Tuesday, June 30, 2015

Mapletree Logistics Trust

Mapletree Logistics Trust: There could still be some execution risks over the next 12-18 months due to the transitional conversions of single-user assets (SUAs) to multi-tenanted buildings (MTBs) in SG, leading to a temporary increase in vacancy rates and a decline in NPI margins. Returns and income contributions from its major redevelopment projects such as 5B Toh Guan Road East and 76 Pioneer Road could be adversely affected if industrial leasing market deteriorates in the coming quarters.

Daiwa believes investors should not pile into MLT yet and they maintain their HOLD rating despite MLT 9% unit-price correction and underperformance. The house is also cutting their DPU forecasts and lower TP to $1.17 from $1.20. The DPU forecasts are revised down after incorporating higher assumptions for 1) interest expense, 2) taxation and 3) number of units outstanding in subsequent years.

PACC Offshore Services Holdings

PACC Offshore Services Holdings (POSH): Cost cutting measures by oil and gas companies have led to falling rig utilisation rates and in turn impacted the demand for offshore support vessels. For POSH, the impact is even greater as it faced country-specific challenges in Mexico and Brazil. It’s JVs in Mexico continued to incur losses in 1Q15, and this amounted to US$5.3m. Looking ahead, the Mexico JV losses are likely to be stemmed as POSH has transferred the vessels to its OSV fleet as they pursue international charters.

POSH’s financial position remains strong, with net gearing standing at 0.5x as at end Mar 2015. It has been relatively conservative in terms of its vessel newbuild programme, and PaxOcean yard in China offers some flexibility in terms of adjusting newbuild schedules and specifications.

Given the dim outlook of the industry, OCBC maintains its HOLD rating and reduces its TP to $0.44 from $0.50. Entry point at $0.395 or lower.

Suntec REIT

Suntec REIT: Announced the divestment and redevelopment of Park Mall at $411.8m. In conjunction, Suntec REIT will take a 30% stake in Park Mall Investment Limited, the joint venture company set up to redevelop Park Mall into a commercial development, with the rest of 70% held by SingHaiyi Group and Haiyi Holdings.

The net proceeds post divestment fee, estimated at $408m will be used to fund Suntec REIT’s 30% investment in the JV company, redeployed including for the repayment of debt, or maybe used to mitigate the dip in DPU arising from the divestment. Management estimates divestment would affect DPU by 6% on a proforma basis.

Deutsche estimates FY15E and FY16E DPU would be lowered by about 1.6% and 5% assuming all proceeds is used to repay debt. Gearing for the trust would be lowered to 32.6% from current 35.7%.
The house maintains its SELL rating with TP: $1.65.

Additionally, Credit Suisse also maintains its UNDERPERFORM rating with TP: $1.54.

Singapore REITs

Maybank TV: Singapore REITs - How to position for a US rate hike?

Maybank TV interviews Joshua Tan, investment analyst at Maybank-KE, who shares his insights on the Singapore REITs sector and on how to position for a potential US rate hike.

Key stocks – Starhill Global REIT, Mapletree Industrial Trust, Cache Logistics Trust

SG REITs could correct by another 10%, as valuations still remain lofty.

While Maybank-KE is Underweight the sector, pockets of opportunities exist, where the house is advocating a stock-selection strategy.

Clients’ chief argument for underweighting the sector is an impending rate hike, which could precipitate capital outflows.

Look for REITs with cheap valuation and stock specific strategies which can boost DPU growth. We are generally facing a capacity oversupply in all REIT sub-classes.

Stock picks:
1) Starhill Global – Rental review from Ngee Ann City next year. Also divesting into Australia. Forward yields of 5.9% in FY15 and 6.3% in FY16.

2) Mapletree Industrial Trust – Two large build-to-suit projects coming on over the next two years. Forward yields of 6.8% in FY15 and 7.1% in FY16

3) Cache Logistics Trust – Defensively positioned and prudent debt management. Forward yields of 7.4% in FY15 and 8.0% in FY16.

The video can be accessed via the following link below:


KrisEnergy: CLSA reinitiated coverage on KrisEnergy with a BUY rating and TP of $0.58/share.

The house expects KrisEnergy to increase its O&G production by a 25% 3-year CAGR, propelling it from the current loss-making situation to a PATMI of US$80m by 17CL.

With its current rights issue underwritten by Keppel, we expect a much stronger balance sheet, and see no further need to raise capital in the near term.

DCF valuation is based on a LT oil price of US$85/bbl, and includes a 10% exploration premium for future oil finds.

Key risks are low oil prices persisting and PE fund First Reserve’s need to sell-down in coming years.

SG Market (30 Jun 15)

Expect a lacklustre opening for Singapore shares, with the on-going Greek-debt crisis likely to dominate headlines.

The Greek referendum on 5th Jul will be crucial in determining Greece’s membership in the EU.

Regional bourses are trading mixed this morning in Tokyo (+0.3%), Seoul (-0.2%) and Sydney (-0.2%).

From a chart perspective, the STI recently broke past its 20-dma at 3,326, with downside support seen at the 2015 low of 3,268.

Stocks to watch:
*Del Monte: 4QFY15 narrowed losses by 63.5% y/y to US$14.1m, bringing full year net loss to US$38m, atop street estimates. For the quarter, sales grew 45.1% to US$528.2m, largely contributed by the acquired Del Monte Foods, Inc. Gross margin improved 6.1ppt to 15.5%, while bottom line was dragged by US$14.1m one-offs, largely from the write off of the Venezuelan business, and the implementation of its SAP ERP system. NAV/share at US$0.1715.

*Vibrant: FY15 net profit fell 29.7% to $30m, while revenue climbed 6.2% to $203.2m mainly from freight and logistics business and financial services. Gross margin held relatively steady at 31.5%. Bottom line was dragged by finance costs from increased borrowings as well as a sharp decline in share of associates’ profits, due losses from China Southwest Energy, and the absence of fair value gain on investment property recognized last year. First and final DPS of 0.55¢ maintained. NAV/share at $0.1428.

*XMH: Swung to 4QFY15 net profit of $0.4m (4QFY14: -$1.7m), bringing full year net profit to $5.3m (-14.2%). In the quarter, top line fell 0.7% y/y to $23.4m, from weaker distribution and after sales business segments due to the slower Indonesian market, offset by the projects segment. Gross margin improved 6.8ppt to 32.5%. Bottom line growth mitigated by increased operational and finance expenses. NAV/share at $0.137. First and final DPS of 0.8¢ proposed (FY14: 1.2¢).

*Suntec REIT/ SingHaiyi: Suntec REIT will divest Park Mall for $411.8m to a JVCo comprising SingHaiyi, Haiyi Holdings and wholly-owned Suntec (PM), on a 35:35:30 ownership. In conjunction, the JVCo will redevelop Park Mall into a two office blocks with a retail component.

*IREIT Global: To acquire a commercial property comprising two office buildings in Berlin, Germany, for €144.2m ($217.7m). Pro forma NPI yield of the Berlin property for the period from IPO in Aug '14 to Dec '14 is 7.1% vs IREIT's existing portfolio of 6.7%, while DPU is expected to increase to 9.6% from 8.3%. In relation, IREIT has proposed a renounceable 45-for-100 rights issue at $0.468/unit, to partially finance the acquisition. Majority shareholders Tong Jinquan, Lim Chap Huat and IREIT Global Management who own 76.5% of unit base has undertaken to subscribe for their entitlement. In addition, Lim has undertaken to make excess applications for up to 10% of the rights.

*Ley Choon: Proposed renounceable non-underwritten 1-for-4 rights issue at $0.04 each, to raise proceeds of up to $5.7m to be used mainly for working capital.

*AP Strategic: Proposed renounceable 2-for-1 rights issue of up to 3.4b new shares at $0.005 each. In addition, one warrant with an exercise price of $0.005 will be attached with each rights share subscribed. Net proceeds raised of between $12.2m and up to $16.6m is intended for expansion into the real estate agency business (70%) and general working capital (30%).

*AP Strategic: On its acquisition of Coeur Gold Armenia, AP Strategic has entered into a supplemental non-binding MOU to potentially include another gold mine into the $500m purchase, with no change in the consideration. The vehicle intended for inclusion holds the development and mining license to Ozernovskoye Gold Ore Mine at Kamchatka Krai, Russia, and is still in the midst of a 51%-stake acquisition by the vendor.

*Ho Bee: Selling high-tech industrial building, Forte, located at New Industrial Road for $66m. The 98,254 sf NLA property ($672 psf) is expected to yield a net gain of $6.9m, which will be reflected in 3Q15.

*Geo Energy: To receive overburden removal and coal hauling services from PT Bukit Makmur Mandiri Utama for group's mine at Angsana and Sungai Loban, South Kalimantan. The 8-year agreement comprises ~131m bank cubic metres of overburden removal services and ~43m tonnes of coal hauling services.

*Spackman Entertainment Group: Extended the deadline for the acquisition of a majority stake in Breakfastfilm to 30 Sep '15.

*Serrano: Proposed renounceable partially-underwritten 1-for-1 rights issue at $0.07 apiece, 61% discount to last close. Net proceeds of up to $10.1m is intended for its new property (23%), business expansion (23%) and the remaining for general working capital.

Monday, June 29, 2015

Yamada Green Resources

Yamada Green Resources: Terminated a number of lease agreements to its eucalyptus plantations and shiitake mushroom cultivation bases to scale back output of less lucrative products.

Subsequently, Yamada's total eucalyptus plantations are expected to reduce from 39,735 mu to 38,334 mu (-3.5%) and shiitake mushroom cultivation bases to 1,184 mu (-65%).

Simultaneously, Yamada proposed to acquire a 10-year lease for a moso bamboo plantation situated in Fujian, China, for Rmb48.5m, boosting its moso bamboo plantation area by 15% to 115,992 mu.

As a gauge, Yamada's moso bamboo business provides a relatively higher gross margin of ~35-40% compared to its eucalyptus and shiitake mushroom products.

As the group enlarged its moso bamboo plantation in Sep '14, gross margin has been on a steady climb due to the favourable change in sales mix.

Earlier this month, Yamada proposed an $18m (Rmb83.8m) fund raising via a 1-for-2 fully underwritten renounceable rights issue at $0.07 each, intended for investments and acquisitions (40%) and working capital (60%).

Subject to SGX approval, the funds raised will turn Yamada into a net cash company with Rmb77.4m cash, on an equity base of Rmb849m.

At the current market cap of $59.5m, Yamada is valued at 3.4x trailing P/E and has no coverage by the street.


OSIM: (S$1.65) Business collaboration with Trek 2000 to take time
Maybank-KE believes the business collaboration between OSIM and Trek 2000 may take some time to surface, following the former's $10.9m investment which boosted its stake to 8.8% last week.

With Trek's technology solutions for Internet of Things, OSIM may be interested in connecting its wellness devices such as blood-pressure monitors and weighing scales to the cloud, just as it did its massage chairs.

