Friday, January 29, 2016

Ascenda Hospitality Trust

Ascenda Hospitality Trust’s 3QFY16 DPU of 1.45¢ (+11.5% y/y) rose in tandem with distributable income of $16.2m (+12%). This brought 9MFY16 DPU to 4.11¢ (+7.9%).

The higher distributable income was attributed to the absence of unwinding costs for FX swaps ($2.9m), and buttressed by partial proceeds from divestment of Pullman Cairns Int’l Hotel ($0.7m) in Jun '15.

Gross revenue and NPI fell to $54.9m (-9.5%) and $23.4m (-9.3%) suffered from the loss of income from Pullman Cairns Int'l, lower contribution from Pullman and Mercure Brisbane King George Square hotel, and compounded by the weaker AUD.

The Australian portfolio was hurt by a 2.9ppt drop in average occupancy rate to 84.4%, and a 5% decline in RevPAR to A$153, as the Brisbane market was undermined by increased hotel room supply, and high base in 3QFY15 when the city hosted the G20 Summit.

Meanwhile, hotels in China improved, with average occupancy rate edging up 2.2ppt to 82%, and RevPAR climbing 4% to Rmb337, as efforts to develop new corporate accounts and other differentiated promotions with travel agents appear to be paying off.

Portfolio in Japan also remained solid, with RevPAR surging 24.7% to ¥10,687, driven by strong performance at Oakwood Apartments, aided by a stronger JPY against SGD.

Aggregate leverage crept up 0.7ppt q/q to 38.2%, and average debt cost added 0.1ppt to 3.4%, while average debt tenor shortened to 2.3 years (2QFY16: 2.5 years).

Looking ahead, management remains positive on the tourism sector in Japan and Australia, except for Brisbane, but less optimistic on China amid the slowing economy and pollution issue in Beijing.

As for Singapore, the trust expects the on-going recovery in tourist arrivals to persist, but the increasing supply of hotel rooms may moderate the sector’s performance.

Outlook aside, management is also in process of evaluating the unsolicited takeover interest from an unnamed buyer.

Ascendas Hospitality Trust is currently trading at 1.08x P/B, and offers a 3QFY16 annualised distribution yield of 7.7%.


OSIM: 4Q15 net profit crashed to $9.3m (-66% y/y), dragged by ONI Australia closure and TWG legal costs ($9m). Stripping these, full year core net profit would have been $67.5m (-34%), beating street estimates.

In the quarter, revenue slipped to $168.7m (-5%), dragged by lower sales in all markets except North Asia, amid the tepid retail environment.

Business segment revenue review in 4Q15:
OSIM: $101.2m (+18.9% q/q, -24% y/y, 60% of top line), saw decreased sales in SG/MY/China, except Hong Kong. uMagic failed to lift same store sales, which fell 21.5% y/y to $62,000/ month amid weak markets.

TWG: $24.6 (+45.3% q/q, +73.4% y/y, 14.6% of top line), on store expansions. Same store sales relatively stable at $113,000/month

GNC/ Richlife: $43.1m (+8% q/q, +46% y/y, 25.6% of top line), on better Taiwan performance. Same store sales stable (-3% q/q, +42.8 y/y) at $60,000/month on a highly recurring supplements business

Gross margin held steady at 72.2% (3Q15: 71.7%, 4Q14: 69.5%).

OSIM maintained net cash of $234m despite higher share buybacks.

On outlook, core OSIM ASEAN and China markets are expected to remain challenging going into 1H16, while TWG is expected is expected to maintain its torrid 15-new store a year expansion.

On the plus side, cost inflation could ease as management epects store rental and employee hiring conditions to improve.

Maybank-KE opines that OSIM could consider a privatisation and spin-off of TWG at this price, citing its <6x EV/EBITDA – a takeout sweet spot – vs peers’ 12x. Buying over minorities and CBs will need $424m for an all-cash deal at today’s prices, or $505m, if done at 8.5x EV/EBITDA ($1.20/share).

Financies are backed by OSIM’s $400m cash and cashflow from the chairs business. To privatise at a lower cost, the option to take shares in a separately-listed TWG instead of cash could also be offered.

OSIM is currently trading at 11.5x FY16e P/E.

Latest broker ratings:
Maybank-KE maintains Hold with decreased TP to $1.20 from $1.49
CIMB upgrades to Hold from Sell with TP decreased TP $1.00 from $1.13

SG Market (29 Jan 16)

Regional bourses all opened in negative territory in Tokyo (-0.2%), Seoul (-0.8%) and Sydney (-0.3%).

From a chart perspective, the STI appears trapped in a consolidation range bounded between its five-year low of 2,520 and topside resistance at 2,670.

Stocks to watch
*SGX: Looking into sweeping review of the equity market structure aimed at lifting retail interest and liquidity. This includes the scrapping auto penalties for buy-in, reviewing minimum trading price calculation, as well as studying the need for quarterly reporting.

*OSIM: 4Q15 net profit crashed to $9.3m (-66% y/y), dragged by one-offs and legal costs ($9m). Otherwise, full year core earnings of $67.5m (-34%) came ahead of estimates. For the quarter, revenue slipped to $168.7m (-5%), from lower sales in regional markets amid the tepid environment, but partially mitigated by increased sales in North Asia. Gross margin improved to 72.2% (4Q14: 69.5%). Final DPS unchanged at 2¢.

*Frasers Hospitality Trust: 1QFY16 results slightly ahead on distributable income of $23.7m (+23.2% y/y), while DPU rose at a slower pace to 1.72¢ (+7.5%) on an enlarged unit base (+14%) from a private placement in Jul '15. Revenue and NPI surged to $31.4m (+16.2%) and $26.3m (+16.9%), led by the contribution from Sofitel Sydney Wentworth, partially offset by decreased contribution from Intercontinental Singapore due to renovation works. Aggregate leverage stood at 38.8% (-0.1ppt q/q) with effective borrowing costs of 2.6%. NAV/unit at $0.86.

*Ascendas Hospitality Trust: 3QFY16 DPU spiked to 1.45¢ (+11.5% y/y), boosted by the absence of unwinding costs for FX swap. However, gross revenue and NPI fell to $54.9m (-9.5%) and $23.4m (-9.3%), from the loss of income in Pullman Cairns International following its sale in Jun '15, lower contribution from Pullman and Mercure Brisbane King George Square hotel in Brisbane, and compounded by the weaker AUD. Aggregate leverage increased to 38.2% (+0.7ppt q/q) with debt term of 2.3 years. NAV/unit at $0.70.

*Tuan Sing: Achieved 4Q15 net profit and revenue of $14.4m (-41% y/y) and $143.4m (+28%), bringing FY15 earnings and revenue to $68.8m (+13%) and $677.1m (+91%), respectively. The positive set of results was attributable to increased takings from the property segment, as well as the consolidation of Grand Hotel Group. Gross margin expanded to 21% (+1.6ppt), while bottom line grew at a slower clip mainly due to an absence of negative goodwill ($26.9m). First and final DPS of 0.6¢ (FY14: 0.5¢). NAV/share at 74.4¢.

*Oxley Holdings: 2QFY16 net profit of $46m (+107% y/y) was boosted by fair value gains arising from FX swaps ($12.9m) and a jump in JV and associate contribution of $26.5m (2QFY15: $4.1m). Revenue tumbled to $177.8m (-25%), due to lower recognition of property development projects, partially offset by higher rental income. Gross margin jumped to 37.7% (+14.1ppt) on a shift in sales mix. Interim DPS of 0.75¢ was declared (2QFY15: nil). NAV/share at $0.1799.

*Creative Technology: 2QFY15 net profit turned around to US$12m (2QFY14: -US$9.2m), boosted by the settlement of a patent lawsuit (US$21m) and gain on disposal of investments (US$2.7m). Revenue slipped 15% y/y to US$26.5m, dragged by difficult market conditions, while gross margin slipped to 26.7% (-2.9ppt) on the change in sales mix.

*Jaya: 2QFY16 NAV stood at $0.4432/share. Jaya updated the settlement deed with MMA Offshore Asia on arbitration proceedings is not expected to have a material financial impact on the company. Jaya remains as a cash shell and has up to 3 Jun ’16 to meet the new listing requirements.

*Yanlord Land: Acquired 75% stake in China-based property development firm Shenzhen Hengming Commercial, which owns a residential development site in Shenzhen, for Rmb1.59b.

*Q&M Dental: Acquiring Lee & Lee (Dental Surgeons), which has three outlets across Singapore, for $10m in a cash and share deal.

*Yanzijiang Shipbuilding: Acquired 95% interest in China-based equity venture capital investment fund that focuses on the new economy space for Rmb190m.

*SATS/ Neo Group: SATS proposed the sale of its property at 22 Senoko Way to a 55% owned subsidiary of Neo Group, Thong Siek Food Industry, for $15m. As at end-Sep ’15, the property accounted for $5.8m in net book value for SATS. The property has a land area of 14,807.2 sqm and is intended for Thong Siek’s expansion, as a nearby plant has reached maximum utilisation.

*Interplex: Consent solicitation exercise with note holders in relation to the $200m 6.9% notes due 2019 has been passed. It is one of the pre-conditions on the voluntary takeover offer by Slater at $0.82/share.


Yoma: 3QFY16 headline net profit surged 223% y/y to $25.2m, boosted by a revaluation gain of $27.7m. Otherwise, core earnings would have reflected a $2.5m loss.

*The revaluation gain arose from the reclassification of its investment in edotco from associate to financial assets, based on the base floor pricing of certain option agreements.

Operationally, revenue fell 5% to $23.8m, as improvements in automotive, property rental, real estate services, tourism, and the addition of KFC contributions were offset by a slump in residence and land development rights sales.

In particular, housing and LDR sales tumbled 73.1% to $5.1m due to high base effect of Star City Zone A ($3.1m vs $8.2m in 3QFY15) and the deferral of sales at Pun Hlaing Golf Estate till nearer completion in order to reap better margins.

Revenue from the automotive segment soared to $8.6m (3QFY15: $0.4m) from the contribution of Convenience Prosperity (acquired Feb’15), while sales from the vehicle leasing arm doubled.

Gross margin collapsed 14.4% to 34.3% due to a larger sales mix from lower-margin auto segment.

Admin expenses jumped 65% from new subsidiaries such as New Holland and KFC businesses, as well as increased staff costs.

Share of associate’s profits rose to $1.9m from a negligible base, largely from the performance of Access Myanmar Distribution which is in the beverages business.

Yoma is sanguine that with the new Myanmar government will focus on peace and economic prosperity, which should in turn bode well for the group’s business.

In Jan '16, the Burmese parliament passed the long-awaited condominium law that in principle, allows foreigners to purchase up to 40% of a condomium block, provided the apartments are from the sixth floor and above. The law is now awaiting presidential approval upon such, Yoma expects a boost in property sales.

The group has has also made progress on its Landmark Development, following the signing of the master lease extension with the Ministry of Rail Transport at end Dec’15.

The KFC business is expanding, with the fourth store expected to commence operations by Feb 2016. It targets to have up to 12 stores by Mar ’17.

Management is sanguine that telco infrastructure remains one of the fastest growing segments in Myanmar and edotco is targeting to grow its 1,250 towers to 5,000 over the next three years.

Yoma is currently trading at 20x trailing P/E, and 43x FY3/16 consensus P/E.

Thursday, January 28, 2016


SGX: Entered partnership where Taiwan Stock Exchange will join SGX as a remote trading member. TWSE member brokers will be able to directly trade SGX-listed securities via Global Link when it goes live in 2Q16.

However, given current market conditions, and the decreasing pie of SGX and TWSE in the AsiaPac ADT pool, Deutsche Bank expect a slow start to the trading link, implying little material earnings accretion.

Deutsche Bank keeps forecasts unchanged. Nevertheless, they have a Buy call on SGX with TP of $8.30

Genting SP

Genting SP: (S$0.675) Negative read through from MBS lacklustre 4Q15
Marina Bay Sands (MBS) released a lacklustre set of 4Q15 results that may offer a negative read-through for Genting SP's upcoming 4Q15 results.

