Friday, February 27, 2015

Yangzijiang

Yangzijiang: FY14 results beat estimates, although 4Q14 net profit fell 15% y/y to Rmb636.6m, taking FY14 earnings to Rmb3.5b (+13%) or 4% higher than consensus forecast.

Revenue for the quarter rose 12% to Rmb3.8b, boosted by the delivery of nine vessels compared to six in 4Q13. But contributions from held-to-maturity (HTM) assets fell 56% to Rmb161.1m from a stricter investment criteria, in line with the group’s strategy to pare down its non-core segment.

Overall, gross margin almost halved to 22.4% (-19.8ppt), dragged by a margin compression in the core shipbuilding segment to 17% (4Q13: 43%), following completion of earlier lucrative contracts. In addition, the group has commenced construction of its first jack-up project, which commands lower margin versus other commercial vessels.

Bottom line was further depressed by provisions made for HTM (Rmb315m), on the back of the weakening outlook of China's real estate industry, as well as higher R&D expenses, but partially mitigated by a government subsidy and turnaround in associates and JVs to Rmb20.7m.

Order book held steady at US$4.75b, comprising 118 vessels, of which US$1.8b was secured in FY14 (FY13: US$2.9b). For 2015, management is guiding for US$2b in new orders.

Management declared a first and final DPS of 5.5¢, higher than FY13's 5¢.

At the current price, Yangzijiang is trading at 7.1x forward P/E and 1.05x P/B.

Latest broker ratings:
OCBC maintains Buy but places TP of $1.31 under review
Maybank-KE downgrade to Hold from Buy, cuts TP to $1.33 from $1.40
DBS maintains Buy with TP of $1.62

Indofood Agri

Indofood Agri: 4Q disappoints slightly. Net profit came in 0.9% lower at Rp225.4b, as turnover improvement was offset by a surge in operating expenses, bigger finance expenses and heavy losses sustained by associates.

Revenue climbed 11.8% y/y to Rp4.192tr, mostly due to large increase in CPO sales volume (288,000MT, +23%) partially mitigated by 8% lower CPO ASP as well as small decreases in sales volume in other commodities. Gross profit rose 11.4% accordingly to Rp1.327tr

CPO total planted area rose 2.6% to 246,055ha and mature planted area rose 4.6% to 185,181ha. However, yield was affected by dry weather in North and Central Sumatra earlier in the year. FFB yield dropped from 4.8MT/ha last year to 4.6MT/ha in 4Q14 and CPO yield dropped from 1.1MT/ha to 1.0MT/ha during the same period.

Operational costs surged 21.8% y/y due to marketing and promotion to defend market share, higher wages and increased employee benefits. Furthermore, bottom line was also weighed by higher finance costs as loans and borrowings rose 21% y/y.

Net debt stood at Rp6.232tr and net gearing at 0.26x, substantially higher y/y but an improvement from 3Q14.

Final dividend will be declared at a later date, before end of March 2015.

Looking ahead, management expects CPO demand to remain strong, underpinned by growing consumer markets and a rising middle class, but with keen competition from other producers. Meanwhile, the company continues to be on the lookout for potential acquisitions or JVs for operational and international growth.

Trading at 12.2x trailing P/E, the counter has 6 Buys, 4 Holds and 3 Sells with consensus TP of $0.89

Vard

Vard: 4Q14 net profit improved 36.3% y/y to NOK154m, as revenue surged 45.5% to NOK4.5b, bringing FY14 earnings and revenue to NOK349m (-2.2%) and 12.9b (+15.8%), respectively.

For the quarter, top line was driven by delivery of two vessels and a newbuild contract, while EBITDA margin slipped 1.8ppt to 1.9%, dragged by increased costs of materials and subcontract expenses (+63%), as well as higher staff expenses (+19.7%).

Order book at end-2014 lowered to NOK17.7b (from NOK19.4b), impacted by lower E&P spending by upstream O&G companies.

Management expects new order intake for 2015 to remain weak, weighed further by increasing idle vessels from demand shortfall and insufficient charter rates.

No dividends declared for the second consecutive year, in light of lower cash generation from operations and significant cash requirements for existing projects.

Brazil operations are expected to remain demanding until delivery of last legacy projects from the yard in Niteroi, and first vessels from Vard Promar.

Regarding the Brazilian tax claims of ~NOK200m, management expects to receive a decision in its favour, but the legal process is expected to drag by more than 12 months, causing an overhang on the group. Hence, no provision has been made.

To improve profitability, Vard embarked on a cost improvement program, with management citing streamlining with other Fincantieri Group companies.

At $0.565, Vard is valued at 8.9x forward P/E and 0.91x P/B.

Golden Agri

Golden Agri (S$0.405): 4Q results disappoint as bottom line turned negative with net losses of US$21.9m (vs US$123.0m in 4Q13). Stripping fair value changes, FX changes and exceptional items, core net profit shrank 59.4% y/y to US$46.1m.

In the quarter, revenue slipped 4.2% to US$1.82b as on-track delivery of downstream business in Palm and Laurice (P&L) is offset by challenging environment in Oilseeds industry in China, and weaker production and CPO prices in Plantations and Palm Oil Mills (PPOM).

Upstream PPOM is the main disappointment, turnover reduced by 14% y/y as lower FFB yields resulted in lower production, while ASP remained in the doldrums.

Downstream, P&L performed well but segment EBITDA (US$10.0m, -78% y/y) was affected by start-up costs for new facilities and expansion in destination markets, Oilseeds saw a positive q/q turnaround to rake in US$1.5m (-91% y/y) segment EBITDA.

Core operations aside, fair value losses of US$133.8m was recognized due to the effect of lower CPO price assumption used in the present value of expected net cash inflows.

Financially, Golden Agri is still rather steady with net gearing of 0.28x and has good capability of generating net cash flows from operations. Its expansion of downstream businesses is also looked upon favourably.

Trading at 12x trailing core P/E and 0.44x P/B, the counter seems fairly valued compared to peers. It has 3 Buys, 8 Holds and Sells.

Latest broker ratings:
OCBC reiterates Sell with TP of $0.44
DBS issues un-rated report with TP of $0.46
Barclays reiterates Equal-Weight with TP of $0.50
RHB reiterates Neutral with TP of $0.50
Jeferries reiterates Buy with TP of $0.60

Hock Lian Seng

Hock Lian Seng: Hock Lian Seng (HLS) registered a stellar set of FY14 results, which saw net profit soared 3x to $72.6m, in tandem with a 3x rise in revenue to $261.6m (+201.8%).

Top-line was led by $193.5m contributions from the property development segment, which saw the recognition of revenue from the industrial development property project, Ark@Gambas, which obtained TOP in Nov ‘14.

The Civil Engineering segment saw a 25% decline in revenue to $57.4m, due the substantial completion of the Marina Coastal Expressway project and two new projects that was awarded in 2014 and just commenced construction activities. Revenue from properties investment segment inched up 4.9% to $10.7m, led by rental income from workers dormitory.

Gross margin fell 5.2ppt to 37.3%, while admin costs rose 66.3% to $7.0m, mainly due to the higher performance bonus accrued and higher staff cost and bonus for 2014.

HLS currently has a construction order book of ~$320m, stretching revenue visibility for the division over the next two years. Meanwhile, the construction of The Skywoods, a 50% JV residential project, is targeted to be completed by 2016. The sales of units are still on-going, with 177 units of the 420 units sold.

Going forward, management aims to continue tendering for infrastructure projects competitively and explore other business opportunities in property related segment to enhance the shareholders’ value.

Proposed first and final dividend of 4¢ (FY13: 1.8¢), taking FY14 yield to 9.7%.

HLS currently has a net cash hoard of ~$160.5m, representing 31.5¢ per share. At the current price, the group trades at just 0.7x ex-cash FY14 P/E.

Since Market Insight added HLS into its value portfolio in the beginning of 2015, the group has reaped a whooping 36.7% return. While we believe that valuations for the group still remain inexpensive, we prefer to lock-in our gains (exit price at $0.41), given the recent TOP of the group's Ark@Gambas project, coupled with a muted outlook in the construction sector.

SG Market (27 Feb 15)

Expect a lackluster opening from Singapore shares, following the mixed performance in Wall Street overnight, which saw tech counters rallying and energy stocks languished, dragged by continued weakness in oil prices.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band.

Stocks to watch:
*Noble: 4Q14 results in line. 4Q14 swung to a net loss of US$240m, dragging FY14 net profit to US$132m (-44%). Stripping out exceptions, FY14 core net profit would have been US$515m (+40% y/y). For the year, revenue rose 4% to US$85.8b, driven by increases in the energy business, offset by declines in metals, minerals and ores business. On a pro-forma basis, full year tonnage was at a record 278m tons (+19%). Overall operating margin fell to 1.74% from 1.92%. Bottom line was affected by US$200m of Yancoal impairment and US$179m of other impairments, offset by US$178m of negative goodwill and US$140 of remeasurement gains. DPS of US0.7¢ declared, taking FY14 DPS to US3.7¢ (FY13: US0.91¢). NAV/share at US$0.75.

*ST Engineering: FY14 results below estimates, with net profit at $532m (-8%), as revenue slipped 1% to $6.5b, weighed by most business segments- Aerospace (-1%), Electronics (-4%), Land Systems (-5%), Marine (+8%) and Others (-18%). The Marine segment was boosted by higher shipbuilding and engineering works, but partially offset by lower shiprepairs. Order book stood at $12.5b, of which about $3.8b is expected to be delivered in 2015. Final DPS of 11¢, comprising 4¢ ordinary and 7¢ special, bringing FY14 total to 15¢ (FY13: 15¢). NAV/share at $0.4891.

*Yangzijiang: FY14 results ahead of estimates. 4Q14 net profit fell 15% y/y to Rmb636.6m, taking FY14 net profit to Rmb3.5b (+12.5%). Revenue for the quarter rose 12% to Rmb3.8b, boosted mainly by delivery of nine vessels (4Q13: 6). Gross margin almost halved (-19.8 ppts) to 22.4%, after the construction of more lucrative orders made prior to the financial crisis had completed. In addition, progressive construction of its first jack-up project had started, which has significantly lower margin vs other commercial vessels. Bottom line was further weighed by additional provision made for HTM investment (Rmb315m), higher R&D expenses for new product development, partially mitigated by government subsidy and a turnaround from associates and JVs. First and final DPS of 5.5¢ (FY13: 5¢). NAV/share at Rmb5.343 ($1.16).

*China Everbright: FY14 net profit was up 10% to HK$292.8m on revenue of HK$1.1b (-19%). The fall in revenue was attributable due to a decrease in construction revenue from service concession arrangement, as a few of the group’s construction projects were completed and began operation in FY13, offset by an increase in operation service revenue, finance income and construction contract (EPC) revenue. Gross margin improved 15.8ppt to 56.8%, due to a change in revenue mix with operation service income. Bottom-line was partially weighed by a surge in other operating expenses at HK$9.1m, consisting largely of net exchange loss and post-acquisition expenses due to the consolidation of HanKore, and a 17% rise in finance costs to HK$92.2m. NAV/share at HK$2.63.

*Golden Agri: 4Q14 results below estimates. The quarter saw a net loss of US$21.9m, after taking a US$133.8m (vs US$36.9m gain in 4Q13) loss on fair value of biological assets, partially offset by US$34.0m FX gains (vs US$17.5m losses in 4Q13), resulting in core net profit shrinking 59.4% to US$46.1m. FY14 revenue was up 15.7% to US$7.6b, lifted by Plantation and Palm Oil as well as Palm and Laurics, but hit by top line losses in Oilseeds due to negative refining margins, as a result of China’s challenging environment. Final DPS of 0.177¢ proposed, taking FY14 payout to 0.585¢ (FY13: 1.1¢).

*Indo-Agri: 4Q14 results below estimates. Net profit slipped 0.9% y/y to Rp225.45b, bringing FY14 to Rp758.7b (+45.0%). Revenue for the quarter improved 11.8% y/y to Rp 4.2t as plantation sales jumped 30.9% to Rp1.9t on higher volume offset by lower ASP, but Edible Oils & Fats was flat (-0.7%) at Rp 2.2t. Operating costs surged 21.8% due to marketing and promotion, higher wages and increased employee benefits. Associate losses widened to Rp45.1b versus Rp23.9b. Final dividend to be determined. NAV/share at Rp10,322.

