SG Market (22 Feb 18)

MARKET OVERVIEW
- The market could pull back after minutes of the latest FOMC meeting revived worries about higher interest rates and sent US 10-year yields closer to 3%.
- Rig builder Sembcorp Marine could face renewed selling pressure following its dismal 4Q results and news that a consultant linked to its US$5.5b drillship contracts with Sete Brasil was charged by the Brazilian authorities for corruption.
- Technically, the STI has almost closed its breakdown gap at 3,520, with next resistance at 3,575 and downside support at 3,460.

CORPORATE RESULTS
*Sembcorp Marine
- Sank into 4Q17 net loss of $33.8m (4Q16: $34.3m profit), which pulled down its FY17 earnings to $14.1m (-82%), well below estimates.
- Excluding a tax credit of $25.6m, the group would have ended the full year in the red.
- For the quarter, revenue slipped 21% to $655m despite the sale of nine jack-up rigs to Borr Drilling, as it suffered reduced activity for its rigs, floaters and offshore platform projects and additional cost accruals.
- This resulted in a gross loss of $48.2m (4Q16: $34.7m profit). No new provisions made in the quarter.
- Secured $696m of new orders, taking FY17 order wins to $966m (excluding $1.77b from Borr Drilling).
- Net order book contracted 8.2% q/q to $4.45b.
- Maintained 1¢ final DPS, bringing full-year payout to 2¢ (FY16: 2.5¢).
- While the industry is showing some signs of improvement, order flow remained weak amid intensified competition.
- As share price has rallied 43% ytd largely on hopes of huge order wins, we anticipate a wave of downgrades.
- Trades at 2.2x P/B.

*BreadTalk
- 4Q17 net profit jumped 14.4% to $5.1m due to lower tax rate, bringing FY17 core net profit to $17.7m (+153.3%), ahead of estimates.
- For the quarter, revenue slipped 2% to $150.3m on lower takings from core bakery (-4.5%), food atrium (-0.6%) and other (-4.1%) segments, although partially mitigated by improved contributions from restaurant (+1.4%) and F&B incubator 4orth (+13.9%).
- Overall EBITDA margin contracted 5.4ppt to 13% on slimmer profitability across bakery (-3.8ppt), food atrium (-3.6ppt) and restaurant (-2.7ppt) segments.
- Bottom line was lifted mainly by lower effective tax rate of 27.8% (-16.6ppt), and shored up by lower associate losses.
- Maintained final DPS of 2¢ but declared an additional special DPS of 1¢, bringing FY17 payout to 7¢ (FY16: 3.85¢).
- Last traded at 23x forward P/E and 4.1% FY17 yield.

*The Trendlines
- Turned around to FY17 net profit of US$3.9m (FY16: US$6.6m loss).
- This was supported by a multiple fold jump in revenue to US$15.6m (FY16: US$74,000), mainly attributable to a fair value gain of US$9.4m in its portfolio, which offset the absence of disposal gains of $2.1m.
- However, bottom line was weighed by tax expense of US$1.6m (FY16: US$3.4m tax credit).
- Trades at 0.7x P/B.

*AF Global
- FY17 net profit surged 73% from a low base to $8.3m on higher JV contribution including Knight Frank Group.
- Revenue edged up 3% to $55.7m on higher occupancies and average room rates for its hotel and serviced residence segment.
- Gross margin ticked up 0.3ppt to 48.5%.
- At the bottom line, a drop of $3.9m in asset write-off was offset by absence of $3.8m FX gain.
- NAV/share at $0.28.

*Sinwa
- Posted a substantial turnaround to FY17 net profit of $9.5m (FY16: $9.5m loss) mainly on the absence of asset impairment (FY16: $15.1m) and a $1.4m write-back.
- Revenue grew 13.4% to $172.6m on higher sales from marine and offshore supply business in Singapore, Australia and Thailand.
- However, intense competition weighed on gross margin, which contracted 1.2ppt to 23.1%.
- Net cash position slipped to $23m (FY16: $25.8m), or 28% of market cap.
- Shaved first and final DPS to 0.5¢ (FY16: 1.2¢).
- Last traded at 8.6x trailing P/E.

POSITIVE NEWS
*Silverlake Axis
- Expanded its insurance customer ecosystem platform business with five new account wins in Singapore (two), Indonesia (one) and Hong Kong (two).
- The software platform is now used by over 120 insurers across eight countries.
- Trades at 17x forward P/E.

*Weiye
- Expected to report a 70% jump in FY17 net profit due to higher 4Q gross profit (+10%) on increased handovers, as well as a 140% surge in JV profit.
- Last traded at 44.7x trailing P/E.

NEGATIVE NEWS
*Profit Warnings
- Natural Cool
- Charisma Energy
- China Haida

NEUTRAL NEWS
*Lee Metal
- Received a pre-conditional offer from BRC Asia at $0.42/share, or 1.09x P/B.
- The founding Lee family which owns 48.06% of share capital has given their undertaking for the voluntary offer.

*Viva Industrial Trust
- Requested Moody's to withdraw its credit ratings.
- At the latest, Moody's has assigned a Ba1 corporate rating on the REIT with stable outlook.