MBS' adjusted 4Q15 EBITDA tumbled to US$338.2m (-35% y/y, -13% q/q), while total gross revenue fell to US$703.9m (-16% y/y, -6% q/q).

The gaming business saw lower-than-expected rolling chip win percentage of 2.39% (3Q15: 2.61%), while rolling chip volume remained at US$10.1b (+0.7% y/y, -12% q/q), reflecting lacklustre VIP business.

Meanwhile, the mass market held relatively steady, with slot handle volume of US$3.3b (+6% y/y, -3% q/q) and hold rate of 4.4% (4Q14: 4.8%). However, non-rolling chip drop fell to US$976.4m (-11% y/y, -9% q/q), with win rate at 28.5% (4Q14: 26.7%).

MBS’ hotel business saw a drop in revenue to US$88.3m (-4% y/y, -11% q/q), hit by the slowdown in visitor arivals.

Overall, core adjusted EBITDA margin for MBS tumbled to 48.1% (3Q15: 51.9%, 4Q14: 61.8%).

Maybank-KE last had a Hold rating with TP of $0.78.

Mapletree Commercial Trust

Mapletree Commercial Trust: 3QFY16 in line. DPU was flat at 2.08¢, while distributable income inched up 1.1% to $44.2m.

Revenue climbed 1.2% to $73.8m, while NPI rose 3.5% to $56.6m as positive contributions from VivoCity were offset by lower revenue from Mapletree Anson and PSAB. Property expenses also fell from lower utilities expenses.

Retail rents rose 12.6% while office rents expanded 8.7%, on the back of 87.8% and 63.7% tenant retention for retail and office respectively. At VivoCity, shopper traffic fell 1.9% while tenant sales rose 2.5%

Portfolio occupancy was 98.4% (+1.5ppt q/q) with WALE of 2.3 years. 21.9% of retail leases and 0.8% of office leases are up for renewal in 2017.

Aggregate leverage was steady at 36.3%, with weighted average cost of debt at 2.47% (2QFY15: 2.4%).

On growth, MCT announced an AEI to strengthen its F&B offerings on Basement 2 of VivoCity by enhancing space utilisation. The $6.1m AEI will begin in 4QFY16 and will be completed in phases by end 1HFY17.

In general, both the retail and office rental outlook is expected to be tepid amid an onslaught of supply. For retail, compounding supply-side fears is a cautious demand stance, as tenants hold back extension plans to grasp new consumer behaviour and technology. Leases are also taking longer to be renewed amid a tepid retail environment.

Nevertheless, MCT cites its expectations for performance to remain resilient, as its assets are within stable commercial hubs.

MCT is currently trading at 6.3% annualized 3QFY16 yield and 1.06x P/B.

Latest broker ratings:
Deutsche Bank maintains Buy with TP of $1.45
JPMorgan maintains Underweight with TP of $1.30

SG Market (28 Jan 16)

rom a chart perspective, downside risk for the STI at a 5-year low of 2,520, while topside resistance remains pegged at 2,670.

Stocks to watch
*Reits: Managers advised to consider share buybacks amid the sector's depressed valuations, instead of dishing out funds for new acquisitions.

*Mapletree Commercial Trust: In line 3QFY15, with DPU flat y/y at 2.08¢, while distributable income inched to $44.2m (+ 1.1%). Revenue climbed to $73.8m (+1.2%), while NPI rose to $56.6m (+3.5%), on positive contributions from VivoCity, but partially offset by lower revenue from Mapletree Anson and PSAB, as well as lower utilities expenses. Portfolio occupancy grew to 98.4% (+1.5ppt q/q) with WALE of 2.3 years. Aggregate leverage remained steady at 36.3%, with weighted average cost of debt at 2.47% (2QFY15: 2.4%). Separately, the REIT will embark on an AEI for VivoCity to strengthen its F&B offerings, expected to start in 4Q16 and completed by 1H17. NAV/share at $1.24.

*K1 Ventures: 2QFY16 turned into net loss of $8.5m (2QFY15: +$31m), as revenue crashed to $13.6m (-74% y/y) due to the sale of China Auto, partially offset by higher investment income. Bottom line was weighed by an FX loss ($17.6m) upon the voluntary liquidation of Focus Up Holdings, and absence of a gain from sale of China Auto ($27.4m). Management cited that the group will not be making any new investments, but will focus efforts on managing and realising current investments. Declared interim DPS of 21¢ (2QFY15: 7.5¢). NAV/share at $0.64.

*Genting Singapore: Negative read-through from MBS 4Q results, which saw adjusted EBITDA tumble 35% y/y to USD338.2m on weak VIP and hotel segments.

*Lantrovision: Proposed exit offer by listed-Japanese telco construction engineering and services group MIRAIT by way of a scheme of arrangement at $3.25/share. Shareholders comprising 39.4% share capital have given their irrevocable undertakings on the offer.

*Keppel Corp: Selected to supply LNG bunker to vessels in the Port of Singapore. A 50:50 JV with BG Group will be set up for operations expected to commence in early-2017.

*SGX: Partnership with Taiwan Stock Exchange for SGX to become a remote trading member. TWSE member brokers will be able to directly trade SGX-listed securities via Global Link when it goes live in 2Q16.

*UMS: Buying 10% equity of All Star Fortress for RM145,000, an aerospace metallic component manufacturing company, to diversify beyond its traditional semiconductor business. UMS will also extend secured, interest-bearing convertible loans up to US$7.5m to All Star.

*QT Vascular: Proposed issue of 8% exchangeable bonds and convertible bonds due 2017/2018 to Luminor Pacific (US$1.9m) and 10 individual subscribers (US$4.2m) , exchangeable into 65.3m new shares (7.1% enlarged share capital). The fund raising of US$6.1m is intended to strengthen the financial position of QT and have more resources to develop its drug coated chocolate platform, as well as payment of expenses incurred with the ongoing litigation by AngioScore.

*Mercator Lines: Sold five vessels to related companies of syndicate lenders at market value of an aggregate US$32.3m.

*EMS Group: Secured contracts worth $2.8m to construct a sewerage treatment plant at the Vietnam Singapore Industrial Park. In addition, the group has been awarded three other sewerage treatment contracts worth an aggregate $1.7m in Jan '16.

*Liongold: Clarified the content of an article in the Edge that John Soh is an adviser to its Chairman, but not to the group itself.

*Tat Hong: Expects to report a 3QFY16 loss due to costs and provisions from the exit of the excavator distribution business in Indonesia, weak performance in Australia and FX losses. Results expected to be released after market on 12 Feb.

Wednesday, January 27, 2016


Keppel: Does it need cash?

Bloomberg news suggests that Keppel might sell its 19% stake in m1 and 45% stake in Keppel REIT, worth $1.6b combined; or a rights issue. Separately, Keppel is selling its stake in Fernland Investment which owns a Vietnam office building for US$10.9m.

This raises the question if Keppel needs cash? The O&M is not so cash-generative anymore. It used to be the cash cow with most of its earnings upstreamed to the group to fund dividends and other businesses. This explains its stagnant NAV since FY12. But its FY15 NAV shrank from $2.3b in FY14 to $1.4b, despite PATMI of $481m.

This suggests considerable net cash outflows to the group, likely for taking KepLand private and dividend payments. Cash generation was also hampered by backend-loaded rig payments and delayed deliveries. It is highly possible that O&M does not have much cash left to support its working capital in FY16, unless clients pay up.

Maybank-KE cites that the KepLand privatisation was a big cash drain. The house thinks that a large portion of the group’s SGD1.9b cash as at end-FY15 may be residing in its property arm, and cannot verify if this could be readily available to O&M, given 1) some may be proceeds from property presales; and/or 2) the cash may not be in Singapore. Greater clarity may emerge when the company releases its annual report.

According to Maybank-KE estimates, Keppel may already face a cash deficit in FY15 before dividend payments, if it does not touch the cash deposited in its property subsidiaries.

Unless rig clients pay up, it may need to consider other cash sources, to which the house does not rule out debt or equity fund-raising, asset sales or capital recycling.

Maybank-KE maintains Sell on Keppel Corp with TP of $4.24

Parkway Life REIT

Parkway Life REIT: 4Q15 distributable income and DPU surged 16.1% y/y to $20.4m and 3.37¢, respectively, boosted by partial distribution of divestment gains from the sale of seven Japan properties in Dec '14.

This brought FY15 DPU to 13.29¢ (+15.3%), in line with street expectations.

For the quarter, gross revenue and NPI both rose at a steady 4.8% y/y and 1.2% q/q to $26.3m and $24.6m respectively from upward rent revision and full contribution from seven Japanese nursing homes acquired in 4Q14 and 1Q15.

The healthcare trust achieved full portfolio occupancy with a weighted lease-to-expiry of 9.12 years.

Aggregate leverage dipped marginally to 35.3% (-0.5ppt q/q) with average debt cost of 1.6% (+0.1ppt q/q) and tenor of 3.5 years. Assuming 40% and 45% leverage ratio, the REIT has debt headroom of $131m and $294m, respectively.

In FY15, its three private hospitals in Singapore, comprising Gleneagles Hospital, Mount Elizabeth Hospital and Parkway East Hospital, contributed 62% to overall gross revenue.

The bulk of the remaining 38% came from 43 healthcare properties across Japan, comprising 42 private nursing homes and one pharmaceutical product distributing and manufacturing facility. It also owns a medical centre in Malaysia, which contributes a minimal 0.4% to FY15 gross revenue.

Going forward, PLife expects to continue to reap benefits from robust demand for private healthcare services, supported by favourable rental lease structures, where at least 93% of its Singapore and Japan portfolios have downside revenue protection, and 64% have locked-in rental growth that is pegged to inflation.

Among the three SGX-listed healthcare REITs, PLife is trading at premium valuations, with an indicative yield of 5.9% and 1.3x P/B, compared with First REIT's 7.1% yield and 1.1x P/B, and Religare Health Trust's 8.3% yield and 0.97x P/B.

UG Healthcare

UG Healthcare: Stock price has fallen 35% in the past 2 days. In response, Maybank-KE hosted a conference call with management and our clients. Management assured that the company remains in good shape and addressed concerns. Production, pricing, margin and costs are within the targeted range. Maybank-KE expect results, due for release next week to show possible upside surprises due to strong USD & low rubber price. UG is now trading at 10x FY16E P/E, >60% discount to peers average.

The house maintain BUY & TP of SGD0.41, 46% upside.

Mapletree Industrial Trust

Mapletree Industrial Trust’s 3QFY16 results were in line. DPU rose 5.6% to 2.82¢, while distributable income climbed 9.5% to $50.3m.

Revenue expanded 6.6% to $83.3m, while NPI grew 6.7% to $61.9m, contributed by the build-to-suit (BTS) project for Equinix, increased portfolio occupancy, and higher rental rates for flatted factories, stack-up/ramp-up buildings and light industrial buildings.

Occupancy inched 0.9ppt q/q to 94.7%, with WALE of 2.9 years. Portfolio passing rental rate was $1.89psf/mth, from $1.88 last quarter. Tenant retention remained healthy at 84.2%.

Aggregate leverage stood at 29.3% (-0.4ppt q/q), with weighted all-in funding cost of 2.4% (+10bps q/q).

On development updates, the BTS for Hewlett Packard remains on track with Phase 1 to be completed in 2H16, although the AEI at Kallang Basin 4 cluster is delayed by a quarter to 1Q18.

Maybank-KE opines this a set of commendable results amid a difficult environment, and likes MINT for being one of the few S-REITs that has clear growth visibility. The house expects the HP BTS and a new high-spec building at Kallang Basin 4 to support DPU growth of 10% in FY3/18, translating to an effective yield of 8% in the longer term. As a result of taking on more debt to fund these projects, the house expects aggregate leverage to climb to 32%. Beyond that, MINT still has $450m of debt headroom before leverage hits 40%.