*Vard: 4Q14 results above estimates. Net profit improved 36.3% y/y to NOK154m, taking FY14 net profit to NOK349m (-2.2%). Revenue surged 45.5% to NOK4.5b, driven by delivery of two vessels and a newbuild contract. EBITDA margin of 1.9% (-1.8 ppt) was dragged by materials and subcontract costs (+63%) and higher staff expenses (+19.7%). Order book of NOK17.7b stretches revenue visibility into 2017. NAV/share at $0.62.

*UOL: FY14 results in line. Net profit for the year fell 13% to $686.0m, while revenue increased 29% to $1.36b mainly from the recognition of sale at Jalan Conlay and the completion of The Esplanade, Tianjin in 2014, slightly offset by lower property development revenue from Waterbank at Dakota and Spottiswoode Residences completed in 2013. Gross margin fell 6.7ppt to 42.7%, due to higher contributions from the property development which has higher costs. Associate contributions rose 24% to $119.8m from increased contribution from Pan Pacific Singapore and the Archipelago and Thomson Three development projects. First and final DPS of 15¢ (FY13: 20¢). NAV/share at $9.71.

*Innovalues: 4Q14 results above estimates. Net profit surged 469.7% to $5.4m, taking FY14 net profit to $15.8m (+82.2%). Revenue jumped 19% to $27.9m, mainly driven by the auto segment, slightly offset by the office automation segment. Bottom line was buoyed by higher gross margin which surged 13.6ppt to 30.4% due to favourable sales mix and improved operational efficiency. Final DPS of 0.6¢ and special DPS of 0.8¢ declared, bringing full year DPS to 2¢ (FY13: 1.2¢)

*Hock Lian Seng: FY14 net profit soared 3x to $72.6m, in tandem with a 3x rise in revenue to $261.6m (+201.8%). Topline was led by $193.5m contributions from the property development segment, which saw the recognition of revenue from the industrial development property project, Ark@Gambas, which obtained TOP in Nov ‘14. Gross margin fell 5.2ppt to 37.3%. Proposed first and final dividend of 4¢ (FY13: 1.8¢). NAV/share at $0.403.

*China Sunsine: 4Q14 results in line. Net profit spiked 210% y/y to Rmb54.2m, taking FY14 net profit to Rmb220.2m (+187%). Revenue for the quarter was up 18% to Rmb523.1m, buoyed by higher sales volumes (+2.1%) and average selling prices (+15%), due to the shortage of accelerator products in the market. Subsequently, gross margin surged 12ppt to 31.9%, boosted by a drop in average unit cost of aniline (-20%) attributed to lower crude oil prices. Bottom line was partially weighed by higher selling and distribution expenses (+21%), increased staff costs and additional allowance for impairment on receivables. First and final DPS of 1¢ and special DPS of 0.5¢ declared, taking FY14

ISEC Healthcare

ISEC Healthcare: Delivered below par 4Q14 results, with net loss of $0.4m, reversing from the $0.4m net profit booked in 4Q13: +$0.3m). Excluding one-off listing fees of $1.4m, the group would have been profitable.

This brought FY14 earnings to $2m (-27%) on revenue of $22m (+26%). Stripping out listing fees, full year net profit would have risen by 25% to $3.4m, in tandem with the top line growth.

For the year, revenue was lifted by an upward revision on fees charged to patients, as well as increased patient visits in its Malaysia operations, which accounted for 92% of total turnover. This was partially mitigated by the depreciation of ringgit against SGD.

While gross margin improved 4.5 ppt to 43.5%, higher admin expenses (+77%) from listing ($1.4m) and additional headcount, set-up costs and rental of premises, took a toll on bottom line.

Balance sheet is debt-free, with cash pile of $27.3m mainly from IPO proceeds, earmarked for its expansion into the region- primarily Malaysia, Indonesia, Myanmar, Philippines and Taiwan.

The group declared first and final DPS of 0.11¢ (FY13: nil).

Demand and outlook for ophthalmology services will continue to be underpinned by the ageing population, increased awareness of eye disorders, rising income levels, increased uptake of private insurance and growth of medical tourism.

Maybank-KE has downgraded the stock to Hold rating with TP of $0.51, on the back of the 75% rally since listing (Oct '14). The house believes the current price may have factored in potential accretion from any M&A activity.

At the current price, ISEC is valued at 34x FY15 P/E and 4.9x P/B.

Thursday, February 26, 2015

Noble (updates)

Noble: In the latest update, noble's auditors E&Y has informed the group that they have completed their review of their internal procedures and will sign off on the year end accounts.

Noble's results briefing will therefore take place as scheduled at 6:30 pm today, 26 February. The group request SGX to lift the trading halt tomorrow 27 February before market opens.

Riverstone

Riverstone: 4Q14 results were above estimates, with net profit at RM22.4m (+39.7%), taking FY14 net profit to RM71.0m (+22.4%), largely fuelled by lower taxes.

Revenue for the quarter was up 20.8% to RM112.0m, driven by higher demand for its cleanroom and healthcare gloves. Additionally, new capacity of 1b gloves pa. (up from 3.2b capacity) from Phase 1 expansion commenced full productions in Nov ‘14 and has begun contributions to 4Q14 earnings.

Gross margin fell 2.3ppt to 26.4%, while bottom-line was largely aided by a more than 99% decline in tax expenses to RM0.05m, arising from higher tax incentives from capital investments made.

Going forward, Riverstone guides that its phase II expansion plan in Taiping, Perak, Malaysia has progressed well, and by 31 Dec ‘15, the group is expected to have a total annual production capacity of 5.2 b gloves.

Additionally, Maybank-KE expects Riverstone to benefit from the USD rally, with the USD/MYR cross having appreciated 5% y/y on average in 4Q14. To recap, Riverstone is a key beneficiary of USD strength as 70-80% of its revenue (50% hedged) are denominated in USD. In addition, prices of its key input, nitrile butadiene rubber should remain low given weak crude oil and latex price.

Proposed DPS of RM4.55c, taking FY14 payout to RM6.9¢ (FY13: RM6.8¢).

At the current price, Riverstone trades at 17.3x core FY14 P/E. The group’s share price has rallied towards Maybank-KE’s street high TP of $1.21. For now, Maybank-KE places its TP and Buy recommendation under review, pending the group’s results briefing.

Centurion

Centurion: 4Q net profit soared 171% y/y to $72.9m, bringing full year to $111.2m. Stripping fair value gains, PBT still improved 25.6% y/y from $20.9m in 4Q13 to $26.3m in 4Q14.

Top line revenue rose 74% y/y to $26.1m as both workers and student accommodation grew. Two-thirds of the growth is attributed to new contribution from highly-occupied student accommodation in Australia and UK (acquired in 1H14) and a third from improved occupancy rates in Singapore’s and Malaysia’s workers’ dormitories.

Gross profit margin expanded 4.3pp to 65.7%, due to economies of scale from increased bed capacity at Westlite Toh Guan, as well as hike in rental rates.

Share of profit from associates jumped $7.9m as Westlite Mandai recorded fair value gains of $7.8m and $0.1m higher operational profits.

Excluding fair value gains and profit from associates, core net profit amounts to $10.1m, 68% higher than $6.0m in 4Q13. Core net profit margin decreased to 38.7% from 40.2% due to student accommodation, which is more stable but has lower margin.

In view of the good results, management declared final dividend of 1¢ (vs FY13’s 0.6¢) bringing full year to 1.5¢

Although operational results are strong, the rather high gearing of 52% at Dec ’14 (vs 39% at Dec ’13) is a slight concern. The saving grace for now is its ability to generate positive free cash flow and high interest coverage ratio 10.1x excluding fair value gains.

Management remains positive on its business in 2015, citing stable demand in both workers and student accommodation. It also forecasts net absorption in workers’ accommodation in the next two to three years as leases of approx. 70,000 beds expire and workers are shifted to purpose-built dormitories.

The street has 3 Buys with TP between $0.83 and $0.85.

StarHub

StarHub: 4Q14 net profit rose 10.1% to $94.2m, EBITDA rose 10.2% to $192.4m.

Revenue increased 5.1% to $647.4m, primarily from iPhone 6 sales, as service revenue increased only 0.5% to $569.2m.

Service revenue increases in mobile ($320.5m, +2.6%) and fixed network services ($100.9m, +3.7%) was offset by decreases in broadband ($47.7m, -15.9%). Pay TV ($100.1m, +0.2%) was flat.

Zooming into trends, mobile ARPU increased $2 both q/q and y/y to $71, driven by new 4G tiered data plans and higher data usage from tiered users, while user base grew 5.4% y/y (+1.8% q/q). Embattled broadband saw ARPU fall $8 y/y (-$1q/q) to $34, while number of customers increased 4.8% (+1.7% q/q). Meanwhile, data and internet services drove fixed network services revenue.

EBITDA margin on service revenue was 33.8% (+2.9ppt), driven by a $9m write back of maintenance expenditure and savings from staff cost.
Management guided for a low-single digit growth revenue growth and 32% EBITDA margin on service revenue.

For broadband, management guides competition is now shifting to speed than price. As such, there could be room for broadband revenue growth, as their 1Gbps package is $49/month, above the current $34 ARPU. Momentum in gaining subscribers could also bode well.

Aside, management is also optimistic on mobile data monetization and enterprise businesses being growth drivers, though the latter remains more a medium term target.

Flat FY15 dividend guidance of 20¢ could cap share price appreciation.

StarHub is trading at 10.74x EV/EBITDA, against peers M1’s 11.9x and SingTel’s 15.1x. It is currently offering a 4.5% yield.

Latest broker ratings:
Morgan Stanley maintains Equal-Weight with TP of $4.20
JP Morgan maintains Neutral with TP increased to $4.30 from $4.10
UBS maintains Buy with TP of $4.95
Credit Suisse maintains Underperform with TP of $3.95
Deutsche maintains Hold with TP of $4.30

Pacific Radiance

Pacific Radiance: Results below expectations with 4Q14 net profit of US$5.1m (-69% y/y), as revenue dropped 12% to US$37.2m, mainly weighed by lower utilisation of diving support vessels, partially offset by newly delivered vessels.

Gross margin crashed from 36% to 9%, mainly attributable to the subsea business and offshore support services segment, on softer market conditions.

Bottom line was also weighed by FX loss (US$0.2m), partially offset by a lower provision for doubtful debts (US$3.6m) and finance expenses (-24%).

Management proposed a first and final DPS of 3¢ (FY13: 2¢).

We do not rule out earnings downgrades in the near term on its disastrous results.

At $0.725, Pacific Radiance is valued at 0.9x P/B.

First Resources

First Resources: First Resources' 4Q14 net profit slumped 31% y/y to US$59.2m, on a 1.4% decline in revenue to US$176.7m, bringing FY14 earnings and revenue to US$173.4m (-27%) and US$615.5m (-1.8%), respectively. Excluding fair value changes of biological assets, FY14 core net profit dropped 20.9% to US$171.6m, slightly above street estimates.

For the quarter, top line slipped from lower average selling prices of CPO and refined products, but partially offset by greater sales volumes from the refinery and processing segment (+40%), as the group expanded its processing capacity.

EBITDA margin slipped 0.2 ppt to 53.6%, while bottom line was further dragged by lower fair value gains on biological assets (-93.4%) and derivative instruments (-93.5%).

Management proposed a final DPS of 2.3¢, bringing FY14 total to 3.55¢ (FY13: 4.5¢).

While CPO prices are likely to remain moderated, weighed by relative pricing against crude oil and soybean oil, recent developments in Indonesia’s mandatory biodiesel policy should provide support to prices by sustaining domestic demand.

In 2015, management expects stronger production volumes due to yield recovery and contribution from newly mature plantations, which should translate into higher earnings.

For now, the street is still bullish on the counter, with 13 Buys and 3 Sells with average 12-month TP of $2.42.

