Keong Hong: UOB Kay Hian initiated coverage on the company yesterday with a BUY and TP of $0.565, representing a 25% upside from the current price.
The house cited that Keong Hong went into property development in 2012 and is now starting to see the returns, with a bumper profit set to kick off in FYSep15, as its property development projects obtain TOP.
Through JVs, Keong Hong is in the midst of developing two hotels in Joo Chiat (to be operated by InterContinental Hotels Group under the brands Hotel Indigo and Holiday Inn Express), an airport hotel and a resort hotel in Maldives, which are expected to bring a steady stream of recurring income to Keong Hong upon completion from FY16 to FY17.
Despite being in a cyclical industry, management has consistently paid out between 18-28% of earnings as dividends. With the expected TOP of the Twin Waterfalls development project and Skypark Residences, house expects dividend yield to rise to 8.7% (3.9¢) and 7.3% (3.3¢) in FY15 and FY16 respectively, based on a 25% payout.
Tuesday, June 16, 2015
KrisEnergy
KrisEnergy: (S$0.415) Raising funds for capex spending
Oil & Gas exploration and producer KrisEnergy proposed a rights issue to raise net proceeds of $165.6m to grow oil and gas production in existing fields and near-term development projects.
The 42-for-100 rights issue will be priced at $0.385/share, a 12.5% discount from the counter's last close.
While second largest shareholder Keppel Corp has undertaken to subscribe for its full entitlement of 31.3%, major shareholder private equity energy specialist First Reserve, opted to undertake just 43.9% of its entitlement, translating to an approximate 19.8% of the issue.
The remaining 48.9% have been underwritten by Merrill Lynch and Keppel Corp will act as the sub-underwriter, which will take up up to 50% interest in KrisEnergy.
Development is ongoing at the Nong Yao and Wassana oil fields in the Gulf of Thailand, both of which are expected to commence production in 2H15. The group is also targeting to drill two development wells in 4Q15 to raise production in the Bangora gas field at onshore Bangladesh.
In addition, KrisEnergy intends to submit a development plan in the near term, for the Rossukon area within the G6/48 licence located in the Gulf of Thailand.
Despite 6 straight Buy ratings on the counter with an average 12-month TP of $0.70, KrisEnergy's share price has dogged investors largely due to the slump in crude oil price, driving interest away from the oil industry.
Oil & Gas exploration and producer KrisEnergy proposed a rights issue to raise net proceeds of $165.6m to grow oil and gas production in existing fields and near-term development projects.
The 42-for-100 rights issue will be priced at $0.385/share, a 12.5% discount from the counter's last close.
While second largest shareholder Keppel Corp has undertaken to subscribe for its full entitlement of 31.3%, major shareholder private equity energy specialist First Reserve, opted to undertake just 43.9% of its entitlement, translating to an approximate 19.8% of the issue.
The remaining 48.9% have been underwritten by Merrill Lynch and Keppel Corp will act as the sub-underwriter, which will take up up to 50% interest in KrisEnergy.
Development is ongoing at the Nong Yao and Wassana oil fields in the Gulf of Thailand, both of which are expected to commence production in 2H15. The group is also targeting to drill two development wells in 4Q15 to raise production in the Bangora gas field at onshore Bangladesh.
In addition, KrisEnergy intends to submit a development plan in the near term, for the Rossukon area within the G6/48 licence located in the Gulf of Thailand.
Despite 6 straight Buy ratings on the counter with an average 12-month TP of $0.70, KrisEnergy's share price has dogged investors largely due to the slump in crude oil price, driving interest away from the oil industry.
SG Market (16 Jun 15)
Regional bourses are trading lower this morning in Tokyo (-0.2%) and Seoul (-0.3%), while Sydney is stronger (+0.6%).
From a chart perspective, the STI has failed to break above the 200-dma at 3,360, and appears headed towards downside support at 3,268.
Stocks to watch:
*Property: Consultants expect developers' sales to be more subdued in June, with no new project launches scheduled to take place. Data released by the URA showed that May sales were tepid with 638 (-45% m/m) private residential units (excluding ECs) sold, as developers released fewer residential units. With affordability still a crucial factor for buyers constrained by lending curbs, 3/4 of total private home sales in May was in the suburban region (outside central region).