Nevertheless, the house maintains Hold on MINT with TP of $1.50 given still-difficult operating environment.


M&A: Temasek evaluating options for Keppel and Sembcorp groups?
According to Bloomberg, Temasek Holdings is reviewing various options for Keppel Corp and Sembcorp Industries, including divestment of non-core assets and rights issues, as they grapple with a depressed oil price outlook.

Temasek is the largest shareholder in both conglomerates, with a 21% stake in Keppel and 49.5% holding in Sembcorp Industries.

The newswire agency touts that Temasek is weighing the possibility of Keppel selling its 19.1% stake in mobile operator M1 and paring its 44.6% interest in office landlord Keppel REIT.

Temasek is also said to be considering potential right offerings for both companies. This highlights the financial risk of massive asset write-downs or provisions in the event of systematic rig cancellations or defaults on company balance sheets.

With the exception of 2009, rig orders at Keppel and Sembcorp Marine has dwindled to their lowest level in 13 years as falling crude prices led to deep capex cuts by the oil majors.

The two companies also face order cancellation risks from a major client in Brazil, which is on the verge of bankruptcy and has halted progress payments since Nov 2014.

Pending further clarity, we hazard some possible scenarios:
1) Keppel pumps its offshore business into Sembcorp Marine or buys over Sembcorp Industries’ 61% stake in the latter
2) Both Keppel and Sembcorp Industries swap their offshore business into NewCo
3) Sembcorp Industries buys over Keppel’s infrastructure businesses (including KIT)
4) Keppel divests its 19.1% stake in M1 to largest shareholder and Malaysian telecom operator, Axiata
5) Keppel merges Keppel REIT with CapitaLand Commercial Trust to form an office REIT giant

In response to the breaking news in the afternoon session, Keppel tanked to close at almost day low of $4.71 (-2.1%), while Sembcorp Industries and Sembcorp Marine also ended lower at $2.23 (-3.5%) and $1.475 (-5.1%) respectively. But M1 (4%) and KIT (+4.4%) appeared to have reacted positively in the wake of the review.

SG Market (27 Jan 16)

Singapore market is likely to remain range-bound amid the ongoing lacklustre earnings season. Index heavyweights Keppel Corp and Sembcorp Industries may face selling pressure after reports that key shareholder Temasek Holdings is reviewing options for them, including asset sales and rights issue, suggesting all is not well.

Regional bourses opened positive in Tokyo (+2.2%) and Seoul (+1.4%), while Sydney (-0.4%) is slightly down.

From a chart perspective, downside risk for the STI at a 5-year low of 2,520, while topside resistance remains pegged at 2,670.

Stocks to watch:
*Mapletree Industrial Trust: 3QFY16 in line, DPU rose to 2.82¢ (+5.6% y/y), while distributable income climbed to $50.3m (+9.5%). Revenue and NPI grew to $83.3m (+6.6%) and $61.9m (+6.7%), led by the build-to-suit project for Equinix, higher rental rates and occupancies (+0.9ppt q/q to 94.7%). Aggregate leverage stood at 29.3% (-0.4ppt q/q), with weighted all-in funding cost of 2.4% (+10bps q/q). NAV/unit at $1.33.

*Suntec REIT: 4Q15 in line on distributable income and DPU of $69.5m (+7.7%) and 2.75¢ (+6.7% y/y), lifted by capital distributions from the CHIJMES disposal. Gross revenue and NPI grew to $87.5m (+14%) and $62.5m (+18%), underpinned by the completion of Phase 3 AEI works at Suntec City and stronger performance at Suntec Singapore. Both office (+0.4ppt q/q to 99.3%) and retail (+1.4ppt to 97.9%) occupancy edged up. Aggregate leverage crept to 37.1% (+0.4ppt) and average debt cost increased to 2.86% (+0.12ppt). NAV/unit at $2.154.

*Starhill Global: 2QFY16 results in line. DPU climbed to 1.32¢ (+2.3% y/y), while distributable income rose 3.5% to $30.1m. Gross revenue and NPI jumped to $55.6m (+13.8%) and $43.7m (+10.4%), respectively, driven by contribution from Myer Centre Adelaide acquired in May ’15, as well as better performances of Singapore properties. Portfolio occupancy dipped to 98% (-0.3ppt q/q) with WALE of 6.4 years, while aggregate leverage held steady at 35.7% with average debt cost of 3.15% and tenor of 3.6 years. NAV/unit at $0.90.

*Parkway Life REIT: 4Q15 results in line. with both distributable income and DPU up 16.1% y/y to $20.4m and 3.37¢, respectively, boosted by partial distribution of divestment gains from the sale of seven Japan properties in Dec ’14. Gross revenue and NPI both grew 4.8% to $26.3m and $24.6m, from higher rent revision (+1.1%) and contribution from properties acquired in 4Q14 and 1Q15. Portfolio occupancy remained at 100% with WALE of 9.12 years. Aggregate leverage dipped marginally to 35.3% (-0.5ppt q/q) with average debt cost of 1.6% (+0.1ppt q/q) and tenor of 3.5 years. NAV/unit at $1.69.

*OUE Commercial Trust: 4Q15 results missed street estimates. Against IPO forecasts, distributable income and DPU came above by 21.1% and 20.4% to $17.6m and 1.36¢, respectively. Revenue of $40.3m (+4.2%) and NPI of $29.7m (+6.6%) due to better performance at all three properties and lower-than-expected utilities cost at OUE Bayfront and One Raffles Place. Occupancy slipped to 94.3% (-2.8ppt q/q), with WALE of 2.7 years. Aggregate leverage surged to 40.1% (+6.2ppt q/q), with debt cost rising to 3.45% (+0.29ppt). NAV/share at $0.96.

*Sembcorp Marine: Substantial shareholder Templeton Asset Management pared 3.8m shares at an average $1.54/share on 25 Jan, reducing its stake from 5.15% to 4.97%.

*Ezra: CFO Eugene Cheng stepped down with immediate effect due to family reasons, and Chan Eng Yew, CEO of subsidiary Triyards, is appointed as interim CFO starting from 27 Jan.

*M1: In response to a SGX trading query following a sudden surge in share price and volumes yesterday, M1 disclosed that a Bloomberg article citing Temasek is weighing the possibility of Keppel Corp selling its 19.1% stake in M1.

*Soilbuild Construction: Awarded a design and build contract worth US$9.4m for the addition and alteration works of St John Shopping Center in Yangon Myanmar. Completion is expected within 8.5 months from commencement in 1Q16.

Tuesday, January 26, 2016


OUEHT: OUE Hospitality Trust’s 4Q15 results were broadly in line with DPU of 1.7¢ (-4.5%) and distributable income of $22.8m (-3.3%) dampened by higher funding cost arising from the acquisition of Crowne Plaza Changi.

Revenue and NPI rose 8.6% and 7% to $33m and $28.8m respectively, boosted by the addition of Crowne Plaza Changi, but were offset by weaker performance at Mandarin Orchard and Mandarin Gallery.

Master lease income at Mandarin Orchard came in $1.1m lower as RevPAR fell to $236 (3Q15: $243, 4Q14:$245), amid a decline in transient business. Meanwhile, revenue at Mandarin Gallery fell 3.2% to $9.2m due to lower occupancy and fit-out periods. Effective monthly rent climbed to $24.70 psf from $23.70 psf last year.

Committed occupancy at Mandarin Gallery was 94%, with weighted lease expiry of 3 years.

Aggregate leverage stood at 42% (-0.1ppt q/q) with average cost of debt of 2.7% (+20bps).

Management expects the tourism industry in Singapore to remain difficult in 2016, notwithstanding major biennial events such as the Singapore Airshow, as well as Singapore’s maiden hosting of the World Rugby Sevens Series in Apr ’16.

OUEHT expects to acquire the 243-room Crowne Plaza Changi extension in 2H16, upon receipt of TOP. Given its current leverage near the 45% threshold, the trust is likely to fund the acquisition via equity raising exercise.

The AEI at Mandarin Orchard will continue into 2016, with the remaining 270 of 430 guest rooms to be renovated in phases, and funded by sponsor OUE.

As Mandarin Gallery’s lease renewal cycle coincides with a challenging retail environment, management guided that tenants have taken a more cautious approach to lease renewals. With the impact of slower lease renewals and more fit-out extensions, Mandarin Gallery is expected to record lower occupancy in 1H16.

OUEHT is currently trading at an annualised DPU yield of 9.1% and 0.8x P/B.

While Market Insight likes OUEHT's assets from a longer term perspective, as well as its above average yield, the weak macro and transitional factors, as well as equity fund raising risk may result in a prolonged overhang, amid a market with little appetite for risk.

As such, we are exiting our position from the Yield portfolio with a realised loss of 1.3% ytd from $0.77 at the start of the year.

Latest broker ratings:
Credit Suisse maintains Neutral but cuts TP to $0.92 from $0.94
Religare maintains Buy with TP of $0.87
Deutche maintains Hold with TP of $0.80

Cache Logistic Trust

Cache Logistic Trust (S$0.87): 4Q15 DPU beat on divestment gains but dilution risk looms

Cache Logistic Trust’s 4Q15 results exceeded estimates despite reporting a drop in DPU to 2.07¢ (-3.4% y/y). This brought full-year DPU to 8.5¢ or about 108% of consensus forecast.

DPU was diluted by an enlarged unit base due to a $100m fund raising placement in Nov ‘15, of which $60m was used to pare down debt and the remaining for its foray into Australia.

Distributable income of $17.6m (+4.7%) included a Kim Heng divestment gain of $2.1m. Excluding this, distributable income would have dropped 7.9% to $15.5m

Gross revenue surged to $24m (+16.6%), mainly on maiden contributions from six Australian acquisitions ($2.3m) and stronger contribution from Singapore properties (+5.3% to $21.4m).

However, NPI slipped to $19.2m (-1%) on increased property expenses (+295%) at newly converted multi-tenanted properties.

Portfolio occupancy dipped 0.3ppt q/q to 94.9%, with weighted-average-lease-to-expiry of 4.4 years.

Aggregate leverage edged up sequentially by 1.5ppt to 39.8%, while average debt cost eased to 3.25% (-0.15ppt) with debt tenor of 3.1 years.

There is notable interest rate risk as close to 38% of borrowings remained unhedged, and Cache estimates a 50bps increase in interest rate will sap $1m off distributable income or 0.11¢ DPU.

Going forward, management is not sanguine about the Singapore industrial property market, which makes up 89% of its gross rental income, even though there will be added contribution from the built-to-suit warehouse for DHL Supply Chain Singapore from Jan ’16 onwards.

Maybank-KE sees little room for the REIT to grow inorganically as its aggregate leverage is approaching the 45% regulatory limit, and touts that there could be further dilution risk.

Consequently, the house maintains a Hold rating and shaved its TP to $0.93 from $0.95.

Cache Logistic Trust is currently trading at 1x P/B and offers an annualised distribution yield of 9.5%.

Latest broker ratings:
DBS Vickers maintains Buy with TP of $0.96
Maybank-KE maintains Hold, cuts TP to $0.93 from $0.95
RHB maintains Neutral, cuts TP to $0.86 from $0.97

Sabana REIT

Sabana REIT: Sabana REIT’s 4Q15 DPU slumped 15.7% y/y to 1.5¢, in tandem with lower distributable income of $11m (-14.4%). This brought FY15 distributable income to $50.1m (-2.9%) and DPU to 6.85¢ (-6.5%).

For the quarter, revenue declined 2.9% to $24.6m, depressing NPI by 10.3% as lower rental reversions were exacerbated by increased property expenses on the conversion of three more master leases into multi-tenanted leases.

Occupancy dipped fell 4ppt q/q to 87.7%, while weighted lease expiry lengthened to 3.2 years from 1.7 years in the previous quarter.

Aggregate leverage was 41.7% with fairly high all-in financing cost of 4.2%.