At $1.855, First Resources is priced at 11x forward earnings and 2x P/B, compared to Indonesian peers' average of 12.9x and 1.6x, respectively.

SG Market (26 Feb 15)

Singapore shares are expected to open flatfish, following the lackluster close in Wall Street overnight, following mixed corporate earnings and Fed Chair Janet Yellen’s reiteration that a rise in interest rates are not imminent.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band.

Stocks to watch:
*StarHub: 4Q14 results in line. Net profit rose 10.1% y/y to $94.2m, while revenue increased 5.1% to $647.4m, primarily from iPhone 6 sales, with sale of equipment up 56.8% to $78.2m. Service revenue meanwhile increased 0.5% to $569.2m, with increases in mobile (+2.6%) and fixed network (+3.7%) offset by decreases in broadband (-15.9%), while Pay TV revenue was flat. Mobile ARPU increased $2 both q/q and y/y to $71, driven by new 4G tiered data plans and higher data usage. Broadband ARPU fell $8 y/y to $34, while number of customers up 4.8%. Final DPS of 5¢ maintained, bringing full year DPS to 20¢ (FY13: $0.20).

*First Resources: 4Q14 results slightly above expectations. Core net profit declined 10.7% to US$57.4, taking FY14 core net profit to US$171.6m (-20.9%). Revenue inched down 1.4% to US$176.7m, due to lower average selling prices of CPO and refined products, partially offset by higher sales volumes from the refinery and processing segment (+40%), on processing capacity expansion. EBITDA margin slipped 0.2 ppt to 53.6%. Proposed final DPS of 2.3¢, bringing FY14 DPS to 3.55¢ (FY13: 4.5¢). NAV/share at US$0.67.

*Yanlord: 4Q14 net profit fell 2% y/y to Rmb1.0b, taking FY14 net profit to Rmb1.4b (-8%). Revenue for the quarter was up 59% to Rmb7.5b, mainly attributable to increase in GFA delivered and higher ASP per sqm achieved. Gross margin fell 10.6ppt to 27.6% due to the change in composition of product mix. Bottom-line was aided by a 57% rise in other operating income, due to fair value gains on investment properties and a rise in interest income. First and final DPS of 1.3¢ maintained. NAV/share at Rmb9.84.

*Sheng Siong: 4Q14 results in line. Net profit rose 26.5% y/y to $11.8m taking FY14 net profit to $47.6m (+22.3%). Revenue for the quarter was up 4.7% to $178.4m, with 2.7% of the growth contributed by stores opened in 2012, while the balance 2% growth was from old stores. Gross margin inched up 1.1ppt to 24.3%, aided by lower input costs from the distribution centre and better sales mix. Proposed final DPS of 1.5¢, bringing full year DPS to 3¢ (FY13: 2.6¢).

*Centurion: FY14 results above estimates. 4Q14 net profit soared 171% y/y to $72.9m, bringing full year to $111.2m (+21%). Revenue for the quarter rose 74% y/y to $26.1m as both workers and student accommodation grew, while gross margin improved 4.3pp to 65.7%. Associate and JV contributions jumped 49% to $23.9m, largely as a result of fair value gains, while the group’s investment properties also recorded a more than 6x jump in fair value gains to $40.3m. Proposed final DPS of 1¢ taking full year DPS to 1.5¢ (FY13: 0.6¢).

*Riverstone: 4Q14 results above estimates. Net profit jumped 39.7% y/y to RM22.4m taking FY14 net profit to RM71.0m (+22.4%). Revenue for the quarter rose 20.8% to RM112.0m, buoyed by higher demand for its cleanroom and healthcare gloves. Gross margin fell 2.3ppt to 26.4%. Bottom-line was aided by a more than 99% decline in tax expenses to RM0.05m, due to higher tax incentives claimable by the group. Proposed DPS of RM4.55c, taking FY14 payout to RM6.9¢ (FY13: RM6.8¢). NAV/share at RM1.003.

*Pacific Radiance: 4Q14 results below expectations. Net profit plunged 69% to US$5.1m, as revenue fell 12% to US$37.2m, mainly weighed by lower utilisation of diving support vessels, partially offset by an increase in revenue from the offshore support services business. Gross margin crashed from 36% to 9%, weighed by the subsea business and offshore support services segment, on softer market conditions. Bottom line was also weighed by FX loss (US$0.2m), partially offset by a lower provision for doubtful debts (US$3.6m) and finance expenses (-24%). Proposed first and final DPS of 3¢ (FY13: 2¢).NAV/share at US$0.595.

*Rotary Engineering: 4Q14 net profit doubled to $11.8m taking FY14 net profit to $50.1m (+141.5%). Revenue for the quarter fell 31% to $125.7m, as the group reached completion on some of its major projects, while gross margin rose 8ppt to 18%, as a result of smooth project execution and the group's productivity improvement efforts. Bottom-line was further aided by a 26% drop in admin expenses to $10.2m. Proposed first and final DPS of 2.5c (FY13: 1.5c). NAV/share at $0.452.

*Mencast: 4Q14 net profit rose 10% to $7.1m taking FY14 net profit to $17.5m (+11%). Revenue for the year was up 32% to $130.6m, led by its three main segments of offshore & engineering (+56%), Marine (+33%) and energy services (+11%). Gross margin decreased 2 ppt to 29% mainly due to lower margin for the offshore & engineering segment due to materials and subcontractors' cost. Proposed first and final DPS of 1¢ (FY13: 3¢). NAV/share at $0.354.

*SBI Offshore: FY14 net profit fell 38% to US$0.6m on revenue of US$14.1m (-66%). The fall in revenue was weighed by a 20% decline in its market and distribution segment at US$8.7m and a 82% decline in the projects segment at US$5.4m. Gross margin jumped to 41.3% from 13.1%, mainly due to higher margin from a design and engineering project. Bottom-line was further weighed by a 12% decline in admin and other expenses to US$5.5m. DPS of 0.2¢ declared. NAV/share at US$0.121.

*Tiong Seng: FY14 net loss was at $15.3m versus a net profit of $9.3m from the previous year. Revenue was up 2% to $668.8m, supported by contributions from the construction (+9%) and rental income (+18%) segment, offset by lower contributions from development properties (-53%) and sales of goods (-11%) segment. Bottom-line was weighed by a 68% decline in other income at $5.2m and a 7% rise in otal operating expenses to $696.4m. First and final DPS of 0.2c declared (FY13: 0.6c). NAV/share at $0.273.

*Kingsmen: FY14 net profit fell 3.3% y/y to $17.2m, on revenue rose of $336.4m (+13.6%). Top-line was led by improved performance across Exhibitions & Museums (+31.9%, $136.4m), Retail & Corporate (+4.6%, $174.3m) and Research & Design (+13.5%, $12.9m), offset partially by a small drop in Alternative Marketing (-14.4%, $12.7m). Bottom-line was weighed by a 13.4% rise in employee expenses and a 30.2% rise in other expenses, following the inclusion of KME as a subsidiary of the group. Final DPS of 2.5¢ proposed, taking FY14 payout to an unchanged 4¢. NAV/share at $0.497.

Wednesday, February 25, 2015

Noble

Noble: Short-Seller Iceberg Research has released its second part of its short-sell report on Noble.

Short-Seller Iceberg Research indicate that it will be releasing third part of its short-sell report on Noble soon. Trade with caution.

Dyna-Mac

Dyna-Mac: Results came in below street estimates as 4Q14 net profit plunged 56.6% y/y to $4.0m, bringing full year earnings to $24.8m (-13.7%), weighed higher costs at both gross and operating levels

Despite the 4.6% revenue drop to $62.9m in 4Q14, FY14 revenue rose to $318.6m (+18.3%), on higher volume of projects in Singapore and overseas yards.

For the quarter, gross margin improved to 31.4% from 26.5% in 4Q13 (FY14: 22.6%) but bottom line was hit by a $3.8m fair value loss on financial derivatives and sharp spike in admin expenses to $11.3m (+51%) on higher headcount.

Balance sheet has deteriorated from a net cash position of $25.7m as at end-FY13 to 0.13x gearing in FY14, mainly due to a rise in trade receivables (+31%) and inventories (14-fold).

Accordingly, management cut its first and final DPS to 1.5¢ from 2¢ in FY13.

Net order book grew to $353.7m, with completion extending into 2016. This includes a total of $149m in new orders secured in 2015 to-date, comprising $89m for the construction of 10 FPSO topside modules for the Catcher oil fields in the North Sea and $60m for six FPSO topside modules destined for offshore Angola.

At $0.335, Dyna-Mac trades at 9.3x forward P/E and 1.7x P/B.

Wheelock Properties

Wheelock Properties: 4Q14 net loss widened to $103.1m from $91.3m a year earlier, taking FY14 net profit to $43.1m (+7.7%).

Revenue for the quarter fell 7.2% to $26.9m, on lower sales recognition of Ardmore Three and lower dividend income from its investments following the disposal of its stake in Hotel Properties to an associate in 2Q14. Gross margin rose 6.9 ppt to 87.3%

The group’s bottom-line was however depressed by write-downs on the book values of Scotts Square (-$52m) and Fuyang project in China (-$75m).

The write-down in Fuyang project was due to a slower pace of development in the project’s broad neighbourhood, resulting in uncertain market conditions and timing of the project, while Scotts Square continues to operate under very challenging circumstances as a boutique mall.

Going forward, Wheelock guides that FY15 is likely to remain challenging for development properties, although performance of the group’s prime investment property, Wheelock Place, is expected to be stable. Scotts Square Retail meanwhile will be revamped with new tenants and concept.

Construction for The Panorama is in progress and targeted for completion in 2016, with sale of the units still on-going, while phase 1 construction for the Fuyang project is in progress and is expected to be completed in 2016.

Wheelock has declared an unchanged first and final DPS of 6¢, representing a 3.2% yield.

At the current price, the group trades at 0.71x P/B.

Vallianz

Vallianz: 4Q14 net profit improved 27% y/y to US$3.6m, on revenue of US$48.2m (+700%), bringing FY14 earnings to US$18.5m (+147%) and revenue to US$153.7m (+669%).

FY14 was a marked year in headline numbers, following the acquisition of Rawabi Swiber Offshore Services at end-2013, which significantly boosted charter and brokerage revenue for the group, comprising 78% of overall sales from 44% in FY13.

However, delving into the quarterly results since 1Q14, both gross and operating margins were on a steady decline from 37% and 22%, to 35% and 8%, respectively, with operating expenses weighed by a surge in admin expenses and finance costs, on a larger staff base from its several acquisitions and burgeoning debt.

Meanwhile, net gearing eased q/q to 2.16x from 2.53x, but still at an uncomfortable 17% of sales. With the protracted oil price weakness, it may inevitably lead to price pressures in Vallianz' top line going forward.

Assuming gross margin and admin expenses stay constant, a 18-19% drop in revenue would erode Vallianz' earnings entirely.

In addition, management is hopeful that it does not see any teething issues in its recent acquisitions of a marine base in Batam and a shipyard in Singapore, in an attempt to raise profitability by carrying out its own vessel maintenance, repair and conversion.

Vallianz' market cap eroded 68% since the start of 2014, as earnings per share went a rampant decline from US0.32¢ in 1Q14 to US0.03¢ in 4Q14, with share base diluted by 51% over the year to 3,184m shares.

Group proposed first and final DPS of US0.05¢ (FY13: US0.04¢).

At $0.063, Vallianz is valued at 5.9x trailing P/E and 0.7x P/B. Valuations are in line with offshore services peers, but we think the company may be in a relatively tougher position with its huge debt pile and narrowing margins.

GENS

GENS: Posted disappointing 4Q14 results. Net profit fell 36% to $89.2m, while adjusted EBITDA decreased by 24% to $190.2m. Assuming theoretical normalized win rate, adjusted EBITDA would have been $280m.

Revenue dropped 8% to $637.9m, driven by a 9% drop in gaming revenue to $461.3m as growth in mass and premium mass was more than offset by significantly below average win percentage (2.2%, 4Q13: 2.5%) and rolling volume ($15.3b, -15% q/q, -23% y/y). Overall market share was 42% (3Q14: 49%).