Eventually, this could lead to a host of home-use “smart” products that are able to measure users’ biometric data. In addition, OSIM can also extract such data for predicting product replacement cycles.

Maybank-KE maintains its Hold rating with TP of $2.08, on the lack of growth catalysts. TWG is currently in investment mode in China and is unlikely to be profitable until it gains traction and scalability.


Vard: Though the share price has corrected sharply over the last 12 months, DBSV believes sentiment may continue to be affected by further losses in the Brazilian yards, as well as lack of order wins.

Vard is a high-end OSV builder and customers may not be willing to invest in specialised vessels for deepwater applications unless oil price moves towards US$100/bbl again, which does not seem likely in the near to medium term.

Vard recently secured a contract for a diving support vessel, which was its first order win in FY15. Management has previously indicated that fierce competition for a limited number of specialised vessels has resulted in a very challenging environment, and Vard could well end up falling short of DBSV's NOK5bn new order win assumption for FY15.

DBSV maintains its FULLY VALUED rating with TP of $0.49, pegged to 0.8x FY15 P/B, which reflects the sub-par return (ROE) expectations of only 4-5% in FY15/16.

The current orderbook of NOK15b does underpin revenue visibility in FY15 but uncertainties linger due to a poor order win outlook, execution issues at the Brazilian yards and the weak Kroner.

SG Market (29 Jun 15)

Singapore stocks are expected to open lower, on concerns of a “Grexit”, after Greece announced capital controls to close their banks on Monday, as they enter into a last-ditch attempt to reach a settlement with its creditors, just before the deadline of its €1.5b loan repayment to the IMF on Tue.

Weekend talks between Greece and its creditors came to an abrupt halt, after EU finance ministers rejected Greece requested for an extension of loan repayments to 5 Jul, to let the country hold a referendum and decide on whether it would accede to the austerity demands of its creditors.

Regional bourses are trading lower this morning in Tokyo (-1.9%), Seoul (-1.3%) and Sydney (-1.9%).

From a chart perspective, the STI is hovering below its 200-dma at 3,360, with downside support seen at the recent low of 3,290.

Stocks to watch:
*Property: The Business Times report that Singaporeans move from housing to non-residential market appears to be tapering out as purchases of industrial and commercial properties continue to plunge this yr. Property consultants highlight that the government’s measures have effectively crippled the purchasing power of Singaporean buyers who obtain onshore loans for properties.

*Otto Marine: Secured US$131m new contracts year-to-date, primarily contributed by its chartering business. In addition, utilization rate for the group’s chartering business has improved for 2Q15 versus previous quarters.

*Lippo Malls Indo Retail Trust (LMIR): To acquire two malls, Lippo Plaza Batu (LPB) and Palembang Icon, for an aggregate $110.8m. Occupancy rate as at 30 Mar for LPB and Palembang stood at 100% and 99%, respectively. The consideration will be paid via cash ($81.8m) and new units ($25m) issued at $0.37 apiece. Pro forma FY14 DPU is expected to increase by 1.1% to $0.0279.

*Xyec Holdings: MOU with RJEN Innovative IT Solutions to form a JV to develop its engineering business in Philippines, which includes the development of software for automobile electronic control units.

*Yamada Green Resources: Terminated a number of lease agreements to its eucalyptus plantations and shiitake mushroom cultivation bases in Zhangping City, China, to scale back output of less lucrative products. Subsequently, Yamada's total eucalyptus plantations are expected to reduce from 39,735 mu to 38,334 mu (-3.5%) and shiitake mushroom cultivation bases to 1,184 mu (-65%). Separately, Yamada proposed to acquire a 10-year lease for a moso bamboo plantation situated in Fujian, China, for Rmb48.5m.

*Mewah: Sold and transferred 7.4% shares of MOI International (Australia) to minority shareholders, Trupps Family Trust and Larry Chew Family Trust for A$0.7m. The consideration was based on 1.29x P/B and the amount shall be received over four years. This reduces Mewah's stake in MOI to 76%.

*SIA Engineering: Renewed a 5-year services agreement with SilkAir for $197m, which covers a broad spectrum of MRO and fleet management services for SilkAir’s fleet of A319/A320 aircraft.

*mm2 Asia: Proposed to issue up to $2.9m of convertible notes, which bear 1.5% interest rate and due 30 Jun 2017, for investment or acquisition purposes.

Friday, June 26, 2015


Memtech: Unrated note post site visit by RHB.

Targets growth in automotive functional parts. Going forward, Memtech’s management shared that it is keen to expand into the automotive functional parts, which typically yield higher gross margins compared to decorative parts that it is currently doing.

Management is confident of expanding revenue in this segment – which currently makes up 20% of its revenue – and expects strong contribution growth especially in FY16.

It is also in talks with existing customers and is undergoing qualification which may potentially take just another 3-4 months to get more projects on this front.

Memtech intends to continue its focus on expanding contribution from the automotive segment and its strong growth in FY14 is just a start. For automotive projects, the peak returns and volume for such projects typically lie in the second and third year, which will likely be FY16-17 for Memtech as it has secured a number of new projects in FY14 and FY15.

House thinks that an exciting future lies ahead for Memtech, coupled with strong growth.

OCBC (technical)

OCBC: Trading around resistance (50 dma) now. If prices are able to break past current resistance, next resistance should be around $10.50-10.55 level. Support around 10.10-10.15 (20 & 200 dma)

DBS (technical)

DBS – Technicals appear to be trending lower, as indicatd by both STI and Stochastics. Share price has just broken past the 50 day MA at $20.78. The next support is tipped at the 20 DMA at $20.60.

UOB (technical)

UOB: Counter is range-bound between $22.30-25.00, with RSI and neutral territory while Stochastics is at overbought region. Near-term direction is not clear with support at $23.28 (200-dma), followed by recent low $22.60, while resistance is at $23.75 (50-dma).

Ascott Residence Trust

Ascott Residence Trust (ART): Announced the proposed acquisition of 7 assets, comprising serviced residences and rental housing properties in Australia and Japan for a total of $298.3m. ART raised $250m via perpetual securities on 23 June and $136.9m debt will be raised.

Management guided for a 2.9% accretion in DPU with a blended EBITDA yield of 5.1%. As trading yield stands at 7%, the leverage effect makes it yield accretive.

Headline gearing is expected to increase only 1 ppt from 38.5% to 39.5% despite a 10.3% increase in aggregate leverage. However, if we classify the S$401m perpetual securities as half debt and half equity owing to the hybrid characteristics between these 2 classes, it would result in a gearing of 44.2%, which is on the high side relative to peers.

UOB Kay Hian has downgraded its rating to HOLD as there is limited upside from current share price, with an unchanged TP: $1.42, based on DDM (required rate of return: 8.3%, terminal growth: 2.0%). The house maintains its target price as the 2.9% accretion in DPU is offset by the raised risk profile from the relatively higher debt levels.


OSIM: RHB maintains its Neutral call on OSIM with TP of $2.00, following the company's announcement to take up an 8.4% strategic stake in Trek 2000 International.

OSIM’s investment cost is $10.9m, representing an estimated 7x FY16F P/E and 6.4x EV/ EBITDA. It ought to add earnings of around $1.2m next year and is not expected to have a material impact on the company’s profitability initially, but could grow going forward.

OSIM has no board seats, but expects to add value to Trek 2000 by providing input into commercial aspects of the latter’s technology.

House believes SGD1.60 remains an excellent entry-price, which is based on 12x FY15F ex-cash P/E, its historical trough valuation.

SG Market (26 Jun 15)

Expect a weak opening from Singapore shares, after Wall Street ended lower overnight, weighed by the fall in oil prices and as Greece and its international creditors failed to reach any settlement.

Regional bourses opened mixed this morning in Tokyo (-0.39%), Seoul (0.05%) and Sydney (-1.81%).

From a chart perspective, the STI is hovering below its 200-dma at 3,360, with downside support at 3,324 (14-dma). A convincing break above the 3,360 resistance would be needed to break the downtrend.

Stocks to watch:
*STATS ChipPAC: Voluntary conditional general offer at $0.46577/share by Jiangsu Changjiang Electronics Technology (JCET). The offer price is final and JCET reserves the right to revise prices in the event of a competing bid. STATS' Taiwan subsidiaries will be spun out to an unlisted HoldCo and shareholders can opt for cash of US$0.04046 or shares in the Taiwan HoldCo. Separately, STATS is proposing to offer perpetual securities to raise US$200m via a non-renounceable rights issue.

*Frasers Hospitality Trust: To raise up to $123m via a private placement comprising 150m new stapled securities (12.5% of share capital) at an issue price of between $0.81 and $0.82 each. The fund raising is to fund part of its A$202.7m acquisition of Sofitel Sydney Wentworth. Largest shareholder TCC Hospitality will take up a proportionate stake to maintain its 39.6% shareholding. An advanced DPU of ~2.1¢ for the period from 1 Apr to 5 Jul will be declared the day before the issue of new units.

*Tee Land: 55% owned Potts Point Hospitality will acquire 11th floor and penthouse units of Larmont building in Sydney's Potts Point for $12m. The units are expected to be reconfigured into new hotel rooms and integrated into Larmont Hotel.

*GLP: Leases 68,000 sqm to three industry-leading companies in Brazil, which includes retail chain Magazine Luiza, food producer Certa and third-party logistics provider Argos.

*Nordic Group: Awarded three contracts worth $3.7m for labour and materials to perform insulation works for Ichthys Field development project in Western Australia and Ivar Aasen project in North Sea. Works have commenced in 2Q15 and will continue up to 1Q16.

*Lorenzo International: MOU deadline to acquire medical facilities equipment provider Straitsworld Advisory has been extended to 6 Jul.

*IREIT Global: Assigned an issuer rating of BB long-term corporate rating with stable outlook by S&P.

*Blumont: Proposed a renounceable 1-for-2 non-underwritten rights issue at 0.675¢ apiece. Net proceeds of $9.6m upon full subscription will be mainly used to pay part of its debts owed to Wintercrest Advisors (70%), with the balance used to strengthen its balance sheet.

Thursday, June 25, 2015


SGX: MAS has reprimanded SGX for its ‘below service recovery standards’ that contributed to 2 prolonged market outages in 2014. To improve its infrastructure and disaster recovery process systems, SGX will invest $20m, with another $1m pledged towards its Investor Education Fund. The $21m is a small price to pay to assuage investor concerns about the safety of SGX’s markets.

Deutsche maintains its BUY rating and unchanged TP: $9.70 as they await clarity from management about the expense timeline, the amortization schedule, and revenue benefits (if any).

Keppel T&T

Keppel T&T (KPTT): KPTT’s share price hit a 22-week low of $1.455 where the recent selldown has been fuelled by the fall in the market value of its 19% stake in M1, following concerns that a potential 4th telco entrant in SG will dilute M1’s market share.

However, the selldown might be overdone as it is trading at a 7% discount to the market value of its combined stakes in M1 and Keppel DC REIT – implying that the market is ascribing no value to its core logistics and data centre businesses.