Sabana REITs portfolio suffered a 9.3% revaluation loss of $116.7m on its investment properties, after taking into account sluggish economic growth, and the oversupply of industrial space. Consequently, NAV fell to $0.89 from $1.06 a year earlier.

Negative rental reversions from the renewal of some master leases, increased vacancies and heightening operating expenses arising from the conversion of three more properties into multi-tenanted buildings are expected to weigh on near-term financial performance.

Nevertheless, with the completion of divestments of 3 Kallang Way 2A and 200 Pandan Loop in 1Q16, management is expecting to use the $53m net proceeds to pare down debt, which will bring aggregate leverage to ~39%.

Four master leases will expire in 11 months. Of these, one is expected to be converted into a multi-tenanted building.

Sabana REIT is currently trading at 9% annualised 4Q15 yield, and 0.75x P/B.

UG Healthcare

UG Healthcare: stock price has fallen by almost 40% since yesterday on heavy volume. Management clarified business is still running as us usual and there is no changes in the operation. Management also confirmed that new capacity (+30% YoY started since Nov 15) has been filled and the plant is running at its optimum rate.


ISEC: ISEC's slate has been wiped clean for a 2016 rebound, driven by organic growth, end of start-up losses and M&As.

The eye specialist has shut down its loss-making ISEC Novena, with the last of the costs captured in 4Q15, setting the stage for a profit rebound in FY16. Immediately, an absence of Novena operating losses will plough $2.6m back to its bottom line.

In addition, there will also be full-year contributions from newly-acquired SSEC in Melaka.

Maybank-KE believes that following SSEC’s acquisition, M&A pace should also pick up, with up to five deals in the works. The house believes these could double profits if closed.

The stock is the cheapest in Maybank-KE's healthcare universe at just 15x P/E. The house maintains Buy and TP of $0.40 based on 27x FY16 EPS, a 20% discount to peers on account of its smaller size.

Mapletree Logistics Trust

Mapletree Logistics Trust’s 3QFY16 results were in line. DPU was flat y/y at 1.87¢, while distributable income inched 0.6% to $46.5m.

Revenue climbed 7.3% to $88.9m, while NPI rose 6.7% to $74.1m, driven by acquisitions, positive rent reversions and a stronger HKD, offset by multi-tenanted buildings conversions, the absence of 76 Pioneer Road (undergoing redevelopment), and weaker MYR.

Distributable income climbed at a slower clip than NPI due to a 44.7% surge in borrowing costs to $12.1m due to recent acquisitions.
Occupancy was flat q/q at 96.9%, with WALE of 4.8 years.
Aggregate leverage inched 0.2ppt q/q to 39% with weighted average interest rate of 2.4% (+10 bps q/q). 80% of interest costs are fixed rated.
Management guides that the leasing market is challenging, as tenants delay decision making over the renewal of leases and take-up of new space.
To date, 93% of the 692,000 sqm of leases due for expiry in FY16 have been renewed. Tenant retention and the management of the conversion of single-user buildings into multi-tenanted will remain MLT’s key focus.
MLT is currently trading at 8.2% annualized 3QFY16 yield, and 0.9x P/B.
Latest broker ratings:
DBS Vickers maintains Buy with TP of $1.15
Deutsche Bank maintains Buy with TP of $1.10
OCBC upgrades to Buy from Hold with TP unchanged at $1.04
Daiwa maintains Outperform, cuts TP to $1.04 from 1.13
RHB maintains Neutral with TP of $0.93

SG Market (26 Jan 16)

SG Market: Previous two-day respite likely to be short lived as the market takes cue from the renewed sell-off in oil.

Regional bourses opened mixed today in Tokyo (-2.1%), Seoul (-1.2%) and Sydney (+1.8%).

From a chart perspective, downside risk for the STI at 5-year low of 2,520, while topside resistance remains pegged at 2,670.

Stocks to watch
*Economy: Market watchers highlight increasing signs of policy easing by MAS in Apr meeting given the absence of domestic inflation. Official forecasts for headline and core inflation maintained at -0.5%-0.5% and 0.5%-1.5%, respectively.

*SMRT: 3QFY16 beat with net profit of $36.9m (+ 64% y/y), taking 9MFY16 earnings of $82.7m (+18%) to 97% of street’s FY16 forecast. Revenue climbed 4.6% to $324.6m on stronger contribution across all fronts, mainly from rail (+5.1%) and bus (+6.3%) on higher ridership and average fares. Operating profit in rail of $8.2m (+242%) and bus of $3.4m (3QFY15: -$0.5m) was boosted by government grants and cheaper fuel. Non-fare EBIT also improved (+20.3%), led by taxi and rental segments. NAV/share at $0.5832.

*Cache Logistic Trust: 4Q15 exceeded expectations despite a fall in DPU to 2.07¢ (-3.4% y/y) stemming from an enlarged unit base due to a fund raising, while distributable income was boosted by a post-divestment distribution ($2.1m). Gross revenue surged to $24m (+16.6%) on incremental revenue from Australian acquisitions, but NPI slipped to $19.2m (-1%) on increased property expenses at newly converted multi-tenanted properties. Portfolio occupancy ceded 0.3ppt q/q to 94.9%, with WALE of 4.4 years. Aggregate leverage edged up 1.5ppt to 39.8%, while average debt cost eased to 3.25% (-0.15ppt) with debt tenor of 3.1 years. NAV/unit at $0.88.

*OUEHT: 4Q15 results in line with DPU and distributable income of 1.70¢ (-4.5% y/y) and $22.8m (-3.3%), respectively, on lower contributions from Mandarin Orchard and Mandarin Gallery. Revenue climbed 8.6% to $33m, while NPI expanded 7% to $28.8m, boosted by the addition of Crowne Plaza Changi. Committed occupancy at Mandarin Gallery was 94%, with WALE of 3 years. Aggregate leverage stood at 42% (-0.1ppt) with average cost of debt of 2.7%. NAV/unit at $0.90.

*Mapletree Logistics Trust: In line 3QFY16 with DPU of 1.87¢ (flat), weighed by a surge in borrowing costs (+45%), while distributable income inched 0.6% to $46.5m. Gross revenue climbed 7.3% to $88.9m, while NPI rose 6.7% $74.1m from the full contribution of properties acquired in FY15-16, offset by converted multi-tenanted buildings. Occupancy remained at 96.9%, with WALE of 4.8 years, while aggregate leverage inched 0.2ppt q/q to 39%, with weighted average interest rate of 2.4%. NAV/unit at $1.02.

*Ascott REIT: 4Q15 results above expectations although DPU slipped 4% y/y to 2.07¢, as revenue surged 26% to $119.2m due to new acquisitions made in 4Q14 and 3Q15, partially offset by the divestment of six rental housing properties. Same store RevPAU improved 2% to $145 on stronger performances from China, Indonesia and Vietnam due to appreciating currencies. Aggregate leverage and debt cost remained stable at 39.3% (-0.7ppt q/q) and 2.9%, respectively. NAV/unit at $1.41.

*Petra Foods: Substantial shareholder Aberdeen Asset Management raised its stake on 21 Jan, purchasing 1.4m shares on the market at $2.20 apiece, lifting its stake to 8.15% from 7.92%.

*Nera Telecommunications: Secured a $10m contract to supply turnkey TV transmission systems for a South East Asian TV network.

*NSL: Received indicative interest to purchase its dry mix business, with operations in Hong Kong, China, Singapore and Malaysia.

*Cogent: Appointed new crane specialist Konecranes to undertake crane system construction works for Cogent 1 Logistics Hub. The building is expected to complete by 4Q16.

Monday, January 25, 2016

Insider Trades

Insider Trades: Asia Insider notes that for the week ending 22 Jan, insider buying remained strong albeit at a slower pace. Buying/buyback activity were concentrated on stocks which saw their prices fall.

Insider purchases: 30 companies saw 71 acquisitions worth $7.1m, vs. 20 firms, 56 purchases down from $11.7m the week before.

Insider selling: Nil sales, vs. 4 companies, 6 disposals worth $3.17m the week prior.

Buybacks: 26 companies posted 83 repurchases worth $18.8m, vs. 30 firms, 103 transactions worth $29.6m the previous week.

Notable transactions:
DBS: Resumed buying back with 1.9m shares purchased from 7-18 Jan at $14.95 average. The group previously acquired 500,000 shares from 10-14 Dec at average of $16.38 and 12.5m shares from Feb to Oct last year at average of $19.02. The stock closed at $13.87 on Friday.

Super: Picking up where it left off in Nov, picking up 600,000 shares at $0.72 average, accounting for 18% of the stock’s trading volume. Asia Insider reminds that Matthews International Capital Management disposed 358,000 shares at $0.82 each, paring its stake to 5.97% of issued capital. In fact, the fund manager’s stake has fell 10% since Aug ’15.

Wing Tai: Resuming from Dec buybacks, acquiring 2.59m shares at an average of $1.62. This accounted for 43% of the stock’s trading volume, made on the back 9% drop in share price since Dec.

China Everbright Water: There were buybacks, as well as purchases by vice-chairman Chen Dawei and independent director Paul Lim Yu Neng with total 88.13m shares purchased at $0.494 each. These trades accounted for 43% of the stock’s trading volume.

SG Market (25 Jan 16)

Singapore shares are likely to see some positive follow-through momentum following the sharp rebound on Wall Street on potential stimulus plans by ECB and BOJ, as well as the sharp recovery in crude prices. However, gains may be kept in check by the ongoing lacklustre earnings season.

Regional bourses opened higher in Tokyo (+0.6%), Seoul (+0.6%) and Sydney (+1.2%).

From a chart perspective, topside resistance for the STI remains pegged at 2,670, with downside risk at 5-year low of 2,520.

Stocks to watch
*Ascendas REIT: 3QFY16 results came slightly ahead of street expectations on DPU of 3.95¢ (+9.9% y/y). Revenue and NPI jumped to $193.8m (+12.9%) and $142.2m (+24.1%), respectively, contributed by newly acquired properties in S’pore and Australia, AEI completion and positive rental reversion (+7.3%). Portfolio occupancy inched to 89.2% (+0.2ppt q/q) with WALE of 3.7 years, while aggregate leverage edged up to 37.3% (+2.7ppt) with average borrowing cost maintained at 2.72% and debt tenor of 3.5 years. NAV/unit at $2.06.

*Tigerair: 3QFY16 net profit soared to $6.8m (+209.2% y/y), boosted by cheaper fuel (-25.2%). Revenue rose to $187.4m (+1.5%) on higher lease and ancillary income, while passenger revenue slipped 3.3% on lower yields (-1.4%) but higher load factor of 83.1% (+1.1ppt). Operating margins improved to 5.4% (+3.2ppt), as lower fuel costs was partially eroded by higher aircraft maintenance (+34%), aircraft rentals (+51%) and FX loss (+61%). NAV/share at $0.0807.

*Guocoland: 2QFY16 results beat estimates, although net profit fell 8% y/y to $39m on weaker revenue of $239.5m (-32.7%), following the sale of an office tower in Shanghai in the previous corresponding quarter. Bottom line was buttressed by lower admin expenses and fair value losses on FX hedges. NAV/share at $2.99.

*Keppel Corp: Plans to consolidate its business trust management, REIT management and fund management businesses under Keppel Capital, with aggregate $26b of assets, as a newly defined business segment of the group.

*Wilmar: Investing Rmb173m in two JVs with SATS to supply food in China.

*Ascendas Hospitality Trust: Disclosed that management remains in discussions with interested parties on a potential takeover of the REIT.

*Creative Technology: Settled a patent infringement lawsuit with Samsung. The Korean manufacturer will take a license for a patent and is expected to contribute ~US$0.14 EPS in the current quarter.

*Pacific Andes/China Fishery: Seeking legal advice to a potential default following exercise of put options by various bondholders. Counters will remain suspended until further notice.

*Hi-P: Proposed 50:50 JV with Rompa (Hong Kong) to undertake packaging solutions to the consumer electronics industry.