Non-gaming revenue fell 4% to$176.1m. Hotel occupancy was 93% with RevPAR of $422.

Record bad debt provision of $82m weighed on bottom line. One-offs incurred were a loss on derivatives of $146m, a gain of asset sale of $153m and a net exchange gain of $75m.

Management guides a soft VIP market in 2015, citing challenging collection conditions and tighter credit policy.
The focus will instead shift to mass and premium mass, especially with the opening of 550 rooms Jurong hotel by May 2015. Nevertheless, it could take some time for visitors from the region to flock in.

Management also cited a possibility of increased dividend payout to pare down cash, if the Japan gaming-bill is not tabled by June.

On the Jeju front, a new bill to raise the quality of casinos in Jeju will soon be presented to the Jeju Provincial Assembly. If passed as an act, conditions for gaming licenses, junkets and number of tables in casinos/ integrated resorts would be stipulated. Management is confident in securing the gaming license.

Meanwhile, share buybacks will provide share price support.

Final DPS of 1¢ maintained.

Genting Singapore is currently trading at 8.5x FY15e EV/EBITDA.

Latest broker ratings:
Macquarie maintains Underperform with TP of $0.95
JP Morgan maintains Underweight with TP decreased to $0.95 from $1.00
OCBC maintains Hold with TP increased to $1.03 from $1.01
Maybank-KE maintains Hold with TP cut to $1.08 from $1.13
CIMB maintains Add with TP reduced to $1.20 from $1.22
UBS maintains Buy with TP of $1.30
Deutsche maintains Buy with TP of $1.32
Credit Suisse maintains Overweight with TP reduced to $1.40 from $1.55
Goldman Sachs maintains Buy with TP of $1.42
Nomura maintains Buy with TP of $1.52

SG Market (25 Feb 15)

Singapore shares are expected to open higher, taking cue from Wall Street which hitt new record highs, after Fed Chair Janet Yellen signalled the Fed’s intent to remain patient before raising interest rates because of weak wage growth and low inflation.

Asian stocks are mostly trading higher this morning with Tokyo (+0.1%) and Seoul (+0.6%), although Sydney is down 0.1%. China resumes trading today, following a weak of closure for the Chinese New Year holiday.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band with a downward bias as momentum indicators are exhibiting signs of weakness.

Stocks to watch:
*Genting SP: 4Q14 results below estimates. Net profit fell 36% to $89.2m, while adjusted EBITDA decreased by 24% to $190.2m. Assuming theoretical normalized win rate, adjusted EBITDA would have been $280m. Revenue dropped 8% to $637.9m, weighed by a 9% drop in gaming revenue to $461.3m as growth in mass and premium mass was more than offset by significantly below average win percentage and rolling volume. Non-gaming revenue fell 4% to$176.1m. Hotel occupancy was at 93% with RevPAR of $422. First and final DPS of 1¢ maintained.

*Dyna-Mac: 4Q14 net profit slumped 56.6% to $4.0m, bringing full year net profit to $24.8m (-13.7%). FY14 revenue increased 18.3% to $318.6m due to higher volume of projects in Singapore and overseas yards. Gross margin fell 1.8ppt to 22.6% mainly due to higher operating costs and accelerated depreciation from the termination of lease of one of the yards. Bottom-line was dragged by a 27.4% rise in admin expenses to $38.0m. First and final DPS of 1.5¢ (FY13: 2¢). NAV/share at $0.196.

*Vallianz: 4Q14 net profit improved 27% y/y to US$3.6m, on revenue of US$48.2m (+700%), bringing FY14 earnings to US$18.5m (+147%) and revenue to US$153.7m (+669%). The stellar performance was led by the acquisition of Rawabi Swiber Offshore Services at end-2013, which significantly boosted charter and brokerage revenue for the group, comprising 78% of overall sales (FY13: 44%). Net gearing lowered 37 ppts q/q to 2.16x, with order book at US$540m. Proposed first and final DPS of US0.05¢ (FY13: US0.04¢). NAV/share at US$0.0668.

*Chip Eng Seng: 4Q14 net profit soared 383.9% to $167.6m, taking FY14 net profit to $280.7m (+282.6%). Revenue surged 112.9% to $368.6m, driven by the property development segment, from the recognition 100 Pasir Panjang, Belvia and Alexandra Central), all of which obtained TOP in 2014. On-going mixed developments in Yishun, Nine Residences & Junction Nine also boosted top line. Gross margin rose 9.3ppt to 30%. First and final DPS of 4¢ and special DPS of 2¢ announced, bringing full year DPS to 6¢ (FY13: 4¢). NAV/share at $1.172.

*Healthway Medical Corp: 4Q14 net loss narrowed to $2.8m from $4.1m from the previous year, taking FY14 net profit to $9.8m (-67.8%). Revenue for the year was up 6.3% to $85.7m, mainly due the increase in revenue from the specialist & wellness healthcare segment pursuant to increase in patient volume, partially offset by a decrease in revenue from the primary healthcare segment. Bottom-line was weighed by a 59% drop in other operating income to $20.8m, due to a decrease in disposal gains of available-for-sale of financial assets, offset by a 34.4% decline in other operating expenses. NAV/share at $0.083.

*Wheelock Properties: 4Q14 net loss widened to $103.1m from $91.3m the previous year, taking FY14 net profit to $43.1m (+7.7%). Revenue for the quarter fell 7.2% to $26.9m, as the revenue recognised from Ardmore Three based on the progress of construction works was lower versus last year, and the group also received lower dividend income from its investments following the disposal of its investment in Hotel Properties to its associated company in 2Q14. Bottom-line was further weighed by an allowance for diminution in value of $75m made on The Fuyang project in China, and fair value losses of $50.7m due to the revaluation of Scotts Square Retail. NAV/share at $2.62.

*Overseas Education: FY14 net profit fell 2.8% to $22.0 on revenue of $102.1m (-0.9%). The slight decrease was mainly attributable to lower revenue from tuition fees (-0.8%), school bookshop sales (-14.8%) and enrichment programme (-16.5%). Total operating expenses remained flattish at $75.7m. Maintained first and final DPS of 2.75¢. NAV/share at $0.379.
*IFS Capital: 4Q14 net loss widened to $8.5m (+104% y/y), as total income declined 6.3% to $8.6m, dragged by lower factoring volume and decreased average loan assets, absence of gain on partial redemption of convertible loan, partially mitigated by a write back in gross provision for unexpired risks compared to a charge in 4Q13, as well as income received from intellectual property. Bottom line was weighed by higher net claims from full provision made for claims reserve for a client and and higher staff costs (+21%). Proposed first and final DPS of 1.5¢ (FY13: 2¢). NAV/share at $0.802.

*Heeton: 4Q14 net profit tumbled 69% y/y to $1.9m, despite a 125% surge in revenue to $6.8m, bringing FY14 earnings to $9.5m (-49%) and revenue to $36.3m (+141%). For the year, top line was mainly boosted by contribution of $24.1m from two residential projects, Onze@Tanjong Pagar and the Earlington in London. However, cost of properties sold spiked ahead of sales at 521%, which dragged bottom line on top of increased net finance expenses, higher sales and marketing costs (+43%) and a $5m provision for foreseeable losses, partially offset by higher share of profits of associates (+36.2%) attributed to progressive profit recognition for various residential projects. Proposed final DPS of 0.6¢, bringing FY14 DPS to 1.1¢ (FY13: 1.3¢). NAV/share at $1.216.

*SGX: CEO Magnus Bocker will be leaving the stock exchange after his current contract expires on 30th Jun ’15. SGX board is moving forward with its CEO succession plan and is assessing both internal and external candidates.

*QT Vascular: 4Q14 net loss widened y/y to US$7.8m (4Q13: -US$6.6m), despite a 51% pop in revenue to US$3.7m, bringing FY14 total losses to US$34.2m (FY13: -US$34.5m) and revenue to $13.2m (+141%). Top line was driven by increased sales volumes (+194%) of the Chocolate PTA Balloon Catheter and Glider PTCA Balloon Catheter with distributors and direct coronary sales in US. BVPS of US$0.04.

Tuesday, February 24, 2015

Asian Pay Television Trust

Asian Pay Television Trust (APTT): 4Q14 DPU came in at 2.13¢, bringing full year DPU to 8.25¢ (-7.6%), in line with IPO forecast.

In the last quarter, revenue improved 4% y/y to $81.8m (+4% y/y), underpinned by basic cable TV (+4.9%) and premium digital cable TV (+4.5%), with the broadband segment relatively stable (-0.5%).

But bottom line slipped 22% to $16.3m, weighed by higher operating expenses (+23%), resulting from higher depreciation and amortization costs (+37%), other operating expenses (+31%) and FX loss of $0.3m (4Q13: $2.3m gain). Excluding depreciation, EBITDA margin compressed 1.3 ppts to 59.7%.

For the year, overall number of subscribers in APTT's sole seed asset, Taiwan Broadband Communications(TBC), grew 1.3% to 1,072,000, mainly from premium digital cable TV, but at the expense of ARPU, which fell 5.8% as the trust focused on gaining market share. The broadband business also saw a 1.7% growth in subscribers but 3.3% slippage in ARPU, while basic cable TV subscribership and ARPU held steady.

Aggregate leverage rose 4.3ppt to 43.2%, as APTT undertook spending to build its network infrastructure across Taichung. Capex spending of $33m has peaked out in FY14 and is expected to ease to $20-25m and $10-15m in FY15 and FY16, respectively.

Management expects better results in FY15 across all segments, driven by the roll-out of digital set-top boxes which should translate to higher sales. By end-2015, penetration rate for digital set-top boxes is expected to grow from 82% to 100%.

Meanwhile, progress on APTT's network expansion is on track with network coverage of over 30% for homes in the new coverage area. Requisite regulatory licences have been obtained and marketing operations commenced in 4Q14.

Management has reaffirmed its FY15 DPU of 8.25¢, indicating an attractive forward yield of 9.1%. Key risk is TBC's relatively short cable TV operating licenses in Taiwan, which is renewed on a rolling nine-year basis and last renewed in 2008/09.

At $0.91, APTT is valued at 1.02x P/B.

Hock Lian Seng

Hock Lian Seng: Share price hit a new all-time high today at $0.395. Since Market Insight added the stock to its value portfolio at the start of the year, the stock has reaped a handsome 30% return.

The stock’s inclusion into Market Insight’s value portfolio was premised on the group’s burgeoning net cash hoard of $88m (44% market cap) and an expected $60-70m coming in from the impending TOP of two industrial properties. This gives scope for a potential special dividend payout, on top of its 6% forward yield.

Separately, a local broker recently maintained its Buy call on the counter with a TP of $0.505, labelling the stock as a “convincing gem”, highlighting the group’s strong current order book of $345m, which provides revenue visibility over the next three years.

The house is expecting Hock Lian Seng to register a strong set of FY14 results, led by reconigtion gains from a completed industrial property development project.

At the current price, Hock Lian Seng trades at 5.9x trailing ex-cash P/E and 1.4x P/B.

Sino Grandness

Sino Grandness: Latest news was the appointment of Prayudh Mahagitsiri as group's honorary chairman on 31 Dec 2014. Prayudh is the founder and Chairman of PM Group, one of the top privately held Thai conglomerates with interests in consumer products, industrial products, property development, golf courses, entertainment, education and investments.

PM Group’s consumer products operations in Thailand include Nescafè, Krispy Kreme and Coffee Gallery.

FY14 results is expected to be released on or before 27 Feb.

Food Empire

Food Empire: 4Q14 net loss widened to US$12.1m from a net loss of US$0.2m the previous year, taking FY14 net loss to US$13.2m (FY13 net profit at US$11.7m). Excluding currency effects, FY14 net profit would have been US$15.6m.

Revenue for the quarter fell 22.3% to US$57.6m, dragged by weaker performances from Russia (US$26m, -36.2%) and Ukraine (US$5.6m, -42.0%), as a result of the depreciation of the ruble and hryvnia against the USD. Russia and Ukraine made up 54.7% of top line.

