Monday, August 31, 2015

UG Healthcare

UG Healthcare: UG Healthcare was featured on The Edge magazine over the weekend, where more light was shared on the group’s plans going forward, following the recent announcement of its FY15 results.

To re-cap, UG Healthcare’s net profit ditched 35.4% y/y to $3.2m, dragged by IPO costs of $0.8m, and higher marketing costs which surged nearly three-fold to $1.3m, as the group sought to expand its distribution network in UK, China and Nigeria.

UG Healthcare guided that the increase in expenses were necessary in preparing the firm for its next phase of growth in FY16.

With the group’s products mostly priced in USD and costs largely in ringgit, the group was widely expected to benefit from the depreciation of the ringgit, which has fallen ~34% versus the USD over the past year. Yet, the group registered fair value loss on financial derivatives, as ~40% of its sales were hedged via forward contracts as at end-Jun. Going forward, management is guiding for these losses to be reduced.

Management aims to expand its global footprint, especially in the emerging markets, where the per capita glove consumption could be as low as 3% of developed markets. On that front, the group wants to have full control over its supply chain, which will enable it to customise products more effectively to client’s needs.

UG Healthcare intends to raise its annual production capacity to 1.9b pieces of gloves by end-FY16 from the current 1.5b, while also upgrading some of its existing production facilities, which will enable it to effectively meet more client demands. The group has a current utilisation rate of 80-85%.

At the current price, UG Healthcare trades at 13.7x FY15 P/E versus Riverstone’s 20.0x trailing P/E.


Olam: Maybank-KE believes that the recent private share placement to Mitsubishi Corp is a huge vote of confidence by the Japanese trading giant. Given its current valuations, the house is maintaining its Hold rating with a higher TP of $2.15 (previously $1.90).

Olam is expected to raise about $915m from the placement exercise with Mitsubishi becoming its second largest shareholder with a 20% stake and the counter’s free float dropping from 21.5% to 17.5%.

The deal is part of a wider strategic partnership which would enable collaborative opportunities for both companies to tap into their respective geographic markets and product range. For one, it would give Olam access to MItsubishi’s domestic distribution network and allow the latter to leverage on Olam’s sourcing and distribution exposure to emerging markets, particularly in Africa.

While the new funds raise may augment Olam's future acquisitions, Maybank-KE opines that much of the near term positives has already been priced in. This is particularly so given that Olam is now trading at about 10.6x FY16 P/E, ahead of Wilmar’s 9x.

This comes even as the house raised its TP to account for the group’s strategic partnership with Mitsubishi, with FY16/17 revenue expected to strengthen on the back of increased sales of coffee, cocoa, and edible nuts in Japan.

Overall, the private placement exercise is expected to dilute EPS by about 4% after taking into consideration a 3-5% increase in net profit.


Banks: CLSA notes that Singapore banks have suffered a sharp sell down since late Jul'15 with the sector's forward P/B sliding to 1.15x from 1.33x. It notes that given recent developments both domestically and abroad, it is likely that these banks will experience greater topline and asset quality pressure than previously anticipated.

The research house revises its FY15-17 earnings forecasts down by 1-10% with loan growth slipping to 1-4% (previously 3-7%), margin expanding by about 10-16bps (previously 11-21 bps) and bad debts to increase by 18-45 bps (previously 18 - 41 bps) as a % of average loans.

It notes that if the '98 AFC were to have a re-run, share prices would have a further 47-55% to fall. However, it notes that this is unlikely. Nonethless, positive catalysts for the banks remain scarce.

UOB (Overweight) is its top pick, with TP of $21 (previously, $25.30) and OCBC (Underweight), its least preferred Singapore bank, with TP of $9 (previously $10.60).


Capitaland: Malaysian newswire The Star reported that CapitaLand is reviewing details of its RM8b JV in Danga Bay, Johor with its partners, amid a soft property market.

The development, which CapitaLand owns 51% was slated to be one of its largest. The 71.4 acre site is planned to be turned into a waterfront residential community comprising high rise and landed homes, a marina, shopping mall, serviced residences, offices and recreational facilities.

Despite CapitaLand’s hesitation in Iskandar, the developer remains hopeful to widen its footprint in KL, the Klang Valley and Penang. The developer is optimistic about Malaysia favourable long term demographics, despite having to bite the bullet in the short term.

On outlook, the newswire cited Lim Wie Shan, who leads CapitaLand’s Malaysian projects, is hopeful of an economic turnaround next year which will in turn spark a property recovery.

CapitaLand is currently trading at 0.7x P/B.

The street has 20 Buy calls and 3 Hold calls on CapitaLand with a TP of $4.05.

Insider trades

Insider trades: Asia Insider noted that buying was strong a third week, whilst insider selling stayed low for the week ending 28 Aug.

Buys: 50 companies made 122 purchases worth $19.4m, vs. 34 firms, 76 transactions worth $7.54m the week prior.

Sells: One company sold two disposals worth $0.83m, vs. one firm making a trade worth $0.26m

Buybacks: 37 companies made 137 repurchases worth $126.9m, vs. 34 companies, 148 transactions worth $171.2m

Notable transactions:

Ho Bee Land: Resumed buybacks with 917,000 shares purchased at average of $1.94, accounting for 85% of stock’s trading volume. The group had previously acquired 409,000 shares in Jan at $1.95 each.

SMRT: Directors acquired a combined sum of 73,000 shares at $1.15 each, on the back of a 36% drop in share price since Feb.

China Aviation Oil: Independent director Ang Swee Tian recorded his maiden on-market trade with 62,000 shares purchased at 52.4¢ each, on the back of a 41% fall in share price since April.

Q&M: CEO Dr Ng Chin Siau made his first corporate shareholder trade with 1.16m shares purchased at 60¢, on the back of a 39% share price drop since May.

iFast: Chairman and CEO Lim Chung Chun and non-executive director Lim Wee Kian bought 120,000 shares at average of $1.20, after the stock fell 18% since Aug 11.

OSIM: Founder and boss Ron Sim picked up where he left off in July, purchasing 3.2m shares at $1.46, after the stock fell 17% since 11 Aug. He had previously acquired half a million shares in Jul at $1.26.

UOL: Wee Cho Yaw picked up where he left off in Oct ’14 with 542,000 shares purchased at $6.03, after a 26% drop in share price since the last week of April.

China Everbright Water

China Everbright Water: (S$0.75) First major acquisition since merger with HanKore
China Everbright Water (CEW) is making its first major acquisition since its merger with HanKore in Dec '14, with a ~Rmb1b price tag for waste water treatment company Dalian Dongda Water, in line with current market transaction prices.

The target has 17 waste water treatment projects with a capacity of 1.125m tons/day, located across Liaoning Province and Inner Mongolia in China.

Upon completion, group's total capacity is expected to jump 30% to 4.6m tons/day.

CEW has been rather quiet on the acquisition front for the past eight months, which resulted in impatience among investors and market watchers.

Notably after its 2Q15 results posted in early Aug, Maybank-KE cut its FY15 capacity acquisition assumption to 0.5m tons from management's guidance of 1m, given that CEW has only achieved 4% of that target to-date.

Without a doubt, the house is expected to change its earnings assumption yet again and we do not rule out that the major transaction will work to enhance market's confidence on management's execution ability.

It is generally expected that investment in China's water sector will increase significantly, supported by favourable government policies, for instance, the public-private partnership model, which would provide new opportunities to the private sector water players.

At the current price, CEW is valued at 22.4x forward earnings, compared to China-listed peers Tianjin Capital Environmental Protection (37.9x), Beijing Enterprises Water (21.7x) and CT Environmental Group (23.4x).

SG Market (31 Aug 15)

Singapore stocks may take its cue from regional markets, after The Financial Times reported over the weekend that Beijing could halt large-scale share purchases.

Regional bourses are trading lower this morning in Tokyo (-1.3%), Seoul (-0.4%) and Syndey (-1.1%).

From a chart perspective, underlying support on the STI is tipped at 2,950, followed by 2,680, with upside resistance at 3,050.

Stocks to watch:
*Property: NUS data showed that after three straight months of declines, prices of completed non-landed private homes were flat m/m in Jul. Meanwhile, the overall S’pore Residential Price Index is down 3.1% y/y. Analysts highlight that Jul's price stagnation may not signal a turnaround as it "may be just a pause before the index continues its general downward trend", given that there will be more private home completions in coming months, which would lead to a rise in vacancy rates and weaker rentals.

*Dukang: Recorded FY15 net loss of Rmb561.4m versus FY14’s net profit of Rmb44.1m. FY15 revenue of Rmb863.4m tumbled 40.5% as both its Luoyang Dukang (-25.1% in sales volume to 24,454 tons) and Siwu operations (-99.9% in sales volume to 10 tons) were impacted by China’s current austerity measures on luxury gifts and spending. Bottom line was weighed heavily by impairment losses on PPE, associates and intangible assets totalling Rmb547.4m. NAV/share: Rmb1.80.

*AusGroup: 4QFY15 net profit plunged 88.4% y/y to A$0.3m, taking FY15 net profit to A$6.2m versus a net loss of A$11.9m the previous year. Revenue for the quarter climbed 7.7% to A$90.6m, led by stronger project segment contributions. Gross margin expanded 11.9ppt to 23%. Nevertheless, bottom line was weighed by the absence of a A$5.8m profit from the sale of an asset last year.
NAV/share at A$0.326.

Grand Banks Yachts: 4QFY15 turned into net loss of $2.4m (4QFY14: +$0.8m), weighed mainly by a surge in operating expenses (+65.4%) from the inclusion of recently-acquired Palm Beach Motor Yachts (PBMY) and new management appointment. The result took FY15 net loss to $4.8m versus a net profit of $1.0m the previous year. Revenue for the quarter inched 3.5% y/y to $13.7m, led by contribution of PBMY and the sale of older inventory yachts. Gross margin crashed to 3.9% (-13.8ppt) as the group underwent a significant reorganization plan. NAV/share at $0.243.

*Loyz Energy: Swung to 4QFY15 net loss of US$63.9m from US$0.6m profit a year earlier, while revenue fell 14% to US$5.8m, as increased production volume from the Thai concession could not mitigate the slump in oil price. Bottom line was weighed by impairment charges of US$71.8m, largely from the impairment of non-core assets in India, Australia and US. Separately, Loyz reported a significant increase in oil production and reserves following successful drilling campaign in Thailand, with combined production rate in excess of 4,000 bpd. NAV/share at US$0.053.

*Yamada Green: 4QFY15 net profit grew 42.8% to Rmb24.7m taking FY15 net profit to Rmb86.2m (-15.9%). Revenue for the quarter fell 10.1% to Rmb73.2m due to lower sales from both the cultivation business segment (-3.3% to Rmb29.5m) and processed food segment (-14.1% to Rmb43.7m). Gross margin fell 7.8ppt to 23.7% due to a change in sales mix. Bottomline was buttressed by a 146.2% jump in other income which included government grants as well as a 39.7% jump in the fair value of its biological assets to Rmb18.2m. NAV/share: Rmb1.62.

*China Everbright Water: Proposed to acquire waste water treatment company Dalian Dongda Water for ~Rmb1b, in line with current market transaction prices. The target has 17 municipal waste water treatment projects with a capacity of 1.125m tons/day, located across Liaoning Province and Inner Mongolia. Upon completion of the acquisition, CEW's capacity will increase 31% to 4.6m tons/day.