*Advanced Integrated Manufacturing: Acquired a minimart in Potong Pasir for $0.3m.

*Dairy Farm: Substantial shareholder Templeton Asset Management reduced its stake in the company from 7.25% to below 5% on 20 Jan.

*Sapphire: Veteran Chinese private equity investor Li Xianbo acquired 100.8m shares (10.3% stake) at $0.097/share via an off-market transaction, taking over the entire stake of substantial shareholder Shi Yin Jun.

*China Yongsheng: In discussions with interested parties to delist the company.

*Sin Heng: Expects to incur a 2QFY16 net loss due to a one-time disposal loss of an associat, as well as lower revenue from the region.

*CFM: Expects a higher net loss for 1HFY16 due to increased provisions and lower sales from its metal stamping operations.

*Santak: Expects a slimmer loss in 1HFY16 due to expansion expenses, which rose quicker than revenue growth.

Friday, January 22, 2016


Keppel: (S$4.96) 4Q15 earnings shored by property; warns of a long offshore winter
Keppel Corp's 4Q14 net profit slumped 44.2% y/y to $404.8m, bringing FY15 earnings to $1.5b, which still beat lowered estimates amid the rig downcycle.

For the quarter, revenue sank 36.8% to $2.5b on weaker contributions across the board.

Offshore & Marine - Slipped into a 4Q15 net loss of $61m (4Q14: $287m profit) due mainly to a $230m provision for its Sete Brasil rig contracts. Eight of 15 planned deliveries for 2015 were pushed to 2016.

On the bright side, operating margin (sans Sete Brazil projects) came up to 17.1% but this was a likely one-off due to project mix.

Order book shrank to $9b (-28% y/y, -10% q/q) and the group laid off 17% (direct) and 24% (subcontract) of its workforce in 2015 to right-size its business and warns of a long winter.

Property - 4Q15 earnings surged 41% to $368m following the privatisation of Keppel Land, strong overseas sales and buttressed by $128.9m revaluation gains on investment properties and data centres.

Despite headwinds, it sold 4,570 homes in 2015, double the units taken up the previous year, of which 72% were in China and 20% in Vietnam. These two markets continue to be the growth drivers for the group.

Infrastructure - Contributions tumbled 78.1% to $47m, mainly due to the absence of divestment gains (4Q14: Keppel DC REIT IPO and sale of Keppel FMO), and lower revenue from its power and gas business, partly offset by fair value gains on data centres.

While the division has been dogged by EPC projects, it remains confident of development Keppel DC REIT into a strategic contributor to its overall business. Keppel Seghers has also handed the Doha North Sewerage Treatment Works in Qatar and begun its 10-year operations and maintenance phase.

Net gearing shot up to 0.53x from 0.32x a year ago as it undertook debt to acquire Keppel Land, office buildings in London, and Keppel Bay Tower.

Going forward, Maybanke-KE feels that key investor concerns have not be alleviated despite the $230m provision for Sete Brasil contracts and earlier payments of US$1.3b. In the event of a Sete Brasil bankruptcy and any order cancellations by other rig owners, the house believes more writedowns will be necessary.

Meanwhile, Sete Brazil held its shareholder meeting yesterday, which failed to obtain a 85% majority for a bankruptcy motion due to objections from Petrobras Pension Fund (18% stake) and Bank Santander (6%). A further meeting will be held In 30 days to discuss the matter, giving all parties some temporary respite.

Investors may also want to watch if clients take delivery of four deferred jackup rigs (3 for Grupo, 1 for Falcon Energy) in mid-Feb and 1H16.

Given the fluid Sete Brazil situation and dim prospects for the offshore oil industry in the near term, the group has slashed it final DPS to $0.22 based on a reduced 40% payout ratio. This takes its full year DPS to $0.34 (FY14: $0.48), translating to a fairly attractive dividend yield of 6.9%.

The stock is currently trading at a FY15 P/E of 5.9x and P/B of 0.8x, closer to its valuation lows during the 1998 regional financial crisis (P/E: 5.3x, P/B: 0.3x)

Latest broker ratings:
Maybank-KE maintains Sell with TP of $4.24
KGI downgrades to Sell, cuts TP to $4.26 from $7.16
CLSA maintains Sell, cuts TP to $4.28 from $4.92
CIMB maintains Hold but cuts TP to $ 4.39 from $7.12
Credit Suisse maintains Neutral but cuts TP to $5.10 from $7.50

Bumitama Agi

Bumitama Agi: (S$0.665) Record production in 4Q15; sell-down overdone
4Q15 CPO production hit an all-time high of 222,129 MT (+27.4% y/y), while palm kernel production surged 29.6% to 43,243 MT due to a 30% jump in FFB harvest.

The strong set of figures represents 32% of Maybank-KE's 2015 output, and brings full-year FFB nucleus output to 1,578,815 MT (+13%), 98% of full-year forecast.

On the strong production, the house believes that investor confidence is expected to be restored as the recent sell-down in the upstream CPO planters was mainly on concerns over production outlook, caused by the drought in Kalimantan in 3Q15.

Additionally, expectations for a strong 4Q15 remain, with results to be boosted by high inventories brought forward from 3Q15, although CPO ASP stayed relatively flattish q/q. Earnings will also be supported by FX reversal arising from a strengthening IDR against USD.

The house thinks the recent sell-down has been overdone and maintains its Buy, with TP of $0.85.

CapitaLand Mall Trust

CapitaLand Mall Trust: (S$1.925) Tough underlying environment reflected
CapitaLand Mall Trust (CMT) 4Q15 results came largely in line with DPU of 2.88¢ (+0.7% y/y), bringing FY15 DPU to 11.25¢ (+3.8%).

For the quarter, gross revenue rose to $180.4m (+9.2%) due to a full quarter's contribution from Bedok Mall. However excluding that, Maybank-KE estimated that revenue would have slipped 0.6%, underscoring a tough operating environment on a same store basis.

Similar to its peer Frasers Centrepoint Trust, CMT benefitted from lower utilities expenses from energy savings, which helped raise NPI to $125.7m (+18.6%).

Subsequently, distribution income rose 2.8% to $101.9m, despite the absence of a one-off distribution (4Q14: $4.5m).

Portfolio occupancy improved to 97.6% (+0.8ppt) with weighted average lease to expiry of 2.1 years.

Aggregate leverage crept up to 35.4% (+1.6ppt), with debt tenor of 5.3 years and average interest cost maintained at 3.3%.

For FY15, shopper traffic increased 4.9% across CMT's portfolio, in tandem with tenants' sales psf of 5.3%. The REIT also saw a positive rental reversion of 3.7% across the 16 shopping malls, which slowed from 6.1% in FY14.

Maybank-KE maintains its view that operating environment remains tough for the retail segment. The house last had a Sell rating with TP $1.66, based on 6.75% yield target.


Jumbo: (S$0.465) Local broker raises TP by 12%
A local broker raised its TP for Jumbo from $0.49 to $0.55 and maintains its Buy rating on the stock, on stronger sales potential in China and an additional outlet in Singapore.

Following a management update, the house raised the average customer spending estimates in China by 3%, backed by the assumption that Jumbo's customised offerings for the different clientele segments at each of the three outlets in China will be well-received.

Further, channel checks at China's most popular restaurant review website underpinned demand for Jumbo's newest outlet at IFC mall in Shanghai, with a respectable average rating of 4.5/5, despite being opened for just a week.

In Singapore, the brokerage has also revised its store count forecast to two new stores by FY18, up from one initially. It believes Jumbo may open a new outlet in CBD, given the success of Riverside Point and its lack of presence in the area.

Supported by strong cash flow generation and visible expansion plans, the house maintains its upbeat view on the chilli crab seller. Potential catalysts may stem from better-than-expected earnings from its outlets in China.

Keppel Corp Post-Results (DBS Credit Research)

"Keppel released their 4Q15 results yesterday, despite weaker YOY numbers (FY15 Rev -22.5% YOY, NPAT -19% YOY, Operating margins 14.7% vs last year 17.9%), Net gearing increased from 0.11 times to 0.53 times (Management guided that it would like to maintain below 1 times). During the analyst briefing yesterday evening, concerns were mainly about Sete Brasil which could be a risk to the firm. Keppel was tight lipped about revenues recognized so far related to Sete Brasil, but they have taken a SGD230m provision in relation to the contracts which they feel is adequate at this point in time (after factoring payments owed to Keppel and payments owing to Keppel’s own contractors). They mentioned that if a bankruptcy order is pushed through, the process is expected to be long drawn and an early resolution is unlikely (DBS think further provisioning and unwinding of revenues would be necessary). On the bright side, 4Q15 showed that O&M margins (excluding Sete Brasil provisioning was 17%) which is very strong. Management guided that this is one off (due to project mix for the Q) and a longer term normalised margin guidance which has been provided at 10-12% is tough to achieve today. Meantime, the group thinks they are adequately capitalised, sufficiently diversified across businesses and said that the current market weakness could present more acquisition opportunities. Management also seemed to be nonchalant about market rumors whether SMM and Keppel / SCI could merger. But Keppel said they are still right sizing the O&M business according to the market, so far they have laid off a total of 17% of their workforce and 25% of subcontractor workforce making job losses of 6,000 perm staff and 7,900 contract staff). Net order book is at SGD9B as of end 2015. Enquiry flow on LNG projects like FSRU and FLNG remains healthy.

Sete Brasil shareholder meeting was held yesterday but insufficient majority (requirement of 85%) to file for bankruptcy. Majority of shareholders except two Petrobras Pension Fund (18%) and Bank Santander (6%) voted against bankruptcy. This could be positive in the interim, as it buys the firm more time to work out arrangements. Expected follow up meeting to be held in 30 days."


FCT: Frasers Centrepoint Trust’s 1QFY16 results met the lower end of estimates. DPU climbed 4.4% y/y 2.87¢, in tandem with distributable income with rose 4.2% of $27.7m.

NPI inched up 2% to $33.5m, on the back of lower utility and maintenance expenses, although revenue dipped 0.2% to $47.1m on lower occupancy and average rent at Bedok Point.

Two main leases at Bedok Point were renewed at significantly lower rates, resulting in rental reversions of -38.2%. Portfolio reversions were +13.7% in the quarter. Shopper traffic climbed 8% y/y.

Portfolio occupancy fell 1.5ppt q/q to 94.5%, mainly from vacancies arising from fitting out. WALE stood at 1.61 years.

Aggregate leverage held steady at 28.3% with average borrowing cost of 2.36% (-4.3bps q/q).

The 18-month Northpoint AEI is expected to complete by Sep ’17. The mall remains open during the course of the AEI, but average mall occupancy is projected to be 76% between Mar and Sept (1QFY16: 96.2%). Maybank-KE does not see a swift rebound in Northpoint to high 90s as prospective tenants may eye the new Northpoint City and be put off by ongoing AEI. FCT may need to dip into its exsting kitty to support DPU if Northpoint's vacancies worsen, the house opines.

This aside, FCT needs to contend with occupancy risks and refinancing risks. The inability to lift Changi City Point and Bedok Point's committed occupancies signal a tough market, while 39% of its debt is due for refinancing in July amid a rising interest rate environment.

FCT is currently trading at 6.2% annualized 1QFY16 yield and 1x P/B.

Latest broker ratings:
HSBC maintains Buy with TP of $2.25
Credit Suisse maintains Outperform with TP of $2.24
Daiwa maintains Outperform, cuts TP to $2.11 from $2.15
JPMorgan maintains Underweight with TP of $1.90
CLSA maintains Underperform with lower TP of $1.82 from $1.85

SG Market (22 Jan 16)

Singapore market is likely to see a slight respite from oversold conditions following the rebound in oil prices and Wall Street.

Regional bourses opened higher in Tokyo (+3.2%), Seoul (+1.9%) and Sydney (+1.3%).

From a chart perspective, topside resistance for the STI is pegged at 2,670, with downside risk at 5-year low of 2,520.