Other markets contributed US$13.3m (+49.9%, 23% of top line), as beverage sales grew in SEA markets, plus a general increase in contribution from China, Europe and Middle East.

Aside the slump in ruble and hryvnia, Food Empire’s net loss was due to higher staff costs, start-up costs, and a US$3m impairment charge on one of its brands Petrovskaya Sloboda. This was partly mitigated by a US$2.6m tax credit.

The non-dairy creamer plant, snack factory and beverage manufacturing facility in Malaysia had commenced operations, and management would focus on intensifying brand acceptance in Malaysia.
Food Empire is a well-run company, with a track record of delivering growth across various markets. Their ability to deliver net profit growth (ex-FX effects) also reinforces that their brands are well accepted in core markets.

Nevertheless, the massive tailwind from Russia and Ukraine might force Food Empire to rationalize operations, posing significant risks in the immediate term, with respite not coming in the near-term.
Food Empire is currently trading at 0.83x P/B.

REITs

REITs: The 2015 budget announced some changes to S-REITs, summarized below:
1. NOT extended – 3% stamp duty waiver on transfer of property into listed/to-be-listed SREIT
2. Extended – till 2020, 10% concessionary income tax rate for non-individual foreign investors
3. Extended – till 2020, tax exemption on income derived from overseas assets
4. Extended and enhanced – till 2020, GST remission to claim input tax, enhanced to include fund raising business expenses of SPVs of SREIT/SBTs

By estimates, the absence of 3% stamp duty concession, beginning April 2015, will reduce entry asset yields by 10-20bps, forcing sponsors to be more conservative in pricing in order for the acquisition by SREIT to be DPU-accretive initially.

At the same time, the move could completely eliminate inorganic growth potential for smaller REITs, which have limited acquisition opportunities to begin with.

On the brighter side, it levels the playing field between REITs and non-REIT property players and between Singapore assets and overseas assets.

We expect intensified competition for Singapore assets and increased interests in overseas properties. However, the latter will eventually raise the risk premium on SREITs.

On the labour front, foreign worker levies increases are deferred by one year, hospitality REITs are the biggest beneficiaries of such.

Overall sentiments in view of budgetary changes are expected to be neutral to positive. Pent-up buying demand from investors seeking policy clarity – especially on the tax exemption on income from overseas properties – may be released.

Counters deriving a significant portion of their income from overseas assets that appeared depressed recently due to policy uncertainty are CapitaRetail China Trust, Ascott Residence Trust, Mapletree Logistics Trust, CDL Hospitality Trust and Frasers Commercial Trust.

SIIC Environment

SIIC Environment: SIIC results topped estimates, as 4Q net profit more than doubled y/y to Rmb65.9m (+111%), despite a 35% drop in revenue to Rmb286m, bringing FY14 earnings and revenue to Rmb262.4m (+75%) and Rmb1.3b (+6%), respectively.

For the quarter, top line tumbled 35% to Rmb286m, dragged mainly by the lumpy construction segment (-78%), from the completion of fewer projects and divestment of its engineering, procurement and commissioning business. This was partially mitigated by higher water treatment and water supply revenue (+15%) due to higher volumes and contribution from new subsidiaries, as well as maiden contribution from waste incineration revenue (Rmb19.6m).

Meanwhile, gross margin improved 9.4ppts to 33.2% from the shift from the less profitable construction segment.

Bottom line was also boosted by share of results from new associates and JVs, Longjiang Environmental Protection Group and Shanghai Pucheng Thermal Power Energy, respectively, the absence of a one-off impairment loss, as well as negative goodwill (Rmb4.5m) from the acquisition of Shanghai Qingpu.

Management is of the view that environment in the industry is healthy, underpinned by recently-introduced policies which include market-oriented investment approaches and more government effort on water discharging monitoring.

Acquisitions made throughout FY14 brought SIIC's portfolio to about 70 water treatment and supply projects with total design capacity of ~5.5m tons/day and 3 waste incineration projects with total design waste treatment capacity of 3,200 tons/day.
Most of the projects have started contributing, with an incremental amount due in FY15/16.

BVPS of Rmb0.3849.

SG Market (24 Feb 15)

Singapore shares are expected to open relatively flat, after US stocks hovered and closed near their all-time highs on Monday, weighed by a sharp drop in oil prices despite European shares advancing to a seven-year high.

Separately, Singapore's Budget 2015 offered no major surprises that will result in significant market moves, although it is overall marginally positive for SMEs, especially those in the construction sector, and REITs.

Asian stocks are trading mixed this morning, with Toyko (-0.1%) and Sydney (-0.2%) slightly in the red, while Seoul is up 0.3%.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band with a downward bias as momentum indicators are exhibiting signs of weakness.

Stocks to watch:
*SIIC Environment: 4Q14 results above estimates. Net profit surged 111% y/y to Rmb65.9m, bringing FY14 earnings to Rmb262.4m (+75%). Revenue for the quarter fell 35% to Rmb286.0m, dragged mainly by lower completion of construction projects (-78%), partially offset by higher water treatment and water supply revenue (+15%), as well as new contribution from waste incineration revenue (Rmb19.6m). Gross margin however improved 9.4ppts to 33.2% on lower contribution from the construction segment, while bottom-line was aided by a 24.6% decline in admin expenses, as well as a jump in associate and JV contributions to Rmb18.4m (+318%). NAV/share at Rmb0.385.

*Asian Pay TV Trust: 4Q14 DPU of 2.13¢ declared, bringing full year DPU to 8.25¢. Net profit slipped 22% y/y to $16.3m, dragged by other operating expenses (+31%) and FX loss of $0.3m (4Q13: +$2.3m). Revenue improved 4% to $81.8m, contributed by basic cable TV (+4.9%) and premium digital cable TV (+4.5%) segments, while broadband remained stable at $12.4m (-0.5%). Subsequently, EBITDA margin slipped 1.3ppt to 59.7%. NAV/unit at $0.89.

*Lee Metals: 4Q net profit tanked 61% y/y to $4.7m, taking FY14 net profit to $33.1m (+17.6%). Revenue for the quarter shrank 4.3% to $144.3m due to a 39.2% decrease in Steel Merchandising business to $34.8m, partially offset by 16.9% increase in Fabrication & Manufacturing business to $109.5m as a result of larger volume but weaker prices. Costs increased across the board due to ramp up on production capacity for F&M business. DPS of 2¢ declared, taking FY14 payout to 3¢ (FY13: 3.5¢) NAV/share at $0.374.

*Food Empire: 4Q14 net loss widened to US$12.1m from a net loss of US$0.2m the previous year, taking FY14 net loss to US$13.2m (FY13 net profit at US$11.7m). Revenue for the quarter fell 22.3% to US$57.6m, dragged by weaker performances from Russia (-36.2%) and Ukraine (-42.0%), as a result of the depreciation of the Russian Ruble and Ukrainian Hryvnia against the USD. Food Empire guided that the weak oil prices and political conflict between Russia and Ukraine will continue to weigh negatively on the group. NAV/share at US$0.259.


*Noble: Wholly-owned subsidiary Maylion has increased its shareholdings in Cockatoo Coal from 23.14% to 42.54%, via the acquisition of 18.8b shares for a consideration of A$37.5m. The consideration was wholly satisfied in cash and funded from internal resources.


*Starburst: Entered into conditional sale agreement with Pah Engineering to acquire 6 Tuas View Circuit for $22.4m. The property has a gfa of ~7,002 sqm, with remaining land tenure of ~43 years. The acquisition will increase Starburst's fabrication efficiency and capacity, and allows the group to consolidate all activities at the new location, thus enhancing efficiency.

*Rex: Indirect subsidiary West Indian Energy has completed the acquisition of the issued and outstanding shares of Parex Resources, whose main material asset is a 63.8% working interest in the Cory Moruga Block in Trinidad & Tobago. With the completion of the acquisition, its working interest in the Cory Moruga Block is now 83.8%

*Sarine Technologies: Gemological Science International, one of the largest independently owned gemological laboratories in the world, undertakes Sarine's new product, DiaMension Axiom, a high-end technology diamond scanner for measuring and modelling polished diamonds.

Monday, February 23, 2015

Tat Hong

Tat Hong: In a feature article on Tat Hong, the Business Times highlighted that the crane operator is in the midst of restructuring its business operations in Australia and Singapore, following the slump in the commodities markets and stiff competition.

As part of the restructuring process, Tat Hong intends to sell some of its property or assets, and shift some assets to other geographical locations.

Despite the slowdown in its major markets, the group believes that there are still pockets of opportunities across Asia, citing China, Malaysia, Thailand and Hong Kong.

China currently makes up about 1/6 of Tat Hong’s revenue as of 9MFY15, and the group aiming for China to contribute to at least a third of its total revenue in the longer term, led by the growing urbanisation of the country. The group is however slowing down its pace of growth in China for now, in a bid to ensure that safety and service standards are met.

As for its major market, Australia, management believes that the worst is over, and expects the group to do better in 2015, adding that it had previously faced stiff competition from European crane companies, which had aggressively cut rental rates but lacked adequate safety standards.

Tat Hong is also transferring older cranes to other Asean destinations like Thailand and Malaysia, in a bid to improve the utilization of its assets.

Meanwhile, crane rental rates in Singapore have fallen ~20%, partly due to Chinese contractors bringing in their own cranes for projects. Tat Hong however does not intend to sacrifice its margins to compete head-on, and will redeploy its assets elsewhere where it commands a stronger presence.

The group cautions that Asia will remain a difficult market over the next two years, and hence will need to trim some “fat” to survive in the longer run.

At the current price, Tat Hong trades at 17.8x forward P/E and 0.7x P/B.

Sinarmas Land

Sinarmas Land - No fresh news on the counter, although the investment story on the counter remains largely unchanged. Over the next few years,Sinarmas Land aims to unlock the value of assets, and raise recurring income to create a sustainable business model.

A substantial portion of the group's land bank in Indonesia was acquired back in the 1980s, and the value of the properties has appreciated significantly since then.

In particular, over the past five years, the property boom in Indonesia has led prices of residential property to double, and industrial land to triple.

In FY13, Sinarmas Land achieved revenue of $985m, of which 90% was derived from its development projects in Indonesia, while the remaining 10% came from rental income from seven office buildings in Indonesia, 21%-stake in strata-owned Orchard Towers in Singapore, Le Grandeur Palm Resort Golf and Country Club in Senai, Johor and Palm Springs Golf and Beach Resort in Batam.

Sinarmas Land intends to raise its recurring income base to 20-25% of overall sales going forward, particularly from the overseas market- citing Australia, US and London.

Meanwhile, the group is also looking at ways to unlock value of some assets on its balance sheet. In Singapore, management sees potential to sell the units it owns at Orchard Towers via an en-bloc deal.

Market watchers estimate that Sinarmas Land’s stake in Orchard Towers is worth ~$190m, compared to the $64m held in its books.

Following management’s effort to raise visibility, the street has over the past year started to pick up coverage on the stock. Greater investor awareness on the counter could lead to a firmer stock price.

SG Banks

Banks: Maybank-KE highlights that 4Q14 earnings were uninspiring but operating metrics stayed sound, DBS’ in particular. Its NIM expanded 3bps q/q, being the only bank with NIM improvements, and expects stronger margins ahead. DBS’ management also sounded most optimistic.

DBS has the largest exposure of $50b oil and commodity sectors, followed by OCBC’s $25b and UOB’s $17b, but there are no signs of stress yet. Banks have set up more buffers to anticipate lumpy provisions as credit outlook dims.

Liquidity profiles remained good. DBS has the lowest SGD LDR of 79%, relative to OCBC’s 84%, and UOB’s 95%. The house opines that banks are well-equipped for a potential USD crunch, given their ability to raise USD deposits, which grew 33.6% p.a. over the past 4 years. Alternative funding sources, e.g. commercial papers and currency swaps with MAS should help too.

Meanwhile, loan growth may stay limp in 2015, and adjusts FY15-16 projections accordingly, but keeps TPs unchanged.

