Monday, February 20, 2017

SG Market (20 Feb 17)

The main event this week is Budget 2017, which will be unveiled today at 3.30pm today. Investors expect pro-growth incentives to support the recommendations of the Committee for Future Economy. However, there is likely going to be more progressive personal as well as higher consumption taxes, including a new carbon tax, to balance the fiscal position.

Regional bourses opened lower in Tokyo (-0.4%), Seoul (-0.1%) and Sydney (-0.3%).Technically, the STI is trading within an upward channel bounded by topside resistance at 3,130 and support at 3,065.

Stocks to watch:
*Raffles Medical: FY16 net profit of $70.2m (+1.3%) met lower end of estimates. Revenue rose 15.4% to $473.6m on higher patient load from the expanding clinic network, and incremental sales contribution from more specialist consultants. However, operating margin contracted 2.3ppts to 17.3% on increased staff costs and 40th anniversary celebration expenses. Final DPS of 1.5¢ was maintained, bringing FY16 payout to 2¢ (unch). MKE last had a Buy with TP of $1.85.

*OUE: FY16 net profit slid 7.7% to $144.4m as lower share of negative goodwill and reduced contributions from OUEHT, a spike in marketing costs (+95%) arising from the sale of OUE Twin Peaks and higher taxes (+58%) ate into a doubling in revenue to $884.2m, which was boosted by consolidation of One Raffles Place and sales of Crown Plaza Changi Airport (SGD205m) and OUE Twin Peaks (SGD196.9m). Final DPS of 2¢ brought FY16 payout to 5¢ (unch). NAV/share at $4.45.

*UIC: FY16 net profit climbed 10% to $286m on firmer revenue of $1.04b (+28%), thanks to higher recognition of residential property sales. However, gross margin contracted 3.3ppts to 34.1%, while the bottom line was partially dragged by weaker JV contribution due to completion of several residential projects, as well as reduced fair value gain from investment properties. Maintained first and final DPS of 3¢. NAV/share at $4.39.

*Parkway Life REIT: Acquiring two nursing homes and a group home in Chiba prefecture, as well as two nursing homes in Yamaguchi prefecture, Japan, for a total of ¥4.76b ($59.5m), giving a 6.9% NPI yield. The properties are secured with long-term leases ranging 20-30 years, and would increase its WALE to 9.81 years from 8.44 years. Post-acquisition, aggregate leverage will inch up 1.2ppts to 37.5%.

*Hong Leong Asia: 40.2% owned China Yuchai has entered into a strategic partnership with HK-listed construction equipment manufacturer, Zoomlion Heavy Industry Science & Technology, to develop and produce six-cylinder medium and heavy-duty engines for Zoomlion’s agricultural equipment.

*Swing Media: Proposed acquisition of Grace Health Group (GHG) for A$115m via $90m cash payment, $10m in convertible bonds and $15m one year after completion of deal. There will also be an earn-out consideration of up to $45m based on GHG's FY3/18 and FY3/19 net profits. GHG is a producer and exporter of wagyu beef in Australia to China, and owns a total area of ~200 sq km with ~7,000 top quality wagyu cattle in Queensland, Australia. The acquisition will be funded by capital raising (>A$50m), bank loans and internal resources.*Noble: Secured a US$1b revolving facility supported by six banks led by Société Générale and ING Bank, to be used as working capital at Noble Clean Fuels.

*Oxley: Terminated its $50m convertible loan facility to IHC, following the mandatory unconditional cash offer for the latter by the OUE group.

Profit warning:
- Baker Tech
- Ezion
- Charisma Energy
- Rowsley

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