SG Market (23 Oct 15)

Singapore shares likely to be lifted along with the buoyant mood US, Europe and possibly China, in anticipation of favourable policies coming from its 5th Plenum next week

But gains may be capped by downbeat 3Q results from index heavyweights Keppel Corp and Sembcorp Marine, which showed the world’s top two rigbuilders are not spared the downturn in the offshore O&G industry.

Regional bourses are trading higher in Tokyo (+2.3%), Seoul (+0.9%) and Sydney (+1.8%).

From a chart perspective, the STI is likely to break out of its tight trading range and head towards the next objective of 3,120 with downside support at 2,980.

Stocks to watch:
*Keppel Corp: 3Q15 results in line with estimates, with net profit down 12.4% y/y to $362.9m on revenue of $2.4b (-23.4%). The weaker topline was due to lower revenue from the O&M division (-36% to $1.4b) and infrastructure division (-30% to $536m), partially offset by a more than doubling of revenue from the property division to $487m. Operating margin fell 2.5ppt to 15.2%. Bottom-line was further weighed by a 73.4% rise in interest expenses, but offset by a 64.7% rise in associate contributions. YTD, the group's O&M division has secured $1.7b of new orders, with current net order book at $10.0b. NAV/share at $5.91.

*Sembcorp Marine: 3Q15 results way below estimates, as net profit slumped 75.7% y/y to $32.1m, on a 34% drop in revenue to $1.1b. The weak topline was mainly due to fewer rig deliveries (-43.4% to $743.8m) on deferments by customers as well as lower ship repair (-16.5% to $131.4m) revenue mitigated by contributions from offshore platforms (+6.6% to $234.7m). Operating margin fell 3.4ppt to 6.6%. Bottom line was further pressured by associate/JV losses of $24.4m (3Q14: $2.6m profit). Order book stood at $11.6b (2Q15: $10.9b) with YTD order wins of $2.9b. NAV/share at $1.43.

*Ezra: 4QFY15 turned into net loss of US$7.8m (4QFY15: +US$11m), bringing FY15 net profit to US$43.7m (-3%). Revenue of US$147.4m (+22% y/y) was boosted mainly by results from 60.9% owned Triyards. However, weak performance from the marine services division weighed on gross profit (-10% to $16.0m). NAV/share at US$0.465.

*Tigerair: 2QFY16 net loss narrowed to $12.8m (2QFY15: -182.4m), as revenue gained 12.8% y/y to $167.9m, on improved yields (+8.2%) and load factor of 84.1% (+1.6ppt). Operating loss narrowed to $10.4m (2QFY15: -$25.3m, 1QFY16: +$0.6m) from better performance for airline operations in Singapore, with slightly higher expenses (+2.4%) caused by increased aircraft maintenance, aircraft rentals and a stronger USD/SGD, which offset the lower fuel costs (-19.8%). NAV/share at $0.0837.

*Ascendas REIT: 2QFY16 core results in line, with the strong DPU surge of 13.7% y/y to 4.16¢, attributable to a non-recurring tax writeback (0.27¢/unit). Gross revenue grew 10.8% to $182.6m, underpinned by acquisitions of Aperia and The Kendall, positive rental reversions, and higher occupancy at 40 Penjuru Lane, Aperia and A-REIT City @Jinqiao. NPI (+8%) growth lagged behind amid costlier property service fees and taxes. Overall occupancy up 0.2ppt q/q to 89.0% with WALE of 3.6 years. Aggregate leverage and average cost of debt were steady at 34.6% and 2.73% respectively. NAV/unit at $2.10.

*Suntec REIT: 3Q15 results met expectations as DPU climbed 8.3% y/y to 2.52¢ on a stronger distributable income of $63.6m (+9.2%). Gross revenue (+20.4% to $86.1m) soared in tandem with NPI (+19.9% to $58.5m), bolstered by completion of Phase 3 AEI works at Suntec City and higher contribution from Suntec Singapore. Office and retail occupancy were at 98.9% (-0.1ppt q/q) and 96.5% (+1.4ppt) respectively. Aggregate leverage crept up 0.5ppt to 36.7% with an average debt cost of 2.74%. NAV/unit at $2.09.

*Frasers Commercial Trust: 4QFY15 DPU of 2.52¢ (+14% y/y) brought FY15 DPU to 9.71¢ (+14%), above management guidance. Gross revenue and NPI jumped 17% and 15% to $37.2m and $27.1m respectively, boosted by higher contributions from Alexandra Technopark, China Square Central and 55 Market Street on higher occupancies and rental reversion, but partially offset by the weakening AUD. Overall occupancy was healthy at 95.4% with WALE of 3.5 years. Aggregate leverage improved to 36.2% (-1.1ppt) with all-in borrowing cost of 2.96%. NAV/unit at $1.53.

*Sheng Siong: 3Q15 results in line, with net profit at $14.5m (+18.7% y/y) on revenue of $200m (+7.3% y/y), mainly boosted by five new stores, as well as same store sales growth (+1.1% y/y). Gross margin grew 0.1ppt y/y to 24.3%. Earnings were further boosted by higher rental income (+162% y/y) and one-off advertising support from suppliers and business partners. NAV/share at $0.153.

*Chip Eng Seng: Formed a 20% owned JV with five other partners to acquire a 11,800sqm land at Ho Chi Minh, Vietnam for a residential development.

*EMS: Signed LOI with an Asian based shipyard, worth US$570m, to supply, test, and commission six sets of major equipment packages for rigs. Formal contracts are expected to be signed by end-2015 with the delivery of the first set of equipment before Jul ‘17.

*Perennial Real Estate: Increased the total size of its maiden debt issuance to $300m from $150m, after strong interest (4.1x oversubscribed) from both public and private investors.

*IEV: Signed MOU with TL-Emrail Consortium to conduct an LNG feasibility study in Tamil Nadu, India.

*Cosco Corp: Issued profit warning for 3Q15.

*Sim Lian: Issued profit warning for 1QFY16.