Maybank-KE remains most bullish on DBS (TP: $22.70), followed by UOB (Buy, TP: $26.40). OCBC remains less preferred (Hold, TP: $11.10)

Keppel Corp

Keppel Corp: According to Upstream and Tradewinds, Transocean is delaying the delivery schedule for five jackup rigs worth US$1.1b that it has placed with Keppel Corp, by about 6 months on average. Original delivery for the first unit was for 1Q16 and is now pushed back to 3Q16 reflecting the weakening conditions for jackup rigs.

Maybank-KE highlights that when Transocean first gave the order in Nov ‘13 for the quintet of jackup rigs, it came with options for 5 more units, but the house understands that the first few options have expired and believe that Transocean is unlikely to exercise the remaining options.

Separately, Sembcorp Marine is also building two drillships for Transocean and the house do not rule out that they may be subjected to deferment of delivery schedule.

Overall, Maybank-KE opines that some adjustments may be needed for recognition schedule of the jackups but is not expected to be significant. As long as the contracts are intact, Keppel would still get the expected profits.

The greater significance is the indication of a weaker demand even for jackups and where would new contracts come from in 2015 and 2016.

Maybank-KE has a Hold call on Keppel Corp (TP $8.60) and a Sell on Sembcorp Marine (TP $2.65)

DBS (technical)

DBS: Today's gap up at $19.95 is above the 60MA and may be positive if it can close above that level, resulting in a change in mid-term trend. A close above may portend to an attempt towards the all-time high at $20.67. Otherwise, counter may see consolidation towards the support at $19.00, followed by $18.50 levels.

Libra

Libra: After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained upgrades to a L6 category for its BCA licences related to air-conditioning, refrigeration and ventilation works (workhead ME01) as well as integrated building services (workhead ME15). The upgrades would enable them to tender for an unlimited amount of public government projects, whereas previously they were constrained to projects with contract values below S$14m. Ahead of its FY14 results to be released, OCBC believes the group could achieve an estimated 8x growth in earnings to $4.7m. With a good dividend yield of 7.0% expected, OCBC maintains Buy with a fair value estimate of $0.33.

Sarine Technologies

Sarine Technologies: (S$2.88) 4Q14 below estimates; recurring base increasing
Sarine's 4Q14 net profit slightly below estimates, on lower gross margins and higher sales and marketing expenses.

For the quarter, revenue gained 10% y/y (-10% q/q) to US$18.3m, due to increased sales in recently-released traditional diamond manufacturing equipment (Quazer 3), as well as higher recurring income from a larger installed base of Galaxy-family related products.

Sequentially, the weaker sales was due to credit issues hitting its India customers and the operational slowdown from the Diwali holiday.

Meanwhile, gross margin slipped 4.5ppts (3.3ppts q/q) to 66.6% on a change in product composition.

Together with higher sales and marketing expenses (+11%) from the launch of Sarine Loupe and establishment of selling infrastructure for the new polished diamond offerings, increased finance expenses and higher taxes (+13%) in Israel, earnings dropped 13% y/y (-32% q/q) to US$3.9m.

This brought FY14 earnings to $27.2m (+14%) and revenue to US$87.8m (+15%), vs estimates of US$28.8m and US$88.9m, respectively.

For the year, Sarine delivered a record 48 Galaxy family systems (FY13: 46), increasing the total installed base to 190 and contributing to the higher recurring income of 35% (from 30%) in overall revenue.

Final DPS of 2¢ declared, bringing FY14 total DPS to US5¢.

For the second consecutive year, management has proposed to raise the semi-annual dividend payout- this time by 25% to US2.5¢ (FY13: +33%).

At $2.88, Sarine is valued at 20.8x forward P/E and 8.1x P/B, supported with an indicative dividend yield of 2.4%.

SG Market (23 Feb 15)

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band.

Stocks to watch:
*Sarine Technologies: 4Q14 results below estimates. Net profit slipped 13% y/y to US$3.9m, taking FY14 net profit to US$27.2m (+14%). Revenue for the quarter rose 10% to US$18.3m, attributed to increased traditional diamond manufacturing equipment sales and higher Galaxy-family related recurring income from a broader installed base. Gross margin declined 4ppt to 67% on a change in product mix. Bottom line was dragged by higher sales and marketing expenses (+11%), due to the launch of Sarine Loupe and establishment of selling infrastructure for the new polished diamond offerings, increased finance expenses and higher taxes (+13%). Final DPS of 2¢ declared, taking FY14 DPS to US5¢ (FY13: US6¢). Management has proposed to increase DPS to US2.5¢ semi-annually. NAV/share at $0.302.

*Singapore Medical Group: Swung to FY14 net profit of $0.08m versus a net loss of $6.4m, while revenue increased 15.9% to $26.5m mainly from increases in oncology, and obstetrics and gynaecology revenue. Bottom line was improved by a disposal gain of a China JV, other cost saving measures, and a tax credit. NAV/share at 2.93¢

*Keppel Corp: According to Upstream and Tradewinds, Transocean is delaying the delivery schedule for five jackup rigs worth US$1.1b that it has placed with Keppel Corp by about 6 months on average. Original delivery for the first unit was for 1Q16 and is now pushed back to 3Q16 reflecting the weakening conditions for jackup rigs.

*AusGroup: Intends to review the size and structure of its fabrication business in Australia after completion of a number of major fabrication packages, as demand has been adversely affected by the slump in downstream construction markets.

*Wilmar: Gets final regulatory approval for the proposed acquisition of Goodman Fielder by the New Zealand Overseas Investment Act. Goodman Fielder will hold a shareholder meeting to consider and vote on the scheme of arrangement on 26 Feb ‘15

*Chuan Hup: Completed disposal of 24.7% stake in CH Offshore.

Wednesday, February 18, 2015

Singtel (technical)

Singtel: Traded in steep and narrow upward trend channel since beginning of the year. Having corrected from the upper trend channel it may be in the consolidation phase. Larger trend shows prices may be in the third subwave of the second impulsive wave. If so, we are looking to making higher highs above $4.30 in the mid-term, after the short-term correction expected in fourth subwave, that should be firmly supported at $4.00

Noble Group

Noble Group: In a rebuttal to recent allegations made by short seller Iceberg Research, Noble argued that if Iceberg Research’s attention was to highlight supposed deficiencies in its accounting principles, it should have approached Noble to discuss their concerns, rather than publishing a report just before the group’s annual results announcement and a long holiday period.


Noble added that it reports its results in accordance with IFRS and its annual financial statements have been audited by Ernst & Young who issued unqualified opinions.


The carrying values of its associates, including Yancoal, are tested for impairment using discounted cash flow models that are updated every quarter, and these valuations are currently being audited as part of the FY14 audit.


The reasons why Noble categorizes investments such as Yancoal and others as associates have been clearly disclosed in its annual reports, and supporting factors include board representation, material transactions between the group and the investee as well as the provision of essential technical information are available.


Contrary to Iceberg’s allegations, Noble argued that it did not mislead the market in any way about the performance of its agri business, and had discussed the performance of the operating income from its supply chains in its quarterly published MD&A.


Finally, the allegations on the group’s palm assets are again factually incorrect. In Dec ‘14, Mimika, Papua Province issued a decree purporting to revoke PT Pusaka Agro Lestari’s (PT PAL) location permits and require PT PAL to cease logging activities and replant trees.


However, since then, the Ministry of Agriculture has confirmed PT PAL’s plantation business licence and a right of cultivation are in order, and supports PT PAL’s continued operation. Furthermore, PT PAL represents only 20%-25% of Noble’s total palm activity, at around US$43m (asset value), and any future profits or losses incurred upon the sale of the palm assets will be shared equally between the group and the COFCO led consortium of investors.

Analysts highlighted that the allegations raised by Noble are not new, with some calling the report as being “sensational bias”, and omitting any investment positives, while others drew reference potential scenarios based on the past, where white knights (large shareholders) emerged to the rescue of companies that had become prey of short sellers, in the case of Olam and China Min Zhong.

PACC Offshore

PACC Offshore: 4Q14 results were below estimates, with net loss coming in at US$10.0m versus 4Q13’s net profit of $4.2m, taking FY14 net profit to $53.2m (-27%).


Revenue for the quarter inched up 1% to US$55.8m, supported by the offshore supply vessels (+11%) and harbour services and emergency response (+68%) segments, but offset by lower revenue from the transportation & installation (-43%) and offshore accommodation (-4%) segments.


Gross margin fell 10ppt to 12%, dragged by the OSV and T&I shallow water segments, which was impacted by vessels undergoing repairs and lower charter rates respectively.


Bottom-line was weighed by a more than 88% decline in other operating income to US$1.8m, due to the absence of sale of vessels from the previous year, offset partially by lower general and admin (-27% to US$8.5m) and finance costs (-35% to US$2.3m).


Going forward, Maybank-KE highlights that two key concerns remain unresolved: 1) Mexico JV still making losses as vessels idle and 2) Uncontracted second SSAV, POSH Arcadia (mid-2015 delivery), which is aiming for a Petrobras charter.

The house sees greater uncertainties on deteriorating conditions in Mexico and Brazil - Pemex has announced an 11.5% budget cut while Petrobras is engulfed in corruption probe on top of the weak oil price environment. In its statements, management said that it will also seek jobs outside of Mexico and trim operating expenses.

PACC also added that it will defer some of its planned newbuildings, and has US$250m of committed capex as at end-FY14, of which US$130m is to be paid in FY15. The house believe that this is prudent as cash conservation would be vital now, even though the Kuok group offers a strong financial backing

DPS of 1.5¢ declared (FY13: 4.5¢), taking FY14 yield to 2.8%.

At the current price, PACC trades at just 0.6x P/B.

Noble

Noble: Macquarie reckons Iceberg's report fails to make the case for Noble being a “repeat of Enron” and offers no justification for its $0.10 TP. House reiterated its Outperform rating and $1.60 TP.
The two principal concerns highlighted are valid risks, but they are not ‘new news’.

Economy

Economy: Booming exports start 2015
Jan '15 non-oil domestic exports (NODX) rose 4.3% y/y, beating consensus estimates of a 2% growth, driven by a sharp rise in pharmaceuticals alongside the pick up in electronics.

Meanwhile, non-oil re-exports (NORX) expanded 12.7%, mainly boosted by electronics (+23.5%) on the rise of IC’s, telecommunication equipment and PC parts. Non-electronic NORX also rose, but at a slower pace of 2.0% (Dec 2014: +6.3%).

Total imports declined the seventh straight month (Jan 2015: -13.4%; Dec 2014: -1.4%), in line with falling oil imports (-41.8%) as crude oil price fell further, offsetting the rise in non-oil imports (+1.1%), which makes up nearly 70% of imports.

Singapore recorded its largest ever trade balance of $8.5b in Jan 2015, nearly double the monthly average value of $4.6b over 2014.

Maybank-KE expects NODX to grow 2%-3% in 2015, compared to 2014's 0.7% decline.

NOL

NOL: Confirmed it had reached a deal to sell APL Logistics to Japanese cargo carrier Kintetsu World Express for ¥140b (US$1.18b). This is higher than previous valuations of between US$750m and US$1b that the liner hoped to raise from the sale.

The transaction values APL Logistics at 14.8x EBITDA and 4.9x P/B, which is a premium to Australia's Toll Holdings at 1.61x and Qube Holdings at 1.96x. Based on the book value of its logistics assets, NOL is expected to reap an estimated net gain of US$939m, which translates to a surplus of US$0.362 per share.

If successful, the sale would shore up its balance sheet and pare its net gearing from current 2.25x to 1.08x, but leave the group with its loss-making liner business.

Post sale, NAV will rise from US$0.67 to US$1.02 ($1.38), implying a valuation of 0.72x P/B, at the low end of the 0.8-0.9x P/B range for global liners.

NOL will resume trading today at market open.

SG Market (18 Feb 15)

Singapore shares are expected to open on a cautious note in today’s half trading session following the subdued Wall Street close as traders may be unwilling to take fresh bets ahead of the long Chinese New Year holiday.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band.

