Monday, November 30, 2015

Cache Logistic Trust

Cache Logistic Trust (S$0.915): Shopping for sixth warehouse in Australia

Cache Logistic Trust has signed a sales and purchase agreement with Muzzie to acquire its sixth Australian distribution warehouse facility at a total acquisition cost of A$10.5m.

The single-storey warehouse is built on a 22,760sqm freehold land and has 6,276 sqm of GLA, which also comprises a standalone training building and ancillary office space, and is adjacent to a previous warehouse acquired in early Oct '15 at 203 Viking Drive.

Upon completion of the deal, the warehouse will be leased back to existing tenant, Western Star Trucks Australia, a commercial truck importer and distributor, until August 2023, with a minimum annual rental escalation of 4% or inflation if higher.

As a result, the REIT expects the acquisition to improve income diversification and promotes steady income growth.

As at 27 Nov '15, the property has a WALE of 7.7 years, and thereby could extend Cache’s portfolio WALE to 4.46 years from 4.42 years in Sep 2015.

The warehouse landlord intends to finance the acquisition through proceeds from a private placement launched on 3 Nov, and AUD bank borrowings, which may lift its aggregate leverage to 36% from 35.6%.

At the current price, Cache Logistic Trust is trading at 0.95x P/B and offers a 8.1% indicative yield. The street has 4 Buy and 4 Hold ratings with a consensus TP of $1.05 on the REIT.


Jumbo: (S$0.38) FY15 in line; expect a fleshier FY16
The seafood restaurant chain posted FY15 earnings were in line with expectations with net profit falling 8% y/y to $10.6m on restructuring and IPO expenses.

Revenue grew 9.2% to $122.8m mainly due to full year revenue contributions from its new outlets, namely, J Café, JPOT at Parkway Parade, and its first Jumbo Seafood outlet in Shanghai. A second outlet in Shanghai was opened in Aug ‘15.

An increase in customers as well as average spending at its Riverside and Gallery outlets also helped to boost its topline performance.

Overall, the group’s domestic operations accounted for about 91.5% (FY14: 94.2%) of its total revenue with the remaining 8.5% contributed from its Shanghai operations indicating its push into China.

The revenue growth was however negated by:
1. A jump in staff costs to $34.8m (+14.2%) due to its business expansion as well as increased business activity at existing outlets
2. Increased operating lease expenses of $8.8m (+16.8%) due to additional rental expenses of its new JPOT outlet as well as an additional office unit coupled with higher rentals for existing outlets.
3. Additional other operating expenses of $13.1m (+14.4%) on professional fees arising from its restructuring exercise as well as preparation work for its recent IPO

On outlook, the group opines that the operating environment continues to remain challenging. Despite this, it remains on track to open its third outlet in Shanghai by Jan ‘16. The group expects both the second and third outlets to contribute positively to its bottom line within six months of opening.

Further down the road, it intends to establish an additional three outlets either in China or Singapore within the next two years. The group will also start paying out at least 30% of its net profits as dividends in FY16/17.

A local brokerage highlights that following the group’s restructuring exercise profit from fellow co-operative ventures, some non-controlling interests will be consolidated into PATMI as the various stakeholders had swapped their interests for shares in the group during the IPO. The broker has a Buy rating on the counter with a TP of $0.49.

China Everbright Waters

China Everbright Waters: Secured Rmb228m ($50.1m) contract with the government of Daxing District, in Beijing, for the upgrade and expansion of Beijing Daxing Tiantanghe Waster Water Treatment Project.

The project is the company’s first complying with the discharge standard of category IV surface water, which is higher than the National Grade 1A standard, and is expected to be completed by 2H16.

Commenting on the latest order win, analysts highlighted that China Everbright Water remains well-positioned to clinch more projects, as it capitalizes on its increased accessibility to government networks and strong financial support from state-owned parent China Everbright Group.

At the current price, China Everbright Water trades at 24x forward P/E.

The street has 3 Buy ratings with a TP of $0.88.


S-REITs: Maybank-KE maintains Underweight on REITs, underscoring that it remains in a derating phase.

The house argues that REITs are unlike fixed income, highlighting that dim economic prospects raise the spectre of declining occupancies and weaker rent reversions. To be sure, the fact that interest rates are rising is an additional negative.

Compounding weak demand is strong supply from 2016-18 for all sub-sectors: 2x historical demand for retail, 1.4x Office, and 1.2x industrial, making industrial the cleanest dirty shirt.

Supply for industrial should taper below demand in 2017-18, while for retail, supply could exceed demand throughout. The house also expects occupancy and rent reversions to be more challenging for retail and office than for industrial.

Valuations suggest that industrial REITs have priced in the most downside as Ascendas REIT and Mapletree Industrial Trust are trading slightly below their target yields, while AA REIT and Cache are above.

For exposure, Maybank-KE advocates hiding in Industrial REITs, to which the house prefers AREIT (63% exposed to business parks and warehouses, which faces the tightest supply) and MINT (improving occupancies despite a challenging factory market).

In the office space, much of downside also seems discounted, as CCT and KREIT are trading slightly below target yields. The exception is Suntec REIT.

Retail REITs, CMT, MCT and FCT are trading way below target yields, suggesting downside of 11.5-13.3%.

The house has the following ratings on REITs:

Retail REITs:
CMT: Sell, TP $1.66
MCT: Sell, TP $1.11
FCT: Sell, TP $1.63

Office REITs:
CCT: Hold, TP $1.25
Keppel REIT: Hold, TP $0.90
Suntec REIT: Sell, TP $1.33

Industrial REITs:
AREIT: Hold, TP $2.28
MINT: Hold, TP $1.49
Cache: Hold, TP $0.95
AIMS AMP: Hold, TP $1.47


AIMS AMP: (S$1.47) Floor area to unearth
Maybank-KE initiates on AIMS AMP (AAREIT) with Hold and TP of $1.47, citing the lack of immediate catalysts.

Sponsored by AMP Capital, a leading Australian property investor and the AIMS Financial Group, AAREIT has 26 properties with 6.1m sf of net lettable area. By rental income, 60% are from warehouses, 20% from factories and the remaining from business parks.

On the segments, Maybank-KE expects both warehouse and factory supply to peak in 2016 and translate to pressure on rent reversions in 2016-17, before stabilising in 2018 (-0.4%). While business parks supply is estimated to peak in 2016, there will be no new supply over 2017-18. Hence, reversions are expected to soften in 2016-17, before climbing again in 2018.

Risks include an outright economic recession and significant tenant risk, where master lessee CWT contributes 21.8% to the REIT's gross rental income.

SG Market (30 Nov 15)

Expect a muted opening from Singapore shares, with Wall Street ending little changed last Friday, in a shortened and quiet trading session after Thanksgiving.

Investors are likely to tread cautiously ahead of the eventful week, starting with China’s manufacturing PMI tomorrow, ECB’s meeting on Thurs where further easing is expected, and US non-farm payrolls on Friday, a likely gauge on whether Fed will raise rates next month.

Regional bourses are trading lower this morning in Tokyo (-0.3%) and Seoul (-0.8%) but flat in Sydney.

From a chart perspective, topside resistance for the STI is seen at 2,940, with support at 2,850.

Stocks to watch:
*Jumbo Group: FY15 results below estimates, as net profit fell 8% y/y to $10.6m even as revenue grew 9.2% to $122.8m due to revenue contributions from new outlets in Singapore. Bottom line was crimped by increased staff costs (+14.2%), lease expenses on its new outlet (+16.8%), as well as professional fees relating to its restructuring exercise and IPO. NAV/share at $0.089.

*Marco Polo Marine: 4QFY15 turned into net loss of $3m (4QFY14: +$2.5m), bringing FY15 net profit to $8.5m (-16%). For the quarter, revenue tumbled 35% y/y to $15.2m, mainly dragged by the deconsolidation of ship chartering operations BBR and lower utilization of its fleet due to the continued weakened shipping demand. NAV/share at $0.53.

*China Everbright Water: Secured Rmb228m ($50.1m) contract with the government of Daxing District, in Beijing, for the upgrade and expansion of Beijing Daxing Tiantanghe Waster Water Treatment Project. The project is the company’s first complying with the discharge standard of category IV surface water, which is higher than the National Grade 1A standard.

*Cordlife: China Huarong International, one of China's four major financial asset management companies, emerged as a substantial shareholder of Cordlife after a 12.77% stake acquisition on 25 Nov at $1.70 apiece.

*Olam: Grain platform aims to expand into animal feed and related businesses in Nigeria. The expansion involves setting up poultry and fish feed mills as well as hatcheries to produce day-old-chicks.

*Cache Logistics Trust: Acquired a single-storey distribution warehouse facility from Penske for a total acquisition cost of A$10.5m. The property has 6,276sqm of GLA and is located at 223 Viking Drive, 18km away from Brisbane CBD, and will be leased back to the vendor until Aug 2023, with a minimum annual rental escalation of 4%.

*CapitaLand Commercial Trust: Contrary to a media report, the trust sees complications in a potential redevelopment of the Golden Shoe Car Park due partially to the property’s specific zoning use.

*Dukang Distillers: Slowing down the development of its new factory in Pingdengxiang, Yichuan, China due to the weak operating environment. It will also slow down the relocation of its existing factory in Yichuan and will rent space in its existing factory for Rmb4m/year.

*China Fishery/ Pacific Andes: Both counters suspended after China Fishery entered provisional liquidation.

*Hiap Hoe: Entered into a heads of agreement with ISPT for proposed sale of its freehold asset located at 206 Bourke Street, Melbourne, Australia for A$118.3m.

*ISOTeam: Secured 14 new contracts in Singapore totalling $20.5m, out of which $9.4m are projects from town councils.

*Roxy-Pacific: Acquiring a 3,745 sf freehold residential site situated at Lot 2722C Mukim 23 at No. 178 Jalan Eunos, Singapore for $4.1m, which will be financed by a mix of internal funds and bank borrowings.

*Memtech Int'l: Divesting its entire 30.85% stake in Raytech to Wong Kin Peng, an existing shareholder and Managing Director of Raytech, for HK$5.4m (US$0.7m).

* Issuing 500m new ordinary shares to Zhong Hong New World Int'l at $0.20 per placement share, for a total of $100m, as well as two warrant tranches, with the first tranche being 400m warrants, with each warrant carrying the right to subscribe for one ordinary share at $0.24, and the second tranche being 100m warrants, with each warrant carrying the right to subscribe to one ordinary share at $0.30 apiece.

*METech: Terminated its proposed acquisition of a 9% stake in Advance SCT from Fort Canning (Asia), as it aborted plans to explore synergies in the metal business with the target group.

Friday, November 27, 2015

SG Banks

SG Banks: Credit Suisse examines the potential relaxation of property cooling measures in Singapore and how it would impact the banking industry.

Possible property price declines of 5-10% in 2016E arguably sets the stage for recalibration of stringent property measures in 2H16E. With home ownership rate of 90%, large corrections in property prices would not be tolerated. This is especially when residential property represents 46% of household assets.

Overall mortgage affordability remains manageable even if rates do increase. This is unlikely to have any significant effect such as distressed sales and price declines in the secondary market. After eight rounds of property cooling measures implanted by the government from 2009 the time is right to ease off these cooling measures as the policies have been successful in decreasing speculative activity in the market. The Monthly sub- sales now at 2-4% and foreign demand being curbed significantly as overall foreigner demand only at 4%.

The government has recently highlighted that property prices have increased at a faster rate compared to income and that gap must be closed. However from the long term perspective incomes have generally kept up with the property prices.

