SG Market (15 Nov 17)

MARKET OVERVIEW
- The market could pull back further on deteriorating momentum indicators, nagging doubts about the US tax reform bill as well as worries about an oil glut.
- Technically, STI sees underlying support at 3,355, with topside resistance at 3,460.

CORPORATE RESULTS
*SingPost
- Posted lower 2QFY17 net profit of $28.5m (-9.5%) in absence of one-off gain but core earnings was up 1.9% to $27.6m, in line with estimates.
- Revenue grew 10.2% to $354.7m on the back of stronger postal (+16.9%) and logistics (+7.6%) performances, particularly from Alibaba volumes and e-commerce deliveries, partially offset by e-commerce (-0.8%) due to persistent weakness in TradeGlobal.
- Core operating profit fell 14.1% on depressed postal margin, while logistics was hit by a $5m bad debt provision but e-commerce loss narrowed.
- Interim DPS slashed to 0.5¢ (2QFY17: 1¢).
- Trades at 26x forward P/E.

*Olam
- 3Q17 net profit rose 17.5% to $24.1m, falling within the 5-10% full-year earnings range for the Sep quarter.
- Revenue jumped 41.7% to $6.71b on higher overall trading volume (+54.3%).
- But, EBITDA margin narrowed to 3.6% (-0.7ppt) on pressure in its cocoa business.
- Adjusted gearing stayed relatively stable at 0.80x (2Q17: 0.81x).
- Trading at FY18e P/E of 16.2x and 1.14x P/B.

*Wheelock Properties
- 3Q17 net profit surged 72.1% to $48.8m, boosted by a $10.8m write-back in value of the fully-sold The Panorama condo development.
- This brought 9M17 earnings to $95.3m (+27.5%), surpassing full-year estimate.
- For the quarter, revenue grew 19.7% to $182.7m on increased contribution from property development (+23.4%), although pared by reduced income from property investment (-4.4%) and investment (-33.3%) segments.
- Gross margin contracted to 14.5% (-5.8ppt) on the shift in revenue mix.
- Bottom line lifted by higher associate income of $8.6m (+47.3%) and a tax credit of $7.8m (3Q17: $3.7m expense).
- Last traded at 0.77x P/B.

*Boustead Singapore
- 2QFY18 net profit fell 7% to $7.1m, missing estimates.
- Revenue declined 8% to $104.9m on weakness in energy-related engineering (-11%) and real estate solutions (-19%), which outweighed growth in geo-spatial technology (+23%).
- Gross margin expanded to 38.9% (+7ppt) on a shift in revenue mix but operating level suffered a negative FX swing of $2.6m to $1.8m loss.
- Associates/JVs turned around to $0.3m profit (2QFY17: $0.6m loss).
- Bottom line was pressured by higher tax of $4.3m (+40%).
- Doubled interim DPS to 1¢.
- Last traded at 14.7x forward P/E.

*Tat Hong
- 2QFY18 net loss narrowed to $2.8m (2QFY17: $5.4m) on reduced minority interest of $0.2m (2QFY17: $1.1m).
- Revenue grew 13% to $124.3m on the back of higher takings from tower crane rental (+11%), Australia general equipment rental (+34%) and distribution (+25%), but pared by lower contribution from crane rentals (-6%).
- Gross margin contracted to 28.7% (-2.5ppt) on a shift in revenue mix.
- Bottom line was impacted by a $4.3m negative swing to FX loss of $0.8m.
- Trades at 0.61x P/B.

*Hong Leong Asia
- 3Q17 net loss deepened to $17.6m (+26.2%), bringing 9M17 loss to $45.6m (-6.4%).
- Revenue for the quarter grew 16.1% to $963.2m on increased contribution from diesel engine unit China Yuchai (+26.8%), but was dragged by declines in building materials (-12.2%) and consumer products (-24.5%).
- Gross margin contracted to 18.7% (-1.7ppt) on weaker profitability across all three units.
- Bottom line was further afflicted by higher general & admin (+62.1%) and finance (+55.9%) expenses.
- Last traded at 0.7x P/B.

*Straco
- 3Q17 net profit fell 6.1% to $21.3m, bringing 9M17 earnings to $41.7m.
- For the quarter, revenue dipped 3.2% to $46.1m on weakness at Underwater World Xiamen, which outweighed higher takings at Shanghai Ocean Aquarium, Lixing Cable Car and Singapore Flyer.
- Overall visitorship to its attractions slipped 5.1%.
- Operating margin narrowed 1.8ppt to 68.4% in absence of a sales tax reversal.
- However, net cash position increased to $136.2m (2Q17: $103.6m), or 15.8¢/share.
- Trades at 15.7x trailing P/E.

*Spackman Entertainment
- Sank into 3Q17 net loss of US$0.8m (3Q16: US$1.5m profit), as revenue tumbled 35% to $1.7m on lower revenue recognition for the production of Golden Slumber.
- Top line was partially cushioned by new contribution from equipment leasing business that was acquired in Mar '17.
- Gross margin spiked 31.7ppt to 36.1%, mainly from the new business.
- However, bottom line was impacted by higher opex from the consolidation, absence of gain on disposal of subsidiaries (3Q16: $2.1m), external compensation for film loss of $0.5m, as well as an adverse FX swing of $0.15m.
- NAV/share at US$0.053.
- Last traded at 9.8x trailing P/E.

