Low Keng Huat: (S$0.765) Adding to Yield portfolio on potential bumper dividend
The construction and property group climbed 20% from its low in Oct '14 and is nearing its all-time high of $0.78 set in May 2013.
We hypothesize that investors may be anticipating a special dividend payout in its upcoming FY14 results due end of this month.
9M14 earnings already doubled to $83.5m (8.81¢ eps), while revenue soared almost 8-fold to $459m, mainly boosted by full revenue recognition of Parkland Residences, a DBSS project, upon its TOP in Oct '14.
4Q14 results are expected to be boosted by the full recognition of sales proceeds from commercial development, Paya Lebar Square (office), upon obtaining its TOP. As at 1 Dec '14, only eight of the 556 office units at the premium-grade property remain unsold.
Market Insight estimate LKH would book at least $394m at the top line for its effective 44% stake. This should translate into ~$98.5m at the bottom line; more than its 9M14 earnings.
Assuming a historical dividend payout rate of 30-40%, LKH could reward shareholders with bumper DPS of 7.4¢ for FY14 (FY13: 3¢), giving an effective 9.7% yield.
At $0.765, LKH is valued at 1.03x P/B. There is currently no coverage on the counter but an expected blowout FY14 results and dividends could precipitate a share price re-rating.
As such, Market Insight is adding the stock to its Yield portfolio with an entry price of $0.765.
Tuesday, March 10, 2015
Keppel Land
Keppel Land: Parent Keppel Corp has obtained 73.7% control of its property arm, still some way to go towards the 90% threshold level. Closing date for the voluntary unconditional cash offer is on Thu (12 Mar).
Sino Grandness
Sino Grandness: In a business update, Sino Grandness highlighted that its proposal to spin off its juice business, Garden Fresh, is still progressing, and the group will keep shareholders updated on any material developments.
In the meantime, the group has commissioned research company Euromonitor Int'l to conduct independent assessment of the fresh juice and loquat juice market in China. The Industry report will include industry trends and competitive landscape with market shares and ranking.
While continuing to move ahead with its plan with the Proposed Spin-Off, the group’s management will actively monitor and manage its cash flow positions, banking facilities, trade receivables and capital investment plans. If required, management will revise its capital investment plans in the new plant in Anhui Province in order to strengthen its cash flow position further.
Management will also actively monitor and manage its sales growth momentum and trade receivables amount which is more than the CBs redemption sum as at 31 Dec ’14, assuming the outstanding trade receivables of Rmb1.1b as at 31 Dec ‘14 are fully collected.
In the meantime, the group has commissioned research company Euromonitor Int'l to conduct independent assessment of the fresh juice and loquat juice market in China. The Industry report will include industry trends and competitive landscape with market shares and ranking.
While continuing to move ahead with its plan with the Proposed Spin-Off, the group’s management will actively monitor and manage its cash flow positions, banking facilities, trade receivables and capital investment plans. If required, management will revise its capital investment plans in the new plant in Anhui Province in order to strengthen its cash flow position further.
Management will also actively monitor and manage its sales growth momentum and trade receivables amount which is more than the CBs redemption sum as at 31 Dec ’14, assuming the outstanding trade receivables of Rmb1.1b as at 31 Dec ‘14 are fully collected.
SG Banks
SG Banks: Singapore banks, the outperformer last year, has trailed the STI by 5% YTD. During the same period, 3M Sibor has moved up 38bp. Theoretically, this should lead to NIMs expansion and subsequently, a small decline in NPLs.
Among the three SG banks, JPM’s key OW is on OCBC and key UW on UOB, it is OW on DBS.
OCBC (OW, TP $12.00) – most underappreciated. 50bps q/q pick-up in CET1 and guidance for further accrual reflects good capital management, healthy CET1 of 11.5%-12% is expected by end of next year. Therefore, implied discount for stock to narrow. Counter has best risk-return trade-off ex-growth valuations
DBS (OW, TP $21.50) – best positioned for move-up in short rates and steepening of yield curve. Net duration of books is low as it has not fully optimized its long-duration low-cost funds, hence presents opportunities. Credit risk management improved meaningfully, hence should increase resilience in upcoming credit cycle.