A potential relaxation of market cooling measures would bring about positive sentiment around

Overall, DBS remains the most mortgage resilient asset quality performance with a current share price of $16.90 and a TP of $22.00. While the house has a neutral rating on UOB with TP of $22.80. OCBC is rated at neutral with a TP of $9.90.


IHH (S$2.14): 3Q15 in line; Supported by stronger SGD

IHH delivered a 3Q15 core net profit of RM222.7m (+26.4% y/y) on strong SGD/MYR, although headline net profit (-19.3% to RM118.5m) was eroded by FX losses (RM217.1m) from non-Turkish Lira borrowings of Acibadem. This lifted 9M15 core earnings to RM684.6m or 72.5% of full-year consensus estimate.

Revenue jumped 15.7% to RM 2.06b, mainly on improved contributions from Parkway Pantai (+19%), Acibadem (+11%) and PLife REIT (+17%), while overall EBITDA margin narrowed 0.8ppt to 23.1%.

Segmental breakdown:

Parkway Pantai – Revenue and EBITDA soared to RM1.29b (+19%) and RM310.2m (+15%) respectively, largely underpinned by the continuous ramp up of Mouth Elizabeth Novena Hospital in Singapore and a stronger SGD, while a spike in revenue/patient (+9.6%) in Malaysia mitigated a decrease in inpatient admissions amid the introduction of GST and a general slowdown in consumption.

Acibadem – Top line growth (+11% to RM686.7m) remained strong, albeit partially dragged by a weaker Turkish Lira, given its robust operations in existing hospitals and added contribution from the more recent Acibadem Atakent Hospital. EBITDA (+5% to RM93.4m) grew at a slower pace, weighed by provision of overdue receivables and pre-operating loss from Taksim Hospital.

IMU Health – Revenue came in flat as a hike in tuition fees was doused by a lower intake for its medicine programme. EBITDA decreased by 9% due to higher expenses for marketing, staff, repair and maintenance.

PLife REIT – Revenue and EBITDA surged 17% and 16% respectively amid additional contribution from nursing homes acquired in 4Q14 and 2015, as well as a strengthening SGD.

Going forward, IHH expects sufficient capacity to support growing demand for private healthcare services across its home markets, but operation costs are likely to creep up due to higher staff cost as competition for healthcare personnel stiffens, and the impact of GST implementation in Malaysia.

Moreover, the healthcare group is also expecting currency volatility to persist.

IHH Healthcare is currently trading at 55.8x forward consensus P/E and 2.6x P/B.

Maybank-KE maintains Hold with an unchanged TP of RM6.35.

SIA Engineering

SIA Engineering: recorded their first ever share buyback over the past two days.

- 26 Nov: 216,600 shares worth $785.1k at average price of $3.62.
- 27 Nov: 218,700 shares worth $799.5k at average price of $3.65.
- Recall that it recently divested part of its stakes in SAESL and HAESL that will yield cash proceeds of SGD202m

Maybank-KE notes that the company appears to see value where the market doesn’t and is putting the cash proceeds to work.

Maybank-KE currently has a Hold on SIA Engineering with TP of $3.61. The share should offer stock support in the current soft market conditions.

SG Market (27 Nov 15)

From a chart perspective, topside resistance for the STI is seen at 2,940, with support at 2,850.

Stocks to watch:
*Economy: Industrial Production (IP) continued its poor run, falling 5.4% y/y in Oct ’15 (Sep ’15: -4.7%). M/m, IP also contracted by 2.9% although on a seasonally adjusted basis it rose 2.5%. Year-to-date, IP is down 4.6%, with weak manufacturing activities expected to persist into 4Q15 and remain a drag on GDP.

*S-chips: A study has shown that the governance gap between S-chips and the rest of the market are widening, following recent warnings issued by the SGX over “tardy disclosures” by some S-chips.

*IHH: 3Q15 results came in line with expectations, with core net profit surging 26.4% y/y to RM222.7m on a stronger SGD, although headline net profit was down 19.3% y/y to RM118.5m, eroded by one-off FX losses (RM217.1m) from non Turkish Lira borrowings by Acibadem. Revenue grew 16% to RM2.06b on a spike in revenue per patient in Malaysia (+10%) and Turkey (20%), as contributions from Parkway Pantai (+19%), Acibadem Holdings (+11%) and PLife REIT (+17%) improved. EBITDA margin narrowed 0.8ppt to 23.1%, partially weighed by tighter margin at Acibadem and IMU Health. NAV/share at RM2.71.

*City Dev: Acquired 22-acre landmark Stag Brewery, next to the River Thames in South West London for £158m. CDL plans to redevelop the site into a mixed-use development.

*China Everbright Water: Received permit to upgrade and double capacity at its waste water treatment project in Beijing for Rmb228m. Upon completion in 2H16, water tariff for the project will increase by 85.7%.

*Hongkong Land: Chief Executive Y.K.Pang will step down on 31 Jul ‘16 to move to Jardine Matheson as deputy managing director, and will be succeeded by Robert Wong, an executive director of Hongkong Land's management co. John Witt will also step down as CFO on 31 Mar ‘16 to become group finance director of Jardine Matheson, while remaining as a director of Hongkong Land's management co. Simon Dixon, finance director of Astra International, will be succeeding John Witt.

*Jardine Matheson: Adam Keswick, deputy managing director, will step down on 31 Jul ‘16 to move to London as Chairman of Matheson & Co., and will be succeeded by Y.K.Pang, Chief Executive of Hongkong Land. James Riley, group finance director, will step down on 31 Mar 2016 to move to Mandarin Oriental Int'l as Chief Executive, and will be succeeded by John Witt, CFO of Hongkong Land.

*Riverstone: Acquired a 9.364 acres land at Kamunting Raya Industrial Estate, Perak, Malaysia for RM2.89m to support business expansion by constructing a factory and worker hostels, as the land is adjoined to another existing plot owned by the company.

*China Sunshine Chemical: Entered into a Project Development Agreement with Shanxian county local government to acquire Shanxian Fulong Villa for Rmb20m ($4.4m), in an attempt to tap the growing hospitality sector in the region. The target company owns the dormant Shanxian Fu Long Lake Convention Centre, a hotel cum convention centre, and has a paid-up capital of Rmb19m.

Sembcorp Marine

Sembcorp Marine (SMM) has put out a stout defence of its case against Marco Polo Marine (MPM) over wrongful termination of a US$214.3m jack-up rig contract on purported defects just before the delivery date.

To recap, MPM had, on 17 Nov, unilaterally cancelled its jack-up rig contract with SMM on grounds that it found cracks on all the legs of the rig, and sought for a refund for its initial 10% down payment.

SMM revealed that the jack-up rig is 98% completed and in final phase of construction and testing before its contractual delivery date on 30 Nov 2015. Moreover, the contract terms provided an additional 210 days post 30 Nov for the rig to be delivered. As such, SMM argues that it has ample time to rectify any defects that MPM may have on the rig.

Hence, SMM perceives that MPM's notice of termination is wrongful and without justification and meant to avoid obligation to pay the second disbursement of US$21.4m already due under the contract. Indeed, the payment was already deferred twice at the request of MPM previously and is payable by 30 Nov.

In light of the developments, SMM will invite MPM to refer to the dispute to the Classification Society in order to resolve the matter.

Nevertheless, Maybank-KE opines that even if SMM wins the case, MPM would not have the financial capacity to pay for the outstanding amount of $193m, given its weak balance sheet and high net gearing of 0.94x, or unless it manages to secure a charter contract for the rig, which is unlikely in the current environment.

The greater implication of this saga on SMM and other yards is that it could herald other debt stricken rig owners or speculators to find various excuses to break their contracts. This trend may become more intense in 2016 if the oil price downturn continues to last for an extended period.

The house maintains a Sell rating with TP of $1.75 on Sembcorp Marine.

China Fishery

China Fishery: From

A HK Court yest (25 Nov) accepted a petition from HSBC to enter China Fish into provisional liquidation, according to three sources familiar with the case.

The move would trigger a cross-default on CFish's USD280.9m 9.75% senior bonds due 2019, a source said.

Note: This is from a proprietary source, and not/ not yet announced on SGX.

Wednesday, November 25, 2015

SIA Engineering

SIA Engineering (SIAEC): Divesting its stake in HAESL to record net gains of $149m and $38m in dividend income. However, this is a one-off gain and the restructuring of its JV with Rolls-Royce will lead to increased competition with the removal of territory-based rights.

SIAEC and SAESL effectively lose the exclusive status of being the sole Centre of Excellence in Asia Pacific, which is negative for SIAEC over the long term.

UOB Kay Hian maintains its Sell rating with TP of $3.30.


Rowsley: Leveraging on majority shareholder Peter Lim's extensive network and influence, Rowsley made a £3.2m ($6.8m) investment for a 50% stake in Fi-nestday, a JV company owned by close friends and former football stars Gary Neville and Ryan Giggs.

Fi-nestday owns the historic Northern Stock Exchange building in Manchester, UK, which will be renovated into a boutique hotel with restaurants, rooftop bar and other amenities, expected to start operations in 2017.

Channel checks showed that the 1907 building was bought by Gary Neville in early 2013 for £1.5m. This implies that the value of the property surged more than three times in barely three years, way above the 12.5% and 19% rise in prime London office properties in 2013 and 2014, respectively.

Rowsley's share price spiked to a high of $0.183 (+4.6%) in early trading today following the news.


Telco: UK Pay-TV players have been more resilient than US counterparts. Pay-TV players in US have been losing subscribers to Netflix and other over-the-top players, resulting in lower profitability.

Singapore is a much smaller market with robust free-to-air TV, and regulatory requirements may add further costs to Netflix. As such, Netflix is likely to partner with existing Pay-TV players to enter Singapore.

Channels such as HBO and CBS have gone online and are available for a monthly fee to anyone in US with a broadband connection. DBSV believes customers might subscribe to their favourite channels online directly unless Pay-TV players offer compelling in-house content as part of their Pay-TV package.

Aided by government grants, StarHub already produces some local content in Mandarin and other languages catering to certain niches. The company needs to produce more compelling content in the long term.

DBSV maintains Fully Valued on M1 (TP: $2.60) and StarHub (TP: $3.30).

Jumbo Group

Jumbo Group: UOB Kay Hian has initiated coverage on the restaurant operator, with a Buy call and TP of $0.49, guiding that as the group expands its operations in China, investors will be able to look towards stronger earnings growth and cashflow generation.

Jumbo is expected to continue riding on its strong brand name, which has long been a household name in the local F&B scene, as well being wildly popular amongst the international community, adding that Tripadvisor listed the restaurant as one of the 50 iconic attractions to visit for SG50.

Cost structure of Jumbo is also seen to be more stable, given that it does not rely on “impulse foot traffic”, and all of its outlets are not located at shopping centres, which could make the group susceptible to rental increases. Jumbo also has a central kitchen and utilizes technological upgrades e.g. ipads, which has aided in managing costs.

The group generated strong free cashflows of $4m-$13m between FY12-14, and the trend is expected to continue given that most sale transactions are on a cash basis, with extended credit terms to corporate clients making up less than 1% to total sales.

China is expected to be a new growth avenue for the group, with its first store at iAPM, Shanghai, being ranked as one of the top five restaurants in the mall by customers. The group is set to open its third outlet in Shanghai by Jan ’16, with plans to increase its outlets to 10 over the next three to five years.

At the current price, the group trades at 16.7x forward P/E.


O&M: More debt restructuring going forward?

Bloomberg reports that some oil companies which have so far been spared from the wave of defaults in the oil industry are beginning to approach creditors to revise their credit terms, with three companies this month, namely Dyna-Mac, Ezra and Pacific Radiance, seeking to alter certain debt limits or profit targets, as contract delays weigh on earnings.