Stocks to watch
*Keppel Corp: 4Q15 net profit slumped 44% to $404.8m but still beat lowered estimates. Performance was dragged by O&M weakness, hurt by a $250m provision for Sete Brazil contracts, but propped up by strong property sales in China and Vietnam. Final DPS cut, bringing FY15 DPS to 34¢ (FY14: 48¢). Orderbook declined 10% q/q to $9b; warns of long winter. MKE maintains Sell with TP of $4.24.

*CapitaLand Mall Trust: 4Q15 results largely in line with DPU of 2.88¢ (+0.7% y/y), despite the absence of a one-off distribution. Gross revenue and NPI rose 9.2% and 18.6% to $180.4m and $125.7m, respectively, mainly due to new contribution of recently-acquired Bedok Mall. Portfolio occupancy improved to 97.6% (+0.8ppt), while aggregate leverage crept up to 35.4% (+1.6ppt), with average debt cost maintained at 3.3% and tenor of 5.3 years. NAV/unit at $1.89.

*Frasers Centrepoint Trust. 1QFY16 in line as DPU climbed to 2.87¢ (+4.4% y/y), in tandem with a 4.2% rise in distributable income to $27.7m. Revenue dipped 0.2% to $47.1m on lower occupancy and average rent at Bedok Mall (-16.3%), while NPI rose 2% to $33.5m amid lower utility and maintenance expenses. Portfolio occupancy slipped to 94.5% (-1.5ppt q/q), with WALE of 1.6 years. Aggregate leverage held steady at 28.3%, with average borrowing cost of 2.36%. NAV/unit at $1.91.

*Fortune REIT: FY15 results in line as DPU rose 12.5% y/y to HK46.88¢, in tandem with higher distributable income of HK$884.6m (+13.3%). Revenue and NPI surged to HK$1.9b (+13.7%) and HK$1.3b (+14%), respectively, on income from newly-acquired Laguna Plaza and strong rental reversion (+20.3%). Portfolio occupancy inched to 98.8% (+0.1ppt q/q), while aggregate leverage held steady at 30.1% (-0.3ppt) with average debt cost of 2.15%. NAV/unit at HK$12.76.

*Soilbuild REIT: 4Q15 beat expectations. Distributable income grew to $15.1m (+17.1%), while DPU grew at a slow pace to 1.614¢ (+1.8% y/y) from an enlarged unit base. Gross revenue and NPI surged to $20.4m (+15.6%) and $17.5m (+17.1%), due to contributions from three newly-acquired properties in 3Q14. Portfolio occupancy dipped 1.9 ppt to 96.8% with WALE of 4.8 years. Aggregate leverage stood at 36%, with average interest cost of 3.21%. NAV/unit at $0.80.

*Bumitama Agri: 4Q15 CPO production hit an all-time high of 222,129 MT (+27.4%), while palm kernel production was up 29.6% to 43,243 MT, driven by a 30% jump in FFB harvest. MKE believes the strong output should restore confidence in the counter and believes the recent sell-down is overdone. House maintains Buy and TP of $0.85.

*SATS: To inject $11.4m into a 50:50 travel retail JV with DFASS to provide inflight sales, mail order and pre-order sales in Singapore.

*COSCO: 51%-owned COSCO Shipyard delivered two vessels, a PSV and a livestock carrier to its European buyer.

*Regal International: Entered into a project management cum construction agreement to develop a 21.6 acres plot of land into various residential, retail, and commercial developments in Malaysia. The project has an estimated gross development value of over RM$100m, to be completed over a 3-4 year timeline.

*Advanced Integrated Manufacturing: Acquired a minimart at Jalan Tenteram for $0.1m.

Thursday, January 21, 2016

Frasers Commercial Trust

Frasers Commercial Trust: (FCOT) 1QFY16 results were in line. DPU inched up 2% y/y to 2.51¢, despite distributable income jumping 18% to $19.7m, due to an expanded unit base arising from a private placement in 4QFY15.

Gross revenue climbed 12% to $39.6m while NPI grew 15% to $29.4m on higher rental rates, first full quarter contribution from 357 Collins Street (Melbourne), offset by weaker AUD and lower occupancy at China Square Central and Central Park (Perth).

China Square Central and Alexandra Technopark saw positive rental reversions of 10.3% and 5% in the quarter.

Portfolio occupancy was 92.9% (-2.5ppt q/q) with weighted average lease expiry of 3.3 years. Aggregate leverage remained flat q/q at 36.2% but all-in borrowing cost rose to 3.07% (+11bps q/q, +37bps y/y).

Of the 15.4% of leases due to expire in 2016, 7.6% are from its office assets, a relatively low number in a year of high office supply.

The office market Singapore is deteriorating. For the first time since 1Q09, the office market recorded a consecutive quarter of negative absorption.

Meanwhile, prospects for business parks are better, although rents are expected to remain flat.

In Australia, the Perth CBD office market remains weak, but the Melbourne CBD market is healthier, due to a structural migration of companies into the city centtre to hire and retain talent.

On its development projects, the 16-storey hotel at China Square Central will begin construction in 1Q16, and is expected to be completed ahead of time in mid-2019.

FCOT is currently trading at 8.3% annualised 1QFY16 yield, and 0.8x P/B


O&M: With oil prices now at USD28/bbl, the market is again speculating whether Keppel and SembMarine would be merged by parent Temasek. This is an issue that goes back to a time even before 1999. RHB believes that long-run economics and internal factors argue strongly against the merger. Choosing a path contrary to the good bank/bad bank concept in the rig-building industry runs contrary to the long-term viability of an integral sector in Singapore’s economy.

No economic sense in Keppel-SembMarine merger, or to privatise SembMarine. Keppel and Sembcorp Marine (SembMarine) would probably secure more contracts globally as separate entities. For example, of Sete Brasil’s 29-rig order split amongst five builders, Singapore has won a total of 13. A merged entity might have won only 8-10 orders, thus bringing in less economic benefits to Singapore. The pitfalls of a monopsony are well-documented, and the current duopoly yields a more competitive environment with a greater diversity of smaller supporting companies benefitting Singapore’s economy. Further, RHB thinks that Sembcorp Industries’ (Sembcorp) capital would be much better spent in the high-return-visibility business of building utilities in a power-hungry developing market, rather than privatising SembMarine. It may, however, not have a choice, given Temasek’s 49.7% ownership stake.


Healthcare: Maybank-KE notes that despite the resilient earnings of Singapore healthcare stocks, stock prices have performed weakly in line with the market, and in some cases, from institutional investors paring stakes (IHH, Raffles Med)

Maybank-KE opines that the decoupling of price vs. fundamentals could present buying opportunities. Top picks are Raffles Med, ISEC and Q&M. Meanwhile, Cordlife is downgraded to Hold since it has rallied to $1.56 (TP $1.72), which already takes into account shareholding changes that could lead to a privatisation or other forms of corporate developments.

Catalysts for healthcare stocks:
-ISEC (TP $0.40): Down 57% from 52-week high, it is in the early stages of its M&A spree and the cheapest PE among peers (14.8x FY16e P/E)

-Q&M (TP $0.97): Down 31% from its 52-week high, offers 60% EPS growth for FY16, supported by profit guarantees.

-Raffles Med (TP $5.22: Down 21% from its 52-week high, is aggressively expanding in China, with the help of its execution track record.

Risks are poor execution or M&A delays, potentially caused by Chinese regulations


SCI/ SMM: CIMB believes it is not the right time for SCI to take SMM private given the murky fate of Sete Brasil and the challenging offshore market. DPS cuts become more likely and utilities need capital for growth in India, China, Myanmar and Bangladesh.

Stripping out SMM, SCI’s utilities business is worth $2.00/share on DCF (implied P/E of 10x CY16 or 0.8x book value) and industrial parks at $0.47 (at book value). This translates to zero value from SMM, which CIMB deems as illogical. House maintains Add with TP of $3.85 for SCI. Potential re-rating catalysts are stronger-than-expected earnings from utilities and partial settlement of payment from Sete Brasil in SMM.

SG Market (21 Jan 16)

Singapore market is expected to be kept on tenterhooks following the chaotic session with late short covering on Wall Street overnight.

Regional bourses opened mixed in Tokyo (+0.4%), Seoul (+0.3%) and Sydney (+1.3%).

From a chart perspective, the STI sees immediate resistance at 2,670, with underlying support at the five-year low of 2,520.

Stocks to watch
*Healthcare. MKE maintains Overweight on sector, with top picks being Raffles Medical, Q&M and ISEC. House sees buying opportunities amid the weak sentiment, as earnings remain resilient. Catalysts stem from further expansion and M&As.

*SGX: 2QFY16 results beat on better-than-expected costs control. Net profit fell to $83.7m (-3% y/y), as revenue slipped to $194.6m (-0.2%) on a slump in securities (-9.8%) from lower daily average traded value (-11%), but partially mitigated by derivatives (+1.5%), market data & connectivity (+8.2%), and depository services (+13.7%). Proposed a higher interim DPS of 5¢ (2QFY16: 4¢).

*Frasers Commercial Trust: 1QFY16 results met expectations. Distributable income surged 18% to $19.7m from higher rental rates and first full quarter contribution from a property in Australia, while DPU rose at a slower pace to 2.51¢ (+2%) due to an enlarged unit base from a private placement. Occupancy was 92.9% (-2.5ppt q/q) with WALE of 3.3 years. Aggregate leverage stood at 36.2%. NAV/share at $1.53.

*First Resources: Dec FFB harvest climbed 4.9% y/y to 210,212 tonnes, on slightly lower FFB yield of 1.4 tonnes/ha (Dec '14: 1.5 tonnes/ha). CPO production slipped 2.4% to 15,974 tonnes, on lower extraction rate of 22.2%. (-0.9 ppt).

*GLP: Leased 79,000 sqm to five logistics companies in China. Clients include China Post and a leading global FMCG company focusing on agricultural products.

*Charisma Energy: 33:67 JV with India's Sunseap was awarded a 140MW solar farm tender, to supply electricity to the national grid for 25 years.

*JES: Updates that it is still pending a decision from the Jiangsu Court regarding its appeal for a restructuring scheme with creditors. Till a decision is finalized, negotiation with creditors are currently halted.

*SHC Capital Asia: Non-binding MOU to acquire a tourism and hospitality business in Myanmar for an indicative $75m in a RTO transaction. Company intends to seek an extension on its listing status as a cash company, due to be expired on 31 Jan 2016.

*Addvalue: Disclosed that initial in-orbit testing of its in-house developed inter-satellite data relay system have yielded extremely positive results.

*Tritech: 30:70 JV with China Finance Asset Management to tender for two water works projects in China, namely Sponge City and Smart Waterworks.

Wednesday, January 20, 2016


Economy: Sit tight because its going to be a wild 2016
Investors are in for a roller-coaster ride in 2016 if the the prognosis of the world economy by economists at the World Economic Forum in Davos is anything to go by.

This comes as global equity markets reel from a steep selloff since the beginning of the year. The concerns among the bears include:
1) Economic slowdown in China having a knock-on effect on the rest of the world
2) Plunging commodity prices
3) High levels of corporate USD debt in emerging economies at a time when USD is strengthening, which may lead to widespread defaults
4) Disruptive technological innovations, which are displacing workers and changing the economic landscape

While on its own, each of the above problems would not cause a collapse, the combination of all the issues, taken in totality, could trigger a global crisis.

Adding to the gloomier outlook, the IMF trimmed 0.2ppt off its previous global growth forecasts to 3.4% in 2016 and 3.6% for 2017, marking its third cut in less than a year.

There were, however, voices of optimism with some economists pointing to:
1) Still healthy real GDP growth of 6.3% in 2016 given the much higher base now compared to the past
2) Economies have been given enough buffer time to prepare for rising US interest rates
3) The world economy is now more resilient due to other growth engines such as India

With the global risk-off sentiment likely to persist in the near term, investors can look towards safe haven assets or counters with healthy balance sheets and cash flows that would provide a dividend shelter during these times of volatility.