UOB (UW, TP $21.50) – transition period as business drivers shift. Bank is shifting away from real estate loans, which had previously shown signs of asset quality issues; asset quality remains key concern as 4Q construction NPL picked up. Effective tax rate will increase due to lack of one-time tax write-backs going forward. Risk-return could be negative.
Among the three SG banks, JPM’s key OW is on OCBC and key UW on UOB, it is OW on DBS.
OCBC (OW, TP $12.00) – most underappreciated. 50bps q/q pick-up in CET1 and guidance for further accrual reflects good capital management, healthy CET1 of 11.5%-12% is expected by end of next year. Therefore, implied discount for stock to narrow. Counter has best risk-return trade-off ex-growth valuations
DBS (OW, TP $21.50) – best positioned for move-up in short rates and steepening of yield curve. Net duration of books is low as it has not fully optimized its long-duration low-cost funds, hence presents opportunities. Credit risk management improved meaningfully, hence should increase resilience in upcoming credit cycle.
UOB (UW, TP $21.50) – transition period as business drivers shift. Bank is shifting away from real estate loans, which had previously shown signs of asset quality issues; asset quality remains key concern as 4Q construction NPL picked up. Effective tax rate will increase due to lack of one-time tax write-backs going forward. Risk-return could be negative.
O&M/Yangzijiang
O&M/Yangzijiang: Market sentiments among rigbuilders may have improved recently, after underperforming their country indices for last 12M, but Goldman cautions bottom fishing is premature as:
1. Strong oil demand may not last given China’s softening economic activity and fuel subsidy removals in many countries
2. Oil supply remains high near-term with more production and capex cuts needed
3. New rig supply remains near historical high, with more rigs currently docked ready to make a comeback at any sign of increased drilling activity
4. Rig attritions, though accelerating, are still insufficient
5. Even NOCs are cancelling contracts, putting orderbook visibility and outlook at risk
6. Valuations are not attractive compared to historical instances of low oil price environment
In fact, project cancellations and defaults are on the rise. Traditionally “safe haven” NOCs such as Petrobras, Pemex and Saudi Aramco have invoked early termination clauses.
Overall sector rating is underweight, with a preference for stocks with lower rig/orderbook exposure. GS recommends Sell on Malaysia’s UMW Oil & Gas and Singapore’s COSCO, Hold on Sembcorp Industries, Keppel Corp, Sembcorp Marine, Vard and Buy on Yangzijiang.
Yangzijiang is liked for its high commercial shipbuilding exposure, low valuations and company-specific catalysts.
Last Friday, the Upstream magazine reported Yangzijiang is in “advanced talks” to acquire a stake in another state-owned shipbuilding China Rongsheng. YZJ has since clarified that it is merely approached by the government to explore and consider taking a stake in Rongsheng but is neither in advanced talks nor has made any decision.
In our opinion, however, there is a high chance a deal will be struck as the suggestion was initiated by the government.
1. Strong oil demand may not last given China’s softening economic activity and fuel subsidy removals in many countries
2. Oil supply remains high near-term with more production and capex cuts needed
3. New rig supply remains near historical high, with more rigs currently docked ready to make a comeback at any sign of increased drilling activity
4. Rig attritions, though accelerating, are still insufficient
5. Even NOCs are cancelling contracts, putting orderbook visibility and outlook at risk
6. Valuations are not attractive compared to historical instances of low oil price environment
In fact, project cancellations and defaults are on the rise. Traditionally “safe haven” NOCs such as Petrobras, Pemex and Saudi Aramco have invoked early termination clauses.
Overall sector rating is underweight, with a preference for stocks with lower rig/orderbook exposure. GS recommends Sell on Malaysia’s UMW Oil & Gas and Singapore’s COSCO, Hold on Sembcorp Industries, Keppel Corp, Sembcorp Marine, Vard and Buy on Yangzijiang.
Yangzijiang is liked for its high commercial shipbuilding exposure, low valuations and company-specific catalysts.