Analysts are guiding that should the oil markets continue to remain depress beyond 2016, we are likely to see more players attempting to restructure their bonds, with delivery deferrals and provisioning by yards impacting on cash flows.

The last year has seen the debt-to-equity ratio of Singapore listed oil companies rising to 73.1% from 68%, with average cash holdings down 43.1% to US$165m.

Analysts added that more than half of SGD bonds that has yields of above 10% are from the oil services industry.

Maybank-KE opines that a turnaround in the O&M industry seems to be far off as even if oil prices recover from its current depressed levels, the industry will still need time to mend their balance sheets before resuming spending.

In light of the above, the house is cutting its industry FY15-17 earnings by 9-18%. Although valuations are depressed, it does not contend that investors should buy in now.

However, if investors are looking to gain some exposure on the industry, the house’s top buy remains Ezion (Buy; TP: $1.28) while its top sells include Sembcorp Marine (Sell; TP: $1.75), Nam Cheong (Sell; TP: $0.12), and Vard (Sell; TP: $0.22).

In terms of pair trades, the house recommends investors go long on Keppel Corp (Hold; TP:$7.70) and short Sembcorp Marine.


Economy: Stronger than expected 3Q GDP growth
Singapore economy expanded stronger than expected by 1.9% in 3Q15 (2Q15: 2%), compared to street expectations for a 1.4% growth.

However, MTI has yet again lowered its 2015 growth projection to close to 2%, compared to the earlier 2-2.5% forecast in the semi-annual macroeconomic review last month.

For the quarter, the outperformance was thanks to significant expansion from the services sector, which grew 3.6% due to expansion in the wholesale & retail trade sector.

However, manufacturing remained a drag as it shrank further by 6.2% y/y, extending the 4.8% contraction in 2Q15, from a fall in output of electronics, precision engineering clusters and transport engineering.

In 2016, MTI expects improved economic growth of 1-3% on the back of expansion in advanced economies and improvements in most emerging market and developing economies.

However, it also flagged downside risks to global growth outlook, citing the possibility of a significant drop in demand in China should ongoing reforms falter.

SG Market (25 Nov 15)

Singapore shares may get a slight lift from better-than-expected 3Q15 GDP growth of 1.9% vs 1.4% estimate (2Q15: 2%), while energy stocks could enjoy some respite, after oil prices rose overnight as tensions escalated following the downing of a Russian warplane jet by Turkey.

Regional bourses are trading lower this morning in Tokyo (-0.4%) and Sydney (-0.3%), but flat in Seoul.

Froma chart perspective, the STI looks set to test the 2,940 resistance, with the next objective at the psychological 3,000 mark, supported by oversold technical indicators.

Stocks to watch:
*Strategy: The Business Times reported that the STI offers best dividend yield at 4.2%, versus Asia’s average of 2.4%. The five highest dividend yield stocks are Hutchinson Port Holdings, Keppel Corp, Ascendas REIT, CapitaLand Mall Trust and Sembcorp Marine.

*O&M: Analysts highlighted that some oil borrowers are beginning to approach creditors to revise their credit terms, with three companies this month, namely Dyna-Mac, Ezra and Pacific Radiance, seeking to alter certain debt limits or profit targets, as contract delays weigh on earnings.

*SMRT: Train service was disrupted on the North-South Line this morning as a result of a power fault.

*Rowsley: Investing £3.2m for a 50% stake in a JV with former Manchester United football stars Gary Neville and Ryan Giggs, as well as Sherborne Corporate Services and Kenilworth Consultants, to extensively renovate the Northern Stock Exchange building in Manchester, UK, into a boutique hotel, with restaurants, conference/event space, rooftop bar and basement gym.

*Marco Polo Marine: Seeking refund of 10% deposit from Sembcorp Marine following its termination of a US$214.3m jack-up rig construction contract for alleged cracks on the rig’s legs.

*Spackman: Releases “The Priests” in US, Canada, Japan, Taiwand and Philippines. The movie crossed the 4.5m ticket milestone at the Korean box office on the 19th day of opening.

*Manhattan Resources: Long stop date for prposed acquisition of Singxin Resources has lapsed on 21 Nov, and the transaction parties are negotiating for a possible extension of the agreement.

*Debao Property: Investing RM20m for a 50/50 JV with Poly Ritz Development to develop a mixture of commercial and residential development on a 3.48-acre land plot in Kuala Lumpur, Malaysia, as well as a residential development on 10.47-acre land in Selangor, Malaysia.

*SHS Holdings: Clarified that a Dhaka Tribune has misreported about a JV being set up to develop a proposed solar power plant development in Bangladesh, clarifying that the proposed transaction is still in discussion, and that there is no certainty that it will take place.

Tuesday, November 24, 2015


O&G: Bloomberg writeup on leveraged O&G players seeking bond restructuring to avoid default.

HK news

HK news:Bloomberg reports inspectors were sent to 14 state-owned enterprises and 6 universities, including Guotai Junan, Haitong Securities, SAIC Motor and Shanghai Electric, according to a statement on Shanghai anti-graft agency website.

China Merchants Pacific

China Merchants Pacific: CIMB highlights CMPH being the only toll company with exposure to multiple provinces, CMHP can be more selective in choosing its investment targets, contrasting provincial SOE peers confined to home provinces.

CMHP also has the flexibility to adopt a longer investment horizon and capitalize the opportunities when private investors who are under financial stress decide to sell off their toll investments at bargain prices.

CMHP should also continue to see strong support from China Merchant Group.

Although there would be higher interest costs ahead, this should be comfortably managed, given FY16-18 interest coverage of more than 6x.

CIMB keeps its TP at $1.02, but upgrades to Add from Hold, citing the negative sentiment from rising interest cost have been priced in, as well as highlighting a 6.6% yield.

SIA Engineering

SIA Engineering: Restructuring its engine JVs with Rolls Royce and HAECO.

In short, it is divesting its 10% stake in HAESL and a 2% effective stake in SAESL for $201.9m in cash, and will book a gain of $186.8m

As part of the restructuring, RR has also replaced its geographic territory based work arrangement with a competitive omdel, where each engine shop competes for overhaul work.

Despite this shift in business model, Rolls Royce has committed to a predetermined amount of workload for SAESL from 2016 to 2030.

Maybank-KE opines that SIAEC could share part of the proceeds to shareholders. Assuming half of the proceeds are distributed, it could pay a special DPS of 9¢. If this is added to the forecasted core DPS of 14.5¢, the FY3/16 payout could come to 23.5¢, or a 6.4% yield.

The stock may react positively to the near term prospects of a special DPS, but Maybank-KE sees a slight negative from a more competitive business landscape.

Under the old regime, all Trent engine maintenance work in APAC is dominated by SAESL and HAESL. In the new regime however, all authorised engine shops can compete and secure work globally. Nevertheless, Maybank-KE is not too concerned as the maintenance of Trent engines remain a very niche offering.

Maybank-KE adjusts maintains Hold on SIAEC, but cuts TP to $3.61 from $3.75, factoring into account the removal of contributions from HAESL.

SIAEC is currently trading at 23.6x FY3/16e P/E.


Economy: Moderate further; 2016 to nudge up slightly
Headline CPI continued to deflate for the 12th month as it fell by 0.8% y/y in Oct (Sep '15: -0.6%).

Year-to-date, headline inflation averaged -0.5% y/y (10M14: +1.0%).

Housing & utilities remained the largest contributor to deflation, caused by persistent sluggish rentals, while transport costs fell on lower prices of COEs on top of a one-year road tax rebate.

Meanwhile, core inflation rose at a slower pace of 0.3% (Sep 15: 0.6%), on lower electricity tariffs and unchanged prices of retail items.

On the back of the prevailing subdued outlook given low global crude oil prices, incoming supply of newly completed housing units and industrial space, and continued soft global commodity prices, Maybank-KE believes headline inflation in Singapore would stay at the -0.5% region in 2015.

Next year, inflation is expected to nudge up slightly to +0.5% on the dissipating effect of lower global oil prices, as well as the budgetary measures that include the reduction in the concessionary foreign domestic worker levy, one year road tax rebates, abolition of national examination fees and increase in medical subsidies.

SG Market (24 Nov 15)

Singapore shares are expected to face a lacklustre opening, with latest data showing that economy remains stuck in deflationary mode after CPI continued to descend in Oct (-0.8%) vs -0.6% in Sep.

Regional bourses are trading mixed this morning, with Seoul up 0.1%, Sydney down 0.3% and Tokyo flat.

The STI appears locked within a tight trading range between 2,885 and 2,940.

Stocks to watch:
*Economy: Both headline and core inflation in Singapore moderated further in Oct ‘15 at -0.8% y/y and +0.3% y/y respectively. Food prices remain as the largest contributor to inflation, attributed to higher cost for non-cooked food. Maybank-KE expects headline inflation in Singapore to average -0.5% in 2015 and +0.5% in 2016.

*Transport: LTA has awarded the second bus package has been awarded to UK-based Go-Ahead Group. Maybank-KE expects limited impact to ComfortDelGro and SMRT, as the incumbents were not expected to win the first three packages.

*Healthcare: Stocks continue to show resilience, with the SGX Healthcare Index generating 4.9% dividend-exclusive year-to-date return, and taking its three-year return to 46.2%.

*Noble: Standard & Poor’s cautioned that the commodity trader’s rating may be cut to junk, citing concerns on the company’s liquidity.

*GLP: Signed leases totalling 69,000sqm with three existing Chinese customers, namely, Best Logistics, and STO Express, which will utilise the space to cater for growing domestic consumption in China.

*SIA Engineering: Restructuring its engine JVs with Rolls-Royce (RR) and HAECO. In essence, SIAEC is divesting its 10% stake in HAESL and a 2% effective stake in SAESL for $201.9m in cash. It will book a net gain of $186.8m.

*Midas: Secured four contracts totalling Rmb72.5m from Changchun Railway Vehicles to supply aluminium alloy extrusion profiles for metro and airport rail trains, with deliveries expected in 2015 and 2016. Three of the contracts are for China's Lanzhou Metro (Rmb31.9m), Nanchang Metro Line 2 (Rmb20m), and Wuhan Metro Line 2 (Rmb11m), while the last contract (Rmb9.6m) is for Malaysia's KLIA Ekspres and KLIA Transit trains.

*KLW: CAD has begun probe into KLW, and have already interviewed its consultant and senior executive for an alleged offence under the Securities and Futures Act.

*E2-Capital: Completed the reverse takeover by Astaka Holdings, a Malaysian-based integrated property developer in the Iskandar Region of Johor, which injected assets with an economic interest of $428m. Current projects of the group include The Astaka 1 @ Bukit Senyum, which comprises two towers of service apartments, each being 65 and 70-storey respectively, and The Astaka 2, a freehold integrated development that is undergoing architectural and infrastructure planning.

Monday, November 23, 2015


NOL: Disclosed that controlling shareholder Temasek entered into an exclusivity agreement with France's CMA CGM on a potential acquisition of NOL.

The exclusive agreement will last two weeks until the end of 7 Dec.

If the deal goes through, the combined entity will control an estimated 11.3% of the global fleet size, close to second largest Mediterranean Shipping Company, which has 13.4% of the world fleet.

The container shipping industry faced consolidation since 2008 due to the combination of excess capacity and a drop off in demand on the subprime blowout, which have led to cash burns in the industry.

Shares in NOL spiked 5.4% to a high of $1.18 in early trading, 14% discount to its NAV/share at $1.37.

Investors should note the potential risk if the deal does not go through, given that the counter has run up a steep 53% from its Aug low of $0.77/share.