Safe haven currencies such as the USD, and the JPY are expected to appreciate in view of the current equity upheaval, with precious metal assets such as gold and silver seeing a reverse to their previous downtrends.

Dividend plays currently in the Market Insight Yield portfolio include:
1) UMS (Indicative yield: 9.9%)
2) OUE Hospitality Trust (9.2%)
3) China Merchants Holdings Pacific (8.4%)
4) Mapletree Greater China Commercial Trust (8.2%)
5) M1 (6.4%)
6) Venture (6.2%)
7) Fortune REIT (6%)
8. Singtel (5.1%)


SMM: (S$1.57) Potential privatisation or injection of funds by parent SCI?
Sembcorp Marine (SMM) surged to a high of $1.60 (+8.1%) in early trading after a Business Times article floated the idea of that parent Sembcorp Industries (SCI) may inject funds or take it private.

SCI owns 61% of SMM, which has been plagued by a dearth if rig orders and contract cancellations amid plunging oil prices. The group is also exposed to seven drillships ordered by near bankrupt Stet Brazil, which has deferred progress payments since Nov '14, and is at risk of writing off those assets worth US$4.8b.

This has resulted in strained cash flows for SMM and led to questions over the group's firm's ability to survive in a prolonged industry downturn.

Analysts contend that SCI, which owns a 61% stake, could be better off selling SMM and focusing on its profitable utilities business. Rival Keppel Corp is touted as a natural buyer and merger candidate.

Based on a hypothetical scenario, Keppel could buy over SMM for $3.3b (market cap) and sell its infrastructure business (including KIT) to SCI for $2.9b and meet the shortfall through debt.

SMM is currently trading at 1.09x P/B, quite similar to levels during the 1998 regional financial crisis when crude oil was trading below US$20 a barrel.

First REIT

First REIT’s 4Q15 results were largely in line, as DPU climbed 2.5% y/y to 2.09¢ on a firmer distributable income of $15.7m (+5%). This brought full year distribution to 8.3¢, meeting 97.6% of consensus estimate.

Revenue and NPI rose to $25.7m (+7.4%) and $25.4m (+7.9%) respectively, mainly due to contributions from Siloam Sriwijaya, and maiden contribution from Siloam Hospitals Kupang & Lippo Plaza Kupang (Kupang Property), which was acquired in Dec ’15.

NPI margin inched up 0.4ppt to 98.8% on a 20% decrease in property operating expenses amid lower costs incurred for Sarang Hospital, but partially offset by land title renewal costs for an Indonesia property.

Aggregate leverage crept up 0.9ppt to 34% from 2014 and it has debt headroom of $144m before reaching the 45% cap imposed by the new REIT regulations. The REIT has no refinancing needs until 2017.

Going forward, the healthcare landlord is expected to receive a boost in revenue from the newly acquired Kupang Property and asset enhancement initiatives at Siloam Hospitals Surabaya.

In addition, the REIT sees more acquisition opportunities in Indonesia as it expects growth in the Indonesian healthcare market to remain resilient despite woes surrounding regional economies, and its sponsor, PT Lippo Karawaci has continued to expand its healthcare footprint in the country.

First REIT is currently trading 1.2x P/B and offers an annual distribution yield of 7%.

Latest broker ratings:
CIMB maintained Add but cuts TP to $1.33 from $1.48
OCBC maintained Hold with TP of $1.36

Capitaland Commercial Trust

Capitaland Commercial Trust (CCT): 4Q15 beat estimates slightly as DPU rose to 2.17¢ (+0.9% y/y, +1.4% q/q), bringing full year DPU to 8.62¢ (+1.9%).

For the quarter, gross revenue and NPI grew to $67.6m (+1.9% y/y, -1% q/q) and $52.3m (+3.2% y/y, -0.8% q/q), thanks to higher rents (+3.4%) and portfolio occupancy, but was partially offset by increased property tax.

Overall occupancy rates improved to 97.1% (3Q15: 96.4%), with weighted average lease expiry of 7.5 years. Notably, committed occupancy at recently-TOP CapitaGreen improved to 91.3% (end-Oct: 87.7%).

Aggregate leverage narrowed to 29.5% (3Q15:30.1%), while debt cost was maintained at 2.5%.

Maybank-KE notes that leasing for CCT showed a similar trend to Keppel REIT, with increasing share from business consultancy & TMT sectors (FY15: 28% vs FY14: 19%), while the banking, insurance & finance segment remained stable at 22% (FY15: 21%).

Among peers, CCT's exposure to the impending office supply glut is relatively lower, as only 10% of its office space is up for renewal in 2016, compared to Keppel REIT (16%) and Suntec REIT (21%).

At the current price, CCT is valued at 0.77x P/B and an annualised yield of 6.6%.

Latest broker ratings:
Maybank-KE maintains Hold with TP of $1.25
OCBC maintains Hold with TP of $1.39 under review

Keppel T&T

Keppel T&T: (S$1.41) 4Q15 results masked by one-offs as China logistics slip
Keppel T&T’s 4Q15 net profit dived 77.6% y/y to $44.5m mainly due to the absence of divestment gains of $186.4m booked in 4Q14. Excluding those gains, net profit would have surged 3.7x mainly on fair value gains.

Revenue declined 25.8% to $52.6m following the divestment of two data centres to Keppel DC REIT as well as absence of management fees arising from Keppel DC REIT's IPO in Dec '14.

Operating profit tumbled 85.7% to $35.8m. However, stripping the divestment effects, the absolute figure would have shown a 2.9x jump, mainly boosted by fair value gains of $32.1m (4Q14: nil) but was partially pared by impairment losses of $9m (4Q14: $0.2m) and goodwill writeoffs of $1.5m (4Q14: nil) on its Vietnamese operations.

Core operating margin slipped 0.4ppt to 26.4% due to start-up costs of new logistics projects in China namely, the Tianjin Eco-city distribution centre and the Lu’an food logistics park which are expected to commence operations this year.

Overall, bottomline was buttressed mainly by contributions from its 30%-owned associate, Keppel DC REIT which had earlier reported a more than tripling in 4Q15 net profit to $54.8m, which included $41.9m fair value gain on investment properties.

Net gearing climbed to 0.4x from 0.25x in Dec ‘15 as it drew down on existing loan facilities for capex.

Moving forward, management plans to focus on driving sales and managing costs of its logistics properties amidst a challenging operating environment. It notes that it has made progress in its new warehouse in Vietnam which is seeing near-full occupancy levels, while its Tampines Logistics Hub has seen better occupancy rates.

As for its data centre division, it continues to seek new data centre development and acquisition opportunities with its Tampines data centre progressing well on healthy demand. It expects to inject that data centre into Keppel DC REIT this year.

At current prices, Keppel T&T is trading at 8.6x FY15 P/E and 1.08x P/B with a 2.5% yield based on a maintained final DPS of 3.5¢ but no special dividend (FY14: 11.5¢).

Latest broker ratings:
CIMB maintains Add but cuts TP to $1.74 from $1.91


Keppel: CLSA asks if the dividend should be cut.

If oil remains at the current level, the impact to group profit and cashflow could eclipse the previous downturns Keppel faced in the 1980s and 1990s. The key difference now is the orderbook success Keppel achieved during the recent cycle as it gained significant market share. The enlarged orderbook is showing signs of cracks with heightened risks for default, provision and working capital to accommodate delivery delays, these are aspects that CLSA thinks are not fully priced in yet.

The house thinks that the payout ratio will fall from 64% in 2014 to 40%/30% in FY15/16. Keppel might be able to maintain a payout ratio through divestments but it is unlikely to be sustainable. The increase in net gearing from 11% in 2014 to above 50% in 15-16CL also signals a stretched balance sheet.

On how low can it go, a 1x P/B valuation would imply $4.30, but ascribing 8x P/E to the O&M business, SOTP valuation can go as low as $3.60.

The house maintains Sell with TP of $4.92. Details on Sete Brasil’s outstanding payment, and potential delivery delays or cancellations from other customers will help provide more clarity on Keppel’s risk/reward.

SG Market (20 Jan 16)

Singapore shares are likely to enjoy a day or two of relief rally from oversold levels although upside gains may be capped by the continued slide in crude prices.

Investors will be anticipating the US crude inventories data this evening, which is likely to give an indication on the near-term direction for the beleaguered prices for the commodity.

Regional bourses opened mixed in Tokyo (-0.6%), Seoul (-0.7%) and Sydney (flat).

From a chart perspective, immediate resistance for the STI is seen at the mini gap at 2,670, with underlying support at 2,580.

Stocks to watch
*CapitaCommercial Trust: 4Q15 beat estimates as DPU rose to 2.17¢ (+0.9% y/y), bringing full year DPU to 8.62¢ (+1.9%). Gross revenue and NPI grew to $67.6m (+1.9%) and $52.3m (+3.2%), due to higher rents (+3.4%), but partially offset by increased property tax. Overall portfolio occupancy improved to 97.1% (+0.7ppt q/q), with WALE of 7.5 years. Aggregate leverage narrowed to 29.5% (-0.6ppt q/q) with average cost maintained at 2.5%. NAV/unit at $1.73.

*Keppel T&T: 4Q15 results beat, albeit with only one estimate, despite a plunge in net profit to $44.5m (-77.6% y/y), mainly from the absence of divestment gain ($186.4m) in 4Q14. Otherwise, EBIT surged 189%, boosted by fair value gains on investment properties and higher contribution from associates and JVs. Meanwhile, revenue tumbled to $52.6m (-26%) on the two divested data centres and absence of management fees received from Keppel DC REIT’s IPO. Net gearing crept up to 0.4x from 0.25x q/q. NAV/share at $1.30.

*First REIT: 4Q15 results in line as DPU climbed to 2.09¢ (+2.5% y/y) on a firmer distributable income of $15.7m (+5%). Revenue and NPI rose to $25.7m (+7.4%) and $25.4m (+7.9m) respectively, mainly due to contributions from Siloam Sriwijaya and maiden contributions from Siloam Hospitals Kupang & Lippo Plaza Kupang, which was acquired in Dec ’15. NAV/unit at $1.0388.

*SCI/ SMM: The Business Times cite that SCI may privatize or inject funds into SMM. SCI owns 61% of SMM and could also benefit from selling SMM and focusing on its profitable utilities business. KEP could be a natural buyer and merger candidate. SCI, SMM, KEP, and Temasek declined to comment.

*Ascendas Hospitality Trust: Property investment firm Starwood Capital and Chinese party Fosun Int’l said to weigh bids on the REIT. Market watchers expect a potential deal pricing at ~1.1x P/B, which translates to $0.792/unit, or 7% yield.

*ST Engineering: Its aerospace arm secured new contracts worth $415m (+33.9% y/y) in 4Q15 with projects ranging from airframe maintenance and cabin interior reconfiguration, to engine wash and land gear overhaul.

*SingPost: Appointed PwC as special auditors to investigate issues surrounding independent director Keith Tay Ah Kee's interests in relation to interested party acquisitions.

*Keong Hong: Awarded a tender to a 19,309.6 sqm land parcel at Siglap Road with a joint bid of $624.2m with partners, Sekisui House, and FCL Topaz. The leasehold site will be developed into a residential condominium.

*CSE Global: Acquired assets in C C American Group for US$6.1m, with another $0.8m conditional on specific performance targets. The additional assets will help bolster its midstream processing business.

*Swiber: Acquiring 38% equity interest in offshore services provider Deltatek Offshore for 9.5m naira (~US$47.7m).

*Vallianz: Disclosed it is in final stages of discussions with several strategic investors on a possible fund raising exercise. Counter will be remain halted until further notice.

*GKE: Commenced trial production at its automated ready-mix cement manufacturing plant.

*Oriental Group: Established an independent committee to investigate unauthorised guarantees to bank loans totalling Rmb50m between Nov ’13 and Jan ’14.

