Friday, July 31, 2015


GLP: 1QFY16 headline net profit jumped 49.4% y/y to US$268.1m, mainly boosted by higher fair value gains and the inclusion of the US portfolio. Excluding revaluations, earnings fell 7% to US$56.6m, forming 18% of street's full year estimates.

Revenue climbed 12.3% to US$169.3m on the back of completion of development projects, higher rents in China and inclusion of management fees from GLP US Income Partners I, but partially offset by loss of contributions from nine Japan properties sold to GLP J-REIT in Sep '14 and weaker JPY/USD (-19%).

Leasing momentum continued to be strong, as China saw a 29% increase in new leases that were mostly signed with industry leaders in the e-commerce, retail and automotive industries, and positive rental reversions of 7.3%, although occupancy slipped 3ppt to 88%.

In Japan, new leases surged 119%, with rent uplift of 5.5%, while Brazil's new leases jumped 141%, with same-property rent growth of 6.2%.

Meanwhile, the group booked sizable fair value gains of US$186.7m in China, on tighter land supply and lower borrowing costs, and US$44.3m Japan due to a compression in cap rate to 4.9% (-11bps).

Bottom line (excluding revaluations) was weighed by rising property-related expenses (+21.1%) on an enlarged portfolio, higher staff and business costs (+44.3%) resulting from its expansion, as well as increased minority interest of US$88.5m (+247%) following a Chinese consortium’s investment in GLP China in Jun '14.

Notably, GLP has lowered its FY16 targets for development starts and completions in China to US$1.7b (-23%) and US$1.1b (-21%), suggesting that sales contribution from GLP's China portfolio may be deferred in view of the slowdown in the Chinese economy.

But management reaffirmed its targets in Japan and Brazil for starts and completions of US$980m and US$720m, and US$250m and US$140m, respectively.

The new focus would be in US, where GLP's is acquiring a massive US$4.55b logistics portfolio, which will enlarge its US footprint by 50% to 173m sf, and turn it into the second largest logistics owner and operator there.

GLP intends to grow its recurring fee income via its fund management platform, which management believes should translate to a relatively superior risk-adjusted return for the group.

At the current price, GLP is valued at 0.96x P/B and 30% discount to market RNAV. Consensus is generally bullish on the counter with 16 Buy and 1 Hold ratings, and average 12-month TP of $3.20.


SMRT: (S$1.42) 1QFY16 profit stall; please mind the earnings gap

SMRT’s 1QFY16 net profit fell short of expectation as net profit reversed 10% y/y to $20.1m, representing 18.9% of full year consensus estimate.

Revenue of $320.3m (+7.8%) was driven by all segments, with rail contributing $170.2m (+6.1%), bus $61.3m (+5.7%), taxis $37.8m (+9.9%) and rentals $32.9m (+27.3%).

The top line growth was however overshadowed by a lower operating profit of $27.7m (-5.6%), dragged by fare business (rail/bus) as rail operations incurred losses of $5.7m as compared to $4.3m profit in 1Q15. This was partially mitigated by bus operations, which swung to a $1.2m profit from a $5.6m loss.

Operating profit for non-fare businesses improved 4.8% to $32.1m, mainly driven by $5.5m (+32.2%) profit from taxis, due to a larger and newer fleet and higher rentals of $21.1m (+5.3%) from the redevelopment of Ang Mo Kio Xchange as well as Kallang Wave mall.

EBIT margin compressed to 8.6% (-1.3ppt) as expenses soared 10.1%, with the most damage coming from depreciation ($53.5m, +13%), repair and maintenance ($33.8m, +19.6%), Public Transport Fund contribution and Kallang Wave mall ($60.5m, +24.5%).

Looking ahead, SMRT is expected to face growing operating expenses as it upgrades its ageing rail system and expand its network as talks with authorities about a new rail financing framework is still ongoing, with no date given on its likely implementation. Meanwhile, it will continue to participate in the tenders under the government's new bus contracting model.

Investors are also wary over the potential fine that could be imposed on SMRT for the 7 July breakdown of North-South and East-West MRT lines. Although past fines in 2011-2014 were a slap on the wrist, LTA has raised the penalty to a maximum of $50m last year, which could pose a massive earnings risk given the scale of the latest incident.