SG Market (23 Nov 15)

Singapore shares could open higher, with the S&P 500 capping its best weekly gain in 2015 last Fri, as markets were buoyed by solid earnings from retailers, while the recent FOMC minutes suggest that the economy is robust enough to withstand a gradual rate hike.

Regional bourses are trading higher this morning in Tokyo (+0.1%), Seoul (+0.5%) and Sydney (+0.4%).

From a chart perspective, technical indicators are in oversold. Near term resistance is tipped at its 50-dma at 2,940, with underlying support at 2,850.

Stocks to watch:
*NOL: Controlling shareholder Temasek has entered into an exclusivity agreement with France's CMA CGM on a potential acquisition of NOL. The exclusive deal is valid till 7th Dec ’15. NAV/share at $1.37.

*Sinarmas Land: Exploring a spin-off of its Indonesian investment properties into a REIT, with tax benefits likely to be a key determinant on whether the REIT will be listed in Singapore or Jakarta. All of Sinarmas Land’s properties and assets are held at historical cost on its balance sheet. NAV/share at $0.58.

*Noble: Fitch Ratings has affirmed Noble’s liquidity position, although the agency cautioned that any weakening in Noble’s position could result in negative rating actions.

*KS Energy: JV between 80% owned subsidiary, KS Drilling and PT Java Star Rig was awarded the "KS Java Star" jack-up drilling contract, with an expected value of US$2.8m (S$4m). Work is expeted to commence on Dec ’15.

*TEHO International: Granting an option to Teco Electric & Machinery to acquire a $14.4m single storey warehouse at 47 Tuas Avenue 9. The leasehold property has a 30-year lease commencing 1 May 1991, with an option to renew another 30-years.

*Ban Leong Technologies: Divesting Audion Innovision to Mercurial Capital as the subsidiary has been loss making since FY11 and operating environment in Australia is expected to remain challenging. The divestment consideration will be based on values of inventory and fixed assets of Audion as at 31 Dec ‘15, as well as values of its intangible assets on 30 Sep ‘15.

*Roxy-Pacific: Acquiring a 13,491sf freehold residential site at Lot 2723M Mukim 23 at No. 180A Jalan Eunos, Singapore for residential apartment development. The purchase price of $10.1m will be funded via a mix of internal funds and bank borrowings.

*KOP: Entered into agreement to incorporate a 60% JV with Shanghai LuJiaZui and Shanghai Harbour City Development to develop Winterland, which involves an estimated total investment of Rmb3b in Shanghai. The development will have total GFA of 320,000 sqm, comprising an indoor ski park, hotel, retail and F&B establishments. Completion is expected between 2019-2020.

*Z-Obee: Sacked its chairman, Wang Shih Zen, enforcing a bye-law that removes a director from office once they are declared bankrupt.

Friday, November 20, 2015


DBS (S$16.80): Potential bidder for Barclays Asian wealth business?

According to The Australian Financial Review, Barclays may be keen to sell its Asian wealth-management business (AWM), with CLSA highlighting that DBS could emerge as a potential bidder should such a scenario eventuate.

A successful acquisition could lift Singapore’s largest lender to rank amongst the Top 5 Asian private banks in terms of AUM.

Barclays’s sounded out to potential takers in the first week of Nov to gauge interest for a possible sale of its Asian wealth arm, as the British lender channels more efforts to its more profitable businesses in US and UK.

Following recent acquisitions of Societe Generale’s and Coutts’s private banking business in Asia, DBS is expected to be among the candidates in line with a potential consideration of US$665m if Barclays does make a final decision to divest its AWM business.

In 2014, Barclays’s wealth management arm is estimated to have at least US$36b of assets under management (AuM), but was incurring losses with revenue around US$234m.

Assuming the deal materialises, it will elevate DBS’s AUM of US$73b in 2014 to US$109b, pushing it up among the top 5 private banker in Asia, surpassing the likes of Deutsche, JP Morgan and Julius Bear.

DBS may also achieve its 15% revenue contribution target for its wealth business three to four years ahead of schedule, while overall group earnings could be bumped up by 3%, if it is able to align Barclays’s AWM CIR and revenue margin to that of its own (CIR: 60-65%, rev. margin: 85bps of AuM).

Nevertheless, this potential deal is insufficient to convince CLSA to rerate the bank and thereby it maintains an underperform rating with a TP of $17.15 on the counter.

DBS is currently trading at 1.1x P/B and offers a 3.6% indicative dividend yield.


Strategy: Further downside risk; Stay defensive
Post-3Q15 results, Maybank-KE further trimmed its earnings estimates for Singapore corporates, particularly for the O&M sector.

The house sees more delivery deferrals and provisioning by yards, which suggest clients’ unwillingness or inability to pay due to cash flow issues.

In addition, weak companies are seeking to amend bond covenants and some are diversifying away from the O&G sector, implying low confidence for a recovery in 2016.

Hence, the house maintains a bearish view on the O&M sector and sees increasing risk for SMM (Sell, TP: $1.75).

Elsewhere, the healthcare sector outperformed substantially and is expected to remain resilient due to their defensive nature and structural growth outlook. Maybank-KE sticks with Raffles Medical (Buy, TP $5.22) and ISEC Healthcare (Buy, $0.40).

The house has cut EPS for nearly all sectors, except consumer, telcos, banks, and property.

Sixteen of its 56 stocks missed while 9 beat. Earnings that beat were of low quality, mostly bolstered by FX gains or non-recurring items. Also, balance sheets deteriorated.

The market reaction to results suggests that the negatives are not fully priced in as stock prices moved almost in line with results.

Link to report here:

SG Market (20 Nov 15)

Expect a lacklustre open from Singapore shares, taking cue from Wall Street, in a session which saw stocks fluctuating between slight gains and losses but remaining on track for gains of more than 2.5% for the week.

Regional bourses are trading lower in Tokyo (-0.4%) and Sydney (-0.1%) but higher in Seoul (+0.1%).

From a chart perspective, technical indicators are in oversold. Near term resistance is tipped at its 50-dma at 2,940, with underlying support at 2,850.

Stocks to watch:
*Economy: A business climate quarterly survey by the Business Times-UniSIM unveiled that business performance in Singapore for 3Q sank to levels not seen since the 2008 global financial crisis, with prospects similarly at its lowest level since 4Q08.

*Strategy: Post 3Q results, Maybank-KE is shaving its current earnings estimates for the Singapore, with the house turning more bearish on the Offshore & Marine sector. The lack of limited stocks outperformance, post earnings, suggests that risks are not fully priced in.

*Banks: According to The Australian Financial Review, Barclays may be exploring a sale of its Asian wealth management business. Some analysts believe that should the asset be up for sale, Singapore banks, in particular DBS, may be amongst the potential bidders.

*SGX: Added KGI Fraser Securities into its list of Full Sponsor for the Catalist Board, thereby authorizing the brokerage house to sponsor listings and oversee companies' compliance with SGX listing rules as well as their corporate governance.

*Frasers Centrepoint: Opened its second serviced residence in Tianjin, China with 192-units, bringing its total properties in China to 15. The property is part of its plan to double its portfolio to 30 properties with over 7,000 serviced apartment units by 2019.

*BH Global. Awarded series of contracts worth $6m, mainly comprising the supply of cables and lighting products to various O&M customers, as well as a supply contract to a FPSO unit. The bulk (95%) of the contracts are expected to be completed by 1Q16.

*Jaya: Granted its second 6-month extension of time until 3 Jun '16 to meet requirements for a new listing.

*Cityneon: Rolling out an initiative with Hasbro and its Transformers franchise which includes a walk-through exhibit that will open in New York, US during 2016.

Thursday, November 19, 2015

Sembcorp Marine

Sembcorp Marine (S$2.18) New FSO contract provides scant breathing space

Sembcorp Marine (SMM) clinched a contract to design and build a new floating, storage and offloading (FSO) vessel for the Japanese MODEC, scheduled for delivery in 1Q18 and will be deployed at the Maersk Oil’s Culzean field.

This marks the rig and vessel builder’s first FSO newbuilding secured on a full turnkey project basis, including engineering, procurement, construction and commissioning. Its previous FSO contracts were all conversion jobs.

Market watchers estimate that the deal may worth between US$150m and US$180m, thereby elevating SMM’s order book to about S$11.8b.

The contract win is a timely and a much needed one for the group, and helps lift some pressure off negative market sentiment, weighed by the persistent downturn in oil prices, uncertainty from Sete Brasil contracts, which account for 50% of its order book, and latest Marco Polo’s US$$214m jackup rig contract cancellation.

Nevertheless, the street is still downbeat on SMM as there are 3 Buy, 7 Hold and 13 Sell ratings with a consensus TP of $2.19 on the counter.

Sembcorp Marine is currently trading at 12x FY15 P/E.


STE: A local broker upgraded ST Engineering to Buy from Hold yesterday, citing the recent selloff was overdone.

Recall, the stock had corrected 15.1%, from the intraday high of $3.38 on 29 Oct, to the intraday low of $2.87 yesterday, in part exacerbated by 3Q15 results that were sunk by the marine business, and a lower y/y pretax profit guidance.

Amid the tempered outlook, ST Engineering was hit by a slew of TP cuts and/or downgrades. Maybank-KE’s earnings forecast for STE was cut 12%/16%/11%, consequently lowering the TP to $3.60 from $3.85. The house nevertheless remains optimistic for a cyclical rebound in aircraft maintenance driving FY17 growth.

From a tactical standpoint, a near-term rebound might be looming. Stock price has entered oversold territories on both the RSI and Stochastics indicators. As such, short-term traders may want to look out for a reversal signals, characterised by the bottoming out of the MACD histogram, RSI exiting the oversold 30 reading, and a clear crossover for the Stochastics indicator.

From a sentiment perspective, its most recent rally in Oct came in tandem with 1) brokers advocating the stock, citing valuation and defensive qualities as early as late , and 2) a global recovery in sentiment from the global rout that started in Aug. As such, a positive sentiment in equities, coupled by more brokers highlighting attractive valuations in this correction cycle may be a stock price catalyst.

ST Engineering is currently trading at 17x trailing P/E, more than -1SD below its 5-year average of 19.6x. For now, the street has 6 Buys, 6 Holds and 1 Sell on STE with a mean TP of $3.32

SG Market (19 Nov 15)

S'pore market is likely to take a breather from the selldown on oversold technicals, as well as positive spillover from the overnight rally on Wall Street but upside will be capped by the lack of any real catalyst.

Banks are seen to benefit from prospects of higher interest rates, while REITs and high-yield counters will face renewed downward pressure.

Regional bourses are trading higher this morning in Tokyo (+0.1%), Sydney (+1.3%) and Seoul (+0.6%).

From a chart perspective, technical indicators are in oversold. Near term resistance is tipped at its 50-dma at 2,940, with underlying support at 2,850.

Stocks to watch:
*Banks: The Business Times highlighted that OCBC has topped DBS in 3Q bancassurance with a 34% market share, although DBS guides that its 9MFY15 performance still makes it the market leader with ~34% market share.

*CapitaLand: Maybank-KE visited six CapitaLand projects in Shanghai, Hangzhou and Suzhou, and opines that the group’s developments demonstrate its ability to develop projects across a range of sub-asset classes. CapitaLand expects a record year of sales of 8,000 homes in China valued at Rmb14b. Maybank-KE maintains Buy with TP of $3.88.

*Sembcorp Marine: Clinched a contract to design and build a new floating, storage and offloading (FSO) vessel for MODEC, scheduled for delivery in 1Q18.

*Citic Envirotech: In advanced negotiations for water treatment projects valued at >Rmb1b (~$225m).