*IHH Healthcare: To acquire a 73.4% stake in Global Hospitals for INR12.8b (RM819m) in cash. Global Hospitals is a chain of hospitals in India with about 1,100 beds across Hyderabad, Chennai, Bangalore, and Mumbai. IHH previously had a $137m deal to acquire Singapore’s Radlink-Asia being rejected by competition regulators.

*Raffles Medical: Acquiring International SOS (MC Holdings), a healthcare provider that operates 10 clinics in China, Vietnam and Cambodia, for US$24.5m ($34.3m), or 4.5x P/B.

Keppel Corp: To acquire the offshore rigs business of Cameron International for US$100m. The sale comprises several jackup rig designs such as LETOURNEAU™ Super 116E, WORKHORSE, Super Gorilla XL and Jaguar, that have a proven track record of operating in a variety of environments.

*Chiwayland: 60%-owned subsidiary purchased a land parcel located in Jiangning District, Nanjing City, China for Rmb570m. The 14,185 sqm land parcel is expected to be developed into residential and commercial units. The purchase will be financed through internal sources and/or external borrowings.

Friday, August 28, 2015


DBS: (Flash Note): DBS May Miss 5% Loan Growth Target This Year, CEO Gupta Says

Ying Li

Ying Li: China relaxed restrictions on foreign investment in real estate to help boost demand, which led to positive interest in the Chinese property counters and overspilled to SGX-listed Yanlord (+3.2%) and Ying Li (+4.3%) today.

Meanwhile, according to the latest 2Q15 results, Ying Li's pipeline is strong over the next two quarters with sales launches at three properties (Beijing Tongzhou in 3Q15, Ying Li International Hardware Phase 1 and Electrical Centre and Ying Li International Commercial Centre in 4Q15).

We do not rule out that the management may conduct roadshows or site visits for investors/analysts to get more familiar with the company during this busy period.

At current price, Ying Li is valued at a 67% discount to its NAV/share of Rmb1.94 ($0.43), compared to Yanlord's 51% discount to its NAV/share.


GLP: A foreign broker believes that GLP risks being removed from a major index, possibly triggering a selloff in the counter if that happens.

GLP is a member of the FTSE EPRA/NAREIT Developed Index, and its inclusion rests on the condition that at least 50% of EBITDA must come from developed market exposure.

The FTSE EPRA/NAREIT Developed Index was designed to represent general trends in eligible real estate equities globally. It tracks the performance of listed real estate companies and REITs globally and it is free-float adjusted, liquidity, size, and revenue screened.

The broker found out that GLP’s audited EBITDA failed to comply with the definitions of the FTSE EPREA/NAREIT Developed Index as developed markets (Japan and US) accounted for only 44% of the group's FY15 EBITDA. According to the broker, this is the second year of non-compliance for GLP.

It estimates that ~US$50b of funds currently track the index, and a removal could result in institutional pullout from the stock over a period of five days. While share buy-backs may stabilise the share price in the short term, the broker feels that it is only a matter of time before GLP is removed.

This stems from GLP’s growing exposure to China where investments are ongoing while Japanese assets are being divested to GLP J-REIT.

The FTSE Index review will be completed by 3 Sep with changes effective after 18 Sep.


Innovalues: Maybank-KE highlights that the recent share price weakness opens up buying opportunities, with management still remaining bullish in their recent meetings, maintaining its guidance for 10-15% revenue growth and 28-30% gross margin.

The house recently met with management to discuss the company’s outlook and investors’ concerns, which appear centred on: 1) the fall in CNY; 2) weaker China auto sales; and 3) the fallout from Tianjin’s port explosion in mid-Aug 2015.

Weakness in China’s auto sales in recent months did not faze management as it deemed this the result of the stock-market rout. Moreover, its customers primarily use China as a production base
for the US and European markets. In this light, CNY devaluation will benefit both its customers and Innovalues.

Innovalues is also a net beneficiary of USD strength against SGD and its other operating currencies, MYR, CNY and THB, Finally, management also updated that the Tianjin port explosion has not affected Innovalues or its customers.

With its recent share-price decline, core P/E has retreated to even more attractive single digits versus its 26% 3-year earnings CAGR. Yields are also decent at 5%.

Overall, Maybank-KE is maintain its Conviction Buy on the stock with a TP of $1.18.


Cordlife: (S$1.17) FY15 missed on higher marketing costs
Cordlife FY15 results came below street expectations, as pretax operating profit of $6.1m (-32.7%) was starkly lower than consensus' estimates of $9.1m.

Revenue expanded to $57.6m (+17.3%), driven by a 33% jump in client deliveries which stemmed from increased marketing and client acquisition efforts.

However, a slip in gross margin to 69.5% (-1.5ppt) arising from a change in sales mix, and higher marketing expenses (+45.3%) due to promotional activities in India weighed on operating profits.

Bottom line grew 6.4% to $32.5m, boosted mainly by net fair value gains (+24% to $23.3m) from its investment in US-listed China Cord Blood Corp, unrealised FX gain ($4.7m), and net finance income of $2m (FY14: nil).

Final DPS of 1¢ brought FY15 total to 2¢ (FY14: 2¢), lower than Maybank-KE's expectation of 2.1¢/share.

More importantly, the key catalyst for the stock is its upcoming EGM on 14 Sep, to seek shareholders' approval on the proposed disposal of its 13.4% stake in China Cord Blood Corp to Golden Meditech.

Maybank-KE previously touted the possibility of a takeover offer for Cordlife instead, by virtue that it could present a cheaper backdoor entry into CCBC, which is in the midst of a three-way bidding war.

At the current price, Cordlife is valued at 27.7x FY16 earnings, compared to its five-year average of 22.4x.

SG Market (28 Aug 15)

Singapore shares are expected to open higher, after Wall Street posted its second day of rally, led by a strong GDP report, which saw the US economy growing at 3.7% in 2Q versus estimates of 3.3%.

Regional bourses are trading higher this morning in Tokyo (+2.1%), Seoul (+1.3%) and Sydney (+0.9%).

From a chart perspective, the oversold STI is likely to rebound with immediate resistance at 3,000 and baseline support at 2,680.

Stocks to watch:
*Cordlife: FY15 results below estimates, with headline net profit up 6.4% to $32.5m, boosted by net fair value gains (+24% to $23.3m) from its investment in US-listed China Cord Blood Corp, unrealised FX gain ($4.7m), and net finance income of $2m (FY14: nil). Excluding those, pretax profit from operations fell 33% to $6.1m from higher marketing expenses which stemmed from promotional activities in India. Revenue expanded 17.3% to $57.6m, driven by increased awareness of its products as a result of more marketing and client acquisition efforts. Gross margin slipped 1.5ppt to 69.5% from a change in sales mix. Final DPS of 1¢, bringing FY15 total to 2¢ (FY14: 2¢). NAV/share at $0.62.

*Guocoleisure: FY15 net profit grew 23% to US$47.9m, while revenue fell 8% to US$423.2m, mainly from lower Bass Strait royalty and gaming revenue. Meanwhile, while hotel revenue was stable in GBP terms, but lower by 4% in USD terms as a result of the weakening GBP. Gross margin was relatively unchanged at 57.6%. Bottom line shored up by lower financing costs and taxes. DPS of 2.2¢ (FY14: 2.0¢). NAV/ share at US$0.89.

*ASL Marine: swung to 4QFY15 profit of $1.5m versus 4Q15 net loss of $4.1m, taking FY15 net profit to $7.9m (-64.1%). Revenue for the quarter soared 179.5% to $73.3m, driven by improvements in all segments, particularly in shipbuilding and shiprepair and conversion. Gross margin fell 9.6ppt to 14.7%. Bottom line also benefitted from lower admin expenses and finance costs. Separately, ASL won a contract to build tug and barges worth $140m. Final DPS of 0.4¢ (FY14: 1¢). NAV/share at $1.00.

*ISOTeam: FY15 net profit expanded 34.1% to $8.1m, while revenue grew 16.9% to $81.7m, largely from substantial increase in the repairs and redecoration segment, and others segment. Gross margin improved 5.4ppt to 24.7% on better R&R margins. Bottom line growth slightly slowed by increased admin and other operating expenses. Final DPS of 1.15¢ (FY14: 1¢). NAV/share at $0.324.

*Raffles Education: FY15 net profit plunged 69% to $17.0m on weaker revenue of $119.9m (-4%), mainly due to the absent of a $7.3m revenue contribution from Langfang Oriental Institute of Technology in FY14 following an equity interest swap arrangement in Jun '14. Other operating income tumbled 87% to $7.9m as $45.5m in divestment gains, $5.9m in government grant from Langfang Development Zone Treasurty Authority and $4.1m in compensation income from Langfang City Government recognised in FY14 were not repeated this year. Final DPS of 1¢ maintained. NAV/share at $0.57.

*Health Management International: 4QFY15 net profit jumped 49% to RM7.8m, taking FY15 net profit to $27.6m (+72%). Revenue for the quarter advanced 21% to RM95.3m, driven by the hospital and other healthcare services segment, led by higher patient load and average bill sizes. Gross margin expanded 2.1ppt to 28.1%. Bottom line boosted by a RM5.6m tax credit from the recognition of deferred tax assets. NAV/share at RM0.25.

*Olam: Proposed placement of 332.7m new shares (13.6% share capital) at $2.75 apiece to Mitsubishi Corporation (MC) to form a strategic partnership. Both parties intend to subsequently form a JV in Japan to tap onto MC's strong distribution and retail presence to distribute Olam products. Separately, MC will acquire 222m Olam shares from existing shareholder Kewalram Chanrai Group, bringing its stake to 20% of enlarged share capital. Post-issue, Temasek will remain as Olam's majority shareholder with a controlling 51.4% stake.

*Ezra: Divesting 50% stake in Emas AMC to Chiyoda and form a 50:50 JV, Emas Chiyoda Subsea to undertake larger and more complex offshore EPCI projects. According to sources quoted by Bloomberg, the transaction could be worth more than US$1b ($1.4b).

*Rowsley: Acquiring 75% stake in St Michael's for GBP40m ($88m), a JV set up to develop a 1.43 acre integrated development in Manchester, UK with estimated GDV of GBP200m ($440m), comprising a five-star hotel, luxury apartments, high quality office space, restaurants and bars. The equity partners are Beijing Construction Engineering (21%) plus former Manchester United football stars Gary Neville (2%) and Ryan Giggs (2%). In addition, it will pay GBP29.1m ($64.1m) to acquire 75% stake in three separate companies that respectively own Hotel Football, a 133-room boutique hotel located across Old Trafford stadium, Cafe Football, a 120-seat restaurant in east London, and GG Collections, a hotel management company that manages Hotel Football and Cafe Football. The stakes will come from Rowsley's controlling shareholder, Peter Lim and five former Manchester United football stars.

*Civmec: Decided not to proceed with acquisition of PT Global Industries Asia Pacific, a subsidiary of Technip, as the relevant parties could not reach a commercial agreement.


Wilmar: A foreign research house initiated coverage on Wilmar with a Sell rating and a TP of $2.27, suggesting a potential downside of 18.1%. Wilmar is the latest SGX-listed commodity-linked counter to come under scrutiny after Noble.

The lone Sell call hinges on the house’s belief that Wilmar’s capex programme has delivered poor returns and that its core refining business is under threat from overcapacity.

The house notes that Wilmar has spent over US$6.5b in capex over the past five years, including a US$2.6b investment in its palm & laurics segment (46% of FY14 revenue), which added an additional 9m MT of capacity.

Based on its calculation, Wilmar spent ~US$205/MT of capacity as opposed to the industry norm of US$150/MT. The premium is difficult to defend as margins in the processing industry is falling.