*Jiutian Chemical: Expects to report a net loss for FY15 due to worsening sales volumes and average selling prices of its products.

Tuesday, January 19, 2016

Keppel REIT

Keppel REIT: (S$0.90) Decent 4Q15 results but larger headwinds loom
Keppel REIT’s 4Q15 results met estimates as DPU climbed 11.3% y/y to 1.68¢, on a 17.8% jump in distributable income to $54m, which included a $5m residual gain from divestment of Prudential Tower as well as higher contributions from associates and JVs.

Revenue and NPI edged up 1.1% and 1.5% to $42.8m and $34.8m, respectively, on higher property income from Ocean Financial Centre (+4.5%) and Bugis Junction Towers (+8.2%).

This was partially offset by the absence of income from the divested Prudential Tower as well as poorer performances from 275 George Street (-8.6%), 8 Exhibition Street (-6.7%) and recently divested 77 King Street (-14%).

Share of income from associates and JVs grew 8.8% to $22m on full quarter contributions from MBFC Tower 3 (30% stake) and Old Treasury Building (50% owned) in Perth.

Portfolio occupancy stood at 99.3% (+0.8ppt q/q) with weighted average lease expiry of six years. Notably, the office REIT managed to renew 480,000 sf of leases during the quarter (FY15: 1.6m sf), while rental reversions moderated to under 5% for its Singapore assets (FY15: +13%).

Despite challenging leasing market, an estimated 80% of the signings were new to KREIT/Singapore, with a healthy demand coming from the firms in the TMT sector, such as Netflix. It is already negotiating with tenants for the 17% of leases expiring this year, and is hopeful of a high retention rate.

Balance sheet has been strengthened with aggregate leverage lowered to 39.3% (-3.3ppt) following the repayment of borrowings using proceeds from the issuance of its $150m perpetual securities as well as the 64.4% revaluation of its portfolio.

The quarter saw KREIT divesting 77 King Street (Sydney) for A$160m, with expected book gain of A$28m. Maybank-KE envisages future non-core distributions to include about $60m, spread over four years, thereby lifting its DPU expectations by 3-5% till FY18.

Moving forward, the REIT intends to intensify its tenant retention and engagement efforts to support occupancy and rental rates especially in the face of a wave of office space supply coming online over the next two years. Approximately 25% of its net lettable area will be up for renewal in 2016/17.

At currently prices, KREIT is trading at an annualised DPU yield of 7.5% (FY15 DPU: 6.8¢) and 0.63x P/B.

Latest broker ratings:
RHB upgrades to Neutral with TP of $0.83
Maybank-KE maintains Hold with TP of $0.88
Credit Suisse maintains Neutral but cuts TP to $0.95 from $1.11
Deutsche maintains Hold with TP of $1.00
CIMB maintains Add but cuts TP to $1.08 from $1.15
Goldman Sachs maintains Neutral but cuts TP to $1.09 from $1.12
UOB Kay Hian maintains Buy with TP of $1.22

Keppel Corp

Keppel Corp: Keppel’s stock has slid to a point where its O&M division is valued below zero. It trades below the book value of its property division alone. RHB's SOP-based TP of $8.08 (from $10.00, 67% upside) includes a 35% discount to book value of the property arm.

RHB further notes that the stock has displayed c.90% correlation with oil prices, although O&M’s share of the group’s book value/FY16F earnings is only 16%/40%. RHB thinks this rout has gone too far.

SG Market (19 Jan 16)

Singapore: Singapore shares may stabilise after dropping to grossly oversold levels but sentiment will continue to be weighed by worries of a deeper oil supply glut and underwhelming 4Q15 results season.

Regional bourses were generally positive in opening trades in Tokyo (+0.2%), Seoul (flat) and Sydney (+0.4%).

From a chart perspective, STI has broken below its 2011 low at 2,600, with the next support at 2,520.

Stocks to watch
*Banks: Media flags investor concerns over the local banks' exposure to O&G and China. With oil price plunging below US$28 and supply glut likely to worsen with Iranian exports, analysts warn of more bad loans from the O&G sector, with bank shares currently pricing in 10% default rate. The slowdown in China slowdown is also impacting demand for trade finance loans.

*M1: 4Q15 net profit of $43.6m (-2.1% y/y) slightly missed estimates, as revenue fell to $307.9m (-11.1%) due to decreased handset sales (-26.9%). Operationally, ARPU for postpaid (-5.3%), prepaid (-17.2%), and data (-9.3%) all fell while data usage grew to 3.3GB/month (+0.3GB). EBITDA margin rose to 42.2% (+0.6 ppt) on lower handset subsidies. Final DPS cut to 8.3¢, bringing FY15 payout to 15.3¢ (FY14: 18.9¢). NAV/share at $0.441.

*Keppel REIT: 4Q15 results met expectations as DPU climbed 11.3% y/y to 1.68¢, on a 17.8% jump in distributable income to $54m, thanks to higher contributions from associates MBFC3, Chifley Square (Sydney) and OTB office tower (Perth) and $5m divestment gain from Prudential Tower. Revenue and NPI edged up 1.1% and 1.5% to $42.8m and $34.8m, respectively, on higher income from Ocean Financial Centre and Bugis Junction Towers. Portfolio occupancy stood at 99.3% (+0.8ppt q/q) with WALE of 6 years, while aggregate leverage was reduced to 39.3% (-3.3 ppt) with average cost of debt of 2.5%. NAV/unit at $1.44.

*Keppel Infra Trust: 3QFY16 DPU rose 13.4% to $0.0093, while net profit attributable to unit holders was $8.7m (3QFY15 loss: $10.7m). Revenue rose 33.8% to $160.5m, as improvement from concession’s contributions were offset by weakness from CityGas, KMC and Basslink. Gearing fell to 34% (FY3/15: 52%) as a result of the consolidation of Crystal assets and KMC. NAV/share at $0.353

*SingPost: Launched SP Commerce, an integration between its ecommerce division with US firms TradeGlobal and Jagged Peak, an e-commerce provider and logistics firm.

*ST Engineering: Aerospace arm injected US$3m ($4.2m) into its US MRO business, VT Volant Aerospace. The unit has developed in-house engineering capabilities to offer turnkey cabin retrofit services.

*Hyflux: Awarded a contract by Italian EPC contractor Saipem worth US$50.4m, to design, manufacture and supply a seawater reverse osmosis and sulphate removal facilities package in Khurais, Saudi Arabia. The contract is to be fulfilled over one year.

*GLP: Incorporated two subsidiaries, Jinan Linkong Supply Chain Management (Rmb84m capital) and Yunnan Mingyong Logicstic Facilities (Rmb200m) in China for provision of distribution facilities/services. Group also set up an 85%-owned subsidiary Tibet Punuo Investment Management (Rmb25m) for investment and asset management.

*Sunpower Group: Secured a centralised steam Build-Operate-Transfer project in Lianshui Economic Development Zone at Jiangsu, China, worth Rmb95m ($20.8m). Sunpower will hold a 95% stake in the JV project, which has a concession period of not more than 30 yrs and is expected to begin operations in 2H16.

*Trendlines: In negotiations with a MNC to set up an Agritech Fund. If executed, the MNC will invest US$10m to be managed by Trendlines for early-stage companies.

*Sembcorp Marine: Delivered an accommodation semi-submersible vessel to its customer Prosafe.

*HLH Group: Broke ground for D’Seaview project, its first freehold mixed-development in Cambodia. Since the sales launch in Oct ’15, 80% of the 300 units in Phase 1 have been subscribed at prices between US$675 and US$1,943 psm.

*Advanced Integrated Manufacturing: Acquired a minimart in Jurong West for $0.06m.

*Cosmosteel: To record a 1QFY16 loss due to lower revenue.

Monday, January 18, 2016

SembCorp Industries

HSBC thinks SembCorp Industries (SCI) is significantly undervalued with utlities stub valuations of 4.3x forward P/E, close to a decade low. The bank feels that SCI has been unjustifiably punished for the woes of its Marine business as even though the marine business is seeing deteriorating outlook, SCI's utilities business as continued to improve with the announcement of several new projects in 2015.

Significantly, the bank notes that at current valuations, the market is valueing SCI's marine business at zero if its utilities business is valued at peer multiples.

The bank reiterates its Buy rating but cuts its TP to $3 from $4.32 on the back of cuts to SCI's marine business estimates.

Keppel REIT

Keppel REIT: Divesting 77 King Street office tower in Sydney for A$160m ($158m), or 27% above last valuation of A$126m.

Located in Sydney’s CBD, the 147,000 sf NLA building was acquired in end-2010 for A$116m. Post-sale, Keppel REIT is expected to reap a divestment gain of A$28m.

While pro forma DPU will be shaved by 1.8% to 7.1¢, the divestment will help deleverage Keppel REIT's balance sheet from 43.3% to 42.1%, addressing a key area of investor concern.

Keppel REIT will be reporting its full year results after market close today, and analysts will be assessing if the REIT would be able to hold up occupancy rates at its office assets, particularly at Marina Bay Financial Centre amid challenging market conditions.

Maybank-KE last had a Hold rating with TP of $0.90 on the counter.

At the current price, Keppel REIT trades at 3Q15 annualised yield of 7.6% and 0.64x P/B.


Innovalues: CIMB reiterate Add on Innovalues with a TP of $0.93 after visiting its operations in Malaysia recently.

During the trip, the house noted many machines for its automotive operations were customised to improve efficiency. Besides, Innovalues continues to invest in newer technology and the house sees scope for further costsavings,especially in the final inspection phase that is currently still labour-intensive.

Innovalue may also have an edge against competitors as it offers in-house plating and surface finishing services for all printer rollers under the office automation segment, as such services are normally outsourced by its peers.

Further, the group could be a possible M&A target as CIMB noted Privatisation plays in the region is on the rise, namely Interplex Holdings and IPE Group. The group's superior gross margins of 28-30%, strong cash generating ability and earnings growth momentum makes it an even more attractive target.

Therefore, the house remain positive on the long-term outlook of Innovalues in view of the secular growth trend of increasing sensor usage in cars globally. Key risk in the near-term is order delay or cancellation from customers.

Insider trades

Insider trades: Asia Insider notes that directors bought shares amid the weak market for the week ending 15 Jan.

Insider purchases: 20 companies saw 56 purchases worth $11.74m, vs. 20 companies, 47 acquisitions worth $4.94m the week before.

Insider selling: 4 companies saw 6 disposals worth $3.17m, vs. 1 company 2 transactions worth $3.9m the previous week.

Buybacks: 30 companies made 98 buybacks worth $29.2m, vs. 29 firms, 95 trades and $30.7m the week prior.

Notable transactions:

BreadTalk: Last repurchased shares in Aug ‘15, the baked goods retailer bought back 20,000 shares on 11 Jan at $1.10 each. The trade was made on the back of an 11% drop in share price since Oct ’15.

Global Palm Resources: Resumed buybacks at lower prices with 305,000 shares purchased at an average of $0.243. The group previously acquired 1.22m shares from Jan-Oct ’15 at average of $0.35.

Raffles Education: Resumed repurchases at lower prices, with 4.673m shares bought at average of $0.25. The trades accounted for 80% of the stock’s trading volume, made on the back of a 15% share price drop since Oct. The group previously acquired 15.77m shares from Aug-Oct at average of $0.282.

Sembcorp Marine: Recorded its lowest purchase price since starting its buyback programme in 2008, with 100,000 shares purchased at $1.52. This was made on the back of a 19% share price slump since Dec.

Silverlake Axis: Repurchased 8.05m shares at average of $0.617. The trades made up 36% of the stock’s trading volume, and was made on the back of a 13% drop in share price since Nov. The group previously acquired 27.7m shares from Aug-Oct at $0.56.

Dutech: Executive chairman and CEO Johnny Liu sold his entire direct holdings of 650,000 shares at average of $0.266. Separately, he has deemed interest of 42.76%. The transaction was made on the back of a 13% drop in share price since Feb ’15.