*GSS Energy
- 3Q17 net profit surged 44.7% to $2.1m, albeit from 3Q16's low base of $1.5m. This brought 9M17 net profit to $3.9m (-65.4%).
- 9M17 revenue grew 26.9% to $70.2m on higher orders from existing and new customers in its precision engineering business.
- However, gross margin contracted 2.3ppt to 21.7% on product mix changes and pricing challenges.
- YTD earnings was impacted by the absence of a disposal gain (9M16: $6.1m), as well as lower government compensation (-46%).
- Group updated that it has commenced drilling of the first production well at its Trembul Operation area.
- Trades at 14.3x trailing P/E.

*Rotary Engineering
- 3Q17 net profit jumped 29% from a low base to $1.6m, bringing 9M17 earning to $6.4m (+70%).
- Quarter revenue surged 43% to $75.2m on newly secured projects, but gross margin contracted 7.4ppt to 18.4%.
- Bottom line was buoyed by lower admin costs (-29%) and depreciation charges (-30%), although partly weighed by an adverse $1.8m swing into FX loss of $0.8m.
- Order book rose slightly to $474.8m (2Q17: $463.2m).
- Currently awaiting shareholders' approval on its proposed exit offer at $0.46/share.
- Trades at 17.8x trailing P/E.

*Fu Yu
- 3Q17 net profit tanked 56% to $0.8m, weighed by an adverse FX swing of $1.6m, JV loss of $0.2m and higher taxes.
- Revenue rose 4.5% to $50.2m, bolstered by growth in Singapore and Malaysia operations, while China held steady.
- Gross margin expanded 2.2ppt to 16.8% on lower depreciation and headcount.
- Maintained interim DPS of 0.25¢.
- Trading at 21.1x trailing P/E.

*ISDN
- 3Q17 met estimates as net profit soared 4.3x to $3m, helped by lesser professional expenses incurred for its HK listing.
- Revenue grew 8% to $76.7m, as sales of motion control solutions were buoyed by greater demand from existing and new customers in China and Singapore.
- Gross margin widened 1ppt to 25%.
- Bottom line was partly lifted by a new source of sales commission.
- Trades at 9.4x forward P/E.

*Uni-Asia Group
- 3Q17 results missed as it barely broke even with net profit of US$0.03m, although turning around from 3Q16 loss of US$0.8m.
- Revenue grew 11% to US$25.4m on improved vessel charter rates, greater number of rooms under hotel portfolio and higher investment returns.
- Operating margin expanded 6ppt to 9.9% on improved operating leverage.
- Last traded at 6.4x forward P/E.

*Dukang Distillers
- Slumped deeper into 1QFY18 net losses of Rmb25.8m (1QFY17: Rmb3.6m loss), as revenue dived 88.2% to Rmb20.1m.
- Weak sales were mainly due to lower ASPs across premium (-53.2%) and regular (-34.5%) baijiu segments, as well as an overall tumble in sales volume to 603 tons (1QFY17: 4,800 tons).
- Accordingly, gross margin crumbled to 16.9% (-14.4ppt).
- Bottom line was further impacted by lower associate contribution of Rmb0.06m (-88.3%), although pared by tax credit of Rmb0.4m (1QFY17: Rmb3.1m expense).
- Last traded at 0.08x P/B.

*Swee Hong
- 1QFY18 net profit dwindled 98% to $0.4m, mainly on the absence of a one-off scheme creditors' write-off (1QFY17: $22.4m).
- Revenue rose 14% to $14.2m on contribution of construction for a new road between MacRitchie Viaduct and Adam Flyover.
- However, gross margin slumped 22.6ppt to 8.7% on the absence of write-back of project costs provision on the Nee Soon tunnelling project.
- The 30% decline in admin expense of $0.7m was due to the reclassification of staff cost to cost of works.
- Bottom line was dragged further by finance cost of $0.2m (1QFY17: $2,000 income).
- Trading at 10.8x trailing P/E.

*Nam Cheong
- Dived to 3Q17 net loss of RM48.7m (2Q16: RM0.7m profit), mainly from a FX loss of RM15.4m and a spike in finance costs to RM27.4m (3Q16: RM4.7m).
- Revenue spiked to RM79.1m on sale and delivery of one vessel and higher contribution from the vessel chartering revenue arising from the addition of three vessels in the chartering fleet.
- Gross margin was lifted to 4.9% (+1.9ppt) on a turnaround into profitability for the vessel chartering unit.
- Bottom line was also impacted by restructuring expenses of RM2.6m.
- Net debt of RM1.67b are entirely short term and due within 12 months.
- Negative equity/share at RM0.35.

POSITIVE NEWS
*Net Pacific Financial
- Its intermediary for its Australia loan portfolio has entered into a conditional agreement to convert $5m worth of loans into shares of an Australian-based company.
- The Australian-based property development company is seeking to list on Australian Securities Exchange.
- The conversion is expected to positively impact FY17 EPS and NTA/share.
- Last traded at 12.7x trailing P/E.

NEUTRAL NEWS
*Fraser Hospitality Trust
- Partially prepaid $110m out of the $615m facility agreement under the $500m 5-year term loan facility granted.
- Prepayment was funded through the issue of $120m, 3.08% fixed rate notes due 2024.
- As such, $110m of debt maturing in July 2019 has been extended to 2024 with the weighted average debt maturity increasing to 2.74 years from 1.95 years.
- Offers annualized 4QFY17 yield of 6.6%, and trades at 0.95x P/B.

*Cityneon
- Incorporated a subsidiary, Cityneon Korea, in Jeju, South Korea with paid up capital of 600m won.
- Business comprises 1) design and construction of buildings and theme parks, 2) events and exhibition works, 3) project management, consultancy and R&D.
- Trades at 16.9x forward P/E.

*Elipsiz
- Approached by a third party to explore a possible transaction involving the shares of the group.
- To date, no agreement has been materialised.
- Last traded at 16.5x trailing P/E and 1x P/B.