SG Market (23 Feb 18)

MARKET OVERVIEW
- The market will likely continue to be volatile as interest rate fears ebb and flow according to movements in US treasury yields.
- Sembcorp Industries' new growth strategy could disappoint investors due to the lack of any restructuring plans for Sembcorp Marine.
- Technically, the STI is still heading toward its near term objective at 3,575 with immediate support at 3,470.

CORPORATE RESULTS
*Sembcorp Industries
- 4Q17 net profit plunged 85% to $22.8m, taking FY17 earnings to $230.8m (-42%), widely missing the mark.
- Turnover for the quarter inched 4.8% higher to $2.12b, on better utility performance (+24%), but pared by the marine division (-21%) due to lower sales recognition for rig & floaters and offshore platform projects.
- However, gross margin slumped 5.4ppt to 7% on lower profitability in both divisions.
- Bottom line was further impacted by a $25.4m provision for potential fines and claims at an overseas water business arising from an alleged environmental offence for discharge of off-specification wastewater.
- Final DPS halved to 2¢, bringing FY17 payout to 5¢ (FY16: 8¢).
- Plans utilities divestments of up to $0.5b and IPO of India energy business.
- Last traded at 13.8x forward P/E.

*ST Engineering
- 4Q17 net profit slipped 1.1% to $168.5m but FY17 earnings of $511.9m (+6%) came in at top end of estimates.
- Revenue for the quarter declined 6.5% to $1.7b on weakness across electronics (-9%), land systems (-21%), marine (-22%) and others (-14%), except aerospace (+9%).
- PBT margin held steady at 10.2% (+0.1ppt) as better profitability in aerospace, electronics and land systems divisions helped offset continued weakness in marine.
- Final DPS of $0.10 brought FY17 payout to $0.15 (unch).
- During the year, it secured $5.1b of contracts, boosting its order book to $13.2b (+14%).
- Guided for growth in its aerospace, electronics and land systems divisions, while marine will remain weak.
- Last traded at 19.7x forward P/E and 4.4% yield.

*Wilmar
- 3Q17 core net profit slumped 37% to US$373.9m but FY17 core earnings of US$1.05b (+7%) met estimates.
- For the quarter, revenue slid 3.3% to US$11.5b due to weaker performances in tropical oils (-3.3%) and sugar (-95.6%) segments, but shored by stronger oilseeds & grains (+18.2%).
- EBITDA margin was maintained at 7.2% (+0.1ppt).
- Headline net profit of US$427.5m (-23.8%) was buttressed by US$139.9m (4Q16: US$158.3m loss) in other operating items mainly arising from FX gain, but partially offset by impairment loss of US$30.6m from its Australian sugar refinery business.
- Despite a weaker set of results, final DPS was raised by 75% to $0.07, bringing full-year payout to $0.10 (+53.8%).
- Trades at 12x forward P/E and 0.91x P/B.

*Sheng Siong
- 4Q17 net profit rose 9.3% to $16.8m, taking FY17 earnings to $69.8m (+11.4%) meeting estimates.
- For the quarter, revenue rose 1.7% to $200.3m on higher same store sales growth (+3.2%) and contribution from new stores (+2.7%).
- Gross margin of 26.5% (+0.2ppt) was due to better buying prices and higher rebates from suppliers for special promotion and volume discounts.
- Bottom line was weighed by higher effective tax of 19.1% (4Q16: 18.4%).
- However, final DPS was slashed to 1.75¢ (-5.4%), bringing total dividend payout to 3.3¢ (-12%).
- Last traded at 19.7x forward P/E.

*OUE
- FY17 results beat estimates despite a 31.5% slump in net profit to $98.9m due to higher minority interests (+90.5%).
- Revenue declined 14.7% to $754.1m on absence of development property income arising from Crowne Plaza Changi Airport Extension (FY16: $250m). Excluding that, sales improved 11%
- Gross margin held steady at 35.9% (-0.3ppt).
- Bottom line was dragged by a provision for legal and related expenses of $46m related to OUE Lippo Healthcare, but was mitigated by higher fair value gain of $112.2m (FY16: 34.1m loss)
- Maintains final DPS of 2¢, bringing full year payout to 3¢ (FY16: 5¢)
- NAV/share at $4.46.
- Trades at 24x forward P/E and 0.44x P/B.

*United Engineers
- FY17 net profit jumped to $89.6m (+227%) on a revaluation gain of $44m and a $16.8m write-back.
- Revenue climbed 12% to $539.4m mainly lifted by higher property development sales (+106%) at Chengdu Orchard Villa (phase 4) in China and The Manhattan in Malaysia.
- Gross margin narrowed 3.7ppt to 36.7% amid a shift in revenue mix.
- Bottom line was also helped by a sharp drop in finance expenses to $21.2m (-41%) amid lower borrowings.
- Proposed a lower first and final DPS of 4¢ (FY16: 5¢) without any special payout (FY16: 7¢).
- Trading at 0.8x P/B.