Stocks to watch:
*Sembcorp Industries: 4Q14 results above estimates. Net profit gained 7.5% y/y to $240.6m, mainly due to 20% higher gross profit of $423.5m. Revenue stood at $2.66b (-10%) as turnover were slower across all segments, but mainly Utilities (-5%, $1.173tr) due to de-consolidation of Salalah and lower electricity sales, lower gas offtake and lower HSFO prices, as well as Marine (-15%, $1.445tr) due to slower recognition from rig building projects. Margins were significantly higher in Utilities. Management guides challenging business environment in Utilities and Marine. Final dividend is 11¢ (vs 15¢ in FY13), bring total FY14 dividends to 16¢ (vs 17¢ in FY13). NAV/share at $3.15

*PACC Offshore: 4Q14 results below estimates. Net loss was at US$10.0m, which weighed on FY14 net profit to $53.2m (-27%). Revenue for the quarter inched up 1% to US$55.8m, supported by the offshore supply vessels (+11%) and harbour services and emergency response (+68%) segments. Gross margin fell 10ppt to 12%, mainly due to the OSV and T&I shallow water segments. Bottom-line was dragged by the absence of sale of vessels from the previous year, with other operating income down 88% to US$1.8m. DPS of 1.5¢ declared (FY13: 4.5¢). NAV/share at US$0.67.

*Breadtalk: 4Q14 net profit fell 9.1% to $5.3m taking FY14 net profit to $13.7m (-8%). Revenue was up only 5.3% to $154.8m, as the traditionally strong 4Q revenue performance did not materialise due to softer than expected demand across all markets especially China. Gross margin was maintained at 53.2%, although bottom-line was weighed by a rise in distribution and selling expenses to $59.2m (+6.4%), higher admin expenses at $19.7m (+8.6%), and higher taxes at $2.6m (+85.7%). DPS of 1¢ declared, taking full year payout to 1.5¢ (FY13: 1.8¢). NAV/share at $0.364.

*Valuemax: 4Q14 profit surged 170% y/y mostly attributable to higher gross profit, which soared 27% to $6.2m despite 44% lower revenue at $627.1m. Gross margin was up 5.4ppt to 9.8%, achieved on decrease in interest expense from lower utilisation of bank borrowings by pawnbroking segment and better retail and trading margin of pre-owned jewellery and gold business. NAV/share at $0.283. First and final DPS maintained at 0.88¢.

*NOL: Confirms disposal of APL Logistics to Kintetsu World Express for JPY140n (~US$1.18b), at 15x APL’s core FY14 EBITDA or 3.7x P/B. This will pare down net gearing from 2.25x to 1.08x but leave NOL with its loss-making Liner business. Pro-forma NAV rises to US$1.004 (~$1.36) from US$0.67 (~$0.91).

*Noble: In response to short seller Iceberg Research allegations, Noble highlighted that it reports its results in accordance with IFRS, and its annual financial statements have been audited by Ernst &Young who issued unqualified opinions. The carrying values of its associates are tested for impairment using discounted cash flow models that are updated every quarter, and these valuations are currently being audited as part of the FY14 audit.

*Lum Chang: Awarded tender for construction of a mixed development at Yishun worth $487m. Project construction will commence on 15 Apr ‘15 and is expected to be complete in 2H18. Latest award brings orderbook to $1b.

*TEE Land: Expressed interest to acquire three plots of land totalling 188,149 sqm, in Batam for $4.9m, to be developed into affordable housing and commercial development, conditional upon due diligence and HPL certificates on the land being issued by 30 Aug and HGB certificate being issued within 2 months thereafter. The group will finance the cost of the transaction by internal funds and bank borrowings.

*Boustead: Entered agreement to purchase 20% shareholding in Mason Energy Ltd for $8.0m (~1.7x P/B), to be funded by internal resources. Mason supplies valves and other equipment to the O&G industry in China. Boustead hopes to tap on Mason’s strong network of Chinese O&G clients and achieve synergies such as prequalifying for projects undertaken by Mason’s international clients.

*Cambridge Industrial Trust: Proposed acquisition of an industrial building at 160A Gul Circle for $19.9m. The 7,997 sqm gfa property has remaining land tenure of 26 years, and will be leased-back to Unicable (the seller) for five years.

*Frasers Centrepoint: Unveiled Frasers Tower, a Premium Grade A office tower located in Singapore's CBD with a total net lettable area of 690,000 sf, scheduled for completion in 2018.

*Sinjia Land: To sell its power generation system in Myanmar for US$2.2m (1.2x NAV) to Tembusu Industries.

*CCT: Issues ¥8.6b floating rate (3m JPY LIBOR + 0.3%) notes due Feb ‘23 under the $2b multicurrency MTN Programme, hedged into $100m at 3.05%.

*Elektromotive: Awarded damages of $0.5m for repudiatory breach of JVA by KTNT and Tom N Toms.

*Profit warning:
- Ntegrator: Due to a cost write-off for a developmental project from an unsuccessful tender.
- Pan Asian Holdings: Due to impairment and lower revenue.
- Fuji Offset Plates: Due to impairment loss
- Annica: Operating losses from biomass projects and engineering services segments, as well as unrealised fair value loss, loss on disposal of investments and impairment loss on goodwill from the investment holding segment.
- Innotek: Due to recognition of non-cash impairment on its fixed assets in Mansfield subsidiary in Suzhou.

Tuesday, February 17, 2015

NOL

NOL: Bloomberg reported that Kintetsu World Express will Buy APL Logistics from NOL for around JPY140b. Kinetsu Express shares extend decline after report; fall up to 4.1%, NOL halted

At a sale price of JPY140b (US$1.18b) or 3.7x P/B, NOL stands to reap a net gain of US$866.6m from APL Logistics, which translates to a surplus of US0.334. This will lift its NAV per share to US$1.004 ($1.36). At the current price of $0.99, NOL will be valued at a prospective 0.74x P/B.

Keppel Land

Keppel Land: Two-tier voluntary unconditional offer of base offer ($4.38/share) and higher offer price ($4.60/share), with higher offer price given when Keppel Land is taken private (>90% valid acceptances).

Keppel Corp currently has 54.6% control and the offer closes on 12 Mar. However, the offeror has the right to extend the closing date of the offer.

Note that the offer price may include Keppel Land's FY14 dividend of $0.14/share, if the offer extends beyond Keppel Land's XD on 5 May.

We highlight two possible scenarios that may happen:
1) Cum dividend, the base offer price of $4.38 or privatisation price of $4.60 will apply, depending on whether the valid acceptance of the offer reaches the 90% compulsory acquisition threshold.
2) Ex dividend, the effective base offer price of $4.24 ($4.38 less 14¢ dividend) or effective privatisation price of $4.46 ($4.60 less 14¢) will be paid by KEP.

What this means is that buyers above $4.38 are mostly likely to accept KEP’s offer in the hope of cashing out at $4.60.

But existing shareholders, who are not confident that the privatisation will succeed, may want to consider selling to the market in order to have the certainty of locking in their gains.

Conversely, they can hold out for a clearer picture on the possibility of compulsory acquisition before making their decision to accept the cash offer or sell to the market.

Risks to the KEP's deal would include 1) shareholders may find the 7-12% discount to book NAV unattractive, bearing in mind CapitaLand bought out CapitaMalls Asia at a 26% premium to NAV in July 2014, 2) big investors or interested third parties buying up shares now to block the privatisation or 3) emergence of a counter bid.

CDW

CDW: KGI initiated on CDW, a Japanese manufacturer of LCD backlight units to a major Japanese LCD manufacturer, with production facilities based in China. The company has previously focused its backlight units production on gamesets, but is now positioned for a switchover to smartphones.

House cited a strong comeback in FY15, following its transitory disappointment last year.

CDW’s USD dividends should also be a major boon for investors, given the expected USD appreciation against SGD. Dividend pay-out has also been increasing since FY09 from 0.5 UScts to 1.2 UScts in FY12 and FY13. CDW has a minimum pay-out ratio of 40% of net profit and tries to at least match the same pay-out as the previous year.

Although KGI expects a weak set of results for FY14, house believes the company will be able to maintain its 1.2 UScts pay out (8+% yield), given its large net cash position, and strong cash flows.

CDW is currently trading at 7.2x FY15F P/E, still very attractive given 1) Its impending turnaround with a 47% growth in core net profit in FY15F, 2) its strong balance sheet and cash flows 3) its high dividend yield that is likely to be maintained, 4) dividends paid in USD (USD appreciation vs. SGD since 2012) and 5) net cash of approx. S$0.13 per share vs. share price of S$0.196.

KGI believes a re-rating of the stock is on the cards as more discover this hidden gem. TP for CDW is set at $0.25 based on 9x FY15F P/E.

CapitaLand

CapitaLand: CapitaLand 4Q14 results beat estimates, as net profit surged 187% y/y to $409.4m, bringing FY14 earnings to $1.16b (+38%).

Excluding divestment, revaluation and impairments gains/losses, CapitaLand’s core net profit rose 54% to $283.6m, driven by improved operating performance from its shopping mall business and development projects in Vietnam and profit from the sale of Westgate Tower, as well as lower funding costs.

For the quarter, revenue grew 67% to $1.52b, mainly boosted by the consolidation of CapitaMalls Asia (CMA), which sold all the office strata units in Westgate Tower, as well as higher revenue from shopping mall and serviced residence businesses and development projects in Singapore, but partially offset by fewer handover of units from development projects in China.

Collectively, Singapore and China accounted for 82.3% of overall revenue (4Q13: 75.1%).

Singapore's revenue improvement of 72% also gained from higher contribution of Sky Habitat, commencement of recognition for Sky Vue and higher rental revenue from CapitaCommercial Trust, Westgate and Bedok Mall. This was partially offset by the lower contribution from The Interlace and Urban Resort Condominium after obtaining TOP in 2013, as well as absence
of rental income from TechnoPark@Chai Chee which was divested in Nov 2013.

In China, revenue fell 21% as lower units were sold (-12% to 1,673), although sales value rose 50% to Rmb3.3b. Century Park (Chengdu), achieved a healthy sales rate of ~45% since its launch of 232 units in Nov 2014. Meanwhile, Raffles City Hangzhou sold one-third of its strata office area (about 23,800 sqm) since its launch in Dec 2014.

The bottom line was boosted by better operating performance, higher fair value gains from investment properties (+6%) and absence of losses incurred on repurchase of convertible bonds in 4Q13, but dragged by higher provision ($91.8m) in light of the challenging market conditions in Singapore.

Meanwhile, balance sheet got stretched from the privatisation of CMA, which brought net gearing to 57% (FY13: 39%).

Management proposed a first and final DPS of 9¢, higher than the 8¢ in FY13.

Going forward, group expects the private residential environment in Singapore to remain challenging, weighed by the total debt servicing ratio and concerns over interest rate hikes. The office segment is likely to be healthy, supported by limited new supply in 2015 and growing rents. The rate of growth, however, will depend on demand against the new supply which will come on-stream from 2H16.

China's residential sales should be improved, given the recent cut in benchmark loan rates and PBOC's relaxation of home purchase restrictions in second and third tier cities. Three new projects, namely Riverfront (Hangzhou), Summit Era (Ningbo) and Vermont Hills (Beijing) are expected to be launch-ready in 2015. Total units available will collectively yield ~9,000 units, which will be released for sale according to market conditions.

At $3.36, CapitaLand is valued at 0.92x P/B.

CWT

CWT: 4Q14 results were below estimates, with net profit at $14.7m (-35.2%) taking FY14 net profit to $112.4m (+6%).

FY14 revenue was up 67% to $15.2b, largely led by a 72.0% rise in commodity marketing revenue to $13.9b, and higher contributions from the logistics services (+14.0% at $920.6m), engineering services (+23.6% at $161.6m) and financial services segment (+213.0% at $204.2m).

Bottom-line was weighed by a 0.3ppt drop in operating PBT margin to 0.9%, largely due to margin squeeze in the commodity marketing segment, which saw PBT margin for the division at 0.1% versus 0.2% the previous year, as a result of weaker demand, liquidity and less favourable trading conditions.

Additionally, finance expenses rose 37% to $61.2m, as a result of significant growth in commodity marketing volume and logistics project financing, while tax expense more than doubled to $17.8m, due to higher operating profits.