*O&M: The Business Times highlighted that analysts are expecting more cash calls from smaller O&M firms with high debt levels, as funds dry up amid a crude oil slump and OSV oversupply, and bond yields remain prohibitively high, with Otto Marine, Swiber and Marco Polo Marine being touted as potential candidates.
*SIA: May ’15 system wide passenger carriage fell 4.2% y/y, against a 2.6% reduction in capacity. Consequently, passenger load factor dropped 1.3ppt to 73.6%. PLF improved for East Asia from stronger demand, whereas that for South West Pacific improved on capacity consolidation. Meanwhile PLF for Americas and Europe routes fell on lower demand. SilkAir’s carriage grew 10.3% y/y, while capacity increased 6.8%. As a result, PLF improved 2.2% to 68.6%. Cargo load factor fell 1.3ppt to 61.6%, on the back of a 1% decrease in traffic and a 1% growth in capacity.
*KrisEnergy: Proposed to raise $169.5m from a 42-for-100 rights issue at $0.385/share, 12.5% discount from last close. Proceeds raised will be used to support the group’s strategy to grow oil and gas production in existing fields and near-term development projects. Second largest shareholder Keppel Corp has undertaken to subscribe for its full entitlement, while largest shareholder, private equity energy specialist First Reserve, will undertake just 43.9% of its entitlement. The remaining rights shares will be underwritten by Merrill Lynch, while Keppel Corp will be the sub-underwriter, taking up to 50% interest in the company.
*JEP: Exploring possibility of acquiring a trading company that markets cutting tools including indexable carbide inserts, tool holders, milling cutters, boring bars and drill bits to the aerospace, mould & die and oil & gas industries. The parties are currently in the process of preliminary due diligence and negotiations on the terms of the proposed acquisition.
*Cosco Corporation: Secured a Rmb129m contract for a research vessel from an Asian buyer, expected for delivery in 4Q17.
*Midas: 32.5% owned JV Nanjing SR Puzhen Rail Transport secured Rmb2.1b worth of metro train and tram contracts. Delivery is scheduled between 2016-17.
*Mercator Lines: Secured long term charter for its gearless Kamsarmax, an 82,459 DWT bulk carrier to Clearlake Shipping for a period of 12-16 months for US$7,050/day, or 23% over the current 4 TC Baltic Panamax spot index rate. Up to US$3.4m gross revenue will be generated from this charter.
*Full Apex: To acquired 13.6% stake in ÎñÎÎ"ÞÆÍÛÉ ÄÅÐÐÈÊ" (南德里克有限公司), an oil explorer and producer which owns the rights for the Malisu III site located in the Kyrgyz Republic. Consideration of $8.4m (2.5x P/B) will be paid via a 140.7m new share issue at $0.06/share.
*Joyas: Completed placement of 50m new shares at $0.032.
From a chart perspective, the STI has failed to break above the 200-dma at 3,360, and appears headed towards downside support at 3,268.
Stocks to watch:
*Property: Consultants expect developers' sales to be more subdued in June, with no new project launches scheduled to take place. Data released by the URA showed that May sales were tepid with 638 (-45% m/m) private residential units (excluding ECs) sold, as developers released fewer residential units. With affordability still a crucial factor for buyers constrained by lending curbs, 3/4 of total private home sales in May was in the suburban region (outside central region).
*O&M: The Business Times highlighted that analysts are expecting more cash calls from smaller O&M firms with high debt levels, as funds dry up amid a crude oil slump and OSV oversupply, and bond yields remain prohibitively high, with Otto Marine, Swiber and Marco Polo Marine being touted as potential candidates.
*SIA: May ’15 system wide passenger carriage fell 4.2% y/y, against a 2.6% reduction in capacity. Consequently, passenger load factor dropped 1.3ppt to 73.6%. PLF improved for East Asia from stronger demand, whereas that for South West Pacific improved on capacity consolidation. Meanwhile PLF for Americas and Europe routes fell on lower demand. SilkAir’s carriage grew 10.3% y/y, while capacity increased 6.8%. As a result, PLF improved 2.2% to 68.6%. Cargo load factor fell 1.3ppt to 61.6%, on the back of a 1% decrease in traffic and a 1% growth in capacity.