To substantiate this claim, it points to Wilmar’s diminishing returns on invested capital (ROIC), which averaged 5.2% over the past five years, well below its average WACC of 6.8%. The house reckons Wilmar’s ROIC will continue to be capped by the current oversupply of palm oil and soybean processing in the region.

It also highlights that processing margins across the industry have been compressed due excess capacity, which resulted in Wilmar’s processing margin declining 28.4% from FY12's US$33.4/MT to US$23.90/MT in FY14.

Consequently, it reckons Wilmar’s earnings have been largely driven by trading gains instead of processing profits. Evidence of this stems from the wide disparity between estimated CPO margin of US$8/MT and Wilmar's palm & laurics pretax margin of US$17-US$29/MT over FY13-14.

Another notable red flag is its high net gearing of 89.6% as at end FY14.

Taken in totality, the above factors imply that Wilmar is trading at a 36% premium to the sector average, at 14x FY15e EV/EBITDA and 11x FY15e P/E.

ST Engineering

ST Engineering: Deutsche today says the sell-down in ST Engineering seems overdone, trading below 1 s.d.mean from both a P/E and P/B perspective, and towards historical valuation lows.

STE is a beneficiary of USD strength, indirect beneficiary of low oil prices, and a prime candidate on increased government defence or commercial spending.

Deutsche has a Buy call on STE with TP of $3.80

HPH Trust

HPH Trust: Deutsche upgraded HPH Trust to Buy from Hold, with TP unchanged at US$0.62, citing that after the recent share price correction, an entry now would provide an attractive 8.3%.

While macro risks are mounting and the possible global slowdown would weigh on HPHT’s earnings and dividends, HPH Trust is expected to benefit from tailwinds coming from higher tariff rates and moderated labour cost increase.

In addition, cargo moving to US remains robust, and the RMB depreciation bodes well for China’s exports.

Interest expenses for the trust is also expected to stay low given the weak macro conditions which prohibits higher rates.

On the dividend front, 2H15 DPU would immediately offer investors a 4.5% yield and even under bear case, 2016 expected yield would remain above 7%, in line with historical average.

iX Biopharma

iX Biopharma: FY15 net loss widened to $10.6m from FY14’s net loss of $3m despite a more than 5.7x jump in revenue to $7.4m driven by a 7.8x jump in chemical analysis revenue to $7.3m. However, revenue gains were wiped out by a 272% leap in R&D costs to $3.7m, a 342% jump in employee compensation, a net FX loss of $1.1m (FY14: $112k gain) as well as a one-off IPO expense of $1.4m. NAV/share of $0.02.

Tan Chong International

Tan Chong International: 1H15 net profit grew 12.5% to HK$172.3m on an 80.4% jump in revenue to HK$7.2b on consolidation of results from Zero Co. (HK$2.5b). EBITDA margin remained relatively stable at 7.2% (-0.4ppt). However, bottom line was weighed on by a 93% jump in finance costs to HK$49.7m, a 27.3% increase in depreciation costs to HK$122m as well as a 4-fold jump in minority interests to HK$78.6m. Interim dividend of HK2.5¢ maintained. NAV/share of HK$6.11.


Hupsteel: 4QFY15 earnings plunged deep into the red as it reported a $9.3m net loss compared to 4QFY14’s net profit of $1.1m, taking FY15 net loss to $8.0m versus FY14 net profit of $3.6m. Revenue for the quarter slumped 36.1% to $17.5m on poor demand for steel plates from the shipbuilding, and oil & gas sectors as well as intense competition. Gross margin sank 18.4ppt to 0.1% as it wrote down the value of inventory by $3.3m. Bottom line further weighed by $4.6m goodwill impairment on its structural steel business as well as a $1.9m provision for doubtful debts. Final dividend of 0.1¢ (4QFY14: 1¢). NAV/share at $0.30.


GuocoLand: 4QFY15 net profit slumped to $125.6m (-41% y/y), bringing FY15 net profit to $243.8m (-27%). For the quarter, revenue tumbled 48% to $254.7m, due mainly to lower revenue recognised for China projects as Seasons Park in Tianjin was almost fully sold. Despite the drop, gross margin rose to 41% (+11ppt) from a change in sales mix. However, bottom line was weighed by lower other income (-37% to $81.1m) and associate losses of $0.04m (4QFY14: $14.4m) as profit was recognised for completed developments in Malaysia in the previous year. NAV/share at $2.65.

Wednesday, August 26, 2015


Ezra: News from industry site that company is looking to offload FPSOs to bring debt under control.


Oil: An increasing number of foreign brokers are highlighting that the oil market is actually better than it looks, despite crude prices sliding to six-year lows in recent days.

Both Morgan Stanley and Standard Chartered are suggesting that other measures indicate that the physical oil markets have stabilized or even strengthened.

Morgan Stanley is drawing attention to the pricing gap between monthly crude contracts and changes in relationships of regional benchmarks, which suggest that the recent oil price decline appear to be more “financial than physical”. The spread between Brent and Dubai crudes is at its narrowest in many several years, which could signal underlying strength in demand for the Middle Eastern oil.

Meanwhile, Goldman Sachs expects China to continue buying oil to refill its strategic reserve this year, citing recent data which shows that the Chinese demand for gasoline rose 17% in Jul, registering its highest growth year-to-date.

Another respite for the oil market came from the recent conclusion of Mexico’s annual hedging programme, which locked 212m barrels at 2016 prices. This represents the biggest hedge undertaken by any national government and could “remove a bearish overhang for oil”.

Maybank-KE is of the view that its measure of oil contango is at such extreme levels that typically, near term oil prices could rally.

If such a scenario materialises, the house believes that the O&M sector could rebound and that low quality names could perform relatively well in the short-term.

Overall, the house recommended strategy entails: 1) building positions in oversold, but high quality names at current depressed levels and 2) cutting exposure to those with uncertain outlook during the expected short-term bounce.

The house prefer asset-owners like Ezion (Buy: TP $1.35) with exposure to production and maintenance operations and remain negative on asset-builders such as Sembcorp Marine (Sell: TP $2.00), Nam Cheong (Sell: TP $0.17) and Vard (Sell: TP $0.35).


Silverlake: (S$0.45) Dismissed allegations but share price tanked on overhang concerns
Silverlake tanked 44% to a low of $0.355 at the open before recovering to the current $0.45 after it resumed trading today.

This followed its 22% plunge last Fri from $0.81 following a short sell report, which accused the financial software developer of engaging in suspicious related party transactions to boost its profit margins.

In a reply to a SGX query, Silverlake dismissed the allegations in the anonymous report as baseless and insinuated that the authors may be motivated by potential gains from short positions.

The report alleges possible impropriety in certain related party transactions between the group and private companies owned by the controlling shareholder, Goh Peng Ooi. These include the acquisition of Silverlake Adaptive Applications & Continuous Improvement Services in 2006, as well as the structured services business and the QR Group in 2010.

The group is seeking legal advice to defend its interests and engaging independent professional services firm Deloitte to undertake a review of the allegations and will publish its findings and conclusions on the report's veracity in due course.

The almost 50% collapse in its share price has wiped out more than $1b of its market value is three days and leaves it with a trailing P/E of 10.8x relative to its five-year historical average of 19.5x. This compares to global peers SAP SE (19x), Infosys (19.9x), Oracle Financial Services Software (29x) and Tata Consultancy Services (25x).

With no major contracts in the horizon, Maybank-KE has shaved its earnings forecasts and applied a 30% discount to its DCF valuation to factor in the overhang from the latest saga. As such, the house has cut its TP to $0.61 from $1.15 but kept its Hold rating pending better transparency.


Reits: Following the conclusion of the 2Q15 results season, OCBC notes that out of the 23 S-REITs under its coverage, all four hospitality REITs reported earnings which fell short of expectations, while the rest delivered results which were in-line.

Despite the positive boost from the SEA Games in June, it was not sufficient to offset continued softness in tourist arrivals and weak corporate sentiment.

House also notes the trend of continued moderation in rental reversions across the various sub-sectors, and REIT Managers are largely cautious on the outlook.

OCBC opts to maintain NEUTRAL on the S-REITs sector for now, despite the FTSE ST REIT Index plunging to a 3-year low recently. Nevertheless, house do see some opportunities to bargain hunt for selective stocks, and recommend Frasers Centrepoint Trust (Buy with TP of $2.24), Keppel DC REIT (Buy with TP of $1.24), Frasers Commercial Trust (Buy with TP of $1.65) and Starhill Global REIT (Buy with TP of $0.93) as top sector picks.

CapitaLand Commercial Trust

CapitaLand Commercial Trust (S$1.27): HSBC upgraded to Buy from Hold on valuation grounds with an unchanged TP of $1.65.

The house’s view on office market remains unchanged, expecting office rental to be compressed by 10% over the next two years, due to lower demand and oversupply.

Meanwhile, office prices were expected to be more resilient, largely due to robust investment demand.

HSBC perceives that recent share price pull-back is overdone and implied asset prices are at substantial discount to physical market.

At current price, CCT is trading at a 34% discount to RNAV, steepest discount since 2010 and offers FY15E DPU yield of 6.6%, highest distribution yield over the past three years.

With a potential upside of 29.9%, HSBC upgrades the REIT to Buy from Hold.


Cordlife: (S$1.09) Crucial 2½-week period
Cordlife's EGM is in 2½ weeks' time on 14 Sep, for the group to get shareholders' approval on its proposed stake disposal in China Cord Blood Corp (CCBC) to Golden Meditech (GM).

To recap, Cordlife is in an advatangeous position given its 13.4% stake in CCBC, the target amid a three-way bidding war which started in Apr this year.

Kindly refer to previous articles in Market Insight for more details.

Maybank-KE previously cited the possibility of a takeover offer for Cordlife, by virtue that it could be a cheaper backdoor entry into CCBC, especially if the competitive bidding for the company spirals further.

In such a case, Maybank-KE’s target valuation for Cordlife is above $1.62/share.

The house currently has a Buy call on Cordlife with SOTP-based TP of $1.56.

SG Market (26 Aug 15)

Singapore shares may find it hard to sustain yesterday’s rebound frollowuing the dramatic turn of the tide on Wall Street which ended in its sixth day of losses. Investors will be keeping close tabs on the Chinese trading session for greater clarity after the PBOC moved to cut benchmark interest rates.

Regional bourses opened weaker this morning in Tokyo (-0.3%) and Sydney (-0.6%), but higher in Seoul (+0.7%).

From a chart perspective, technical indicators remain oversold, with immediate resistance tipped at 2,950, and baseline support at 2,680, representing the 50% Fibonacci retracement of the 2008/09 descent.

Stocks to watch:
*Strategy: Renowned technical analyst, Tom DeMark, who successfully predicted this month’s selloff in Chinese stocks cautions that the Shanghai Composite may fall by another 13%, should it fail to close above the 3,200 level today, which could pave the way for a move to 2,590.

*Property: CapitaLand and Keppel Land are among bidders for BlackRock’s Asia Square Tower 1 in Singapore’s CBD which could be valued at more than $3.5bn. BlackRock may also look to sell Asia Square Tower 2. Norway's sovereign wealth fund is also bidding for Asia Square Tower 1 according to people familiar with the deal. According to Cushman & Wakefield, Singapore’s office rents peaked in 1Q15 as economic growth tapered, and the group is forecasting that Grade-A office rents in the CBD could slide 14% over next 2 yrs to $9.12/psf from $10.60/psf currently.