*HTL International: In exclusive talks with Shanghai-listed Guangdong Yihua Timber Industry for a potential corporate transaction aimed at realising value for all shareholders of the Company. A definitive transaction agreement is expected to be entered by 5 Jan '16.

*Sabana REIT: Divesting 3 Kallang Way 2A, Fong Tat Building, to existing tenant, Fong Tat Motor for $16.6m as part of its capital recycling strategy. The divestment is expected to have minimal impact on NAV, distributable income and aggregate leverage for FY15-16.

*Yamada Green: To relocate its food processing facilities to Fuzhou City, Fujian Province with its former premises used for warehousing and storage. The group will also commence sales of processed food products as one of its principal businesses. As part of its sales and marketing strategy, it will also launch online sales of its products to capitalise on demand.

*Engro Corporation: Wuhan Wuxin Materials, the group's 33/67 JV with Wuhan Iron and Steel, has obtained approval for listing on the New Third Board in China.

*Jacks International: Mandatory offer by Creative Elite has closed, with acceptances of 19.3%, bringing Creative Elite’s resulting shareholdings to 85.4% of total issued shares.

Wednesday, November 18, 2015

QT Vascular

QT Vascular: According to SGX filings, non-independent non-excutive chairman Toe Teow Heng sold 16.2m shares at $0.13 apiece on 13 Nov in an off-market transaction, bringing his stake to 0.

Otherwise, the next notable piece of news was the group's 3Q15 results released on 9 Nov.
The catheter specialist posted a 3Q15 net loss, which widened nearly 10x to a whopping US$33.3m, hurt by US$20.4m in legal expenses and a 185% spike in R&D expenses. This brought 9M15 loss to US$ 45.3m (+71.8%).

Nam Cheong

Nam Cheong: OCBC downgraded Nam Cheong's credit rating to Negative due to the group's inability to sufficiently reduce its operating cash outflow from 2Q15 to 3Q15.

Its credit profile looks to continue facing pressure due to reliance on additional borrowings to meet operational needs. Liquidity looks to be pressured as well.

Nam Cheong has an interest coverage covenant of 3.0x. Currently, OCBC estimates the interest coverage for 3Q15 to be just 3.1x. However, these estimates have not factored in capitalized interest.

Though Nam Cheong still has one more quarter to go as part of the 2H15 test period, given the tough environment, meeting the covenant could be challenging.

Sembcorp Marine

Sembcorp Marine: (S$2.23) First rig contract cancellation a foreboding of things to come?
Marco Polo Marine (MPM) has terminated a US$214.3m jackup rig contract with PPL Shipyard, Sembcorp Marine’s subsidiary, on claims that it found cracks on all three legs of the rig.

MPM had ordered the jack-up rig during the rig building boom in Feb ‘14, right before the crash in oil prices, as part of plans to expand into the rig chartering business. To-date, it has not operated a rig before and has yet to secure any charter for the intended rig, scheduled to be delivered in 4Q15.

As at end Sep '15, MPM has a net gearing of 0.94x, with cash of $15.5m and would require huge funding if it were to take delivery of the rig, which would further stress its balance sheet. It is demanding back its 10% deposit from SMM, which suggests that this was a deferred payment contract.

SMM is not taking the contract cancellation lying down, refuting MPM’s allegations, and accusing MPM of a repudiatory breach of the contract. SMM is terminating this contract on its end and claiming for amounts due.

SMM should have completed and booked a substantial portion of this contract given that it is due to be delivered in 4Q15. If the event it is unable to claim the amounts due or resell this unit, it may have to reverse the profits recognised, thereby impacting its FY15 results.

While this rig contract marks the first rig contract cancellation for SMM, the worry is that other heavily indebted clients may extend beyond just delivery deferrals and imitate MPM's actions, putting SMM’s orderbook quality at risk.

According to various sources, the following contracts are at the greatest risk of cancellation:
1) Two drillships for Transocean (US$1.1b)
2) Two jack-up rigs for Perisai (US$420m)
3) Three jack-up rigs for Oro Negro (US$1.2b)
4) A jack-up rig for Noble Corp (US$596m)

Together, they account for 40% of its $11.6b order book.

With issues being faced on multiple fronts, Maybank-KE does not see any respite for the rigbuilder any time soon, particularly with oil prices remaining depressed. The house thus reiterates its Sell rating with street low TP of $1.75.

SMM is trading at 12.4x forward P/E. The street is bearish on the counter with 3 Buy, 8 Hold, and 12 Sell ratings on the counter and a consensus TP of $2.33.

Privatisation candidates

Privatisation candidates: According the RHB, potential M&A candidates include UOB KayHian, UIC, Wheelock Properties, SMRT and Neratel.

UOB KayHian- An earlier wave of consolidation has left UOB KayHian as the only listed brokerage group in SGX. Bringing it within the bank’s fold would enable the enlarged group to cross-sell a broader suite of wealth management services to its clients.

UIC- UOL Group currently owns 44% of UIC, while Haw Par owns another 5%. Both Haw Par and UOL share a common shareholder in banking magnate Wee Cho Yaw.

Wheelock Properties- Parent Wheelock & Company, which owns 76% of its Singapore subsidiary, could choose to privatize Wheelock Properties and channel its excess cash to support its China expansion. Wheelock Properties currently sits on over $800m of cash and investment in financial securities.

SMRT- With impending changes in the financing framework for public transport infrastructure, bringing SMRT into private hands, ie Temasek Holdings, could facilitate the restructuring efforts and overcome commercial considerations as a listed

NeraTel- However, it is not because that their largest shareholders want to privatise them but rather due to the PE funds looking for exit given the long holding period. PGA Partners has held NeraTel for more than three years and may now look for buyer to take over this business.


Economy: Singapore's non-oil domestic exports (NODX) slipped 0.5% y/y in Oct, beating expectations for a larger decline of 3%.

However, this dashed hopes for a rebound following Sep's 0.3% uptick and confirms a market observer's view that Singapore is entrenched in a trade recession.

The decline was due to lower shipments of electronic shipments (Oct '15: -3.2%, Sep '15: +5.7%) and a slump in petrochemicals (Oct '15: -9%, Sep 2015: -19.1%), which outweighed the surge in pharmaceuticals (Oct '15: +44.6%, Sep '15: +6.5%).

Market observers now see trade weakness till 1Q16, on lower import intensity in US and China, as well as dimmer growth outlook in the Asean region.

Further, the deflationary trend in commodities may pose a risk to the country's NODX going forward.


S-chips: SGX has fired a warning about financial accounting practices at several S-chip companies, particularly for those with large operations in China.

The regulator is closely monitoring disclosures of these companies, especially for those which show large swings in financial positions and operating performance under perplexing circumstances.

For instance, companies reported customer claims for compensation >10x the value of sales, as well as massive write offs for receivables without clear explanations.

Further, significant loans and advances to business associates that were not part of ordinary business were made, and subsequently written off.

Names of the firms are not mentioned, but spanned a wide range of sectors, including textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail and chemical sectors.

SG Market (18 Nov 15)

Singapore shares are likely to see subdued trading as oil prices slipped back down on glut woes and on jittery sentiment over another terror scare in Europe and lack of major market catalyst.

Regional bourses are trading higher this morning in Tokyo (+0.9%) and Seoul (+0.3%) but lower in Sydney (-0.2%).

From a chart perspective, technical indicators are in oversold. Having failed to break past its 50-dma at 2,940, the STI is expected to resume its downtrend towards the underlying support at 2,850.

Stocks to watch:
*Economy: Non-oil domestic exports fell 0.5% y/y in Oct (sep: +0.3%) due to 3.2% drop in electronic exports (Sep: +5.7%). NODX to all the top 10 markets, except Japan EU and HK, declined.

*S-chips: SGX flags concerns about financial accounting practices at several S-chip companies that may result in the companies’ cash, assets or reserves being substantially eroded Firms at risk include those from textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail and chemical sectors.

*Marco Polo Marine/ Sembcorp Marine: SMM received its first contract cancellation, after Marco Polo Marine terminated a US$214.3m jackup rig contract and demanded a refund for its 10% deposit over claims of cracks found on the rig legs. Heavily indebted MP has not operated a rig before and has not secured any charter for this intended rig.

*CapitaLand: In an interview with Straits Times, the group expects to see record home sales for China projects, adding that the real estate industry in China offers good prospects over the next 10-20 years. The company is considering issuing onshore corporate bonds in China.

*Q&M Dental: Commenced preparatory work on its proposed spin-off of its China manufacturing business Aidite on China's New Third Board, and is in process of finalising the terms of a restructuring exercise

*Hyflux: To acquire a 50% stake in PT Oasis Waters International for $50m from JV partner, PT Gunawan Sejahtera. Oasis manufactures, and sells bottled drinking water in Indonesia. The deal values Oasis at $100m, or more than 10.5x P/B.

*Interra Resources: Divesting a granite quarry to PT Sanmas Mekar Abadi for a total consideration of US$3.5m as the granite business does not fit into its core strategic interest.

Tuesday, November 17, 2015

The Trendlines Group (IPO)

The Trendlines Group ($0.33): Nurturing medical and agri tech startups

The Trendlines Group, an Israeli government franchised incubator for medical and agricultural technology firms, launched an IPO on SGX’s Catalist Board, which is expected to raise $25m gross proceeds.

The IPO offers 75.76m shares, priced at $0.33 each or 1.4x P/B based on its net tangible assets as of Jun '15.

Cornerstone investor for the IPO is healthcare supplier B. Braun Melsungen AG, which will be subscribing 21.5m shares or 28.4% of the offering.

The mandate of the group is incubate and invest no more than $5m each in medical and agricultural technology companies, and subsequently exit within a time horizon of six years through either a private sale or public listing.

At present, the incubator group operates via two subsidiaries, Trendline Medical and Trendline Agtech, as well as its internal innovation centre, Trendline Labs.

Trendlines has incubated 60 companies since commencing operation in 2007, of which 17 have reached commercialisation stage and are generating revenue. In addition, five were monetised through acquisitions or sold their assets to multinational corporations.

Proceeds from the IPO will mainly be used to invest in existing and new portfolio companies, as well as expand Trendline Labs and $5m will be set aside $5m to establish new incubators, including one in Singapore by 2016.

However, the group swung to a US$2.9m pretax loss in FY14 after two profitable years (FY13: US$22.9m, FY12: US$8.6m), as revenue dropped sharply to US$8.6m (FY13: US$29.7m, FY12: US$13.8m), due to significantly lower net fair value gains and write-offs from portfolio companies.

For 1H15, it reported a pretax profit of US$5.3m, after accounting for grant of options and listing expenses, on the back of US$9m revenue.

Currently, the incubator firm do not have a fixed dividend policy and plans to retain available funds for growth.

Management opines that Singapore is ideal for its listing, given its relative small size vis-à-vis exchanges such as Nasdaq and Tel Aviv Stock Exchange.

Primepartners Corporate Finance is the sponsor, issue manager and placement agent for the IPO

Fragrance/ Aspial/ LCD Global

Fragrance/ Aspial/ LCD Global: AF Global, a 50/50 Fragrance-Aspial JV has proposed to buy over Aspial owner Koh Wee Seng's aggregate 28.9% stake in LCD Global for $74.2m in an interested party transaction.

The stake comprises 304.9m LCD shares, which includes shares held by Koh Wee Seng's 80.5%-owned Aspial (100.5m), his direct stake (152.1m) and his mother Tan Su Lan (52.3m). His brother Koh Wee Meng is the controlling shareholder of Fragrance, with a 74.3% stake.