Going forward, CWT is guiding for further growth in its logistics division, highlighting that the Singapore Wine Vault (also known as CWT Cold Hub 2) obtained TOP in Jul ‘14 and is about 100% utilised from Jan 2015 after a fitting out period.

Meanwhile, CWT Pandan Logistics Centre obtained TOP from end Jan ’15, and customers’ operations would be phased in progressively after a 2-month fitting out period, with full utilisation expected from Apr ‘15. CWT’s mega integrated logistics hub is presently at planning and design stage, with construction expected to start around mid-2015.

First and final DPS of 4¢ declared. (FY13: 3.5¢), representing a yield of 2.5%.

Balance sheet remains fairly stable with net gearing at 0.38x (FY13: 0.27x) and current ratio at 1.2x.

At the current price, CWT trades at 8.6x FY14 P/E versus Noble’s 9.4x trailing P/E and Olam’s 8.4x trailing P/E.

SIA

SIA: January operating statistics weak, partly due to shift in CNY holidays from January (in 2014) to February (in 2015). System-wide carriage declined 3.7% y/y despite a 0.5% reduction in capacity. As such, passenger load factor declined for the fourth straight month, by 2.6pp, to 76.5%.

Long-haul routes offered by the main airline suffered the largest decline in load factor. The Americas routes are 8.6ppt down to 75.5% and the Europe routes are down 3.5ppt to 78.1%. Intense competition, particularly from North Asian airlines, seems here to stay.

Regional airline, SilkAir, performed relatively better. Carriage increased 1.6% y/y, but because capacity expanded by 5.6%, passenger load factor declined 2.7%. SilkAir could have performed better had CNY holidays remained in January.

Cargo performance was flat but disappointing compared to peers. On the back of 0.5% capacity reduction, freight traffic dropped even more (-1.2%), leading to an overall shrinking of cargo load factor by 0.5%.

Contrast the flattish results to its closest competitor Cathay Pacific (CX). CX’s passenger carriage grew 6% y/y and cargo traffic surged 14% in January 2015.

Overall, we say SIA’s January results was disappointing, and February results will be searched for signs of operational turnaround, particularly in capacity and yield management.

For now, the largest swing factor is its fuel hedges, which had elevated SIA’s operating costs (and price per ticket) while other airlines scrambled to adjust down their fuel surcharge to offer lower, more competitive pricing.

The street is divided on the counter with 8 buys 10 Holds and 3 Sells and average consensus TP of $12.25

COSCO

COSCO: 4Q14 net loss widened to $13.2m (4Q13 net loss: $0.8m), bringing FY14 net profit to $20.9m (-31.8%)

For the year revenue increased 21% to $4.26b, on growth in marine engineering and shipbuilding segments, offset by dry bulk shipping and other businesses.

Gross margins narrowed 2.3ppt to 6.8%, mainly due to higher inventory write downs ($86.2m). Particularly in 4Q14, there was a $91.4m write down from the discontinuation of the Octabuoy hull and topside module project announced in Jan ’15.

The slump in bottom line was slightly mitigated by a $9m tax credit (FY13: $8.2m tax expense) from tax incentives, recognition of deferred tax assets and adjustments for over-provision in prior years.

Net gearing spiked to 1.5x (3Q14: 1.2x), due to increased loans for working capital, while Cosco had a negative operating cashflow of $1.4m for the year.

Cosco secured US$1.6b of new orders in FY14. While aspiring to replicate the same in FY15, Maybank-KE sees a deteriorating oil market and depressed BDI to cloud prospects, and forecasts new orders of US$1.3b instead. Order book narrowed to US$8.4b (3Q14: US$8.9b)

Maybank KE sees possibilities for contract cancellation or further write downs. At least two contracts at risk were flagged by management:
1) A DP3 drillship terminated on delay grounds. The first instalment of US$110m together with US$8.1m interest has been refunded, notwithstanding current arbitration proceedings.

2) Deferment of a Sevan Drilling drillship, for 12-months, with options exercisable at 6-month intervals, up to 36 months, from 15 Oct ’14. Construction will continue during the deferred period, while Sevan Drilling while is able to market the drillship as part of their fleet.

First and final DPS of 0.5¢ declared (FY13: 1¢)

Cosco is trading at 0.84x P/B

Latest broker ratings:
Maybank-KE maintains Sell with TP cut to $0.43 from $0.50
OCBC maintains Sell with TP cut to $0.43 from $0.50
Credit Suisse maintains Underweight with TP cut to $0.45 from $0.60

Ascendas Group

Ascendas Group: JTC and Temasek will create an integrated urban solutions platform (49:51%), merging 4 of their operating subsidiaries, Ascendas, Singbridge Group, Jurong Int’l and Surbana.

The merged group will have two independent operating arms – one to invest and hold assets (Ascendas and Singbridge), and the other to provide building & engineering specialist services (Surbana and JIH).

Post-merger, a new management team will study and align operations to best fit the strategy of the merged entity, which goal is to enhance scale and deepen expertise to handle many large-scale and complex urban development projects, in and outside Asia.

Also with the merged group concurrently specializing in both residential and industrial elements of urban development, Temasek and JTC expects the merged entity to be more nimble when pitching for projects.
The merged group’s aggregate value is ~$5b based on underlying entities.

The merger, expected to be completed by 1H15 will not trigger any general offer, while minimal impact to current ops with the merger is expected.

Business Times reported that the four firms have had worked on several projects previously, tapping each other’s capabilities.

Nevertheless, CEO of Ascendas-Singbridge Miguel Ko notes that it might be too early to decide if Ascendas will be involved in other existing Singbridge projects.

SG Market (17 Feb 15)

Singapore shares are likely to stay subdued with no leads coming from the US market, which is closed for a national holiday. Sentiment may be spooked by news that negotiations between Greece and its international creditors have broken down after the Greeks rejected a draft proposal put forward by EU finance minsters.

Meanwhile, the Singapore economy grew 2.1% y/y in 4Q14 against a previous estimate of 1.5% as a strengthening US recovery boosted demand from its third biggest export market in Dec. For 2014, GDP expanded a revised 2.9%, while non-oil domestic exports fell 0.7%. There was no change to the official growth forecast of 2-4% this year.

From a chart perspective, the STI is expected to consolidate within the 3,450-3,390 trading band.

Stocks to watch:
*CapitaLand: 4Q14 results above estimates, with core net profit up 54.3% to $283.6%, taking FY14 core net profit to $705.3m (+40.4%). Revenue for the quarter grew 67% to $1.5b, driven by the consolidation of CapitaMalls Asia, sales recognition of office strata units in Westgate Tower, as well as higher revenue from shopping mall and serviced residence businesses and development projects in Singapore, but partially offset by fewer handover of units from development projects in China. Bottom line was further boosted by better operating performance, higher fair value gains from investment properties (+6%) and absence of losses incurred on repurchase of convertible bonds in 4Q13, but dragged by higher provision ($91.8m) in light of the challenging market conditions in Singapore. First and final DPS of 9¢ declared (FY13: 8¢). NAV/share at $3.94.

*Cosco: FY14 results below estimates, with net profit slumping 32% to $20.9m, while revenue increased 21% to $4.3b, on growth in marine engineering and shipbuilding segments, offset by dry bulk shipping and other businesses. Gross margin narrowed 2.3ppt to 6.8% due to higher inventory write downs. A $91.4m one-off charge was also recognized on the discontinuation of the Octabuoy hull and topside module project announced in Jan ’15. The slump in bottom line was slightly mitigated by a $9m tax credit (FY13: $8.2m tax expense). First and final DPS of 0.5¢ declared (FY13: 1¢). NAV/share at $0.61.

*CWT: 4Q14 results below estimates, with net profit at $14.7m (-35.2%) taking FY14 net profit to $112.4m (+6%). FY14 revenue was up 67% to $15.2b, largely led by a 72.0% rise in commodity marketing revenue to $13.9b, and higher contributions from the logistics services (+14.0%), engineering services (+23.6%) and financial services segment (+213.0%). Bottom-line was weighed by a 1ppt drop in gross margin to 2.2%, due to margin squeeze in the commodity marketing segment, as a result of weaker demand, liquidity and less favourable trading conditions. Additionally, finance expenses rose 37% to $61.2m and tax expense more than doubled to $17.8m. First and final DPS of 4¢ declared. (FY13: 3.5¢). NAV/share at $1.28.

*ARA Asset Management: FY14 results in line. 4Q14 net profit fell 18% to $18.2m, bringing FY14 net profit to $87.5m (+18%). Revenue for the quarter fell 1% to $43.2m, supported by higher management fees (+9%), as a result of higher REIT base and performance fees and real estate management services fees, offset by a 57% slump in acquisition, divestment and performance fees to $5.1m. Bottom-line was weighed by a 224% rise in other expense to $6.2m. Final DPS of 2.7¢ declared, taking full year DPS to 5¢ (FY13: 5¢) NAV/share at $0.40.

*Straco Corporation: FY14 results in line. 4Q14 net profit fell 21.4% to $4.4m taking FY14 net profit to $37.7m (+10.5%). Revenue was up 32.8% to $19.4m mainly attributable to higher visitor numbers at Shanghai Ocean Aquarium (SOA) and revenue contributed by Straco Leisure from its newly acquired Singapore Flyer. Bottom-line was however weighed by a 61% rise in operating expenses to $7.5m and 119.2% rise in admin expenses to $5.8m, arising from the acquisition of the Singapore Flyer. First and final DPS of 2¢ declared (unchanged). NAV/share at $0.22.

*Halcyon: FY14 results below estimates. 4Q14 net profit was at US$1.8m (+34.6%), taking FY14 net loss to US$9.4m (FY13 net profit at $9.0m). Revenue for the quarter was up 437.4% to US$287.6m, due to sales contributed from Anson and NCE, partially offset by a decrease in the revenue per ton from US$2,299 to US$1,564. Gross margin fell to 4.8% from 8.0%, while bottom-line was dragged by a 96.4% rise in admin expenses to US$3.2m, and a 287.2% rise in finance costs to US$6.1m as a result of interests incurred on the acquisition term loan and on the MTN issued on 31 Jul ’14. NAV/share at $0.504.

*Rowsley: FY14 net profit was at $49.4m versus a net loss of $226.3m. Revenue was up 288% to $87.2m, primarily driven by full year contribution from RSP Architects Planners & Engineers and its subsidiaries (RSP), following the completion of the acquisition on Sep '13. Bottom-line was aided by other income at $78.3m (FY13: $5.6m), due to fair value adjustments from the re-measurement of consideration payable to RSP vendors and reimbursement of wage costs from RSP's customers. NAV/share at $0.118.

*Soilbuild Construction: 4Q14 net profit came in at $8.8m (-4.0% y/y), taking FY14 net profit to $20.9m (-13%). Revenue declined 39% to $68m due to the completion of four projects, but gross margin increased substantially to 14.8% (from 8.6%) due to more profitable projects under development. Bottom-line was weighed by a doubling of admin expenses to $2.4m. Order book of $837.3m at record high, extending revenue visibility over the next 24 months. DPS of 1.5¢ declared, taking FY14 payout to 2¢ (FY13: 1¢). NAV/share at $0.127.

*Ascendas REIT: JTC and Temasek will create an integrated urban solutions platform, merging 4 of their operating subsidiaries, Ascendas, Singbridge Group, Jurong Int’l and Surbana. Discussions of a merger began in Sept ’14, and the merged group will be jointly owned by JTC and Temasek through a 49:51% partnership. The merged group will have two independent operating arms – one to invest and hold assets (Ascendas and Singbridge), and the other to provide building & engineering specialist services (Surbana and JIH). The merged group’s aggregate value is ~ $5b based on underlying entities.

*Noble: Completely rejects allegations made within the short sell report by Iceberg Research.

*CapitaLand: Acquiring 60% stake in CapitaLand Township from Temasek for $240m, while selling 40% stake in Surbana International Consultants to Temasek. CapitaLand is expected to book a $60m loss through the sale of Surbana.

*GLP: Signed new lease agreements totaling 61,000 sqm with four customers, including three third-party logistics companies and one of the largest e-commerce companies in China.