*Croesus Retail Trust: 4QFY15 distributable income gained 23.9% y/y to ¥877m, while DPU inched 1% to 2.02¢, due to an enlarged unit base. This brought FY15 total DPU to 8.08¢ (-10%). For the quarter, gross revenue jumped 25.5% to ¥1,989m, while NPI rose 18.2% to ¥1,205.6m, from new contribution of One's Mall acquired in Oct '14 and positive rent reversion at Mallage Shobu. Portfolio occupancy eased to 99.3% (-0.7ppt), while aggregate leverage reduced to 47.3% (-3.1ppt), with average debt cost at 2.02% and term to maturity at 2.9 years. NAV/unit at ¥83.95.

*Eu Yan Sang: Swung to 4Q15 net loss of $3.6m versus a net profit of $1.6m the previous year, dragging FY15 net profit to $4.6m (-70%). Revenue for the quarter fell 15% to $72.3m, largely due to macro challenges in Hong Kong and Malaysia. Gross margin held steady at 49%. First and final DPS of 0.5¢ (FY14: 2.2¢). NAV/share at $0.358.

*Silverlake Axis: Retorted the short sell report published on 20 Aug was baseless and will take necessary action to defend its interest. In relation, the group will engage Deloitte to undertake an independent review of the allegations and provide its findings and conclusions on the report's veracity, which will be published in due course. Counter will resume trading today.

*Blumont: Associate, ASX-listed Kidman Resources (10.7% stake), announced that it has established that its Burbank gold mine has a potential of yielding 99k oz of gold at a rate of 5.6g per ton, in accordance with the JORC code. Gold mining will commence in Sep as planned. The company has also commenced RC and diamond drilling programmes which aims to see if the mine has the potential for mining of other resources.

*Tritech: Entered investment framework with Zhong Xu Kang Yi, where the latter will inject $26.4m in exchange for a 60% stake in subsidiary Tritech Vavie. Tritech Vavie will then be a subsidiary of Zhong Xu.

*Linair Technologies: Clinched a $14.7m contract from Takenaka Corp, to provide air conditioning mechanical ventilation system services for the proposed development of Terminal 1 Extension at Changi Airport.

*Cordlife: EGM to obtain shareholders' approval on its proposed disposal of shares in China Cord Blood Corp is set on 14 Sep at 3pm.

Tuesday, August 25, 2015

China Fishery/ Pacific Andes

China Fishery/ Pacific Andes: Moody's says that the regulator's investigation on China Fishery (B2 stable) and its parents is credit negative.

Recall on 20 Aug, China Fishery and its parents Pacific Andes and HK-listed Pacific Andes International Holdings disclosed that they are under investigation by the Monetary Authority of Singapore and Commercial Affairs Department for an offence under the Securities and Futures Act.

China Fishery had then stated that the business and operations of the group were unaffected by the probe and will continue as usual.

However, the rating agency argued that a negative rating action is still possible if the nature or consequence of the investigation has a material impact on China Fishery's operations.

Following a sharp selldown in the past three days, both counters are priced at liquidation valuations, with Pacific Andes trading at 0.08x P/B, while China Fishery is valued at 0.09x P/B based on their respective NAVs/share of HK$1.45 ($0.26) and US$0.39 ($0.55).


O&M: With the WTI crude price below US$40 and likely to remain lower for longer, CLSA has slashed earnings and targets for most stocks under its coverage.

However, share prices are starting to reflect the sharp decline in fortunes and value is beginning to appear for some names.

House upgraded Ezion (TP: $0.98) from Outperform to BUY; Keppel Corp (TP: $6.50) from SELL to Underperform; and Sembcorp Industries (TP: $3.54) from Underperform to Outperform.

However, Sembcorp Marine (TP: $1.77) and Nam Cheong (TP: $0.13) remain SELLs.

Also, with growing concerns about the Chinese economy, CLSA downgraded Yangzijiang (TP: $1.09) from Outperform to Underperform.

Investors are advised to stay away from the O&M sector for the time being.

SG Market (25 Aug 15)

Singapore shares are likely to open lower this morning, with Wall Street ending its session with the biggest losses in four years, taking cue from the Asian market sell-off yesterday.

Regional bourses are trading lower this morning in Tokyo (-2.8%), Seoul (-0.8%) and Sydney (-0.6%).

From a chart perspective, the STI yesterday broke below its key support levels of 2,950 (Feb ’14 low) and 2,920. The next support level is tipped at 2,680, representing the 50% Fibonacci retracement of the 2008/09 descent.

Stocks to watch:
*Economy: Singapore consumer prices fell marginally to 0.4% y/y in Jul, (Jun 2015: -0.3% y/y), marking its ninth straight month in negative territory, although core inflation (CPI ex accommodation and private road transport) edged higher to +0.4% y/y (Jun 2015: +0.2% y/y), highlighting that underlying cost pressures still remain. The rise in core inflation was largely attributable to moderate decline in electricity tariffs and higher services inflation. For 2015 MAS is projecting core inflation and headline inflation to come in at the range of 0.5-1.5% and -0.5-0.5% respectively.

*Strategy: Aberdeen Asset Management highlighted that it could top up its equity holdings despite the current market sell-off, adding that lower valuations might prompt some fund managers with excess cash to buying shares rather than selling them. Having gone through the 1987 crash and the Asian crisis, the house notes that the recent mark sell-off appears “comparatively small”.

*Silverlake Axis: FY15 results below estimates, with 4QFY15 net profit inching up 1% y/y to RM74.7m, taking FY15 net profit to RM282.7m. Revenue for the quarter dipped 8% to RM126.4m, as a 23% increase in maintenance and enhancement revenue were offset by a decrease in software licensing, and an absence of software and hardware sales. Gross margin fell 5ppt to 61% from lower mix of higher margin software licensing sales. Other income jumped ~7.5x to RM24.3m on the back of an accounting gain for associate Global InfoTech post IPO, and FX gains. Final DPS of 1.2¢ (4Q14 final and special DPS: 1.8¢). NAV/share at 28.48sen.

*800 Super: FY15 net profit leapt 95.9% y/y to $17.6m partially due to a $5.4m one-time gain on disposal of property. New contracts and higher priced revised projects helped boost revenue by 22% to $140.3m. Bottom-line was slightly pressured by a 24.7% increase in other expenses to $20.1m as well as a 28% increase in employee benefits to $68.5m. Both increases were largely due to an increase in headcount, higher foreign worker levies, and the upkeep of motor vehicles associated with increased contracts. Final dividend of $0.02 (FY14: $0.01). NAV/share at $0.32.

*Kingsmen: Acquiring 5,251 sqm vacant leasehold land in Changi Business Park for $7.1m, where the company intends to build its new headquarters.

*Hong Leong Asia: Buys remaining 40% stake in Chinese JV Yunnan Yuchai Machinery Industry Company for Rmb18.2m.

*New Toyo International: Entered into a JV (50:50) MOU with Lum Chang to develop a mixed-use commercial development in Petaling Jaya, Malaysia. It owns the land on a 99-year lease with a residue of about 44 years.

*HLH Group: Acquired a 22,064sqm freehold land for mix property development in Sihanouk, Cambodia at US$7.9m, which will funded by a combination of borrowings and internal funds.

*Profit warning:
- United Food

Monday, August 24, 2015

Aviation Sector

Aviation Sector: Singapore’s aviation sector continues to be buffeted by intense headwinds as a local broker points to 2Q15 earnings that failed to inspire.

Giving a breakdown of aviation-related companies, the research house remarked that airlines continue to disappoint.

Singapore Airlines (Hold; TP: $11.27) - Uninspiring 1QFY16 results missed estimates after stripping out one-off compensation from Airbus. Notably, revenue fell 3.2% y/y.

Tigerair (Sell; TP: In review) - Continue to bleed in 1QFY16 although losses narrowed to $1.7m due primarily to lower fuel cost and the absence of restructuring expenses.

However, recent operating statistics seem to suggest that passenger load factors (PLFs) are on the mend with SIA and Tigerair reporting an increase Jul PLFs of 84.6% (+2.9ppt) and 85.3% (+2.7ppt) respectively.

That said, the research house is not sanguine about the outlook for airlines as the industry is still plagued by overcapacity especially when Middle Eastern carriers ramp up competition along SIA’s long haul routes.

Tigerair on the other hand, may have limited growth opportunities due to its small scale Singapore-based operations.

Results from aviation service providers were a mixed bag.

ST Engineering (Hold; TP: $3.33): Reported 2Q15 results that were in line even though net profit eased 6.1% y/y to $125m. Revenue (-2.6%) was largely dragged on by its weaker marine segment.

SIA Engineering (Sell; TP: $3.45): 1QFY16 results missed as net profit fell 22.5% y/y partially due a slide in revenue as well as a slump in contributions from engine repair and overhaul centres.

SATS (Hold; TP: $3.78): Remains one of the most resilient and stable counters within the sector. as 1QFY16’s core net profit was largely met expectations, buoyed by operational improvements.

The research house notes that SATS’ growth outlook remains stable as it plans to make acquisitions for overseas growth. But SIA Engineering will continue to face tough times in the near future as maintenance cycles are longer than before.

In view of these factors, the house maintains its Underweight rating on the aviation sector and warns that the headwinds it identified would be difficult to overcome.

Frasers Hospitality

Frasers Hospitality (FHT) acquired a 259-unit serviced residence property in Dalian for Rmb481.4m ($100.3m), keeping it on track to double its presence in China.

Dalian being a major port and one of the top 10 fastest growing cities in China has attracted significant amount of foreign direct investments, which amounted to US$12.5b in 2014.

The newly acquired property, Frasers Suites Dalian will be designed by renowned Hirsch Bedner Associates and is scheduled to open in 2017.

The serviced residence will be part of the mixed-use Europark Tower development, comprising a 100,000 sqm shopping mall, designer offices and luxury residential apartments, and is situated in Donggang CBD within walking distance to Dalian Port and Davos Conference Centre.

Ranging from studios to three-bedroom apartments, all units will feature living, dining, as well as bedroom areas. It will also provide facilities such as gym, swimming pool, conference and meeting areas.

This latest acquisition is one of the sixteen new properties that FHT plans to add in China, which in total will take the REIT’s China portfolio to 30 properties with more than 7,000 keys.

Other new properties in the pipeline are located at Changsha, Dalian, Hefei, Nanchang, Shenzhen, Suzhou, Tianjin, Wuxi, Xiamen, Chengdu and Shanghai.

FHT is currently trading 0.9x P/B and indicative 7.7% distribution yield. The street has 1 Buy, 2 Hold and 1 Sell rating with a consensus TP of $0.83 on the counter.


Gold: Spot price has jumped 7.1% over the past 2½ weeks from its five-year low to US$1,161/oz, amid steep losses in global equity markets.

The positive price action came on the back of a global growth slowdown led by China and dwindling expectations on the Fed rate hike in Sep, which suggested that the US economy may not be on track with its 2% inflation target.

Post 2Q filings, prominent US hedge fund manager Stan Druckenmiller loaded a significant ~20% (US$323m) of his portfolio in a gold ETF, double than his second-largest position in Facebook.

The precious metal may also be lifted by a near-term respite in the greenback if the rate hike is delayed, given the traditional inverse relationship between the two.

Currently, the street sees gold price to average US$1,193 in 2016 and US$1,212 in 2017.

SGX counters with significant exposure to gold include miners such as CNMC Goldmine, Wilton Resources and China International, as well as pawnbrokers ValueMax, MoneyMax and Maxi-Cash.