*KrisEnergy: Proposed to raise $169.5m from a 42-for-100 rights issue at $0.385/share, 12.5% discount from last close. Proceeds raised will be used to support the group’s strategy to grow oil and gas production in existing fields and near-term development projects. Second largest shareholder Keppel Corp has undertaken to subscribe for its full entitlement, while largest shareholder, private equity energy specialist First Reserve, will undertake just 43.9% of its entitlement. The remaining rights shares will be underwritten by Merrill Lynch, while Keppel Corp will be the sub-underwriter, taking up to 50% interest in the company.
*JEP: Exploring possibility of acquiring a trading company that markets cutting tools including indexable carbide inserts, tool holders, milling cutters, boring bars and drill bits to the aerospace, mould & die and oil & gas industries. The parties are currently in the process of preliminary due diligence and negotiations on the terms of the proposed acquisition.
*Cosco Corporation: Secured a Rmb129m contract for a research vessel from an Asian buyer, expected for delivery in 4Q17.
*Midas: 32.5% owned JV Nanjing SR Puzhen Rail Transport secured Rmb2.1b worth of metro train and tram contracts. Delivery is scheduled between 2016-17.
*Mercator Lines: Secured long term charter for its gearless Kamsarmax, an 82,459 DWT bulk carrier to Clearlake Shipping for a period of 12-16 months for US$7,050/day, or 23% over the current 4 TC Baltic Panamax spot index rate. Up to US$3.4m gross revenue will be generated from this charter.
*Full Apex: To acquired 13.6% stake in ÎñÎÎ"ÞÆÍÛÉ ÄÅÐÐÈÊ" (南德里克有限公司), an oil explorer and producer which owns the rights for the Malisu III site located in the Kyrgyz Republic. Consideration of $8.4m (2.5x P/B) will be paid via a 140.7m new share issue at $0.06/share.
*Joyas: Completed placement of 50m new shares at $0.032.
Monday, June 15, 2015
UG Healthcare
UG Healthcare: The rubber gloves manufacturer is up 8.2% today, possibly triggered by an anticipated rise in demand for rubber gloves following the MERS outbreak in South Korea.
Separately, a local broker recently featured the group in an unrated report, highlighting that UG Healthcare is projected to increase its annual production capacity from 1.3b in Jan ’15 to 1.9b by Aug ’15, representing a 46% increase.
The group had outlined plans to convert some of their current production capacity from examination gloves to surgical gloves, by end 2015. This could augur well for the group as surgical gloves typically command higher gross margin of 30% versus 22% for examination gloves.
Management was quick to fan off concerns of execution risks, emphasizing that UG has the necessary expertise and channels to market its surgical gloves, with the group currently distributing third party surgical gloves.
Going forward, UG Healthcare expects demand to come from developing countries, as they seek to improve their sanitary and hygiene standards, and is eyeing export markets in Africa and Brazil.
Separately, a recent CNBC report highlighted that Malaysia’s rubber glove industry could enjoy positive upside from the global healthcare market, given that it accounts for more than 50% of global demand. With the bulk of global sales for rubber gloves denominated in USD, export-oriented glove manufacturers are expected to benefit from the depreciating ringgit against the greenback.
Due to its short listing history, UG Healthcare currently trades at 10.2x FY14 P/E and 1.4x P/B, which is at a significant discount to larger peer Riverstone’s 20.2x trailing P/E and 4.2x P/B. But with its expansion plans and execution ability, the valuation disparity is expected to narrow over time.
Additionally, UG has registered earnings growth in excess of 30% over its past two financial years, and intends to pay out at least 20% of its earnings from FY16 onwards, which translates to a yield of 2% based on historical FY14 earnings.
As such, Market Insight is adding the stock to its growth portfolio with an entry price of $0.265
Separately, a local broker recently featured the group in an unrated report, highlighting that UG Healthcare is projected to increase its annual production capacity from 1.3b in Jan ’15 to 1.9b by Aug ’15, representing a 46% increase.