Last Friday, the Upstream magazine reported Yangzijiang is in “advanced talks” to acquire a stake in another state-owned shipbuilding China Rongsheng. YZJ has since clarified that it is merely approached by the government to explore and consider taking a stake in Rongsheng but is neither in advanced talks nor has made any decision.
In our opinion, however, there is a high chance a deal will be struck as the suggestion was initiated by the government.
Wing Tai
Wing Tai: Management meeting takeaways:
Though sales in the luxury market remains lackluster, management has resisted price cuts. Both projects have received TOP, and sales will directly impact earnings. Relaxation of policy measures is unlikely till late this year, this is the largest upside risk to the stock.
Wing Tai does not believe it will take impairment charges on their high end projects, givne market prices remain above breakeven prices. That said, management has started discounting units at The Crest. With ASPs at ~1,600, the project may be at risk for impairment charges, as Deutsche estimates breakeven prices at $1480 psf.
Management reiterated commitment to maintaining a strong dividend policy, and has paid dividends even during loss making years.
Deutsche maintains Buy call for Wing Tai, which is currently trading at 42% discount to Deutsche's RNAV of $3.05.
Though sales in the luxury market remains lackluster, management has resisted price cuts. Both projects have received TOP, and sales will directly impact earnings. Relaxation of policy measures is unlikely till late this year, this is the largest upside risk to the stock.
Wing Tai does not believe it will take impairment charges on their high end projects, givne market prices remain above breakeven prices. That said, management has started discounting units at The Crest. With ASPs at ~1,600, the project may be at risk for impairment charges, as Deutsche estimates breakeven prices at $1480 psf.
Management reiterated commitment to maintaining a strong dividend policy, and has paid dividends even during loss making years.
Deutsche maintains Buy call for Wing Tai, which is currently trading at 42% discount to Deutsche's RNAV of $3.05.
SG Market (10 Mar 15)
Singapore shares are expected to open firmer, keeping tracking of the positive close in Wall Street, in a session which saw Apple launching its smartwatch and General Motors announcing US$5b worth of share buybacks.
Regional bourses are trading higher this morning in Tokyo (+0.5%), Seoul (+0.1%) and Sydney (+0.3%).
From a chart perspective, the STI is finding some support near the lower end of its 3,390-3,450 consolidation range.
Stocks to watch:
*Economy: Three-month Sibor jumped to 0.836% on Mon, up 3% from last Fri and 115% higher from the 2014 low of 0.389%.
*Keppel Land: Parent Keppel Corp has obtained 73.7% control of its property arm, still some way to go towards the 90% threshold level. Closing date for the voluntary unconditional cash offer is on Thu (12 Mar).
*SGX: Opens new office in Hong Kong, which will extend the group’s comprehensive range of Asian equity index futures and key commodity futures, covering over 80% of Asia's economies - China, India, Indonesia, Japan and Taiwan.
*Sino Grandness: In a business update, Sino Grandness revealed that its proposal to spin off its juice business, Garden Fresh, is still progressing and it will keep shareholders updated on material developments. The group has commissioned research company Euromonitor International in Jan ‘15 to conduct independent assessment of the fresh juice and loquat juice market in China.
*GSH/ Vibrant: Launches sale of more than 100 office strata units of 28-storey Grade-A office building GSH Plaza, formerly known as Equity Plaza. Units range 480-1700sqf, expected to be priced $2850-3500psf. Building has 259 office units, 8 shops and 13 F&B outlets.
*Triyards: Secured deals for two ice-class Multi-Purpose Support Vessels (MPSV) as well as a turret fabrication job worth over US$100m. The MPSVs were signed with Ocean Enegy Ventures, which will extend earnings visibility beyond FY16. The turret fabrication project was signed with London Marine Consultants.
*Yongnam: 51% owned JV secured a $159m contract for the JTC Food Hub @ Senoko. The JV will build and develop a new seven-storey ramp-up development in the Senoko Food Zone. With land area of 33,000 sqm, the new development will comprise 50 modular factory units which have the flexibility for space configuration, and features an integrated coldroom-warehouse facility.