*Riverstone
- 4Q17 net profit grew 5% to RM34.2m, bringing FY17 earnings to $129.3m (+7.4%), missing estimates.
- Revenue jumped 15.1% to RM210.7m on increased demand for both healthcare and cleanroom gloves.
- However, gross margin shrank 1.9ppt to 24.4% on increased cost of raw materials.
- Further, bottom line was partly weighed by a FX loss of RM2.8m (4Q16: RM6.1m gain) and higher taxes (+11.8% to $6m), but partially mitigated by a positive swing in fair value gain on derivatives to $1m (4Q16: $3m loss).
- Undertaking phase 5 expansion plan, which will raise annual production capacity to 9b (+18%) by Dec 2018.
- Proposing a final DPS of 5.7sen (+9.8%), taking full-year payout to 7sen (+7.9%).
- Trades at 15.1x forward P/E.

*Hotung
- FY17 results beat estimates as net profit grew 9% to NT$345.4m on reduced impairment losses (-26%) and lower effective tax rate.
- But, revenue fell 10% on lower fair value gains (-97.9%), dividend income (-7%) and higher FX losses (+126%), although partly mitigated by increased disposal gain on investments.
- Bottom line was supported by a larger decline in opex (-14%).
- Hiked first and final DPS to NT$3.42 (FY16: NT$3.10).
- NAV/share at NT$63.48 ($2.85) translates to 0.67x P/B.

*Far East Orchard
- FY17 net profit plunged 67% to $21.6m on a 83% dive in JV contribution to $11.7m, due to lower property development sales and absence of one-offs.
- Revenue fell 18% to $151.2m following the cessation of hospitality lease agreements in Australia and New Zealand in late 2016.
- Gross margin widened 2.1ppt to 34.2%.
- Bottom line was further weighed by a $3m drop in interest income.
- Maintained first and final DPS of 6¢.
- Trading at 0.5x P/B.

*ISEC Healthcare
- 4Q17 net profit jumped 44% from a low base to $2.1m, bringing FY17 earnings to $7.9m (+23%).
- For the quarter, revenue climbed 15% to $9.5m, bolstered by increased patient visits in Malaysia and Singapore, and contribution from four recently-acquired general clinics in Singapore.
- Gross margin improved marginally to 47.6% (+2.7ppt).
- Hiked final DPS to 0.7¢, bringing full-year payout to 1.2¢ (FY16: 0.33¢).
- Last traded at 21.6x trailing P/E.

*Kingsmen Creatives
- FY17 net profit slid 18% to $9.7m, partly weighed by FX loss of $1.6m (FY16: nil).
- Revenue declined 7% to $307.3m on softer takings in both exhibitions & thematic (-9.7%) and retail & corporate interiors (-5%) segments.
- Gross margin slipped 0.2ppt to 25.1%.
- Maintained final DPS of 1.5¢, bringing full-year payout to 2.5¢ (unch).
- Trading at 12.6x FY17 P/E.

*Trek 2000 International
- FY17 net profit grinded 1.5% higher to US$6.2m, helped by lower R&D, marketing and staff expenses.
- However, revenue tumbled 32% to US$112.6m on a drop in contribution from key revenue generating interative consumer solutions segment, as well as the disposal of Racer Group in 1Q17.
- Gross margin expanded 4.3ppt to 15.4% on costs containment.
- Net cash rose to US$37m (3Q17: US$33.6m), accounting for 61.8% of market cap.
- Proposed first and final DPS of 1¢ (FY16: nil).
- Trading at 9.8x FY17 P/E.

POSITIVE NEWS
*AEM
- Acquired Singapore-based IRIS Solution for $1.5m, priced at 3.6x P/E or 2.9x EV/EBITDA.
- IRIS Solution is engaged in R&D and integration of advanced machine vision solutions, which have been integrated with automated optical wafer inspection systems, die bonders and semiconductor devices inspection systems.
- Payment will be via cash over five tranches with the first $0.5m upon completion of acquisition.
- The deal will deepen and enhance the group's capabilities, product range and services to the semiconductor and industrial sectors.
- Trades at 13.1x forward P/E.

*SUTL Enterprise
- To acquire a 60% stake in Thai firm Makham Bay Marina for $5.6m, with the intention to develop ONE°15 integrated marina club in Phuket, Thailand.
- The project's total construction cost is estimated to be $24.3m and will span a total land area of 38,400 sqm and feature a 171-berth marina, 66 hotel rooms and multiple F&B outlets.
- The remaining 40% stake will be held by Bangkok-based shareholders.
- Trades at 14.3x trailing P/E and 1.08x P/B.

*SJM Intl
- Expected to turn around to a marginal FY17 net profit (FY16: $0.4m loss) on its new consultancy services business as well as a disposal gain.

NEGATIVE NEWS
*Chaswood Resources
- Guided for a more substantial loss in FY17 due to lower revenue amidst challenging market conditions and higher asset impairment as a result of closure of non-profitable outlets in Malaysia.
- Results slated to be released on or before 1 Mar.