Investors may also get a direct exposure to gold via SPDR Gold ETF (code: O87).


Courts: Despite delivering relatively robust 1QFY16 results, Maybank Kim Eng believes the furniture and electronics retailer could face strong headwinds in the near term.

Although its Malaysian operations proved to be a bright spot in its latest report card, thanks in no small part to its successful launch of a credit campaign, the house reckons that sales will be hit by domestic economic issues such as political uncertainty, lacklustre economic growth, as well as a weak Malaysian ringgit.

Over in Singapore, sales have remained tepid, falling for five consecutive quarters, due largely to poor consumer sentiment on the effects of the Total Debt Servicing Ratio limit and Additional Buyer’s Stamp Duty impacting the property market and new household creation.

Another major problem for its Singaporean operations stems from the lack of a market niche given that its broad product range, which offers little pricing advantage over its competition.

Meanwhile, Indonesia is still bleeding from losses of about $2m as of 1QFY16. While expansion plans are in place, a turnaround to profitability is not expected until after 3QFY16 with the opening of its second megastore in Jakarta.

In particular, the research house notes that the lacklustre retail environment has forced Courts to focus on refurbishing and re-launching of its existing stores, rather than expand coverage, with the exception of its Indonesian operations.

On the flip side however, Courts has also undertaken various initiatives that have helped it to enhance margins through store makeovers; new retail concepts to boost sales; and the launch of new credit products.

Consequently, the house expects the group to enjoy gross margins of 33% in the next three years. However, topline estimates have been lowered to factor in the current tepid retail environment, with a pick-up in 2016/17. As such, the house maintains its Hold rating on the counter with a TP of $0.36.

Shares Buy back

Insider transactions: Asia Insider notes that buying was strong for a second week, whilst insider selling stayed weak, for the week ending 24 Aug.

Purchases: 34 companied had 76 insider purchases worth $7.76m versus 20 companies with 40 trades worth $3.1m the previous week.

Sales: One transaction worth $0.26m compared to two sale trades totaling $0.26m by insiders the previous week.

Buybacks: 33 companies made 142 repurchases worth $167m against 20 firms with 74 transactions worth $145m.

Notable transactions:
Bumitama Agri: Maiden buyback of 216,000 shares at $0.80 each, 25% lower than its Jun price, but higher than IPO price of $0.745.

OUE: First repurchase since May ’12 with 800,000 shares bought at average price of $1.85, accounting for 43% of the week's trading volume, and 18% below the Feb high.

IFS: Chairman Lim Hua Min made his first on-market trade, purchasing 54,000 at $0.33, raising his deemed holdings to 40.82%. The trade was made on the back of a 17% drop in share price since Jun.

Yongnam: CEO Seow Soon Yong bought for a first since Mar ’09 with 532,000 shares done at an average price of $0.378, increasing his direct holdings to 8.17%. Share price has fallen 58% since Nov ’14.

Sembcorp Industries: Resumed buybacks with 750,000 share done at average of $3.35, following the 31% share price drop since Apr.

Chuan Hup: Repurchased shares for the first time since Aug ’10, buying a million shares at $0.335, amid a 29% share price rise since Dec ’14.


O&M: Maybank-KE highlights that its measure of oil contango is at such extreme levels that typically, near term oil prices could rally.

If such a scenario eventuates, the house believes that the O&M sector could rally and that low quality names could perform relatively well in the short-term.

Overall, the house recommended strategy entails: 1) building positions in oversold, but high quality names at current depressed levels and 2) cutting exposure to those with uncertain outlook during the expected short-term bounce.

Overall, the house prefer asset-owners like Ezion (Buy: TP $1.35) with exposure to production and maintenance operations and remain negative on asset-builders such as Sembcorp Marine (Sell: TP $2.00), Nam Cheong (Sell: TP $0.17) and Vard (Sell: TP $0.35).


REITS: In a report released by Deutsche bank, it notes that the ST REIT index fell 4.2% to a 52-week low as the US$ rose to S$1.41. It notes that the residential sector appears to be picking up with 1,594 units sold in July. With the hungry ghost month potentially impacting August sales, Deutsche expects more aggressive launch schedules post election to help improve sentiment.

Given recent corrections to property prices, the government has maintained a watchful eye to ensure that there is a soft landing for housing prices. With the general elections coming soon, developers are expected to delay new property launches, hoping that the government will loosen cooling measures. However, as maintained just now, cooling measures would not be relaxed in the near term.

In terms of REITs, Deutsche has Buy ratings on Keppel DC REIT (TP: $1.15), CapitaLand Mall Trust (TP: $2.30), and a Sell call on Suntec REIT (TP: $1.65).

Property developers wise, Deutsche has Buy ratings on CapitaLand (TP: $4.20), City Developments (TP: $12.40), Global Logistics Properties (TP: $3.20), Overseas Union Enterprise (TP: $2.41), and Wing Tai (TP: $2.15).

Mapletree Industrial Trust

Mapletree Industrial Trust (MINT): In a recent non-deal roadshow hosted by Deutsche, management cited that recent industrial government land sales tenders have been unattractive given short land tenures and stated that it would consider acquiring assets outside of Singapore.

The trust has started to explore regional markets such as Hong Kong, China, Vietnam, Australia and Malaysia. Assets of interest include data centers given long leases and sticky tenant profiles, and those within the sponsor’s portfolio.

MINT also stated that Australia business park and industrial assets appear interesting given freehold land tenure and stronger growth.

However, cite increasingly competitive bids for assets as a challenge. On the topic of M&A, management noted that while other industrial REITs have some attractive assets, M&A is unlikely given strategic shareholders, and limited synergies.

Deutsche maintains its Hold with TP of $1.53.

SG Market (24 Aug 15)

Singapore shares are likely to receive a hammering at the open, after the bloodbath on Wall Street last Fri on growing concerns over the Chinese economy.

Regional bourses are all seeing red this morning in Tokyo (-2.4%), Seoul (-0.5%) and Sydney (-1.9%).

From a chart perspective, the STI is expected to gap below its immediate support at 2,950 (Feb ’14 low) with the next line of defence at 2,920. If that gives way, then the index may head towards 2,680, representing the 50% Fibonacci retracement of the 2008/09 descent.

Stocks to watch:
*Property: The income ceiling for HDB flats will be raised from $10,000 to $12,000, while that for ECs will be raised from $12,000 to $14,000. The government will also be making changes to the Special CPF Housing Grant (SHG), by raising its eligible household income ceiling from $6,500 $8,500 and doubling the grant to $40,000.

*Oxley Holdings: 4Q15 net profit rose 70% y/y to $16.6m on stronger revenue of $193.8m (+134%), although FY15 net profit fell 79% to $60.9m and revenue ceded 35% to $701.8m, mainly due to the completion of industrial development, Oxley Bizhub. Gross margin narrowed 10.4 ppt to 29%. Bottom line was hit by an increase in interest, advertisement and showflat expenses. Management guided that unbilled revenue of $3.4b from sold units of 14 launched projects will ensure steady future cashflow over the near term and declared a higher final dividend of 0.41¢ (FY14:0.18¢). NAV/share at $0.16.

*Frasers Hospitality Trust: Purchased a 259-unit serviced residence property in Dalian for $100m, scheduled to open in 2017.The property will be part of the mixed-use Europark Tower development comprising a 100,000 sqm lifestyle shopping mall, designer offices and luxury residential apartments.The complex is located in the Donggang CBD and is within walking distance to Dalian Port and Davos Conference Centre.

*Hi-P: Commenced arbitration proceedings against Yota Devices for US$126m in respect of Yota’s breaches of agreements for amongst others, failure to make payment for the full minimum order quantity and firm forecast committed by Yota for the Yotaphone 2.

*Tianjin Zhong Xin Pharmaceutical: Two company directors are currently being investigated by the Tianjin Commission for discipline inspection into possible violations of Chinese laws and regulations.

*BreadTalk: Entered into a voluntary compliance agreement with CASE to commit itself to fair practices. The brand was recently hit by a scandal involving misrepresentation of its packaging.

*Annaik: Proposed renounceable non-underwritten 2-for-5 rights issue at $0.07 apiece, to raise net proceeds of $3.6m (min) - $7m (max), which will be used for potential investment in distribution and environmental business, repayment of bank borrowings and working capital.

*Spackman Entertainment: Appointed KGI Capital Asia for a proposed listing in HK for its HK business.

*Serial System: Proposed to acquire 21% of food manufacturer and caterer Tong Chiang Group for $4.5m, in a bid to obtain additional income streams.

*Profit warning:
- Alliance Minerals Assets

Friday, August 21, 2015

China Fishery

China Fishery: UBS reckons the investigation should be related to trading of securities of the group companies instead of operations of the company.

While the outcome of investigation is unknown and there is no information on who in the company and the Pacific Andes are being investigated, major concerns are how the investigation and the outcome will affect the perception on its corporate governance, and its funding access going forward.

The company also disclosed that there is no loan covenant related to the chairmanship of Ng Joo Kwee.


Civmec’s 4Q15 net profit plunged 43.5% y/y to $6.5m, mainly undermined by a lower revenue of $114.7m (-31.2%) and a bad debt of $2.9m.

Full year FY15 earnings fell 13.6% to $30.3m although top-line grew 15.1% to $499.2m on new contracts. On a constant currency basis, the group recorded a 20.9% growth in revenue to A$453.4m.

Gross margin slid 2.3ppt to 12.4%, mainly due to increase in number of large scale projects, which typically yield lower margins.

The hit on bottom line was exacerbated by a 31.8% spike in administrative expenses to $25.2m, largely due to a $2.9m bad debt and higher staff costs.

Cash position improved 15.6% to $37.6m, while total borrowings were slashed by 50% to $25.4m.

A final DPS of 0.7¢ was maintained.

In FY15, the group set up a refractory division to install linings, which are able to withstand extremely hot temperatures and conditions, and has since secured two refractory contracts.

Despite a downfall in commodity and energy prices, management is sanguine about the group’s outlook as they leverage existing capabilities from resources sector to help secure infrastructure-related projects.

In addition, Civmec is pursuing new engineering and construction services opportunities within the Australian defence sector.

As of 2 Jun, Civmec has secured A$68m worth of contracts, spanning across multiple sectors from leading companies, including Rio Tinto and GE Oil & Gas.

The counter is currently trading at 4.9x FY15 trailing P/E and 1x P/B.

Genting HK

Genting HK: Fulfilling its Jul profit guidance, Genting HK reported an almost nine-fold jump in 1H15 net profit to US$2.17b, boosted largely by accounting gain of US$2.17b from partial sale and reclassification of Norwegian Cruise Lines (NCLH).

Stripping out one-off items (including net FX and fair value gains), 1H15 pretax profit would have sunk 71.6% to US$12.3m.

Revenue slipped 2.3% to US$275.1m primarily due to a 56.2% drop in non-cruise related revenue to US$10m as well as a 11.5% decline in on-board revenue (which includes F&B and gaming) to US$165.6m. This was partially mitigated by a 39.1% jump in passenger ticket sales.

On a segmental basis, its cruise and cruise-related activities saw a return to profitability with an operating profit of US$0.3m compared to US$13.5m loss in 1H14. This was mainly due to the profit contributions from Crystal Cruises acquired in May’15 and absence of promotional spending.

However, non-cruise operations more than doubled its operating losses to US$16.3m from US$7.8m a year ago. This was mainly due to wider losses from its Manila operations, and the amortisation of its Macau land.

Consequently, the group narrowed its operating losses to US$16m from 1H14’s US$21.3m.