CIMB maintains its ADD rating but lower their SOP-based TP to $1.86 (prev. $2.05) to reflect the lower market value of KPTT’s stakes in M1 and Keppel DC REIT. At 10.6 FY16 P/E, the house believes the current share price offers value and presents a good entry point.


Ezra: Ezra’s cash call has lifted its refinancing risks. However, its high gearing of 1.27x amidst the current industry downturn and a high cost structure make the situation challenging.
A possible sale and leaseback of the Lewek Constellation would unlock US$200m in equity to bolster internal liquidity. On the flipside, the high vessel dayrate will add to cost burden. Subsea outlook has deteriorated.
UOB Kay Hian maintains its HOLD rating with revised cum-rights TP of $0.31 (prev. $0.54) (ex-all $0.175). Entry price is $0.13 (ex-all). The house also revised their P/B valuation yardstick to 0.3x 2016F P/B from 0.5x 2016F previously given the marked deterioration of the subsea industry in the last quarter. Ezra’s 1-year forward P/B bottomed at 0.26x during the Great Recession in 2008/09 which sae Brent oil pricing falling below US$40/bbl. The OSV-owner segment bottomed at 1-year forward P/B of 0.5x during the crisis.

Hutchison Port Holdings Trust

Hutchison Port Holdings Trust (HPHT): May YTD throughput across HPHT’s aggregated terminals is down >1% with HIT off <1%, but mix is expected to have deteriorated as per 1Q15.

The company will still need to borrow to fund (HK$0.07/unit) its guided distribution (HK$0.33/unit), which investors should provide it no credit for.

Kwai Tsing (where HPHT’s primary Hutchison International Terminal is located) volumes have fallen 30% YTD, mostly attributable to competitor Modern Terminals Limited. It has lost this throughput because major customers Orient Overseas International Lines and Maersk Line have relocated activity to West Shenzhen ports in reaction to congestion and/or renegotiation tactics.

Credit Suisse has maintained its UNDERPERFORM rating and reduced its TP from $0.65 to $0.59.

Eu Yan Sang

Eu Yan Sang: Daiwa today issued an unrated note on Eu Yan Sang (EYS).

EYS has 4 main business segments: 1) retail (79% of FY14 revenue), 2) wholesale (16%), 3) clinic (5%) and 4) others (1%). As of 3QFY15, company had a chain of 288 retail outlets (30 are franchise outlets located in Australia under the Healthy Life brand). In addition, it operates a network of 34 TCM clinics, as well as 2 integrative medical centres.

3QFY15 revenue growth was negatively impacted by the 21% YoY decline (in HKD terms) in contribution from Hong Kong, attributed to the continued slowdown in spending and tourist arrivals from mainland China. The company has shifted focus towards the domestic consumer market and expanding its distribution outreach through greater wholesale platforms and e-commerce. Management is also looking at consolidating its operations and relocating underperforming stores to better locations.

Meanwhile, 3QFY15 revenue from Australia rose 28% YoY due to an increase in the number of company-operated outlets and higher same-store sales growth.
Looking ahead, management is keen to expand its presence in ASEAN. It currently has a joint venture in Vietnam which is in the process of securing the necessary regulatory approvals to distribute TCM products.

EYS is trading at a 2015E PER of 24.4x, with a 2015E dividend yield of 3.6%.


Innovalues: (S$0.72) Better value now
After heavy selling pressure yesterday, Maybank-KE reckons Innovalues now presents a buying opportunity for investors as business prospects remain excellent.

House expects Innovalues' 2Q15 results, to be released in early Aug, to come in line with earnings expectations of $5.6m (+32% y/y).

There is also scope for upside if traction is better than expected on approvals on new auto parts which will go into mass-production in 2H15, and margin improvement from continuing productivity measures.

Lastly, with $30m in cash and a lightly-geared balance sheet, there could also be scope for Innovalues to make EPS-accretive acquisitions.

The house maintains its Buy rating with TP of $1.00.

SG Market (25 Jun 15)

Shares in Singapore are likely to retreat at the open, taking cue from the negative close overnight at Wall Street, as Greece and its creditors made little progress in its debt negotiation.

Regional bourses are trading lower this morning in Tokyo (-0.32%), Seoul (-0.24%) and Sydney (-0.54%).

From a chart perspective, the STI faces a near-term resistance at its 200-dma at 3,360, with downside risk at 3,320. Technical indicators are in neutral territory.

Stocks to watch:
*SGX: Reprimanded by MAS for lapses in two trading outages in Nov and Dec '14. In relation, SGX will invest $20m to improve its network and recovery systems, bringing capex on tech to $70-75m in FY16 and FY17, compared to $40-45m in previous years. Also, SGX will not raise equities and derivatives market fees until MAS is satisfied with its remedial actions.

*Noble: Roped in Patrick Yu Xubo, president of China's state-owned food-processing company Cofco Corporation, as its non-executive director. Yu reportedly played a key role in the formation of Noble Agri, the JV between Cofco and Noble. Also announced further share buyback on 23 Jun, with 14m shares purchased at $0.69445 apiece for $9.8m. Noble's six market purchases to-date has totalled 119.7m shares (1.78% share capital) at average $0.694/share ($83.1m).

*Ascott REIT/ CapitaLand: Ascott REIT proposed to acquire three serviced residence properties in Australia and Japan, as well as a portfolio of four rental housing properties in Japan, from its sponsor CapitaLand. The total consideration of $246m is based on pro forma FY14 EBITDA yield of 5.1% and is expected to result in a 2.9% increase in DPU to 8.44¢. Post-completion, Ascott REIT's portfolio will enlarge from $4.12b to $4.43b, with number of apartment units boosted to 11,368 (+8.3%) in 95 properties across 13 countries.

*Vard Holdings: 51%-owned Seaonics AS acquired ICD Software, a automation and control system software provider for the O&M sector, for NOK91.3m (7.4x P/B). The acquisition is intended to expand Vard's business in deck handling equipment and automation technology and drive systems for development of new products.

*Trek 2000/ OSIM: Proposed placement of new shares with OSIM International (24m) and placement agent, RHB Securities (2m), at $0.4365 each. In addition, OSIM purchased 1m treasury shares at the same price. Post-placement, OSIM’s stake will increase from 1.14% to 8.75%. Net proceed of $11.6m is intended for R&D (50%) and general working capital (50%).

*mDR: In a reply to a trading query issued by SGX after a large number of shares changed hands yesterday, mDR has disclosed that the group is currently in discussions over a potential material acquisition.

*Ryobi Kiso: Secured twelve contracts worth $55.9m year-to-date, expected to be delivered in FYJun16.

*IPCO: Expects to report a loss before tax for AprFY15, due to unrealised fair value loss on financial assets, allowance for impairment of Available-for-sale financial assets; and allowance for impairment of property, plant and equipment.

*Straits Trading/ Singhaiyi: Straits Trading and Singhaiyi subscribed for 25% and 40% interests in ARA Harmony FUND III at 1x P/B, for a consideration of RM120m ($45m) and RM192.3m ($72.8m), respectively. The fund holds five commercial properties located in Malaysia's Kuala Lumpur, Selangor, Ipoh and Malacca.

*Hi-P: Credit facilities with DBS increased to US$130m (previously US$80m), which the group intends to apply for working capital purposes.

Wednesday, June 24, 2015

China Merchants Holdings Pacific

China Merchants Holdings Pacific: (S$1.09) Acquiring three expressways in Guangxi for Rmb3b
China Merchants Holdings Pacific (CMH) proposed to acquire three expressways in Guangxi Zhuang Autonomous Region, China, for Rmb3.04b.

The three target assets comprise:
1) 53.4km Guilin–Xing’an Expressway with remaining provisional concession of 27 years
2) 67km Guilin–Yangshuo Expressway with remaining provision concession of 22 years
3) 39.5km Yangshuo–Pingle Expressway with remaining concession of 22 years

Upon completion, the acquisitions will significantly expand the scale of its toll road operations, raise the number of toll roads operated to eight across four provinces, an boost the total length of its highway by 39% to 575km.

Average remaining concession period across its portfolio will increase by 24% from 13.6 years to 16.9 years.

Details on financing for the acquisition have not been finalized, and will involve the use of bank borrowings and/or the issue of new securities.

The group has offered a scenario analysis for pro forma FY14 figures based on two methods of funding, assuming full conversion of convertible bonds:

Plan A: 1-for-5 rights issue at $1.01 and HK$3.74b financing at 3% interest
- NAV/share will increase 3.4% to HK$5.85
- EPS improves 3.5% to HK$0.833
- Gearing to soar from 35.8% to 107.2%

Plan B: 1-for-2 rights issue at $1.01 and HK$1.65b financing at 3% interest
- NAV/share will increase 3.5% to HK$5.86
- EPS to fall 11.6% to HK$0.833
- Gearing to rise from 35.8% to 75%

The stock continues to sit on Market Insight's Yield portfolio. Compared to other HK-listed tollroad operators, CMH offers a superior dividend yield with a payout of no less than 50%.

Ascendas REIT

Ascendas REIT (AREIT): After the 9% correction in AREIT’s price since mid-April 2015 (following the 4Q FY15 results announcement), AREIT units seems more fairly valued now.

After stripping away the impact from acquisitions and development properties for FY15, the underlying performance of the portfolio was subdued across all segments, judging solely from the YoY gross income growth by property. One major factor impeding growth was the conversion of master-lease properties into multi-tenanted buildings. This negative trend could be seen clearly in the logistics & distribution centres segment, which suffered a 6% YoY decline in NPI, arising from higher expenses and several properties with low occupancy rates (19-70%) that were 100% occupied the previous year.

Management’s strategy is increasing exposure and focus on higher-value segments such as business & science park properties and high-specification industrial properties segments, which is where most of recent AEIs were in.

Daiwa has upgraded their rating from UNDERPERFORM to HOLD with revised TP: $2.40 (prev. $2.28). Upside risk for AREIT would be the announcement of a highly DPU-accretive acquisition from its sponsor, while a downside risk could be persistently high vacancy rates in its portfolio.


DBS: DBS is expected to be able to weather any turbulence brought about by the normalisation of US interest rates as developed markets, such as SG and HK, account for 82% of its total income and 65% of total loans.

However, loan growth has decelerated where DBS has only clocked loan growth of 1.9% qoq in 1Q15 and is expected to be lacklustre in the subsequent quarters. DBS would benefit from the drawdown of pre-committed corporate loans, which could be lumpy.

On the other hand, management expected NIM to expand in 2Q15 from the re-pricing of corporate and housing loans, with some residual positive impact occurring in 3Q15 as well.
DBS is also the prime beneficiary of higher interest rates in SG, where a 1% increase in I/R would improve DBS’s NIM by 10bp to 1.78% and improve ROE by 0.6ppt to 11.3%.

UOB Kay Hian maintains its BUY rating with TP: $25.08, based on P/B of 1.56x. Growth drivers include regional businesses such as global transaction service, wealth management and SMEs.