*IPS Securex: Enters five-year Hyperspike Reseller Agreement with Undersea Sensor Systems, giving it exclusive distributorship in 13 Asia-pac countries and non-exclusive distributorship in 3 Asian countries.
*Europtronic: Entered into sales and purchase agreement to dispose eight subsidiaries with total negative net assets of ~US$1.3m for S$1.00 to a group of individual investors. The disposal is expected to be improve the overall financial position of the company.
*Yangzijiang: Clarified that while the group has been approached by relevant government agencies to explore the possibilities of taking a stake in Rongsheng, management yet to make any decision, although it will carefully evaluate the impact of any potential acquisition on the group.
*Ellipsiz: In response to SGX's trading query, Ellipsiz highlighted UOB Kay Hian's Buy report, which may have explained for the increased trading volume.
*UOB: Increases limit of EMTN programme from $10b to $15b
*Interra: Receives waiver for qualified person report on grounds of business confidentiality, and sufficient transparency and disclosure.
Regional bourses are trading higher this morning in Tokyo (+0.5%), Seoul (+0.1%) and Sydney (+0.3%).
From a chart perspective, the STI is finding some support near the lower end of its 3,390-3,450 consolidation range.
Stocks to watch:
*Economy: Three-month Sibor jumped to 0.836% on Mon, up 3% from last Fri and 115% higher from the 2014 low of 0.389%.
*Keppel Land: Parent Keppel Corp has obtained 73.7% control of its property arm, still some way to go towards the 90% threshold level. Closing date for the voluntary unconditional cash offer is on Thu (12 Mar).
*SGX: Opens new office in Hong Kong, which will extend the group’s comprehensive range of Asian equity index futures and key commodity futures, covering over 80% of Asia's economies - China, India, Indonesia, Japan and Taiwan.
*Sino Grandness: In a business update, Sino Grandness revealed that its proposal to spin off its juice business, Garden Fresh, is still progressing and it will keep shareholders updated on material developments. The group has commissioned research company Euromonitor International in Jan ‘15 to conduct independent assessment of the fresh juice and loquat juice market in China.
*GSH/ Vibrant: Launches sale of more than 100 office strata units of 28-storey Grade-A office building GSH Plaza, formerly known as Equity Plaza. Units range 480-1700sqf, expected to be priced $2850-3500psf. Building has 259 office units, 8 shops and 13 F&B outlets.
*Triyards: Secured deals for two ice-class Multi-Purpose Support Vessels (MPSV) as well as a turret fabrication job worth over US$100m. The MPSVs were signed with Ocean Enegy Ventures, which will extend earnings visibility beyond FY16. The turret fabrication project was signed with London Marine Consultants.
*Yongnam: 51% owned JV secured a $159m contract for the JTC Food Hub @ Senoko. The JV will build and develop a new seven-storey ramp-up development in the Senoko Food Zone. With land area of 33,000 sqm, the new development will comprise 50 modular factory units which have the flexibility for space configuration, and features an integrated coldroom-warehouse facility.
*IPS Securex: Enters five-year Hyperspike Reseller Agreement with Undersea Sensor Systems, giving it exclusive distributorship in 13 Asia-pac countries and non-exclusive distributorship in 3 Asian countries.
*Europtronic: Entered into sales and purchase agreement to dispose eight subsidiaries with total negative net assets of ~US$1.3m for S$1.00 to a group of individual investors. The disposal is expected to be improve the overall financial position of the company.
*Yangzijiang: Clarified that while the group has been approached by relevant government agencies to explore the possibilities of taking a stake in Rongsheng, management yet to make any decision, although it will carefully evaluate the impact of any potential acquisition on the group.
*Ellipsiz: In response to SGX's trading query, Ellipsiz highlighted UOB Kay Hian's Buy report, which may have explained for the increased trading volume.
*UOB: Increases limit of EMTN programme from $10b to $15b
*Interra: Receives waiver for qualified person report on grounds of business confidentiality, and sufficient transparency and disclosure.
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