Notably, the sale prices of the LCD shares differ for all three parties - $0.2946 for Aspial, $0.2164 for Koh Wee Seng and $0.2222 for Tan Su Lan. This translates to an average $0.243/share, or 3.4% above than LCD's closing price of $0.235.

Funding for the purchase will be through an interest-free loan of $37.1m each from Fragrance and Aspial. This compares to Fragrance's net debt of $794.4m (0.78x gearing) and Aspial's net debt of $1.13b (3.19x gearing) as at 30 Sep.

The group believes that the acquisition of LCD would enhance its existing property business with a ready portfolio of high end hotels, serviced residences and property development. Post-acquisition, AF Global will directly hold 83.5% of LCD, up from the current 54.6%.

While Aspial would have to fork out $7.5m after netting off the sale proceeds compared to Fragrance's full $37.1m, the proposed deal essentially means a drawdown of shareholder funds from both listed entities to pay their respective owners.

To recap, the Koh family and their concert parties accumulated their LCD shares back in Jun '14 when the company was the subject of a low-ball management buyout at $0.17/share.

That turned into a bidding war between the previous owner- Lum brothers, and the Koh brothers, who were substantial shareholders back then. Subsequently, the Lum brothers bowed out after share price of LCD doubled to $0.31 over a span of six weeks.


Valuetronics: From a post-2QFY16 results briefing, Maybank-KE expects that the LED contributions to Valuetronics’ will continue to decline in the next two quarters, till an eventual exit.

This is amid its consumer electronics revenue slumping 41% y/y in the quarter, largely driven by weak LED contributions, as 90% of the LED products are approaching the end of their product life.

On the bright side, Valuetronics acquired new industrial customers, including a US-based automotive customer, which already contributed a significant 3-5% of revenue. While the product is not disclosed, Maybank-KE understands that the new customer is a tier-one supplier serving automotive companies. Valuetronics is the exclusive manufacturer for one of its brands.

Management also expects two additional customers in 2HFY3/17, in the printer and telcom industries. Gross margins are expected to expand from 13.1% in FY3/15 to 14.6% in FY3/16, thanks to a better product mix.

For now, Maybank-KE cuts FY15-17 EPS by 9-16% to reflect the quick LED decline. Consequently, the house’s TP for Valuetronics falls to $0.57 from $0.62.
Valuetronics is currently trading at 6.5x FY17 P/E or 2.6x ex-cash, vs peers’ average of 9.2x.

SG Market (17 Nov 15)

Singapore shares could see some respite and track track Wall Street and oil prices higher no major move is envisaged as investors look to Oct’s NODX this morning and final 3Q GDP reading on Wed for direction.

Regional bourses are trading higher this morning in Tokyo (+1.3%), Seoul (+1.0%) and Sydney (+1.0%).

From a chart perspective, technical indicators are in oversold. Resistance for the STI is seen at 2,950, with underlying support at 2,850.

Stocks to watch:
*Property: URA data showed that Oct developer’s non-landed home sales rose 60% m/m to 546 units, with 2 project launches, namely Principal garden by UOL and Kheng Leong, and Thomson Impressions by Nanshan Group and Vivo Construction, accounting for 35.3% of total units sold. Property consultants however highlight that the overall private residential market remains subdued and developer sales activity is expected to be sluggish in Nov and Dec.

*Noble: Rating agency Moody’s has placed the group on review for a possible downgrade to junk status, given its weaker0than-expected liquidity profile and still high leverage.

*SIA: Oct's passenger traffic increased 3.4% y/y against a 1.3% expansion in capacity, thereby lifting passenger load factor (PLF) by 1.6ppt to 78.8%. Despite a higher PLF for all region except East Asia, the group opines that operating environment remains challenging. PLF for Scoot (+2.8ppt to 85.2%) and TigerAir (+0.6ppt to 79.8%) also improved, while SilkAir's PLF deteriorated 2.3ppt to 68%. Overall cargo load factor rose 0.4ppt to 65% as cargo traffic improved 9.8% against a capacity growth of 9.2%.

*City Dev: Deputy Chairman and Executive Director, Mr Kwek Leng Joo, passed away on 16 Nov ‘15 due to a sudden heart attack, which occurred during his sleep.

*First Resources: Reported a jump in FFB harvest to 296k tonnes (+19.2% y/y) with a slightly higher FFB yield of 2 tonnes/ha. CPO production grew 9.3% to 68.6k tonnes despite CPO extraction rate slipping 0.8ppt to 22.4%.

*Aspial/ Fragrance Group/ LCD Global: Interested party transaction whereby Koh Wee Meng's Fragrance will use shareholder's funds to buy over his brother Koh Wee Seng's stake aggregate 28.9% stake in LCD Global, comprising shares owned by Aspial (9.5%), himself (14.4%) and his wife (5%), at an average $0.243 apiece.

* Pacific Radiance: Setting up a 49/51 Malaysian-based JV Co (Duta Maritime Alliances) with Duta Marine, to operate a business in ship owning, chartering and provision of offshore marine related services. Separately, the group and The Cross Energy have mutually agreed to terminate the setup of a JV in Ghana, previously announced in Apr '15.

*China New Town: Agreed to sell 30% of the share capital of Changchun New Town via a share transfer agreement, at a consideration of Rmb66.3m. Following the disposal, China New Town’s stake in Changchun New Town will fall to 50% from 80%.

*SMJ: Appointed the exclusive distributor for a selected range of carpets from Mohawk Group in Singapore, Malaysia, and Indonesia. SMJ will cease supplying Mohawk’s rival, Shaw Contract’s brand of carpets as a result of the appointment.

*NauticAWT: Awarded a $3.5m engineering contract from SembCorp Marine to design living quarters for an offshore platform.

Monday, November 16, 2015


Midas: (S$0.315) Improved 3Q15 results a herald to the future?
Midas’ 3Q15 net profit soared more than 9x y/y from a low base to Rmb13.9m meeting the street’s expectations on a quarterly basis. For 9M15, the group chalked up a net profit of Rmb36.4m, 70.8% higher than the same period in the previous year.

Revenue jumped 27.2% to Rmb412.2m, driven by higher contributions from its aluminium alloy extruded products, with 84.6% of demand derived from the transport industry. But gross margin slipped 1.1ppt to 25.9% due a different product mix.

Other operating income, comprising interest income and the disposal of scrap materials, jumped 78.6% to Rmb4.7m and helped shave the 17.6% rise in admin expenses to Rmb42.9m.

Bottom line was boosted by its share of profit from 32.5% associate, Nanjing SR Puzhen Rail Transport, which soared 650% to Rmb2.5m from 3Q14’s Rmb0.3m.

Prospects in the Chinese rail industry have picked up after an acceleration of rail investment by the central government in 2H15. According to the National Development and Reform Commission, 2015 could see rail spending exceeding its target of Rmb800b on a traditionally peak season of construction in 4Q15.

In Sep and Oct alone, China approved the construction of 12 new rail projects worth a total of Rmb575b. Coupled with the pursuit of international rail projects, Midas is counting on its links in China to benefit from the surge in government investment.

With this in mind, the latest batch of results could be a herald of a potential turnaroud in its financial performance. The counter sits on Market Insight’s Growth portfolio.

Midas is currently trading at 32.1x forward P/E and 0.55x P/B.


Stratech (S$0.40): 1HFY16 landed in red; revenue to recover in 2HFY16

Stratech swung to a 1HFY16 net loss of $3.8m from a near breakeven $0.1m profit in previous year as revenue plunged 77.2% t/t to $2.1m.

Top line crumbled due to lower revenue recognition as ongoing projects have yet to achieve key milestones. Notable projects in progress include installation/upgrade of iFerret intelligent airfield/runway surveillance and foreign object & debris (FOD) detection system at Dubai Int'l Airport, Hong Kong Int'l Airport and Singapore Changi Airport.

This, coupled with its fixed overheads, dragged the bottom line into the red.

Looking ahead, management is sanguine on the group’s outlook as they expect contracts of iFerret installation at Miami Int’l Airport and iFerret upgrade at Changi Airport second runway to contribute to 2HFY16 results and beyond.

In addition, the group noted that 217 out of 7,400 IATA-registered airports are moving toward adoption of FOD detection systems and is targeting to bag contracts from 37 of these airports over the next three to five years.

Valuations are meaningless for the counter at this point in time given the lack of profitability and infancy stage of the industry cycle.


OUE (S$1.75): 3Q15 property investments outshine development business

OUE 3Q15 results met expectations, despite net profit slipping 8.9% y/y to $15m, bringing 9M15 earnings to $75.9m or 79% of full year consensus estimate.

Revenue eased 6.9% to $98.9m, undermined by the absence of property development income (3Q14: $11.8m) from OUE Twin Peaks and a marginally weaker hospitality division (-1.5% to $52.4m), but partially cushioned by a stronger rental income (+15% to $43.7m) on improved occupancy at US Bank Tower.

As a result, gross margin shrank by 3.1ppt to 37.7%.

Bottom line was hit by higher administrative cost (+46.3%), higher finance expenses (+71.5%) and fair value losses of investments ($1.3m), but this was negated by FX gain of $8.8m from USD receivables and higher contributions from associates of $26.2m (+103%) after accounting for the results of newly acquired HK-listed Gemdale Properties & Investment Corp.

Net gearing eased to 0.41x from 0.44x following the divestment of Crowne Plaza Changi Airport (CPCA) to OUE Hospitality REIT (OUE H-REIT).

Going forward, management plans to stay focused on asset enhancement initiatives at OUE Downtown and US Bank Tower, both scheduled for completion in 2016.

As part of ongoing efforts to unlock its stabilised assets, the property group injected of its 83.33% stake in One Raffle Place into OUE Commercial Trust in Oct '15 and plans to divest CPCA’s 10-storey hotel extension to OUE Hospitality Trust upon completion of construction by Jun ’16.

OUE is currently trading at 21.7x forward consensus P/E and 0.4x P/B.


ComfortDelGro: (S$2.99) Stronger 3Q15 results belies potential headwinds
The public transport operator turned in 3Q15 net profit of $85.2m (+5.4% y/y) on revenue of $1.04b (+1%). That brought 9M15 earnings to $233.7m (+6.3%) attaining 77% of the street’s consensus estimate.

Topline performance was driven by growth across most segments, particularly from bus (+3.4%), taxi (+2.4%), and rail (+7.3%), pared by its automotive engineering business (-15.1%).

Key segmental highlights:
Bus - Turnover rose 3.4% to $545.5m (51% of total revenue), partially eroded by an unfavourable FX translation of $7.9m from the weaker AUD offset by a stronger GBP. Revenue from Singapore operations jumped 5.3% to $214.2m. Contributions from overseas operations accounted for 60.8% of bus revenue (3Q14: 61.5%). Operating profit rose 19.6% to $54.3m, possibly on its UK and Australian expansion, which led to better margin of 10% (+1.3ppt).

Taxi - Revenue grew 2.4% to $$335.2m on favourable FX translation of $4.1m from the stronger RMB and GBP, with Singapore taxi business notching a 2.8% increase to $253.9m . Overseas taxis contributed 24.3% of total taxi revenue (3Q14: 24.5%). Turnover was up 6% to $44.1m in China but slipped in UK (-2.2%) and Australia (-22%). Operating profit rose 8.4% to $46.6m on stronger margin of 13.9% (0.8ppt).

Rail - Revenue leapt 7.3% to $54.7m on higher average daily ridership for NEL (+4.2%), DTL (+15.2%), Punggol/Sengkang LRT (+15.5%) and average fare. However, operating profit slumped 63.6% to $0.8m on ramp-up costs from DTL.

Going forward, management expects revenue from its bus, rail, and taxi businesses to improve but automotive engineering services, and inspection and testing services businesses will continue to be a drag on top line growth.