SingTel: SingTel’s share price is expected to take a breather after a good run over the past 18 months. FY16 earnings growth is likely to be flattish given weaker regional currencies and dilution from the recent Trustwave acquisition, which will offset Optus’s stronger performance. The acquisition of Trustwave will enhance SingTel’s capabilities in the enterprise segment in the longer term as there is growing demand for cybersecurity services.

SingTel has also raised its accrued capex to $3.0bn in FY16 to enhance Optus’s mobile network, build a new SG data centre and upgrade its billing/customer care system. These should help SingTel remain competitive and drive future growth. However, higher funding costs and depreciation will weigh on earnings in the short term.

CIMB today has downgraded SingTel from ADD to HOLD with TP: $4.40, supported by decent 4.1-4.6% yields over FY16-18.

Sembcorp Industries

Sembcorp Industries: Share price has corrected 18% from peak and main reasons were due to 1) more downbeat guidance by management regarding the local power business and 2) later-than-expected earnings contribution of the Indian plant. Poor sentiment on SembMarine’s stock probably also weighed on its parent’s stock as well.

Local power business only accounts for a fifth of Singapore utilities net profit in FY14, with the rest coming from natural gas, water and solid waste treatment and management segments. In total, SG utilities accounted for 50% of total utilities in FY14, with the rest coming from overseas assets.

Currently, stock is trading at 9.4x forward P/E and 1.2x P/B, a historical low. Though SCI is facing headwinds, OCBC remains optimistic about longer term prospects, given the pipeline of projects in developing countries where utilities demand is expected to grow.

The house upgrades their rating to BUY with a revised TP: $4.40 (prev. $4.72) as they see a 16% upside potential that includes 4.1% forecasted dividend yield. P/E for utilities business is lowered from 11x to 10x due to dimmer outlook of domestic power segment which remains competitive.


Venture: Increasingly, customers’ attitude is to “just deal with” economic uncertainties compared to earlier caution with regards to growth uncertainties in Europe and China. Management said it is “business as usual”and added it has not seen any major negative reactions by customers.

The following remain high-growth areas for Venture:
Industrial Products - Seeing a good run-rate and demand coming from high-end communications devices that have pioneer tax exemption.

Life Sciences – Revenue is becoming quite substantial and margins are also high as production content is R&D intensive.

Networking & Communications – Set to continue to perform, given growing demand for carrier and non-carrier server and storage connectivity.

Maybank KE maintains its BUY rating with TP: $10.25, based on 18x FY15 EPS, 10% discount to peer average. Venture currently offers close to 7% dividend yield at this price.

SG Property

SG Property: In an interview on a radio talk show, National Development Minister Khaw Boon Wan hinted at a possible raising of the income cap on both ECs and HDBs.

The current household income ceiling of $12,000 for ECs was last raised from $10,000 in 2011, while BTO flats income ceiling was raised from $8,000 to $10,000 during the same period. Any changes are however likely to be announced only in August.

Meanwhile, some analysts highlighted that it would be reasonable to perhaps raise the income ceiling for ECs from $12,000 to $15,000 and for BTOs to $12,000 from $10,000.

Khaw added that the Design, Build, and Sell Scheme (DBSS), which has been suspended since 2011, will not be revived for now, as the current quality of HDBs are of similar standards to that of DBSS.

Overall, Maybank-KE views that a likely increase in income ceiling for ECs will ease the oversupply in the EC market and is positive for developers with large EC exposure. On the other hand, it is likely to reduce the pool of buyers for mass market private condominiums and is negative for developers with exposure to this market segment.

Among the major Singapore-listed developers, HK Land's subsidiary MCL Land has the largest exposure to the EC market with 1,327 units at Sol Acres in Choa Chu Kang. Sim Lian (Not Rated) is second with 1,060 units on its land banks in Sengkang and Choa Chu Kang. City Developments (Buy: TP $11.40) is third with effective stakes in 790 units for its two JV projects in Yishun.

Singapore-listed developers with large exposure to mass market private condominiums include UOL (Riverbank@Fernvale and Botanique at Bartley), Chip Eng Seng (High Park Residences), Roxy Pacific (Trilive) and Wheelock (The Panorama). Maybank-KE do not have ratings on these stocks.

Hongkong Land

Hongkong Land: CLSA believes market talk that HKLand will be the next to undergo a rights issue is unfounded. House estimates HKLand’s gearing will be kept below 12% after taking into account the recently acquired Pudong project.

Additionally, strong leasing activity in the mid-range of the market in the past two months has resulted in a sharp improvement in Central vacancies to 2.3%, the lowest since the GFC. Channel checks also suggest rents in Central will be raised by HK$5-10psf.

CLSA reiterates Outperform with TP of US$8.70.

SG Market (24 Jun 15)

Regional bourses are trading higher this morning in Tokyo (+0.2%) and Seoul (+0.2%) but flat in Sydney.

From a chart perspective, the STI is still capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*Economy: S’pore May core inflation came in at +0.1% y/y (Apr ’15: +0.4%), a new 5 year low, with economists questioning if persistent weakness reflects not only policy measures, but a deterioration in real demand as well. May overall inflation was at -0.4% (Apr ’15: -0.5%), and in-line with estimates. MAS flags that core inflation could stay subdued at current rate in next few months, which means it could potentially fall out of the government's 0.5% to 1.5% forecast range.

*Palm Oil: Australia’s Bureau of Meteorology highlighted that the El Nino developing across the Pacific is strengthening further, and showing patterns similar to the record strong El Nino which eventuated during the 1997-1998 period. The bureau however noted that it is not possible to determine accurately the intensity of the event for now, and more confident estimates on the El Nino’s strength will only be available after mid-year.

*Property: In an interview on a radio talk show, National Development Minister Khaw Boon Wan hinted at a possible raising of the income cap on both ECs and HDBs. The current household income ceiling of $12,000 for ECs was last raised from $10,000 in 2011, while BTO flats income ceiling was raised from $8,000 to $10,000 during the same period. Some analysts highlighted that it would be reasonable to perhaps raise the income ceiling for ECs from $12,000 to $15,000 and for BTOs to $12,000 from $10,000. Any changes are likely to be announced in August.

*China Merchants Holdings (Pacific): Proposed to acquire three expressways in Guangxi Zhuang Autonomous Region, China, for Rmb3.04b (HK$3.83b). Details on financing the acquisition has not been finalized, with the group citing the use of bank borrowings and/or the issuance of new securities. Upon completion, the additions will significantly expand the scale of its toll road operations and raise the number of toll roads operated to eight located across four provinces, with total length of the highway boosted by 39% to 575km. Average remaining concession period will increase by 24% from 13.6 years to 16.9 years.

*Raffles Medical: Launched new $4.0m 17k sf multi-disciplinary medical centre in Orchard Rd to serve local patients and medical tourists in the area. The centre offers traditional Chinese medicine services such as acupuncture and cupping, as well as a full spectrum of speciality services including cardiology and obstetrics. Highlights that the group’s patient load has risen by ~10% yearly over the past 2-3 yrs. Currently more than a third of patients at its flagship Bugis hospital are foreigners.

*SATS: 59.4%-owned TFK Corporation secured a multi-year inflight catering contract from Delta Air Lines, valued at ¥30b ($325m). TFK is expected to commence catering services to Delta at both Narita and Haneda International Airports in Tokyo by Oct '15, following the shut down of Delta's own inflight kitchen in Narita.

*Rex International: Drilling at 6507/11-11 on the Zumba prospect in the Norwegian Sea resulted in a dry well. Cost of the well to Rex stood at US$2.5m. Meanwhile, the Haribo prospect at PL616 in the North Sea was spudded, and drilling is expected to take 45 days to a depth of 3,350 metres. Total exploration potential in this licence is estimated at 159m barrels, at a geological probability of 25%.

*Singtel: Issued US$500m 10-year notes at 3.25%, drawn down under its $10b euro medium term note programme.

Tuesday, June 23, 2015


SMM: Transocean has deferred the delivery of two ultra-deepwater drillships to be constructed by Sembcorp Marine’s Jurong Shipyard by 24 months.

The contracts are worth US$540m per unit and were originally scheduled to be delivered in 2Q17 and 1Q18. The revised delivery dates are 2Q19 and 1Q20.

While Maybank-KE has previously expected delays, the 24-month deferment is longer than expected. This comes after Transocean delayed five jackup rigs contracted to Keppel FELS by 18 months.

Other rig contractors like Atwood and Ensco have also delayed their drillship orders with the Korean yards. These reflects the severe rig supply glut over the next two years, and underscores Maybank-KE’s negative view on rigbuilders.

Maybank-KE is cutting its FY15-17e earnings estimates by 3%/7%/1% to factor the delay, and maintains its Sell rating on SMM with an unchanged TP of $2.45. The house does not rule out further earnings revisions on further surprise delivery deferments.


SPH: SPH’s advertising revenue contracting appears to be tapering off as their advertising spending contracted 2% yoy in 3QFY15 vs a reported advertising revenue contraction 9% yoy in 2QFY15.SPH attributed 2QFY15’s weak advertising revenue to advertisers’ reluctance to step up spending in view of: a) weak domestic spending given the locals’high propensity to travel and spend overseas and e-commerce, b) lower PRC arrivals and thus consumer spending on luxury goods, and c) lower Indonesian and Malaysian arrivals.

While there isn’t any near-term share price catalysts, the annual dividend yield of 4.4% remains decent for FY15-17 amid a low interest-rate environment.

UOB Kay Hian maintains its HOLD rating with TP: $4.20 based on SOTP valuation. The house’s recommended entry price is $4.00 and below.


Yangzijiang: Last week, Yangzijiang invested Rmb130m ($28m) for a 23.6% stake in a JV, Shanghai Laurel Ocean Systems Limited (“LOSL”), a company that supplies marine intelligence and ocean information technology to Yangzijiang.

FOllowing the investment, DBSV reckons that the deal could strengthen the bond between these two groups and provide an alternative source of income for Yangzijiang.

The house also hypothesized that the relatively small investment could in the longer run, pave Yangzijiang’s way into the military vessel space, tapping on its new network.

The house keeps its Buy rating with TP of $1.62.


Ezion: DBSV reiterates its conviction Buy on Ezion and believes stock price could soon recover to the $1.20 level, prior to the emergence of the dispute with rig-operator partner Atlantic Marine Services.

Fundamentally, Ezion is well-positioned to benefit from the rising liftboat demand in the North Sea, buoyed by the substitution effect to replace typical work boats/barges.

The group also has a prudent business model, with fleet expansion backed by long-term charters of 3-5 years. Demand is also relatively more resilient as service rigs are exposed to the production phase in the shallow water segment.

House TP at $1.50, representing a 37% upside from the last price.

Frasers Centrepoint

Frasers Centrepoint (FCL): CLSA views FCL’s latest acquisition of the Malmaison and Hotel Du Vin (MHDV) as strategically positive given the benefits of a higher recurring income base.