Bottom line earnings were further weighed on by a 93.8% slump in its share of profits from NCLH to US$2.9m after it reduced its stake as well as a 18.7% drop in contributions from Travellers to US$22.6m due mainly to lower gaming volume.

Going forward, Genting HK will be taking delivery of two new 4,500-pax cruise ships in 4Q16 and 4Q17, which will reinforce Star Cruises’ leading position in the Asia-Pacific.

The addition of Crystal Cruises’s two luxury ships to its fleet is expected to expand the group's presence in the luxury segment of the cruise industry. It has ordered three new Crystal cruise ships from a German yard and will be taking delivery of its first Crystal vessel in 4Q18. Crystal will also be expanding into the fast growing ocean yachts and river cruise business over 2016-18.

Meanwhile, 45%-owned PSE-listed Travellers, which owns Resorts World Manila, will add ~3,000 rooms to expand its hotel capacity to 4,200 rooms in the next four years via extensions to Marriott and Maxims hotels and development of new hotels including Hilton Manila and Sheraton Manila. Meanwhile, construction of its second property, Bayshore City Resorts World (Phase 1) is ongoing with expected completion in 2018.

At its current price, Genting HK’s market cap of US$2.63b is at a significant 34.2% discount to its stub valuation of $4b, comprising:
-17.7% stake in Nasdaq-listed NCLH worth US$2.3b
- 45% stake in PSE-listed Travellers International worth US$712m
- 6.6% stake in ASX-listed Echo Entertainment worth US$200m
- Net cash of US$786.1m

The means that its cruise business (Star Cruises and Crystal Cruises) comes for free. Backed by this discounted valuation, the counter continues to sit in Market Insight’s Value portfolio.

Silverlake Axis

Silverlake Axis: Short Sell rpt circulating around the net with a TP of $0.29. No mention on who the short-seller is apart from the author being called razor99


Guocoland is selling its integrated mixed-use development, Beijing Dongzhimen (DMZ) project to China Cinda Asset Management for Rmb10.5b. The property developer is expected to book a significant gain of Rmb1.6b ($480m) from the transaction.

The project was acquired in 2007 for ~US$750m and was the subject of a six-year litigation battle in China surrounding ownership rights. The sale comes at a time of great volatility in China due to the depreciation of the yuan and equity market sell-off.

Guocoland had announced in Sep ’14 that some of the lawsuits have been resolved and advised that the remaining cases had no merit.

The sale essentially removes a key overhang on the stock and allows for Guocoland to reduce its outstanding debts. Post sale, Guocoland’s net gearing is expected to almost halve from its present 1.5x to 0.83x.

Aside from lowering its leverage, Guocoland could also use the sale proceeds to scout for investment opportunities around the region as a key potential catalyst.

Adding the estimated gain of $0.405/share to its Mar '15 NAV of $2.63 would give a revised book value of $3.035. At $2.07, the stock is thus trading at a generous 32% discount to post sale NAV.

Pacific Andes & China Fishery

Pacific Andes & China Fishery: (S$0.142) Under investigation for regulatory breach
Both Pacific Andes and subsidiary China Fishery will resume trading today after a two-day trading halt.

The companies have disclosed that they are under investigation by the Monetary Authority of Singapore and Commercial Affairs Department for an offence under the Securities and Futures Act.

In addition to Pacific Andes and China Fishery, parent company HK-listed Pacific Andes International Holdings, have received notices from the authorities to provide information and documents relating to dealings with certain third parties from Oct '11 till date.

Nevertheless, the group stated that business operations will not be affected and will continue as usual.

Share price for the counters are expected to fall on the back of the uncertainties. As a gauge, the NAV/share of Pacific Andes and China Fishery stood at HK$1.45 ($0.26) and US$0.39 ($0.55), respectively.

SG Market (21 Aug 15)

Singapore shares are expected to open lower, with Wall Street sinking to levels not seen since Mar, weighed by concerns on China growth slowdown.

Regional bourses are all trading lower this morning in Tokyo (-1.8%), Seoul (-1.8%) and Sydney (-1.0%).

From a chart perspective, the bearish downtrend has yet to see any respite, although technical indicators are currently oversold. Immediate support is tipped at 2,950 (Feb ’14 low), while overhead resistance is pegged at 3,150.

Stocks to watch:
*IPS Securex: FY15 net profit doubled to $2.3m, while revenue surged 25.9% to $15.7m, driven by sale of security products and maintenance and leasing business. Gross margin narrowed by 7ppt to 41.2% from lower margins in the security solutions business. Bottom line surged at a faster clip largely due to FX gains, reversal of allowance of inventory obsolescence and other operating income, offset by increased finance costs. Final DPS of 0.75¢ (FY14: nil). NAV at $0.073.

*UG Healthcare: FY15 net profit fell 35.4% to $3.2m, dragged by IPO costs of $0.8m. Revenue climbed 13.7% to $55.7m, due to increased volumes from a new production line constructed, and higher exports overseas. Gross margin fell 0.1ppt to 20.7%. Aside IPO costs, bottomline was weighed by increased marketing and admin expenses for preparation on the next phase of growth. NAV/ share at $0.197.

*Civmec: 4Q15 net profit plunged 43.5% y/y to $6.5m on lower revenue of $114.7m (-31.2%) and a one-off bad debt of $2.9m. On full year basis, earnings fell 13.6% to $30.3m while topline grew 15.1% to $499.2m on new contracts secured by the group. Gross margin for the full year narrowed 2.3ppt to 12.4%, mainly due to the increase in number of large scale projects which command lower margins. Final DPS of 0.7¢ maintained. NAV/share stood at $0.30.

*Citic Envirotech: Secured 3 wastewater treatment and water supply projects with total contract value of Rmb263m ($58m) in China. The first investment is the acquisition of a 82.5% stake in Changan, which will be building and operating a 40,000m3/day industrial wastewater treatment plant, a 30,000m3/day industrial water supply plant, and a 10,000m3/day wastewater recycling plant. The remaining investments are for the extension (+30,000 m3/day to 80,000m3/day) of a wastewater treatment plant as well as a 50,000 m3/day water supply project.

*Noble: Fitch stated that Noble has a stable financial profile based on its 2Q15 results and noted an increase in debt due to working capital expansion, of which is expected to help turnaround 2Q negative operating cash flow in 2H15. Additionally, the rating agency deems that the reduction in Noble’s credit facilities is align to its asset light model transition, but cautioned that any weakened support from the group’s banking partners may result in negative rating action.

*Perennial Real Estate (PREH): To acquire a 55% stake in a JV with Shangri-La Asia to develop a 49,874 sqm site in Ghana into an integrated development. The total development cost for the project comprising hotel (20% of gfa), residential (22%), office (34%), retail (13%) and serviced apartments (11%), is estimated to be ~US$250m.

*Pacific Andes Resources/ China Fishery: Both companies under investigation by MAS and CAD for an offence under the Securities and Futures Act. The group has received notices from the authorities to provide information and documents relating to dealings with certain third parties from Oct '11 till now.

*Hiap Seng Engineering: 49:51 JV company has been awarded with a US$57m ($80m) contract for the engineering, procurement, construction, and commissioning of field erected tanks in Malaysia. Work has already commenced and is scheduled to be completed by Jul ’17.

*Otto Marine: Taken delivery of a 238-men work maintenance vessel to fulfill a long-term bareboat charter contract worth US$27m that was secured in Jun’15. The second unit is currently under construction in a Chinese shipyard and will be completed by the end of 2015.

*OSIM: Clarified that the company is not in talks to sell its GNC franchise, as opposed to a report published by Mergermarket on 19 Aug.

*TMC Education: Proposed auction sale of two strata lots at Peninsular Plaza comprising 2,971 sf of commercial space. Reserve price for the lots at market value (Jun '15) of $5.6m.

*OKH Global: JV company with Pan Asia Logistics Group has secured 10-year lease agreement for a build-to-suit logistics property with BMW Asia. The agreement is expected to commence after completion of the property by Nov '16, and provides up to 761,000 sf of logistics space over two phases.

Thursday, August 20, 2015


Noble: (S$0.42) Index review - will it be retained in STI?
The semi-annual FTSE Index review will begin from 21 Aug over the next two weeks, with any changes to be applied after the close of market on 18 Sep.

All eyes will be on Noble, which has fallen to the number 34th spot among eligible counters for the 30 index components that make up the closely followed FSSTI.

With its market cap decimated by 65% since Feb to $2.77b, Noble now ranks behind UOL, Yangzijiang, Suntec REIT and CapitaLand Commercial Trust in the reserve list, just ahead of Genting HK at $2.76b.

According to FTSE ground rules, a company in the STI will be deleted at the review if it falls below the 41st position among eligible securities.

That position is currently is occupied by Mapletree Greater China Commercial Trust with a market cap of $2.60b, just 6.5% below Noble's.

Meanwhile, Fitch has cautioned that Noble faces an "immediate negative rating action" if banks weaken financial support for the commodity trader although the agency believes that Noble would be able to generate positive operating cash flow in 2H15 and its strong liquidity headroom supports its current BBB-/Stable rating.

Parkson Retail Asia

Parkson Retail Asia woefully missed estimates as it reversed into 4QFY15 net loss of $59.8m from a net profit of $3m a year ago. This erased prior three quarters of gains to push FY15 into net loss of $34.7m compared to FY14’s net profit o f $34.4m.

For the last quarter, revenue slumped 14.6% to $84.7m as contraction in same store sales in Malaysia (-17%) and Vietnam (-7.2%) negated gains in Indonesia (+12%) as well as first year contributions from its Myanmar operations. Reflecting the tough retail environment, core EBITDA margin dipped to -1.5% from 5% the previous year.

Geographical analysis:
Malaysia - Operations was largely affected by an overall weakness in the domestic retail space, which was aggravated by the implementation of a GST tax in Apr ‘15, prompting consumers front-loaded their purchases before 4QFY15. Consequently, revenue declined 22.3% to $58.6m, while pretax profit slipped into a marginal loss of $0.3m. (4QFY14 profit of $6.5m).

Vietnam - Weak discretionary spending compounded by the entry of competing retailers led to the 7.2% slump in same-store sales although overall revenue jumped 11.5% to $11.2m. Pretax loss narrowed to $1.7m (4QFY14: -$3.5m), due to start-up costs of new stores, as same stores incurred just a small loss of $0.2m.

Indonesia - The sole bright spot as consumer sentiment remained buoyant with revenue climbing 8.4% to $14.4m. However, pretax loss widened to $1m, dragged down by the $1.5m loss from new stores. On a same store basis, its operations turned around from a $0.2m loss in 4QFY14.

Myanmar - The new store in Yangon saw a ramp-up in sales to $0.5m after its first year of operations and almost broke even (4QFY14: -$0.4m).

Pretax performance deteriorated into whopping loss of loss of $77.7m (4QFY14: $1.9m profit) due to several non-recurring liabilities including contingent expenses ($64.8m) relating to the early termination of a lease at Landmark 72, Hanoi as well as impairment of deposits ($8.2m) due to two managed stores in Ho Chi Minh City.

Excluding these one-off items, pretax profit would have declined 5.5% on a same store basis and down 3.4% on both same store and same currency basis.

A reduced final DPS of 2¢ (4QFY14: 2.5¢) was declared, taking the full year dividend payout, including a special interim DPS of 4¢, to 6¢ (FY14: 5.5¢).

Balance sheet was solid with net cash of $126m, making up 48% of market cap.