The group had outlined plans to convert some of their current production capacity from examination gloves to surgical gloves, by end 2015. This could augur well for the group as surgical gloves typically command higher gross margin of 30% versus 22% for examination gloves.
Management was quick to fan off concerns of execution risks, emphasizing that UG has the necessary expertise and channels to market its surgical gloves, with the group currently distributing third party surgical gloves.
Going forward, UG Healthcare expects demand to come from developing countries, as they seek to improve their sanitary and hygiene standards, and is eyeing export markets in Africa and Brazil.
Separately, a recent CNBC report highlighted that Malaysia’s rubber glove industry could enjoy positive upside from the global healthcare market, given that it accounts for more than 50% of global demand. With the bulk of global sales for rubber gloves denominated in USD, export-oriented glove manufacturers are expected to benefit from the depreciating ringgit against the greenback.
Due to its short listing history, UG Healthcare currently trades at 10.2x FY14 P/E and 1.4x P/B, which is at a significant discount to larger peer Riverstone’s 20.2x trailing P/E and 4.2x P/B. But with its expansion plans and execution ability, the valuation disparity is expected to narrow over time.
Additionally, UG has registered earnings growth in excess of 30% over its past two financial years, and intends to pay out at least 20% of its earnings from FY16 onwards, which translates to a yield of 2% based on historical FY14 earnings.
As such, Market Insight is adding the stock to its growth portfolio with an entry price of $0.265
Noble
Noble: Management purchased 50m shares in total, which comprised 25m shares purchased on 11 Jun at $0.6692 apiece, and another 25m shares on 12 Jun at $0.6728 each.
Under the group's share buy-back mandate, shareholders authorised a maximum of 673.9m shares (10% issued share capital) for purchase, of which the group has done 50m from the above two transactions.
Under the group's share buy-back mandate, shareholders authorised a maximum of 673.9m shares (10% issued share capital) for purchase, of which the group has done 50m from the above two transactions.
Mapletree Greater China Commercial Trust
Mapletree Greater China Commercial Trust (MGCCT): Made its maiden acquisition for Sandhill Plaza for Rmb1.89b ($412.2m), a premium business park property located in Shanghai's Free Trade Zone.
The 83,801.5 sqm (0.9m sf) gfa property at Zhangjiang Hi-tech Park was completed in 2012 and has a lease term of 45 years up to 2060, and comes with a 96.2% occupancy rate.
Among Its 58 tenants include global companies such as ADI, Axalta, Borouge, Broadcom, Disney, Spreadtrum, Univar and Wincor Nixdorf.
Dubbed the “Silicon Valley” of Shanghai, the hi-tech park enjoys increasing demand from the growing high-tech and IT clusters, as well as companies in manufacturing, trading, R&D and regional headquarters seeking well-connected decentralised locations.
The purchase price of Rmb1.89b comprises Rmb1.84b for the property (3.2% below market value) and Rmb50m for working capital adjustments, and will be fully debt-funded through existing Rmb and HK$ debt facilities.
Post-acquisition, MGCCT's pro forma FYMar15 aggregate leverage is expected to increase from 36.2% to 40.6%, while DPU is expected to grow marginally by 0.1% to 6.55¢.
At $1.04, MGCCT is trading at a relatively attractive 0.87x P/B and 6.3% indicative yield, compared to SGX-listed retail reits average of 1.1x P/B and 5.6% yield.
Market Insight continues to like MGCCT for its exposure into the China market, underpinned by resilient leasing demand and the limited supply in the Hong Kong retail and Beijing office sectors.
However, we will keep our eyes peeled on its rising leverage ratio which may translate into rising interest costs.
The 83,801.5 sqm (0.9m sf) gfa property at Zhangjiang Hi-tech Park was completed in 2012 and has a lease term of 45 years up to 2060, and comes with a 96.2% occupancy rate.
Among Its 58 tenants include global companies such as ADI, Axalta, Borouge, Broadcom, Disney, Spreadtrum, Univar and Wincor Nixdorf.