Incorporating the latest acquisitions, house lift earnings by ~2% and RNAV by ~1%. However, net gearing potentially rises beyond 100% net D/E and the house also lowered its dividend payout ratio from 50% to 40% to $0.086/share.

CLSA continues to rate FCL a BUY given its resilient recurring income base, opportunities to further unlock value and potential corporate restructuring which will drive a rerating of valuations.

*** Guocoland ***

Guocoland: CIMB initiates on Guocoland and believes the stock is due for re-rating. The house has a TP of $2.88, based on a 25% discount to its base case RNAV of $3.84.

Securing ownership of the Beijing Dongzhimen (DZM) project would re-focus investors’ attention to the potential value unlocking upside rather than on the drag from possible provision for cost write-offs that had hampered past share price performance.

The group is on track to achieve a more sustainable ROE by expanding recurrent income base from FY17. Room to move up the value chain to fund management exists in mid-term.

Guocoland is trading at a 38% discount to CIMB's base case RNAV of $3.84. There is upside room to Guocoland’s RNAV if Guocoland Malaysia’s share price discount to book NAV narrows or if surplus from DZM is greater than its base case assumptions.

Comfort Delgro

Comfort Delgro: Maybank-KE is downgrading the transport operator to contrarian sell from Hold, and cutting its TP to $2.70 from $2.90. Trading at a lofty 23x P/E and 2.8% yield, the house believes that Comfort Delgro (CDG) has priced in upside from the impending transition at its Singapore bus

The group is also trading at a hefty 60% premium to the market (vs 3% premium since end-2008). CDG’s stub value (stripping out SBST and VICOM) has also surged despite no material positives for
the rest of its business.

Maybank-KE believes that the market is complacent on three fronts:
1) Threats to the taxi business (31% of sales, 34% of EBIT) – The growing presence of Uber pose a structural threat to its taxi business. Regulators in Singapore appear to be adopting a light touch and the house expects taxi rentals to be under pressure.

2) Sale of bus assets to the government is logical, but it is not a given - Market expects a potential windfall from the sale of its bus assets but this is not a done deal. While it is logical for the government to buy its bus assets, it has never announced a decision on this. A leaseback is still possible. The government will be cautious not to be seen as giving private entities a large hand-out, especially with the S’pore General Elections looming.

3) Impact of weakening AUD (10% of sales, 16% of EBIT) - The AUD has already depreciated by 7% on average from last year (SGD/AUD: YTD15 - 1.06 vs 2014 average- 1.14) and Maybank’s FX Research team expects this weakness to be sustained with 1Q16 forecast of 1.03.

SG Market (23 Jun 15)

Singapore shares are poised to open higher this morning, taking cue from the rally on Wall Street, sparked by renewed hopes for a Greek deal this week.

Regional bourses are trading higher this morning in Tokyo (+1.3%), Seoul (+0.6%) and Sydney (+1.2%).

From a chart perspective, the STI is still capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*Property: BNP Paribas believes that immigration policies and incoming private housing supply (~24k units added in 2015) will make averting further property price declines more difficult than widely thought. The bank estimates that private property prices could fall a further 10% over next 2 years, which in turn could have a negative wealth effect and constrain private consumption growth. Private property prices have fallen 5.5% from their mid-2013 peak. BNP cautioned that some households may soon find it hard to meet TDSR requirements as debt service ratios may rise in tandem with the Fed's monetary tightening.

*CapitaLand: Divesting its 30% stake in DBS China Square, at 8 Cross Street, Singapore, for $150m to DBS Bank. The divestment is not expected to have any material impact on the net tangible assets or earnings per share of CapitaLand for FY15.

*Ezra: Priced its proposed 190-for-100 renounceable underwritten rights issue at $0.105 apiece. Counter will go XR on 26 Jun and books will close on 30 Jun.

*Adventus: 65% owned subsidiary Crimson Star is acquiring VRG Riverview Apartments for $58.7m. The property is a freehold semi-completed residential apartment, comprising two blocks and 302 apartment units, with GFA of 47,665 sqm in Ho Chi Minh City, Vietnam. The acquisition will be funded through a mix of internal resources, sales proceeds from the sale of apartment units, and debt.

*Roxy-Pacific: To set up JV with four individuals to acquire a land parcel in Jakarta, Indonesia, for IDR68.12b, with the intention to develop a hotel. JV proportion in relation to each purchaser shall be 49% (Roxy-Pacific), 21% (Tjandrawati), 12% (Heru Sutantio), 12% (Hendro Sutantio) and 6% (Jenny Sutantio).

*Ntegrator: Secured four network related contracts worth $8.2m from repeat customers in Myanmar and Singapore. The three Myanmar contracts are slated for delivery this year, while the Singapore contract is for a period of two years with option to extend for a third year. The latest contracts bring the cumulative value of year-to-date order wins to $59.0m.

*Grand banks: Expects to report a net loss for FY Jun ’15, weighed by various one offs, discounts given, and timing of revenue recognition.

Monday, June 22, 2015


UOB: UOB Kay Hian today released an unrated report on UOB.

Management lowered guidance for loan growth, heading towards mid single-digit. Management intends to focus on improving pricing for loans. The bank will pace and control loan growth to ensure NIM remains firm.

Management expects growth to be derived primarily by corporate loans in SG and MY, with opportunities to lend for infrastructure projects in SG, such as Thomson MRT lines. There is also on-going demand to finance property developers as they replenish their landbank through government land sale. GDP growth in MY remains resilient despite the slew of negative publicity surrounding 1MDB. There would be a continued drawdown of corporate loans for pre-committed projects. Management is confident of a recovery in Thailand. There is growth up-country, especially at provinces neighbouring Myanmar and Laos.

UOB currently has excess liquidity with US$ LDR at 58.4% and it plans to replace high-cost US$ fixed deposits with low-cost US$ current accounts from non-bank financial institutions, such as central banks and insurance companies.

UOB is a beneficiary of the higher interest rates in SG as it has the highest proportion of loans denominated in S$ at 53.2%. it has also increased its board rate for housing loans by 30bp in April (housing loans pegged to board rate 50%, SIBOR plus packages 40% and fixed rate housing loans 10%). 60-70% of its loans were already repriced in 1Q15.
Management expects a slight improvement in NIM for 2Q15 and estimated that NIM would improve by 3-4bp for every 25bp increase in 3-month SIBOR.


DBS: DBS was still able to deliver resilient 1Q15 earnings on strength in non-interest income and benign asset quality. As 2Q15 draws to a close, aside from the expected NIM improvement, its HK operation should benefit from buoyant market activity, a geographical edge unmatched by peers.
In DBS HK, the strength in market liquidity will potentially help non-interest income as well as keeping asset quality trends intact, as property prices remain elevated while liquidity inflow should keep funding costs low.

Deutsche continues to favour DBS, remains their top pick among SG banks, given its better risk-rewards and upside catalysts vs its peers. Aside from more favourable trends, other upside catalysts include its CASA deposit franchise, benefiting from an eventual pick-up in USD rates and more steady FX geographical exposure than peers. The house reiterates its BUY rating with TP: $23.20.

Q&M Dental

Q&M Dental: (S$0.725) No let up on acquisition spree
Q&M continues its acquisition spree, with a proposed 60% stake purchase in three dental clinics in Penang, Malaysia, for RM12.3m.

The consideration for Yong Dental, Smilebay Dental and Smilebay (BW) will be satisfied via cash (63%) and shares (37%), which will come under a 5-year moratorium lock-up.

Doctors of the three clinics have signed a 12-year full time service agreement and provided a 12-year profit guarantee of at least RM0.9m-RM1.5m per year.

Q&M currently trades at 27.9x consensus FY16 P/E. The street has three straight Buys on the counter, with an average 12-month TP of $0.98.

We do not rule out further coverage and visibility through Q&M's continued growth from acquisitions, and sparking a share price re-rating.

The group is currently in the midst of a potential spin-off of its China and Malaysian subsidiaries, which should provide access to an additional source of funding to capitalise on growth opportunities and increase the scale of its operations.

SG Market (22 Jun 15)

Regional bourses are trading higher this morning in Tokyo (+0.7%) and Seoul (+0.9%), but Sydney (-0.1%) opened slightly softer.

From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*Property: A report by UOB Global Economics and Markets Research highlighted that Singapore’s housing glut will worsen in the near future as more public and private units come on stream, and could only start easing from 2017. With population growth forecast at only 1.5% pa over the same time period, oversupply pressures will persist. UOB believes anything short of a 10% fall in property price may not be enough to prompt the government to loosen cooling conditions.

*Noble: Completes disposal of its 100% owned Mongolian coal unit Enkhtunkh Orchlon LLC (EO) to Australia' Guildford Coal for up to US$65m. EO development prospects comprise ~50.0ha of land in Mongolia's South Gobi basin. Based on the Noble’s FY14 financial statements, EO book value and NTA stood at US$57.8m and US$57.5m respectively.

*SingPost: Sold stakes in more traditional forms of postal service business as it shits its focus towards the e-commerce segment. Accordingly, SingPost sold a 90% stake in DataPost to Jing King Tech Solutions for $39.3m, which follows the sale of Novation Solutions and DataPost HK for $24.4m last month. SingPost expects to record an estimated gain of more than $30m from the three divestments, which will be recognised in its 1QMar16 and 2QMar16 financials.

*CapitaLand: To acquire a shopping mall, Vivit Minami Funabashi, in Tokyo's Chiba Prefecture, Japan, for ¥3.05b ($33.2m), 71% discount to market value.

*M1: Launched a mobile Point-of-Sale solution (mPOS) in collaboration with CIMB, MasterCard and Wirecard, which transforms smartphones and tablets into terminals so merchants can accept credit, debit and prepaid card payments. mPOS terminal adoption worldwide is expected to go up from 4.5m to 38m between 2011-17, driven largely by growth in retail sector, increased online trade and higher usage of smartphone and cards.

*Q&M Dental: Proposed to acquire 60%-stake in three dental clinics in Penang, Malaysia, for RM12.29m. The consideration will be paid via cash (63%) and shares (37%), which will come with a 5-year moratorium lock-up. In addition, the doctors of the three clinics have signed a 12-year full time service agreement and provided a profit guarantee of at least RM0.9m-RM1.5m per year for a 12-year period.

*Healthway Medical Corporation (HMC)/ International Healthway Corporation (IHC): IHC proposed to acquire HMC, via a scheme of arrangement, at $0.10/share, to be satisfied by the issue of new IHC shares at $0.45/share. HMC shareholders will be entitled to receive 2 new IHC shares for every 9 shares held. Upon receipt of approval from the Court, HMC will be delisted. The acquisition is intended to expand its business to provide primary healthcare services in Singapore, in addition to its current specialist healthcare services.

*Foreland Fabrictech: Executive chairman, Tsoi Kin Chit sold 160.6m shares via married deal at an average price of 0.62¢/share (total $1.0m) to Huang Wen. The stake sale represents 29.5% of issued share capital, and will see Tsoi reduce his stake to 11.03%.