Moving forward, management expects sluggish sales at its Malaysian operations to be dampened by the GST and depreciating ringgit. Nevertheless, it plans to open four stores in Malaysia in FY16, with a total gfa of 70,394 sqm.

Its Vietnam operations are set to be impacted by increased competition even as the economic environment picks up. But Indonesia and Myanmar should be supportive, underpinned by robust domestic demand and growing middle class. Three stores totaling 32,077 sqm, will be opened in Indonesia in FY16.

In addition, the group is looking to expand into Cambodia with its first store (36,500 sqm) in Phnom Penh commencing operations in 3QFY16.

At current prices, Parkson Retail is trading at 1.8x P/B.


Reits: Following the 2Q15 results, disappointments came mostly in hospitality. Earnings were uninspiring with downgrades for 41% of the REITs and the rest largely flat.

The biggest disappointments were in the hospitality sector which saw DPU downgrades of between 2.7% and 4.5%. Retail, Office and Industrial results were mostly in line.

Retail rent reversions slowed in 2Q15 due to the weak retail environment while REIT managers also took the opportunity to enhance tenant mix at several malls. Tenant sales continued to grow for the REITs with suburban mall exposure, similar to the trend seen in 1Q15. The more centrally located malls such as Paragon, Wisma Atria and VivoCity continued to experience weaker sales, declining 2.0-6.7% YoY.

Office market rents weakened while industrial reversions moderated. Office occupancies were stable at CCT and KREIT QoQ but weakened at Suntec. However, 2Q15 URA data showed a 2.6% decline in office rents, the biggest QoQ decline since 2009. As expected, industrial rent reversions remained low QoQ while occupancy improved for MINT, KDCREIT and AREIT.

CS believes that the retail sector is the most benign and have a preference for suburban retail REITs with OUTPERFORM ratings on CMT and FCT.

Amongst industrial REITs, house prefers KDC REIT (long wale and acquisition growth) and MINT (completion of BTS projects).


Rigbuilders: First cancellation for Korean shipbuilder DSME
Korean shipbuilder Daewoo cited that one of its clients, Vantage Drilling has cancelled a drillship order after failing to pay its instalment.

This is probably the first cancellation for an established yard.

While Vantage is not a customer of Keppel and Sembcorp Marine, Maybank-KE reckons that the incident may not be the first and the last to occur if the downturn drags on.

The house reiterates its thesis to avoid rigbuilders for now. Maybank-KE has a Sell rating on Sembcorp Marine (TP: $2.00) and Hold on Keppel Corp (TP: $7.80).

CDL Hospitality Trust

CDL Hospitality Trust: Nomura believes that current unit price presents an attractive opportunity for long term investors.

The house noted that the REIT’s unit price has fallen 20% since Mar ’15 as compared to an 11.2 % drop for the FSTREI index.

Weaker than expected RevPAR of hotels in Singapore and Maldives in 1H15 has taken its toll on unit price.

Despite a weak 1H15, the house believes current valuation is compelling because master leases of hotels in Singapore, Australia and New Zealand provide a minimum rental income of $63m/year, which translates into a minimum yield of 4% at current price for investors even if no room in the portfolio is occupied.

The house maintains a Buy rating with a lower target price of $1.81 (prior: $1.84), representing 32.6% upside potential for investors.

Trek 2000

Trek 2000: RHB maintains Buy but lowered TP by 15% to $0.52, and expects a stronger 2H15 with increased contribution from the USD50m Rely/Mattel deal.

House continues to think that Trek could also be considered as a potentially favourable acquisition target by its larger peers due to its database of valuable patents.

In addition, Trek traditionally performs much better in the latter part of the year.

Soo Kee

Soo Kee: Trading debut for jeweller Soo Kee Group. The IPO of 112.5m new shares (103.5m placement and 9m public offer) at $0.30 each was 1.1x subscribed.

Post-IPO, Soo Kee will have an enlarged share count of 562.5m shares.

The group has a retail network of over 60 stores in Singapore and Malaysia, with the former contributing 86% of total sales and the remaining from the latter.

Soo Kee intends to use the $31.6m net proceeds raised to expand its network and introduce new product lines (38%), capex for its new Changi Business Park Headquarters (10%), as well as loan repayment (19%) and working capital (33%).

With economic growth expanding at the slowest rate since 2009, consumer discretionary spending is expected to be crimped and does not bode well for the jeweller.

At the current price, Soo Kee is valued at a rather hefty 15.6x historical P/E, compared to STI's 13.7x, especially with the changing consumer patterns towards online stores and the limited growth in Singapore and Malaysia.

SG Market (20 Aug 15)

Singapore shares may take another beating with the confluence of worrisome factors that include China's growth slowdown, weakening currencies in the region, pummelling commodity prices and timing uncertainty of a US rate increase.

Investors are likely to be staying out until the dust settles.

Overnight in Wall Street, the S&P 500 closed 0.83% lower, dragged by the energy sector after oil prices plunged to new lows following an increase in crude supplies.

Regional bourses are all trading lower this morning in Tokyo (-0.2%), Seoul (-0.4%) and Sydney (-1.1%).

From a chart perspective, the bearish downtrend has yet to see any respite, although technical indicators are currently at oversold region. Immediate support at 2,950 (Feb ’14 low) and overhead resistance at 3,150.

Stocks to watch:
*Religare Health Trust (RHT): Acquired a 5.1 acres freehold land for $15.7m, adjacent to its Mohali Clinical Establishment. The new area provides headroom for expansion of up to 500 additional beds, potentially bringing total beds to 844. The acquisition is debt-funded and will lift its gearing to 19.4%.

*Thakral Corp: Established an investment programme with Aberdeen Asset Management Asia in real estate projects in Australia, with a focus in Sydney, Melbourne, and Brisbane. The six-year programme will be managed by Thakral, while Aberdeen will provide financial backing via equity or mezzanine debt.

*Sunningdale Tech: To acquire mould and prototype manufacturer Skan Tooling for €750,000 (19.5% discount to NAV).

*mm2 Asia: Binding term sheet with Mega Cinemas Management to acquire three mega cineplexes in Northern Malaysia for RM22m. The proposed acquisition is in line with group's intention to move downstream.

*Soo Kee: Trading debut for jeweller Soo Kee Group. The IPO of 112.5m new shares (103.5m placement and 9m public offer) at $0.30 each was 1.1x subscribed.

*Willas-Arrary Electronics: Profit warning for 1H15 due to share of loss from associates attributed to significant debtor provisions for doubtful debts and stock provisions for slow-moving stocks.

Wednesday, August 19, 2015


Thakral's 51% investment unit, Thakral Capital Australia has set up a 50:50 JV, GTH Resorts with PVAP, owned by the Puljich family, to develop resort-style retirement villages under the “Living Gems” brand in Australia.

The Puljich family has 30 years of track record in developing, owning and operating retirement communities totaling over 1,100 dwellings in SE Queensland, Australia.

GTH Resorts plans to acquire land in South Queensland and Northern New South Wales to develop more than 1,000 units of retirement homes and expand to other parts of Australia thereafter.

Typically, the resort-style retirement villages will be located near shopping centres, medical facilities, public transport and entertainment spots.

Thakral’s venture bodes well with an ageing population in Australia, and based on estimates from the Aged and Community Services Australia, demand for retirement housing is expected to increase more than 110% to 69,000 from 32,200 over the next decade.

Meanwhile, GTH Resorts recently acquired a 8.46-ha site at Kratzke Road, Highfields in Queensland for A$6.3m, of which it is pending local regulators’ approval to build a retirement village with 200 homes.

The total development cost of the Highfields project is projected to be A$35.7m and will be funded from internal sources, sales proceeds and bank loans.

Thakral is currently trading at 0.4x P/B.


Oil: Positive trading ahead of weekly data
Oil prices rose modestly overnight, ahead of the weekly US commercial inventory data due tonight at 10.30pm.

US benchmark WTI rose 1.76% to US$42.62 per barrel, while international benchmark Brent spent most of the trading session in the red before closing in positive territory at US$48.81 (+0.14%).

The inventory, which could provide insights into the demand situation in the world's largest consumer of crude oil, is expected to contract by 2m barrels in the week ending 14 Aug.

Following the 1.7m barrels reduction in the previous release (week ending 7 Aug), stockpiles still stood at a whopping 453.6m barrels, levels not seen for this time of year in at least the last 80 years.

Maybank-KE expects a gradual recovery in crude prices to US$70-75 per barrel by 2017. In the interim, among the few names that the house favours are Ezion (TP: $1.35), Pacific Radiance (TP: $0.80), and PACC Offshore (TP: $0.65).

SG Market (19 Aug 15)

Singapore shares could remain in the doldrums following the negative close on Wall Street, dominated by headlines from China, as investors worry that the stronger housing data could dent policy response and equity interest.

Regional bourses are trading lower this morning in Tokyo (-0.2%) and Seoul (-0.4%), but higher in Sydney (+1.3%).

From a chart perspective, the STI is in a bearish downtrend with immediate support at 2,950 (Feb ’14 low) and overhead resistance at 3,150.

Stocks to watch:
*Banks: Spore-based wealth managers are under pressure from a global move towards tax info sharing, as Asian countries including Indonesia and India chase undeclared money in S’pore. Indonesia is considering offering tax amnesty to individuals willing to repatriate funds from abroad - targeting US$225b which Jakarta says is parked in Spore alone, with bankers estimating that Indonesia accounts for ~30-50% of private banks business in Spore. Deloitte estimates that S’pore manages US$470b of private client assets.

*Tourism: S’pore Tourism Board is launching a $10m "Experience Step-Up Fund" under its Tourism Product Development Scheme to encourage businesses to develop new tourism experiences that will enhance overall visitor experience and satisfaction in S’pore. The fund will also help businesses improve amenities and infrastructure at existing attractions, precincts and retail malls to provide a better visitor experience.

*Noble: Critics highlight that Noble is avoiding real issues such as the proportion of its profits from fair valuation of MTM contracts, adding that the recent investor’s presentation was “yet another marketing attempt without any substance", with "no material new disclosure". Meanwhile, short-selling levels on the group have more than doubled over the last month, although SunGard's Astec Analytics highlighted that with the supply of the stock available for lending now reaching utilisation levels of more than 80%, this is a name that is becoming increasingly hard to borrow, which could restrict the activities of the short-sellers.

*First Resources: Jul production of CPO was at an all year high of 57,158 toones (+14% y/y) underpinned by a 14.9% jump in FFB harvest. Notably, CPO extraction rates grew a further 0.8ppt to 22.7%, besting its 2Q15 rate of 22.5%.

*Ley Choon: Secured $6m worth of contracts awarded by the PUB. The contracts entail the repair, supply, and laying of watermains, as well as other contract work for network services and are expected to start in 2015 and end in 2017.

*Midas: Secured three contracts worth Rmb94.6m to supply aluminium alloy extrusion profiles for metro trains to CNR Changchun and NPRT, both long-time customers. The orders are slated for delivery in 2015/16.

*Frasers Commercial Trust: Realised $44.1m in net proceeds after entering into an agreement with Frasers Hospitality China Square Trustee to utilise 16,000sqm for the development of a 16-storey hotel and commercial project at China Square Central. The proceeds will be used to prepay a portion of bank borrowings and be distributed to unitholders as capital distribution.

*Thakral: Entered into a 50:50 JV with the Puljich family, Australian developers of retirement resorts, to acquire sites in South Queensland and Northern New South Wales for developing more than 1,000 resort-style retirement homes before expanding across Australia. The JV, GTH Resorts recently acquired a 8.46-ha site at Highfields, Queensland for A$6.3m to build 200 homes with total development cost of A$35.7m, mainly to be funded internally, from sales proceeds and bank loans.

