as the retail trust has been swapped into Perennial Real Estate Holdings, a property developer with no specific dividend policy.