*Serial System: To purchase 12m shares of Global Invacom for $3.5m (US$2.6m), which represents 4.7% of issued share capital.

Friday, June 19, 2015

Rubber Gloves

Rubber Gloves: As part of its expansion plans, Riverstone has awarded RM15.8m contract to a company for the construction of a new glove factory building (Phase 3) at Taiping, Perak, Malaysia. Construction is expected to be completed by 2Q16 and can potentially increase production capacity by ~1b gloves.

Just yesterday, Maybank-KE reiterated its Buy call on the rubber glove maker and raised its TP to $2.05 from $1.78, after rolling its valuation to 18x FY16 P/E. The house expects Riverstone to be a beneficiary of the stronger USD, which has strengthened against MYR (+12.7% y/y, +0.7% q/q) in 2Q15.

According to Transparency Market Research, the global disposable gloves market is forecast to grow at 6.2% CAGR from 2013-2019 to reach US$7.9b. As such, Malaysia’s rubber glove industry could enjoy positive upside from the global healthcare market, given that it accounts for more than 50% of global demand.

With the bulk of global sales for rubber gloves denominated in USD, export-oriented glove manufacturers are expected to benefit from the depreciating ringgit against the greenback.

Year-to-date, Riverstone’s share price has jumped 65% and currently trades at 20x trailing P/E and 4.2x P/B. Investors who have missed the Riverstone run may consider its smaller peer UG Healthcare, which was listed in Dec ’14, and currently trades at 12.2x trailing P/E and 1.7x P/B.

Market Insight had earlier this week added UG Healthcare to its Growth portfolio, with an entry price of $0.265.


GuocoLeisure (GLL): CIMB hosted GLL during NDR yesterday (18 June) and Group CEO, Mike DeNoma, provided an update on group’s recent developments.

GLH (the hotel arm of GLL) is attacking the conventional hotel investment and management business with its new VCGM model which emphasises on decentralization. This model allows better employment of data science for yield control and guest experience enhancement.

Currently GLH is still focusing on hotel refurbishment and efficiency enhancement and they would be ready to reach out for management contracts by June 2016. Management sees the 15 London hotels as trophy assets and would leverage its proven track record on these assets for future contract wins.

Lastly, GLL would continue to explore options for its non-core assets (mainly the Clermont casino and property in Molokai). Management sees no imperative for disposing the assets at a discounted price, given their passive investment nature and GLL’s well covered capital needs.

Key re-rating catalysts include organic earnings growth in the core hotel business, new management contract wins and potential monetisation of its non-core assets.
The house reiterated their ADD rating with an unchanged TP: $1.18. GLL is trading at a discount of 37% to RNAV of $1.57.

Super Group

Super Group: DBSV has maintained its HOLD rating on Super Group but reduced its TP from $1.45 to $1.25, pegged to a lower 20x FY16F PE, in line with its average valuation over the last 4 years. The house believes that earnings recovery momentum will be back-end loaded beyond 2H15F. Even though management is lining up new products for launch over this period, regional consumer sentiment remains tepid and thus the house believes recovery will be slow and of a gradual pace.

DBSV has cautioned that the expectations of an occurrence of El Nino this year could cause a surge in commodity prices and impinge on margins in FY16. However, currently Super is expected to enjoy benefits of lower coffee bean prices which bottomed out at US$1700/mt, and should aid margins in 2H15.

First Resources

First Resources released its operating statistics for May ’15:
- CPO production: 52,224 tonnes (+22.8% y/y)
- CPO extraction rate: 22.6% (+0.5ppt)
- Palm kernel (PK) production: 12,506 tonnes (+25.7%)
- PK extraction rate: 5.4% (-0.2 ppt)

For 5M15, CPO production was 249,623 tons (+14.5%), while that for palm kernel was 58,031 tons (+13.1%).

This comes amid the slew of news in the past month for the plantation sector, which may be positive to CPO prices.

This includes:
1) El Nino, where the region has a high probability of below-average rainfall in 2H15 and potentially below-average CPO production.

2) Widening CPO - Soybean oil discount due to the rising soybean price from lower crop production, which will provide a support on substitute price competitiveness.

3) US’ ban of trans fat by 2018, where palm oil is expected to be the substitute product and lead to a gradual increase in demand.

First Resources is the most well-covered among other SGX-listed palm oil plays. The street is generally bullish on the firm's prospects, backed by proven management capabilities and relative profitability to peers, supported by the plantation's balanced age profile.

Bloomberg consensus has 14 Buys, 2 Holds and 0 Sells on the counter, with a 12-month TP of $2.30.

SG Market (19 Jun 15)

Singapore shares are expected to open higher today, after US stocks rallied overnight, amid a wave of conflicting headlines on Greece and the comfort of Fed not aggressively raising rates.

Regional bourses are trading higher this morning in Tokyo (+0.9%), Seoul (+0.2%) and Sydney (+1.2%).

From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*Jardine C&C: Proposed renounceable underwritten 1-for-9 rights issue of up to 39.5m new shares at $26.00 each, to raise net proceeds of $1.0b, which will be used to repay term loans (82%), certain short-term indebtedness of the group (6%) and for general corporate purposes including strategic investments and acquisitions (12%).

*SIA: In talks with Airbus and Boeing on developing a plane with new technology that would allow it to fly non-stop to US profitably. CEO highlights SIA “wants this as soon as possible” to revive its non-stop flights to US. Analysts guide that reviving the non-stop flights to US will help SIA fill a gap in its network that is benefiting rivals like Cathay Pacific and Qantas.

*First Resources: Operating statistics for May ’15 - CPO production jumped 22.8% y/y to 52,224 tons, while extraction rate grew to 22.6% from 22.1%. Palm kernel production also rose 25.7% to 12,506 tons, with extraction rate at 5.4% (-0.2 ppt). For 5M15, CPO production was 249,623 tons (+14.5%), while that for palm kernel was 58,031 tons (+13.1%).

*Super: Subsidiary OWL has been appointed sole distributor of Italian coffee brand Caffè Cagliari’s products in Asia. The product suite ranges from staples like whole beans to newer products like capsule coffees and machines. OWL will also open the first Caffe Cagliari flagship outlet in Asia, and push the products to business consumers like cafes, hotels and restaurants.

*KrisEnergy: Spuds first oil at Nong Yao field in Gulf of Thailand, with initial production rate at 2,500 barrels of oil per day (bpd) from three wells. The development will comprise up to 23 wells, a wellhead processing platform and a minimum facility wellhead platform with the export of crude via a FSO vessel. The facilities have a production capacity of up to 15,000 bpd and a processing capacity of 30,000 barrels of fluids per day. KrisEnergy holds a 22.5% working interest in the field.

*Riverstone: Awarded contract to a company for the construction of a new glove factory building (under Phase 3) at Taiping, Perak, Malaysia, worth ~RM15.8m (exclusive of 6% GST). Construction of the new glove factory building is expected to be completed by 2Q16 and can potentially increase production capacity by ~1.0b gloves.

*Union Steel: Entered conditional sales and purchase agreement to purchase 85.2% stake in Gee Sheng Machinery & Engineering for US$5.1m. The acquisition will be funded by internal resources and bank borrowings, and is in line with the group’s plans to diversify and expand into the business areas of civil engineering and manufacturing.

*Ley Choon: Won $24.8m contract to resurface Changi Airport taxiways. The contract involves laying new-developed asphalt premix which will better withstand deformation due to the harsher tropical climate condition.

*First Sponsor: Acquired 2 hotels in Amsterdam - a Holiday Inn and a Holiday Inn Express - with 509 carpark lots for €54.6m (S$82.9m) from IVG Institutional Funds.

*SunMoon: Acquiring 51% stake in Harvest Season Spore for $3.1m via issue of 60m new shares at $0.0518 each, representing 18.82% of current issued share capital. Harvest Season currently operates 6 fruit stores under Harvest Season Group in and around Shanghai.

Thursday, June 18, 2015

Maybank TV

Maybank TV - MSCI and FTSE reviews to impact on Singapore stocks


MaybankTV shares its insights on how MSCI and FTSE reviews will impact on Singapore stocks

Key stocks – Jardine Matheson, Jardine Strategic, Olam, Yangzijiang, UOL, Capital Commercial Trust, Suntec REIT, DBS, Ho Bee, Wing Tai

MSCI expects to eventually include A-shares into its global benchmarks after resolving market accessibility issues, and estimates that the inclusion of A-shares could see inflows of ~US$400b into Chinese equities over time.

Expect the FTSE Russell to implement tighter liquidity rules in the Sep ’15 STI review, with Jardine Matheson, Jardine Strategic and Olam most at risk of being removed from the STI, while stocks on the STI reserve list like UOL, Capita Commercial Trust, Yangzijiang and Suntec REIT could be considered for inclusion.

Going into 2H15, Maybank-KE is of the view that the Singapore market lacks any major catalysts and expects it to trade sideways, albeit with a downward bias, and has a year-end STI target of 3,400.

Sector wise, the house continues to favour banks, on back of NIM expansion and resilient asset quality, while the house also favours high-end property developers on back of a potential play-up in the privatization theme and possible relaxation of cooling measures in the high-end segment.

The video can be accessed via the following link below:


Ezion: Following a change in management, AMS has withdrawn its lawsuit against Ezion and released and discharged the latter from all claims alleged. The sotck has been sold down 15% since news of the lawsuit broke. With AMS taking responsibility over its team, Maersk may be willing to give the operator a second chance, and the charter agreements will remain in place.
On the operational front, 3 of the 4 liftboats due in the 2nd quarter have been delivered and are not working. The 4th is still on track. Ezion’s fleet growth of 60% from 20 units to 33 units this year could drive 18%/45% earnings growth in FY15F/FY16F.
Ezion remains a conviction Top Pick, offering highest earnings growth for this beleaguered industry with the highest visibility. Contract wins are key near-term catalysts and risks remain with units operating in uncertain environment in Mexico. RHB maintains its BUY rating with TP: $2.10.


DBS: DBS is embarking on a global roadshow to sell its US$10b covered bonds programme in Asia, Europe and US, becoming the first local bank to test the strength of demand for high-grade mortgage-backed debt out of S'pore. DBS guides that depending on interest, its team could also visit Australia or the Middle East.

The covered bonds are expected to be rated triple-A, and will be issued in euros or USD. It will qualify as high-quality liquid assets needed to meet liquidity coverage ratios.

Securitizing assets is an alternative way for banks to generate cash from assets, while diversifying the source of funding, reducing overall funding cost and credit exposure to particular assets.

A statement issued by MAS earlier this month highlighted that banks are required to provide legal confirmation that the “cover pool” assets are being ring fenced beyond a creditors’ reach, and that bond holders should be given the highest priority to claims against assets, in any case of insolvency.

Additionally, MAS has set the limit on the amount of assets backing the bonds issued by Singapore banks to be at 4%. In contrasts, countries like Australia allow banks to issue bonds against up to 8% of its assets held in the country.