*SBI Offshore: Agreed to divest its entire 35% stake in Jiangyin Neptune Marine Appliance to Mr. Hua Hanshou, a Chinese businessman for US$3.5m as the associate have not contributed to the group’s cash flow despite being profitable in FY14, and the group expects the associate’s performance to deteriorate in the current year.

*Beng Kuang Marine: Proposed to undertake a share consolidation of every four existing shares for 1 new share.

Tuesday, August 18, 2015

Petra Foods

Petra Foods: (S$3.24) No chocolate rush given weak consumption and rupiah
In the past week, four local brokers have slashed their target prices for Petra Foods by an average 28% to $2.54.

This follows the chocolate manufacturer's weak 2Q15 results, which saw net profit slump 40% to US$7.4m on 13 Aug as sales in Indonesia, its main market declined 15.7% despite the run-up to Lebaran festivities, hurt by weak spending and IDR depreciation. In constant currency terms, sales was down 4.8%.

The prolonged downturn in consumption, particularly from the lower-income group (~50% of sales), led to further inventory de-stocking by its customers, which dented sales.

In addition, its inability to pass on higher costs stemming from the rising USD (~60% of raw materials) led to margin contraction.

With these two factors persisting in the current quarter, pricing and margin pressures are expected to intensify and lead to negative operating leverage.

At the current price, valuations are rich at 28.8x forward P/E, compared to its five-year average of 24.1x.

SATS and SingPost

SATS and SingPost have signed a commercial agreement to integrate respective consignment operations under one roof, which will boost productivity by more than 30%.

The ground handler will set up SATS eCommerce airhub, a new 6,000 sqm facility at Changi Airfreight Terminal to enhance consignment handling capabilities, improve efficiency and space utilisation.

The airhub is expected to be operational by Dec ’16. Upon completion, the group will become the world’s first ground handler to possess such airside facility.

Under the agreement, SingPost will become the anchor customer as it will outsource its airport consignment operations to SATS after its lease at Changi Airmail Transit Centre 2 expires by the end of 2016.

The integration will enable single scanning, sorting, and removes the need to transport consignments between facilities, thereby enhancing efficiency in the form of shorter cycle and connection times.

SATS is currently trading at 19.4x forward P/E. The street has 4 Buy and 7 Hold ratings with a consensus TP of $3.57.


SIA’s Jul’15 operating statistics were mixed as passenger traffic improved across the board, while cargo traffic fell.

On a group wide basis, passenger carriage improved 6.6% y/y against a 0.1% marginal increase in capacity. Consequently, passenger load factor (PLF) improved 2.8 ppt to 84.1%, its best ever July figure.

Carrier review:
SIA - The parent carrier’s PLF grew 2.9 ppt to 84.6% as passenger carriage improved 4% against a 1.5% decline in capacity. PLF gains were broad based, led by South West Pacific (+6.8ppt to 91%), and West Asia and Africa (+4.3ppt to 74.5%).

SilkAir - The regional carrier’s passenger carriage grew 16.5% over and above a 10.6% increase in capacity, as new routes were added to Bali and Cairns in Dec ’14 and May ’15 respectively. As a result, PLF lifted 3.8ppt to 74.3%.

Scoot - The budget carrier saw passenger carriage surging 12.7% compared to an 11.8% increase in capacity as it launched services to Osaka and Kaohsiung. This brought the total number of Scoot destinations to 15 in seven countries. PLF edged up 0.7ppt to 84.8%.

Tigerair - PLF improved by 2.7ppt to 85.3% as passenger carriage saw 3.3% growth amidst a 0.1% increase in capacity.

SIA Cargo - PLF tumbled 4.1ppt to 58.4% as cargo traffic declined 5% against capacity growth of 1.6%. PLFs declined across the board with South West Pacific (56.4%, +1.6ppt) the sole improvement amidst losses in West Asia and Africa (63.8%, -9.7ppt), Americas (59.8%, -7.6ppt), and Europe (69.3%, -6.3ppt) as demand could not keep pace with capacity additions.

Despite the improvement in passenger PLFs, management maintains that the operating environment continues to be challenging and that the growth in PLFs was largely due to promotional activities.

This could eventually come back to bite the group as yields are likely to remain compressed ever since the industry ceased fuel surcharges at the beginning of the year. IATA is forecasting an average yield decline of 7.5% in 2015.

Following its recent selloff, SIA’s now trades at a 7% discount to 1QFY16 NAV. This compares to the 0.8x P/B valuation at the trough of the global financial crisis.

The street has 6 Buy, 9 Hold, and 3 Sell ratings on the counter and a consensus TP of $11.85.


Noble: On UOB Kay Hian's Watchlist Counters. Cash upfront required for amount exceeding S$50,000.00.

First Resources

First Resources: Deutsche reiterates its Buy rating (TP: $2.85) on First Resources, citing that a positive catalyst could emerge in 4Q15, underpinned by Indonesia's biodiesel implementation.

House believes the programme will be successful, supported by the recent export levy imposed by the government in a bid to fund 44% of Indonesia's diesel market in 2016. Slated to begin in Sep/Oct 2015, this could lift CPO price by 25%.

Relatively, First Resources has strong output growth, built-in revenue options and cost discipline, which would enable the company to defend any CPO price weakness better than peers.

Petra Foods

Petra Foods: RHB downgraded its rating on Petra Foods from Buy to Sell following its weak 2Q15 results, after the distributor suffered a double blow of the IDR depreciation and weak demand in Indonesia.

The former was expected, while the latter was not. Management shared that the weak spending was most apparent amongst the lower-income group which accounts for about 50% of their sales. Many retailers and distributors also cut back on their inventory, which limited the company's ability to pass on higher costs.

With the two factors set to continue into 3Q15, margin pressure would intensify further and result in negative operating leverage.


Cordlife: (S$1.17) Attractive takeover target
In the thick of a potential bidding war for Cordlife's 9.1%-owned US-listed China Cord Blood Corp (CCBC), Cordlife's pivotal stake as its third largest shareholder entrenches the group in a favourable position.

The privatisation offer first came from CCBC's majority shareholder Golden Meditech (GM) in late-Apr, followed by cries of rejection from the second largest shareholder private equity firm Jayhawk Capital on the extremely low privatization offer.

The development has now expanded into a three-way rumble with three contenders comprising GM, rival Zhongyuan Union Cell & Gene Engineering, and Shanghai-listed Nanjing Xinjiekou Deparment Store.

Potential scenarios that would emerge from the contest are:
1) A higher bid of at least 25% above the initial offer from GM;
2) A general offer for the whole of Cordlife.

While the second option may sound a little far-fetched, Maybank-KE believes there may be a small potential given Cordlife's attractive valuations.

The house touts an offer of at least $1.62 to $2.09 per share for Cordlife, which has to be tabled before Cordlife's EGM on CCBC's privatisation offer.

At the current price, Cordlife trades at an undervalued 18x ex-cash P/E, supported by an additional $150m cash derived from its CCBC stake sale to GM, constituting more than 40% of its market cap.

SG Market (18 Aug 15)

Singapore shares are likely to have a muted opening despite the positive close on Wall Street, which saw gains by Apple, Disney and other large caps lift key indices.

Regional bourses are trading near the flatline this morning in Tokyo (+0.1%), Seoul (+0.1%) and Sydney (-0.1%).

From a chart perspective, longer term trends are still pointing to a downward direction for the STI, with immediate supports at 3,050, followed by 2,950 (Feb ’14 low).

Stocks to watch:
*Property: Data from URA showed that Jul developers' private home sales (ex EC) was at 1,594 units vs 375 in Jun, the highest monthly figure in 2 yrs, but due largely to just 1 project - Chip Eng Seng's sale of 1,169 units of High Park Residence, which accounted for 73% of total volume. The combination of sub-$1,000/psf ASP pricing and good proportion of small-format units resulted in vast majority of the units being sold below $1.0m. Property Consultants do not expect Jul's sales momentum to be sustained due to the jubilee celebrations, election fever, and Hungry Ghost month. Consultants forecast developers to sell 6,500-9,000 private homes this year.

*Noble: In an investor meeting yesterday, Noble announced that it will review all options, including selling its core businesses, to build a strong and liquid balance sheet. The group believes that it has provided for sufficient downside risk by using a 60% haircut in valuing its net Fair Value assets, and highlighted that continued growth in its production volumes in 2Q15 proves to show that the group’s stakeholders remain confident in its business proposition.

*SIA: Jul passenger traffic improved 6.6% y/y against a 0.1% increase in capacity. Consequently, passenger load factor (PLF) improved 2.8ppt to 84.1%. Management maintained that the operating environment continues to be challenging and that the growth in passenger carriage was mainly due to promotional activities at SIA as well as improved PLFs across its other carriers namel, SilkAir (+3.8 ppt to 74.3%), Scoot (+0.7ppt to 84.8%), and Tigerair (+2.7ppt to 85.3%). Cargo load factor however, slipped 4.1ppt as cargo traffic declined 5% against capacity growth of 1.6%. Load factors declined across all route regions with the exception of South West Pacific as demand could not keep pace with capacity increases.

*SATS / SingPost: SATS will set up an eCommerce airhub at a 6,000 sqm facility in Changi Airfreight Terminal 1 by Dec’16, and SingPost has entered into an agreement with SATS to outsource its airport consignment operations by end 2016. The automated facility will improve efficiency and space utilisation, as well as enhance consignment handling capabilities for both SingPost and SATS. When fully operational, the facility is expected to achieve a productivity gain of more than 30%.

*Lizhong Wheel: Privatising via a voluntary conditional cash offer at $0.50/share, or 96.1% above the last transacted price. Rationales include: to allow an avenue for shareholders to exit given absence of liquidity over the past few years, greater management flexibility, and save on listing expenses. Offer is conditional upon not less than 90% acceptances, and shareholders owning 66.7% have undertaken to accept the offer. The deal is priced at 0.6x P/B and 4.1x trailing P/E.

*Koh Brothers: Unveiled the new Sun Plaza following a $33m AEI jointly developed with Heeton Holdings (50:50). The new mall has a total net lettable area of 158,000 sqf (+5,772sqf). Both partners remarked that the suburban shopping mall has close to full occupancy and has secured anchor tenants such as NTUC Fairprice, National Library Board and Kopitiam.

*KrisEnergy: Announced that oil production from the Wassana oil field in the Gulf of Thailand commenced on 14 Aug’15. Peak rate of production is expected to hit 10,000 bbl/day.

*Japfa: 61.9%-owned subsidiary, AustAsia Investment, will form a 10%/90% JV with European-based dairy and milk processing company Food Union Group, to develop a US$200m premium milk processing plant in Shandong Province, China. The plant is expected to commence operations in 1Q17 and Japfa will supply premium raw milk to the plant, based on a long term (five-year renewable) offtake contract. When production is fully ramped up within the following two to three years, Japfa could potentially supply up to 900 metric tonnes of raw milk per day.

*CSC Holdings: Proposed renounceable non-underwritten 1-for-3 rights issue at $0.03, attached with five free warrants with exercise price at $0.01 apiece, for every rights share subscribed. Net proceeds are intended for new business ventures (47-59%) and working capital (41-53%).

*Global Invacom: Renewed sales contract with one of its major customers, a leading Southeast Asia broadcaster. In addition, all of its delayed orders of satellite dishes and low-noise blocks by major customers in US, UK and Asia have restarted since delays in 1H15.