Dubbed the “Silicon Valley” of Shanghai, the hi-tech park enjoys increasing demand from the growing high-tech and IT clusters, as well as companies in manufacturing, trading, R&D and regional headquarters seeking well-connected decentralised locations.
The purchase price of Rmb1.89b comprises Rmb1.84b for the property (3.2% below market value) and Rmb50m for working capital adjustments, and will be fully debt-funded through existing Rmb and HK$ debt facilities.
Post-acquisition, MGCCT's pro forma FYMar15 aggregate leverage is expected to increase from 36.2% to 40.6%, while DPU is expected to grow marginally by 0.1% to 6.55¢.
At $1.04, MGCCT is trading at a relatively attractive 0.87x P/B and 6.3% indicative yield, compared to SGX-listed retail reits average of 1.1x P/B and 5.6% yield.
Market Insight continues to like MGCCT for its exposure into the China market, underpinned by resilient leasing demand and the limited supply in the Hong Kong retail and Beijing office sectors.
However, we will keep our eyes peeled on its rising leverage ratio which may translate into rising interest costs.
REITS
REITS: The Business Times (BT) highlighted that the unclear timing of the Fed interest rate hike is causing price volatility in REITs, with consensus now pointing towards a 25bps increase in Sep.
While REITs have hedged ~80% of all their borrowings, analysts remain dividend as to whether prices have already reflected the prospects of any rate spike.
To navigate the sector going forward, analysts are advocating a bottom-up approach to pick REITs with strong balance sheet, good capital management, DPU growth and higher percentage of hedged debt.
Some analysts commented that any selldown on a rate hike will be “more of a relief” rather than a clear downside trend, and unlikely to be significant, as most of the risks will have been priced in.
Key trends of the REIT sector:
1) Office REITs - Biggest laggard year-to-date (-7%) with the sector facing 4m sf of new supply by end-2016.
2) Industrial REITs - Faces an oversupply situation and restrictions on strata sub-division, seller stamp duties and longer minimum occupation periods.
3) Retail REITs - Pressured by higher labour costs and rising online competition.
4) Hospitality REITs - Hit by dwindling tourist arrivals, with visitors down 5.4% y/y in the first four months of 2015, weighed by weakening regional currencies.
Overall, Maybank-KE has an Underweight rating on S-REITs due to the deteriorating fundamentals amid ample supply, softer demand, rising interest costs and stretched valuations.
Top Sells are CapitaLand Mall Trust (TP: $1.87) and Ascendas REIT (TP: $2.27). Preferred Buys are Mapletree Industrial Trust (TP: $1.77), Cache Logistics Trust (TP: $1.33), Starhill Global REIT (TP: $0.93) and Keppel REIT (TP: $1.32).
While REITs have hedged ~80% of all their borrowings, analysts remain dividend as to whether prices have already reflected the prospects of any rate spike.
To navigate the sector going forward, analysts are advocating a bottom-up approach to pick REITs with strong balance sheet, good capital management, DPU growth and higher percentage of hedged debt.
Some analysts commented that any selldown on a rate hike will be “more of a relief” rather than a clear downside trend, and unlikely to be significant, as most of the risks will have been priced in.
Key trends of the REIT sector:
1) Office REITs - Biggest laggard year-to-date (-7%) with the sector facing 4m sf of new supply by end-2016.
2) Industrial REITs - Faces an oversupply situation and restrictions on strata sub-division, seller stamp duties and longer minimum occupation periods.
3) Retail REITs - Pressured by higher labour costs and rising online competition.
4) Hospitality REITs - Hit by dwindling tourist arrivals, with visitors down 5.4% y/y in the first four months of 2015, weighed by weakening regional currencies.
Overall, Maybank-KE has an Underweight rating on S-REITs due to the deteriorating fundamentals amid ample supply, softer demand, rising interest costs and stretched valuations.
Top Sells are CapitaLand Mall Trust (TP: $1.87) and Ascendas REIT (TP: $2.27). Preferred Buys are Mapletree Industrial Trust (TP: $1.77), Cache Logistics Trust (TP: $1.33), Starhill Global REIT (TP: $0.93) and Keppel REIT (TP: $1.32).
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