Separately, some bankers who specialised in the covered-bond market in Asia, are guiding that the yield from such high-grade debt may not be attractive enough to entice investors.

Yet, should DBS be successful in marketing its covered bonds, investors could potentially see its peers OCBC and UOB following suit.

Overall, Maybank-KE continues to feature DBS (TP: $24.80) as amongst its Top Buy picks in 2015, in view of the group’s ability to benefit the most amongst its peers from higher interest rates, and its resilient asset quality.

At the current price, DBS trades at 1.3x P/B. Overall, the street has 24 Buy and 3 Hold ratings with a consensus TP of $23.15.

UG Healthcare

UG Healthcare: CIMB today released an unrated report on UG Healthcare.
It specializes in producing natural latex and nitrile examination gloves since 1989. With an expanding production capacity and extensive distribution network, it is poised to capitalise on the growing healthcare awareness and new health threats globally.

Management guided that FY6/15 results may be slightly impacts by one-off listing expenses, but earnings should rebound significantly in FY16 on the back of capacity expansion and favourable industry outlook.
MERS outbreak in the region is a potential short-term catalyst while key risks are increasing competition and rising costs of raw materials.

Fraser Centrepoint Ltd

Fraser Centrepoint Ltd (FCL): FCL has purchased a portfolio of Malmaison and Hotel du Vin portfolio of 29 upscale boutique lifestyle hotels in UK for S$760m from KSL Capital Partners. This doubles FCL’s footprint in Europe to 4,000 rooms and boost its hospitality exposure to 13% of total assets.

CIMB sees the acquisition as strategic as it would expand FCL’s reach into the UK tourist market as well as the premium tourist segment with potential to introduce these brands into Asia as well as tap into these new networks.
The purchase could boost FCL’s earnings by a marginal 1-5% with further upside potential from a visible acquisition pipeline.
The house maintains its ADD rating with an unchanged TP: $2.02 (30% discount to RNAV).

Religare Health Trust

Religare Health Trust (RHT): Daiwa today released an unrated report on RHT, after meeting management recently for a business update. RHT has a current portfolio of 18 healthcare assets (12 clinical establishments under Fortis Healthcare brand, 2 operating hospitals and 4 greenfield assets) located in cities across India.

RHT derives a service fee (fixed + variable components) from its clinical establishments. Currently the fixed fee component makes up around 70% of overall service fee revenue. RHT’s FY15 service fee increased 27% YoY, largely due to an acquisition (the Mohali clinical establishment). Excluding this acquisition, FY15 variable fees grew by 12% YoY. Looking ahead, management expects organic growth in service fee to come from its capacity enhancement initiatives, where it seek to add 492 hospital beds (19% increase in its current operational bed count) over FY16.

RHT’s gearing is relatively low at 13.6% and this gives ample headroom for acquisitions to drive DPU growth – an increase in gearing to 60% will provide additional $1.04bn in potential funding.
Currency fluctuations are a key risk for RHT, as asset valuations and revenue are derived in INR, while distributions are paid out in SGD. RHT hedges its distributable income on a 1 yr forward basis and 100% of its debt is currently denominated in SGD.

RHT is trading at FY16 DPU yields of 7.8% and also trades at 4% premium to BV of $0.968.


Riverstone: Is a beneficiary of the stronger USD, which has strengthened 12.7% y/y (+0.7% q/q) against MYR in 2Q15. With 70-80% of revenues and 40-50% of cost of sales based in USD, Maybank-KE estimates a net earnings exposure of 3-6% for every 10% movement in the greenback.

For now, demand for healthcare gloves has yet to surge due to MERS, as there has not yet been a widespread outbreak. Nevertheless, if this happens, the house opines Riverstone could book higher ASPs rather than sales volume, as its entire capacity has been filled. The house estimates every 10% increase in healthcare-glove ASPS could lift FY15-17e EPS by 3%.

Meanwhile, the upcoming 3Q15 gas-price hike in Malaysia is only expected to impact bottom line marginally, as gas only makes up a tiny fraction of costs, and the company expects this to be partially passed on to consumers.

Maybank-KE maintains its Buy call on Riverstone with TP raised to $2.05 from $1.78, after rolling to FY16e EPS, based on 18x P/E, slightly discounted against a 19x peer average

SG Market (18 Jun 15)

Regional bourses are trading lower this morning in Tokyo (-0.3%) and Sydney (-0.7%), while Seoul is up 0.5%.

From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*DBS: From 22 Jun, DBS will begin a global roadshow to sell US$10b covered bonds programme in Asia, Europe, US. DBS will be the first Spore bank to test the strength of demand for high-grade debt backed by mortgage loans out of Spore. The covered bonds are expected to be rated triple-A, and will be issued in euros or USD. It will qualify as high-quality liquid assets needed to meet liquidity coverage ratios. Issuance of covered bonds is expected to lower DBS' overall funding cost.

*UOB: Sets up new RMB solutions unit to help firms manage cross-border business in yuan, and tap on yuan's ongoing internationalisation amid weakening overall demand for trade finance. The unit will give firms advice on the internationalisation of the yuan and its impact on their businesses, as well as provide financial solutions in cash management, FX, investment and hedging.

*ST Engineering: ST Aerospace signed agreement with Airbus Defense and Space and Elbe Flugzeugwerke (EFW) for a collaboration to launch the A320/A321 passenger-to-freighter conversion programme. Consequently, ST Aerospace will be issued new shares in EFW worth €99m ($146.3m), comprising €3m cash and €96m in A320/A321P2F engineering development work. Following the proposed transaction, ST Aerospace’s shareholding in EFW will increase to 55% from 35%, with the remaining 45% held by Airbus.

*Singpost: Acquired a 30% stake in Australian e-commerce firm Hubbed Holdings for ~A$4.3m or $4.45m. If certain agreed performance benchmarks are met, the group will pay an additional A$1m to Hubbed, otherwise Singpost would subscribe for another 5% stake in Hubbed.

*Frasers Centrepoint: Acquired boutique hotel operator MHDV in UK for £363.4m ($759.5m), 2.3% above market value. MHDV owns and operates two upscale boutique lifestyle brands, namely Malmaison and Hotel du Vin, comprising 29 boutique lifestyle hotels with 2,082 keys located across 25 cities in UK. This doubles group's offerings in Europe to ~4,000 keys.

*Tat Hong: Entered into contract with Ashover Investment for the sale and leaseback of the property at 14 Ashover Road, Rocklea, Queensland, Australia for a cash consideration of A$6.25m (~S$6.46m), which will see Tat Hong realise a net gain of A$3.5m (S$3.62m).

*Ezion: Atlantic Marine Services (AMS) has withdrawn the court proceedings against Ezion, and agreed to release the group from all claims that had been alleged in the suit. AMS also informed Ezion of its management changes and its intentions to cooperate and work closely with the Ezion to support the operational requirements of Maersk Oil in the North Sea for three of its service rigs.

*Logistics Holdings: Awarded $13.8m contract by Design International Architects, which involves proposed addition and alteration works to six units of conserved buildings and infrastructure works at Park Lane, The Oval and Hyde Park Gate at Seletar Aerospace Park. The works are scheduled to commence on 22 Jun '15 and are expected to complete by 21 Mar '16, and takes the group's orderbook to $278.9m.

*Geo Energy Resources: MOU with PT Bukit Makmur Mandiri Utama for coal mining services which includes overburden removal, coal hauling and rental of heavy equipment, in Geo Energy's mine located in South Kalimantan, Indonesia.

*Great Group: Proposed renounceable non-underwritten rights issue of up to 2.1b new shares at an issue price of $0.005 each, on the basis of seven rights shares for every one share held. Net proceeds of $9.6m raised will be used for general working capital.

*Cordlife: To end exclusive hospital, baby-fair agreements after anti-trust probe.

Wednesday, June 17, 2015

ST Engineering

ST Engineering: The deliveries of new generation airframe and engines, as well as OEM’s after-sales service, were investors ‘top concerns during the one week NDR in Toronto and US.
Demand for airframe MRO is expected to be firm in the medium term, backed by ageing fleet, extended operational life of older aircraft on lower oil prices. Engine shop visits could surge by 2016, as maintenance cannot be deferred indefinitely. >50% of its major customers’ fleets are aged 5-20 years, requiring heavy maintenance.

Potential catalysts include sizeable contract wins in electronics and stronger MRO demand. CIMB maintains its ADD rating and TP of $3.93.

Golden Agri-Resources

Golden Agri-Resources (GAR): The upcoming corn harvest from Brazil is expected to be bigger than ever, where market watchers believe it could flood an already oversupplied global corn market and depress prices further.

Furthermore, price differential between soy and CPO has narrowed significantly to below US$300/ton, thus reducing substitute demand for CPO.
Having said that, El Nino effects are more pronounced this year in Indonesia. While some plantation stocks have run up on this news, any impact on product is likely to come later; as it usually takes 6-9 months for the tree stress to show up.

OCBC believes that unless there is a strong recovery in demand, the near-term outlook for GAR remains somewhat muted. The house maintains its SELL rating with unchanged FV of $0.35 (based on 13.5x FY15F EPS).

Raffles Medical

Raffles Medical: MaybankTV interviews John Cheong, investment analyst at Maybank-KE, who shares his views on Raffles Medical Group (RMG).

1) Maybank-KE recently upgraded RMG to Buy, after pricing in more concrete developments in the group’s China hospital project. There is overwhelming demand for quality healthcare in China, giving RMG ample opportunity to plug the gap.

2) RMG is set to operate a 400-bed greenfield hospital in Shanghai and could see RMG leverage on its 15-year experience in Singapore operations.

3) Chinese operations to start contributing positively to RMG’s bottom-line by 2019. DCF calculations indicate that the project in China is valued at ~$1.20 and accounts for about 24% of RMG’s revised TP of $5.10.

4) Key risks includes project delays, cost overruns and regulatory risks

The video can be accessed via the following link below:

Global Investments

Global Investments: Daiwa issued an unrated report on Global Investments (GIL) today. GIL is a mutual fund company with focus on income generation. As of 31 March 2015, listed equities, bonds and cash & other net assets account for around 69% of its total asset portfolio. The total carrying value of these listed-assets is $218m, representing 104% of GIL’s market capitalization. The market is essentially ascribing a 0 value to its unlisted loan portfolio & securitization and operating lease (Ascendos) assets, investments which had generated $12.1m in dividend and interest income for 2014.

GIL’s listed equity portfolio has 18% exposure to the Shanghai Composite Index and 51% to the Hang Seng Index, with total value of $72m. Despite strong performance of global financial markets recently, management remains mindful of the heightened volatility and adopts an active management strategy in a bid to increase shareholder return through generation of alpha.

Based on its latest closing price of $0.151, the stock is yielding 10% at 2014’s distribution rate of $0.015/share. GIL also recently provided dividend guidance of SGD0.0075 for 1H15, to be declared in August 2015. The stock is trading at a trailing 2014 PER of 8.6x and PBR of 0.7x.