However, with public transport fares set to be cut by 1.9% from 27 Dec onwards, its local bus and rail operations could see more muted growth in 1Q16. The Public Transport Council is slated to review fares in Apr ‘16.

In addition, the group could see its market leading position in the domestic taxi industry tested with apps such as Uber and GrabTaxi.

The group is currently in a net cash position of $3.7m, giving it ample headroom to take on more debt and expand its operations.

ComfortDelGro is currently trading at 21x forward P/E with the street largely divided with 7 Buy, 4 Hold, and 2 Sell ratings on the counter and a consensus TP of $3.29.

Latest broker ratings:
CIMB downgrades to Hold, cuts TP to $3.17 from $3.39
UOB Kay Hian maintains Buy with TP of $3.30
Daiwa maintains Buy and raises TP to $3.55 from $3.46
Deutsche maintains Buy with TP of $3.88

Insider Trades

Insider Trades: Asia Insider notes that director activity rebounded, although buyers outweigh sellers in the holiday shortened week ending 13 Nov.

Purchases: 9 companies saw 14 transactions worth $7.9m, vs. seven firms, 17 purchases worth $0.77m the week before.

Sales: Three firms saw seven disposals worth $0.61m, vs one disposal worth $0.68 the week prior.

Buybacks: 11 firms had 35 repurchases worth $7.53m, vs seven firms, 13 transactions worth $9m.

Notable transactions:
Trek 2000: Resumed buybacks with 42,000 shares purchased at 31¢, after announcing a 27.6% drop in 3Q15 earnings. The buybacks were also done on the back of a 12% drop in share price since 29 Oct.

Valuetronics: First buyback since 2008 with 100,000 shares bought at 42.5¢, on the back of a 21% rebound in share price since 35¢ in Aug. The buyback was done after an 11.3% drop in 2QFY16 earnings to HK$32.2m

PACC Offshore: Bought 600,000 shares at average of 34.1¢, accounting for 30% of the stock’s trading volume. This was on the back of a 16% drop in share price since October. The buyback prices were sharply lower than the IPO price of $1.15

Parkway Life REIT: Independent director Tan Bong Lin made his maiden on-market trade since the REIT’s 2007 listing, with 80,000 units sold on 12 Nov at $2.31, on the back of a 16% drop in unit price since May ’13.
Biosensors: UBS Group AG emerged as a substantial shareholder on 5 Nov following the purchase of 3.89m shares at 81¢ each, with deemed holdings of 5.09% of issued capital. The filing was made on the back of a 25% rebound in share price since Aug.


Q&M: 3Q15 results came in line as net profit grew to $2.7m (+17% y/y), bringing 9M15 earnings to $9.3m (+84%), 74% of street’s full year estimates.

For the quarter, revenue of $30.6m (+7.6%) was boosted by the dental supplies manufacturing segment (+83%) due to the acquisition of Qinhuangdao Aidite in Aug ’14, as well as new contribution from six dental outlets acquired in Sep ’15 and Shenyang Aoxin in China. However, this was partially mitigated by lower sales from its distribution business (-35%) from the absence of a government contract in Malaysia.

From a change in sales mix, gross margin expanded to 82.9% (+1.4ppt).

Meanwhile, bottom line got boosted by other gains ($0.9m) mainly from a PIC cash payout, but partially mitigated by increased finance costs of $0.8m (+357%) due to accruals of interest payable relating to a medium term note issue.

Going forward, Q&M will continue to widen its network of dental clinics, currently at 65 outlets, in Singapore organically and through acquisition, to meet the rising demand for primary and higher value specialist dental healthcare services.

Malaysia remains one of the key markets where the group will look for future growth and acquisition opportunities. It current operates four dental clinics in Johor, one dental centre and two dental clinics in KL and one dental clinic in Malacca.

In China, Q&M continues to seek opportunities to acquire larger and established dental institutions and dental supplies manufacturers, to develop a new and sustainable growth pillar for long term value.

Maybank-KE maintains its Buy rating with TP of $0.97.

SG Market (16 Nov 15)

Singapore shares are set for a soft opening as the deadly Paris attacks are likely to deal another blow to weak sentiment already undermined by the weak US retail sales data, China’s margin tightening and poor 3Q corporate results in Singapore.

Investors will also look out for Singapore’s Oct NODX tomorrow and 3Q GDP reports out on Wed.

Regional bourses are seeing some bloodshed this morning in Tokyo (-1.3%), Seoul (-1.1%) and Sydney (-0.6%).

From a chart perspective, the STI is likely to breach the 2,920 support, with the next downside risk at 2,850.

Stocks to watch:
*ComfortDelGro: 3Q15 results slightly beat expectations as net profit grew 5.4% y/y to $85.2m on revenue of $1.04b (+1%) driven by most segments, in particular, bus (+3.4%), taxi (+2.4%), and rail (+7.3%), but weighed by automotive engineering business (-15.1%). Operating margin edged higher to 12.3% (+0.5ppt) on FX gains of $1.9m as well as lower fuel and electricity (-8.1%) costs, partially offset by higher staff (+3.1%) costs and depreciation (+9.7%) . NAV/share at $1.05.

*SIIC Envirotech: 3Q15 results in line with bullish estimates, as net profit advanced 33.4% y/y to Rmb89.3m on revenue of Rmb502.1m (+38%), with all five key segments registering growth, namely construction (+85.4%), operating and maintenance income (+10.9%), financial income from concessions (+33.5%), service income (+34.2%) and others (+118%). Gross margin remained constant at 37.9%. Bottom-line led by an almost 2x rise in associate and JV contributions. NAV/share at Rmb2.41.

*OUE: 3Q15 results in line, with net profit down 8.9% y/y to $15m, on a softer revenue of $98.9m (-6.9%), undermined by absence of property development income from OUE Twin Peaks and a marginally weaker hospitality division (-1.5%), but partially cushioned by greater contribution from property investment division (+15%). Gross margin shrank by 3.1ppt to 37.7%. Bottom line was further hit by higher finance expenses and fair value losses, but partially negated by newly acquired equity-accounted investees. NAV/share at $4.35.

*Q&M Dental: 3Q15 results in line, with net profit advancing 16.7% y/y to $2.7m on revenue of $30.6m (+7.6%), backed by dental clinic (+6%) acquisitions and dental supplies manufacturing (+83%), but partially offset by dental supplies distribution (-35%) due to absence of an one-off equipment supply to the Malaysian government in 3Q14. Bottom line aided by non-operating gains from PIC cash payout and enhanced special employment credit. NAV/share at $0.102.

*Cordlife: 1QFY16 results in line, turning around to net profit of $7.6m (1QFY15: -$3.6m) on firmer revenue of $14.5m (+9.7% y/y), boosted by higher number of client deliveries. Operating margin narrowed 0.6ppt to 12.2%, mainly pressured by an increase in staff cost due to a larger workforce. Bottom line was buttressed by a stronger USD, but partially weighed by net fair value losses from financial assets and derivatives. Special interim DPS of $0.13 declared. NAV/share at $0.65.

*Midas: 3Q15 results in line, with net profit soaring more than 9x to RMB13.9m on a 27.2% jump in revenue to RMB412.2m with its aluminium alloy extruded products division contributing to its entire top line growth. However, gross margin was crimped 1.1ppt to 25.9% due to the change in product mix. Bottom line was further buttressed by other operating income (+78.6%) and contributions from associate NPRT (+650.3%). NAV/share at Rmb2.50.

*Ying Li: Missed expectations as 3Q15 net profit dived 73.6% to RMB2.9m on revenue of RMB111.9m (-57.1%) due to lower property sales (-73.7%) but partially mitigated by stronger rental income (+11.6%). Gross margin expanded 16ppt to 55.2% on stronger rental margins. Bottom-line was further pressured by a jump in selling (+60.5%) expenses, but mitigated by a jump in interest income (+623.4%). NAV/share at Rmb1.93.

*Wheelock: 3Q15 results missed expectations as net profit edged 2.4% higher to $11.3m on revenue of $83.9m (+268.6%) mainly due to property sales partially offset by lower rental income. Gross margin collapsed 51.1ppt to 23% on a change in revenue mix. Bottom line was weighed by other operating (+303.9%) and tax (+401.6%) expenses, partially mitigated by a $22.1m gain on disposal of its financial assets. NAV/share at $2.53.

*Swiber: 3Q15 swung into a net profit of US$3.2m (3Q14: -US$27.5m), with revenue more than doubling to US$215.7m due to a significant recognition of revenue for a Latin American project and execution of new projects in South Asia, which translated into higher gross margin of 11.1% (+10.3ppt). Net gearing grew to 153% (+8ppt). Order book stood at US$1.5b. NAV/share at US$1.09.

*Mermaid Maritime: 3Q15 net profit climbed 19.1% to US$16.5m, while revenue was up 10.1% to US$96.6m, largely led by the subseas division, which saw higher contract value of cable lay projects and higher utilization rate of vessels, offset by zero drilling revenue from the drilling segment, following management’s decision to cold stack its rigs. NAV/share at US$0.40.

*KS Energy: 3Q15 net loss widened to $38.1m from $0.6m a year earlier, while revenue slumped 60.3% to $23.2m, largely driven by a slump in drilling business due to reduced deployment of rigs in the quarter. Gross margin fell 2ppt to 27.2%. Bottom line was dragged by a more than 26x surge in other operating expenses and JV losses of $16.0m. NAV/share at $0.63.

*Dukang Distillers: 1QFY16 net loss narrowed to Rmb0.8m (1QFY15: -Rmb29.4m), although revenue dropped 21% y/y to Rmb164m, as the group continue to be affected by China’s austerity measures on luxury gifts and spending. Gross margin expanded to 32.5% (+ 14.1ppt) on a change in sales mix, while bottom line was boosted by lower selling and distribution expenses (-31.4%) on reduced television commercials. NAV/share at Rmb1.80.

*Spackman: 3Q15 net loss narrowed to US$1.0m (3Q14: -US$5.0m), while revenue fell 21% y/y to US$2.9m, as there were no films under production. The group registered a gross margin of 28.4% as compared to a gross loss the previous year, due to two newly acquired subsidiaries Novus Mediacorp and UAA Korea.

Friday, November 13, 2015


Super: (S$0.87) Weak 3Q15 with possible turnaround in 1H16
Super Group’s 3Q15 results trailed expectations as net profit slumped 25.6% y/y to $7.4m. 9M15 net profit stood at $31.6m, attaining just 60% of the street’s full year forecast.

Revenue slid to $121m (-6.6%) as both its branded consumer and food ingredients segments saw contributions declined.

Its branded consumer segment recorded revenue of $78.9m (-3.8%) dragged down by poor performance from Southeast Asia (-10.8%) with Malaysia, Thailand, and the Philippines leading declines mitigated from stronger performance from Myanmar and Singapore. Sales in East Asia (+37.7%) as well as other markets (+58.7%) such as Mongolia and the Pacific Islands also helped to pare declines.

Coffee continued to be Super’s major revenue generator (79%) even though product sales fell to $62m (-3.9%). Sales of Cereals and Tea remained relatively stable at $7.1m (no change) and $3.4m (+3%) respectively while sales of other products fell to $6.4m (-9.9%).

Its food ingredients segment slumped 11.5% to $42m on lower sales from Indonesia due to the weak IDR and soft economy there, mitigated by growth in sales in the Taiwan market.

Non-dairy creamer revenue tumbled to $26.2m (-28.2%) more than covering growth in its soluble coffee to $15.5m (+42.2%) and other products to $0.3m (3Q14: $0.1m).