Strategy (UOB KH)

Strategy: UOB Kay Hian did an analysis of fundamentals for dividend yield stocks ahead of reversing yield compression. On this basis, house likes SingTel and SATS. Negatively impacted stocks are SIA Eng and StarHub.

High yielding stocks have done well. Since the Global Financial Crisis (GFC) in 2008, an abnormally low interest rate environment has prevailed. This resulted in outperformance of high dividend yield stocks as yield compression set in.

Despite concerns over the potential reversal of yield compression, house believes selected yield stocks will remain favoured. Hence, even with an expected rise in interest rates, UOBKH thinks investors should still maintain selected high dividend stocks in their portfolio for steady returns.

Also, yield stocks with solid growth prospects will also be better positioned to mitigate rising rates. Risk adverse investors could opt for dividend stocks that are less correlated with interest rates. This includes SingTel and SATS, which are its top dividend yield picks.

Another low beta but safe alternative is SPH.

Keppel Corp

Keppel Corp: CLSA has a rpt reiterating its Sell call with TP of $6.91, as the market has not yet priced in the severity of the downturn in the O&M segment.

Year-to-date order wins stand at $330m, just 11% of the street's full year expectations of $3-4b.

Net orderbook as of 1Q15 was $11.7b, of which ~$7b will be recognised in 2015, implying 2016/17 revenues will likely fall off a cliff. With its O&M orderbook shrinking rapidly, margins are expected to follow due to operating leverage.

In addition, Keppel’s property segment which represents 64% of CLSA's is not really cheap on a valuation basis, trading at 20% discount to RNAV and in line with other Singapore-focused developers.

Super Group

Super Group: (S$1.11) Eyeballing El Nino's effects
Prices of soft commodities, including coffee, CPO and sugar, may be inflated by 10% in FY16, depending on the severity of El Nino conditions.

Weather patterns around the globe are being disrupted with heavy rains and flooding in southern US and parts of Latin America, along with droughts in Australia and Asia.

Maybank-KE estimates that instant coffee manufacturer Super's gross profit could be dragged by the higher cost of raw materials, with robusta coffee being the largest cost component, making up 30% of each coffee sachet.

The house believes that coffee prices should be capped due to bean hoarding by farmers, which should help offset the potentially smaller crop.

Further, impact of higher costs would be moderated by the launch of new premium products in Super's key markets come 2H15, including four new flavoured coffee mixes in China, on the back of the stronger seasonality.

The company is also stocking up more raw materials during current low prices, which is expected to buffer margins for at least 2-3 quarters in a worst case scenario.

Maybank-KE thinks that Super stands a good chance of recovery this year, supported by healthy revenue growth in core markets, backed by a return innew markets, on the group's comprehensive rebranding efforts.

The house maintains Buy with a TP of $1.57.

SG Market (17 Jun 15)

Singapore shares may stage a slight technical rebound after Wall Street closed higher for the first time in three days, in a light volume session with investors staying on the sidelines as they await for more information on the Greece debt crisis and the Fed’s FOMC meeting.

Regional bourses are trading higher this morning in Tokyo (+0.3%) and Sydney (+0.7%), but lower in Seoul (-0.1%).

From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.

Stocks to watch:
*Property: Transaction volumes for strata-titled commercial properties continue to hit new lows since the GFC, as easing business activities crimp demand from end-users, while individual investors' borrowing capacities are being capped by lending curbs. 81 caveats were lodged for strata office units between Jan-May'15, a 72.7% y/y drop, and the lowest level since 1H09 when 63 caveats were lodged. In the retail space, 84 caveats (-58.4% y/y) were lodged for strata units.

*REITs: An update by SGX revealed that S’pore’s retail REITs averaged total returns of 13.7% over the past 12 months, with an average distribution yield of 6.1%, led by strong contributions coming from Lippo Malls Indonesia Retail Trust, Frasers Centrepoint Trust, Starhill Global REIT, CapitaLand Retail China Trust and CapitaLand Mall Trust.

*ST Engineering: ST Aerospace secured a 7-year contract worth more than US$100m for aircraft component support with Flybe. ST Aerospace will provide comprehensive component Maintenance-By-the-Hour support for Flybe’s growing fleet of Bombardier Dash 8 Q400 aircraft.

*Keppel Corp: Majority-owned Ocean Mineral Singapore has entered into a 15-year exploration contract for polymetallic nodules at a site within the Clarion-Clipperton Fracture Zone of the Pacific Ocean with the International Seabed Authority.

*Noble: Company has committed $42.9m so far into buying back shares, with the group recently snapping up 12.98m shares @ $0.7087 per share in its third share buyback transaction this month.

*Singapore eDevelopment: Proposed placement of 15m new shares (5.3% current shares issued) at $0.081 each to Fan Ben, the founder of HK-listed Neo-Neon Holdings. Net proceeds of $1.2m is intended for general working capital.

*Sembcorp Marine: Franklin Templeton emerged as a substantial shareholder following the purchase of 890,900 shares at an average price of $2.99, via open market transaction.

*Rex: Jointly-controlled entity Lime Petroleum Norway will be participating in the drilling of Haribo prospect in PL616 in the North Sea, scheduled to start in Jun ‘15.

Tuesday, June 16, 2015


O&M: Cash calls on the horizon; smaller O&M players at risk
More cash calls by smaller offshore and marine firms with high debt levels could be on the horizon as funds dry up amid a crude oil slump and OSV oversupply.

Market watchers cite that credit situation between O&M companies and financial lenders are stretched, with the latter unwilling to finance new vessels unless contracts have been secured.

Utilisation levels for OSVs plummeted in 1Q15, in tandem with a 15% fall in charter rates from peak levels, as oil companies scaled back their exploration budgets and capex spending.

Amid the downturn, highly geared firms may be hard pressed to slash charter rates and sacrifice margins for operating cash flow.

Asset disposal is not exactly an option given the lack of interested buyers in an oversupplied markets, which depresses vessel prices further.

The rising risk premiums in the bond markets also leave equity funding as the only feasible option from many of the smaller offshore players.

Likely candidates taking this route include Otto Marine, Swiber and Marco Polo Marine given their high debt levels. At the latest financials, Otto Marine's net gearing stood at 200%, among the highest in the industry, with its short term debt 12.5x larger than its $18.6m cash.

Despite a rights issue in Jan, Swiber's net gearing stayed elevated at 170%, with US$308m debt maturing in 2016 and another US$784m due in 2017. Marco Polo's net gearing is 87.3% but with the operator taking delivery of its US$214m jack-up rig in 2H15, its debt burden is expected to mount.

Maybank-KE believes the earnings downgrade cycle has not ended and there is no urgency to turn outright positive. The house prefers Ezion (Buy, TP $1.55) and Pacific Radiance (Buy, TP $0.80) for their resilience and competitive cost structure.

OCBC (technical)

OCBC: Still trading within the downward trend channel, with resistances above the $10 levels, and near term support around $9.95. Stronger support at the bottom end of channel, at around $9.80

UOB (technical)

UOB: Long term uptrend no longer intact after the counter failed to hold above the support at the $23.00 level. Continued selling pressure may occur in the near term, reflected in the shooting star candlestick on 11 Jun, further confirmed by the gap down two days later. Support at the recent low of $22.60, followed by $21.50.

DBS (Technical)

DBS - Technicals appear to be on a downtrend, as indicated by both STochastics and RSI. Share price just broke past the 20 day MA at $20.59, and a close below it could indicate further downside. The 200 day Ma at $19.67 will be the critical support.

Fu Yu

Fu Yu: Management is keen to reward shareholders with a maiden dividend upon approval of capital reduction with a payout of 0.5 cent at the upcoming AGM in July. They are also bullish on the medical, environment and automobile products, especially from clients in the medical and environment space. The company is keen to expand contributions from the automobile sector and is already in talks with several parties at the moment.

Fu Yu may be a potential key beneficiary of 3D printing in the future as both HP and Venture Corp are its existing customers and Fu Yu is one of the key plastic manufacturers for HP.
With rich cash flow generation from operations of $20m-$30m a year, RHB believes Fu Yu is a cash cow ready for milking and that FY15 will likely be a key inflection point to reap gains for this treasure chest.

RHB maintains its BUY rating with TP: $0.30 (WACC: 12%, TG: 0%).

Frasers Centrepoint

Frasers Centrepoint: CIMB recently visited some of Frasers Australand’s projects in Sydney and Melbourne and met with senior management. Management indicated that integration of Frasers Property Australia and Australand is largely completed and possibility of rebranding is still being evaluated. While recurrent income remains key to the FCL group, Frasers Australand is looking to ramp up the development portion of the business to 50% of asset value from the present 40% as accelerated residential and industrial development activities consume its landbank.

Based on current development pipeline, these 2 segments are projected to have a total end value of S$9.7bn vs current value of S$2.4bn. Residential demand is supported by low interest rates and undersupply in Sydney and Melbourne while renewal and relocation demand from retail and logistics players underpins appetite for industrial space.
CIMB maintains its ADD rating on Frasers Centrepoint (TP: $2.02) as the stock is trading at a steep discount of 38% to its RNAV of $2.88. The key catalyst would be an increase in the stock’s low free float.


Midas: Its JV company, Nanjing SR Puzhen Rail Transport Co. Ltd (NPRT), has secured RMB2.1b worth of metro and tram contracts in China. Delivery of the metro trains and trams is scheduled across 2016 – 2017, and these contracts are expected to contribute positively to Midas’ financial performance for FY16 and FY17.
OCBC kept their forecasts unchanged and currently have a HOLD rating with a TP: $0.375.

Mapletree Greater China Commercial Trust

Mapletree Greater China Commercial Trust (MGCCT): MGCCT proposed acquisition of business park, Sandhill Plaza, in Shanghai for S$412.2m (CNY188.1m), which translates into an initial NPI yield of 3.85%. Sandhill Plaza is a premium quality business park with a total GFA of 83,801.48 sqm and is situated within the mature northern zone of the Zhangjiang Hi-Tech Park, which is part of the Free Trade Zone in Shanghai. Management intends to fund this acquisition with existing banking facilities. Thereafter, MGCCT’s gearing ratio is expected to increase from 36.2% to 40.6%.

On a pro forma basis, DPU for the 12 months ended 31 Mar 2015 would remain relatively flat (from 6.543 cents to 6.55 cents) after this acquisition. Management clarified that the pro forma figures are not reflective of the potential of the asset, as operationally, the property had not yet stabilised during that period, with an average occupancy of just 73%. As at 31 Mar 2015, Sandhill Plaza’s occupancy rate had improved to 96.2%. Major tenants include Broadcom, Disney and Borouge. Sandhill Plaza is 10% below the average rental of its comparable basket (premier grade A, higher quality specs buildings). Management is targeting to grow the NPI yield of this asset to >5%.

OCBC upgrades its rating from HOLD to BUY with TP lifted from $1.07 to $1.11 as the house sees the company as value emerging, after MGCCT’s recent share price correction. The stock also offers a prospective FY16F distribution yield of 7.1%.