Gross margin was flat at 32.6% (+0.6ppt) while bottom line was weighed on by:

1. Higher selling and distribution expenses of $15.7m (+3.3%) on sponsorship and promotional activities carried out for SG50 promotions as well as the launch of its Charcoal Roasted White Coffee.
2. General and admin expenses of $14.8m (+3.3%) due to higher depreciation charges on expansion project completion
3. Higher net other income of $1.5m (+193.4%) on higher government grants received
4. Higher taxes of $2.9m (+7.3%) despite poorer operating profit on the expiry of tax incentives enjoyed by some overseas subsidiaries as well as withholding tax expenses on dividend remittances.

Despite the poor headline performance, cash generated from operations increased to $15.3m (+3.2%) showcasing the group’s cash generative business model.

Maybank-KE maintains its Buy rating on the counter with a TP of $1.42 while expecting Super to catch up with stronger performance in the upcoming quarters particularly with new products rolling out across all of its markets by 1H16.

Positive catalysts to the stock could come in the form of an FY16 performance recover, M&A, and improving dividends.

OUE Hospitality Trust

OUE Hospitality Trust’s 3Q15 results met expectations, as DPU climbed 4.9% y/y to 1.72¢. This brought 9M15 DPU to 4.85¢ (-2.2%) or 74% of full-year consensus estimate.

Gross revenue rose 14.6% to $32.7m, mainly driven by its hospitality segment (+21.8% to $23.3m), as growth for the retail segment (-0.1% to $9.3m) comprising Mandarin Gallery was muted.

The stronger hospitality business was largely due to a $4m contribution from Crowne Plaza Changi Airport Hotel (CPCA), which was acquired in Jan ’15, while Mandarin Orchard Singapore (+0.5% to $19.3m) improved marginally on a slightly higher RevPAR of $243 (+0.8%).

Consequently, NPI was lifted to $28.8m (+13.5%), but distributable income grew at a slower pace to $23m (+5.8%), dragged by higher finance expenses from borrowings used to fund the acquisition of CPCA and fixed rate hedging.

Retail portfolio occupancy inched 0.1ppt q/q to 98% with a weighted-average-lease-to-expiry of 2.9 years.

Aggregate leverage stood at 42.1%, with average debt cost and tenor of 2.5% and 2.7 years respectively. As at Oct ’15, 83% of the trust’s borrowings were hedged on fixed interest rates.

Moving forward, management expects the hospitality sector will continue to face headwinds from excess supply and a tepid tourism industry given the uncertain global economic environment and relatively strong SGD. Nevertheless, OUE-HT will continue to refurbish the remaining 270 out of the 430 Mandarin Orchard rooms in phases throughout 2016.

The retail segment is also expected to remain challenging but management plans to continue leveraging Mandarin Gallery’s position as a high-end mall to attract quality tenants and shoppers. The mall will be adding Michael Kors and Victoria’s Secret to its premium list of tenants in FY16 for seven and 10 years respectively.

OUE-HT currently offers an annualised distribution yield of 8.6% and trades at 0.89x P/B.

Genting Singapore

Genting Singapore: 3Q15 results were appalling. Net profit plunged 62% to $37.2m, as FX gains ($113m) were offset by fair value losses of investments of $71.7m, and record bad debt charges of $92.5m (2Q15: $56.6m).
Consequently, adjusted EBITDA fell 18% to $209.2m, with EBITDA margin at 32.9% (-0.6 ppt q/q).

Revenue fell 1% to 636.1m, as gaming ($451.8m, -5%) weakness was offset by non-gaming revenue ($183.9m, +10%)

In gaming, VIP volumes halved y/y (-7ppt q/q), contrary to expectations that volumes would pick up at RWS, based on the MBS read through. This was as RWS did not extend much credit to Chinese VIPs. Win-rate, however, improved to 2.8% (2Q: 2.1%). VIP market share was 40%, flat q/q

Mass GGR fell 6% y/y (-1% q/q) despite Genting Jurong Hotel room inventory growing by 36% since opening seven months ago. In fact, the hotel might be boosting non-gaming revenue instead, which saw 17% increase in visitations. Mass market share fell 3ppt q/q to 40%.

Looking forward, management will be less generous in extending credit to Chinese VIPs, while expects provisions to remain high until 2Q16. On that end, GENS reiterates its aim to drive visitations from ASEAN.

Soil works has begun in Jeju, the soft opening of the Resorts World Jeju is expected at end 2017. Meanwhile, management also cited its optimism for the passage of the gaming bill in Japan.

GENS is currently trading at 8.9x EV/EBITDA.

Latest broker ratings:
Credit Suisse maintains Outperform with TP of $1.00
Nomura maintains Neutral with TP of $0.89
Morgan Stanley maintains Overweight with TP of $0.85
CIMB maintains Hold with TP of $0.81
Maybank-KE downgrades to Hold from Buy, cuts TP to $0.78 from $0.82
JP Morgan maintains Underweight, cuts TP to $0.70 from $0.77

SG Market (13 Nov 15)

SG Market: Singapore shares are likely to be weighed down by the overnight rout on commodities and increased likelihood of an interest rate hike next month, with disappointing 3Q results from several bellwether stocks City Dev, Genting S’pore, Noble and Olam adding to the market gloom.

Regional bourses are trading lower this morning in Tokyo (-1.2%), Seoul (-0.6%) and Sydney (-1.8%).

From a chart perspective, the STI is likely to breach the 2,950 support and head towards the next downside at 2,920.

Stocks to watch:
*Genting SP: 3Q15 results missed, with adjusted EBITDA down 18% y/y to $209.2m. Net profit plunged 62% to $37.2m on revenue of $636.1m (-1%), with top-line weighed by a 5% fall in gaming revenue to $451.8m. Gaming weakness was offset by a 10% increase in non-gaming revenue, from a 17% increase in visitations to attractions. EBITDA margin fell 6.5ppt to 32.9%. Bottom line aided by FX gains of $113m, but offset by fair value losses of investments of $71.7m, and bad debt charges of $92.5. NAV/share at $0.60.

*Noble: 3Q15 results missed, as core net profit tumbled 43.2% y/y to US$92.0m on revenue of US$18.7b (-20%). Operating income rose 3% to US$272.3m, led by the Energy segment (+245%), but partially offset by the Gas & Power segment (-12%) and the Mining and Metals segment which fell into an operating loss of US$44m (3Q14: +US$65m). Overall operating margin rose 0.34ppt to 1.51%. Bottom-line further weighed by supply chain asset losses of US$24.4m versus gains of US$74.7m, while associate and JV losses widened to US$66m from US$20m, largely attributable to Noble Agri. NAV/share at US$0.78.

*Olam: 3Q15 results missed estimates on core net profit of $34.2m (+6.2% y/y) and revenue of $4.47b (+4%), driven by elevated prices of almonds and cashews, but partially mitigated by lower contribution from volumes in industrial raw materials (fertiliser trading, cotton, wood). EBITDA margin fell to 4.4% (-0.7ppt), while headline net profit fell to $31m (-30%) on an absence of net exception gain of $12.1m. NAV/share at $1.85

*City Dev: 3Q15 results missed. Net profit fell 16.4% y/y to $106.4m, while revenue plunged 38.8% to $809.3m, as property ($228m, - 70%) slumped from the absence of recognition from Blossom Residences EC (TOP Sep ’14), partially offset by contribution from Coco Palms, Jewel@Buangkok, and D’Nest. Hotel revenue fell 1.5% to $437.8m, as contribution from new hotels were offset by oversupply and weak tourism in Singapore. Bottom line also impacted by absence of $10.9m gain recognized last year. Interim DPS of 4¢ maintained. NAV at $9.53.

*Golden Agri: 3Q15 core results above estimates, with core net profit up 137.5% y/y to US$61.0m even as revenue slipped 14.6% to US$1.6b on broad based decline across its segments. Top-line was weighed by lower sales from the plantation and palm oil mills (-20.4%), palm & laurics and oilseeds (-39%) segments. Overall EBITDA margin improved 3.2ppt to 4.9%, largely led by improved downstream margins in the palm and lauric segment. Bottom line was shaved by FX losses (+54.9%) as well as fair value losses, mitigated by a tax credit of US$12.8m (3Q14: tax charge of US$5.9m). NAV/share of US$0.69.

*China Everbright water: 3Q15 results below bullish estimates, despite net profit up 25.3% y/y to HK$88.8m on robust revenue of HK$410.1m (+62.7%), underpinned by higher construction revenue from expansion and upgrades of several waste water treatment plants. Gross margin narrowed 5ppt to 47% due to higher contribution from construction which yield lower margins. Bottom line further hit by a spike in admin expenses (+148%) arising from the consolidation of HanKore Group post RTO, and higher deferred tax. NAV/share at HK$2.73.

*OUE Hospitality Trust: 3Q15 results in line, with DPU up 4.9% y/y to 1.72¢, as revenue and NPI rose to $32.7m (+14.6%) and $28.8m (+13.5%) respectively, mainly driven by contribution from Crowne Plaza Changi Airport Hotel (CPCA), which was acquired in Jan ’15. Distributable income grew slower to $23m (+5.8%), dragged by higher finance expenses. Retail portfolio occupancy inched 0.1ppt q/q to 98% with WALE of 2.9 years. Aggregate leverage stood at 42.1%, with average debt cost and tenor of 2.5% and 2.7 years. NAV/unit at $0.90.

*Cosco: Sank into the red with 3Q15 net loss of $82.1m vs $7.1m net profit y/y as revenue slipped 18.1% to $949.6m on lower shipyard (-17.8%) and shipping (-34.9%) revenue. Losses from both segments resulted in a $10.7m gross loss (3Q14: +$56.7m). Bottom line was further eroded by a provision charge of $75.9m on doubtful debts, lower scrap sales (-56.5%), and interest income (-40%), partially mitigated by a $16.5m tax credit. NAV/share at $0.60.

*Super: 3Q15 results missed estimates as net profit slumped 25.6% y/y to $7.4m, with revenue slipping 6.6% to $121m on lower branded consumer sales (-3.8%) and food ingredient sales (-11.5%). Gross margin was flat at 32.6% (+0.6ppt). Bottom line weighed by higher operating (+3.3%) and finance expenses (+197.5%), partially mitigated by government grants of $1.2m. NAV/share at $0.46.

*Yoma: 2QFY16 results missed, as net profit plummeted 97.2% to $0.3m on a 51.7% tumble in revenue to $19.9m, weighed by lower sales of residences and land development rights (-79.1%) and real estate services (-34.6%). The group fell into an operating loss of $0.5m on higher operating expenses (+70.6%) and absence of an $8.1m fair value gain recognised in 2QFY14. Bottom line further weighed by $0.2m in tax expenses (2QFY15 credit of $0.4m). NAV/share at $0.37.

*Silverlake: 1QFY15 results in line, as net profit climbed 15% to RM68.6m, while revenue grew 13% to RM131m, driven by increases in maintenance and enhancement services (+23%) and software project services (+109%), offset by a slump in software licensing sales (-42). The appreciation of SGD and USD against the RM had a +7% effect on revenue. Gross margin fell 5ppt to 60%. Bottom line boosted by RM13.5m unrealized FX gains. Interim DPS of 0.6¢ announced (1QFY16: 0.8¢). NAV/share at RM0.27.

*Valuetronics: 2QFY16 results in line, with net profit down 11.3% y/y to HK$32.2m on revenue of HK$526.5m (-16.1%), weighed by consumer electronics (-40.6%) weakness due to the slowdown in the LED business, although this was partially offset by a 27.7% increase in industrial revenue. Gross margin improved 1.5ppt to 14.6%. NAV/ share at HK$2.12.