SMRT is currently trading at 20.6x FY3/16 consensus P/E and 2.4x P/B.

Latest broker ratings:
Deutsche maintains Buy with TP of $2.32
CIMB maintains Reduce, cuts TP to $1.42 from $1.53
DBS downgrades to Fully Valued, cuts TP to $1.27 from $1.59

Strategy (CITI)

Strategy: Citi advises investors to pay close attention to signs of a technical recession in Singapore's Jul/Aug GDP data and notes "clearer signs" of job market softening in the city-state, with job creation in the first half amounting to just 9,600, down sharply from the 56,000 jobs created in the same period last year. It estimates at least 20,000-25,000 jobs need to be created each year to prevent the resident unemployment rate from rising. It adds policymakers in Singapore will likely watch closely any sharp rise in the unemployment rate among citizens ahead of the elections, expected in Sept.

Singapore on Thurs said the nation's jobless rate edged up to 2% in the second quarter from 1.8% in the first quarter.


NOL's 2Q15 net shipping loss narrowed to US$10.9m from US$75.9m in 2Q14: -US$75.9m. This excludes disposal gain of US$886.6m from the US$1.2b sale of APL Logistics in May '15.

Liner revenue tanked 22.2% y/y to US$1.3b (2Q14: US$1.7b) on the back of lower shipment volumes of 582,000 FEUs (-12.1%), stemming from planned capacity cuts and void sailings, and weaker average freight rates averaging US$1,933/FEU (-16.7%) across all trade lanes, except Transatlantic route:
- Asia-Europe US$1,671 (-31.3%)
- Intra-Asia US$1,178 (-17.6%)
- Latin America US$2,744 (-11.2%)
- Transpacific US$3,075 (-8.5%)
- Transatlantic US$2,884 (+4.1%)

However, cost savings (network optimisation, charter expiries, cargo handling) of US$100m as well as lower bunker costs helped turnaround NOL’s core liner EBIT to US$20m from a loss of US$28m.

Headhaul utilisation rate dipped 2ppt q/q to 92% despite industry overcapacity but with Transatlantic route particularly hard hit, down 13ppt to 79%.

NOL booked a one-off gain of US$886.6m on disposal of APL Logistics to Kintetsu World Express. This strengthened its financial position and enabled the group to pare its net gearing to a manageable 1.03x from 2.21x as at end Mar.

Operating cashflow turned around to US$105.1m from negative US$24.2m, helped by the improved performance.

Management highlighted that outlook for the shipping industry remains bleak due to persistent overcapacity as well as weak trade growth. It intends to continue its cost and capacity rationalisation exercise in a bid to improve yields and return its liner business to sustainable profitability.

NOL is currently trading at 0.67x P/B against its Asian peers at 1x.

Latest broker ratings:
CIMB maintains Hold, cuts TP to $1.02 from $1.05
Deutsche maintains Hold with TP of $1.10
HSBC maintains Reduce, raises TP to $0.80 from $0.70


Noble: (S$0.455) Sharp fall may lead to deletion from FTSE ST Index
Noble slumped another 12.5% today, extending yesterday's 11.9% tumble on heavy volume, after SGX issued its routine trade caution on the counter.

As expected, the commodity trader responded that it was not aware of any information that could explain the sharp fall.

The company has been active in buying back its shares to shore up its share price over the past seven weeks, shelling out a total of $131m, or 14% of its cash hoard to mop up 191.8m shares in the open market.

This has been halted after Noble entered the blackout period yesterday. Accordingly to SGX listing guide, buybacks should not be conducted two weeks prior its quarterly earnings, expected to be filed on 13 Aug.

Following its share price plunge since Feb, its market cap has shrunk more than 62% to under $3b, putting it as the 45th largest listing on the SGX. This will put it at risk of being removed from the FTSE ST Index in the upcoming review in Sep.

Stocks on the reserve list are now larger than Noble, except for one. These are:
- UOL ($5.34b)
- Yangzijiang ($4.91b)
- CapitaLand Commerical Trust ($4.2b)
- Suntec REIT ($4.21b)
- Genting Hong Kong ($3b)

SG Market (31 Jul 15)

Singapore shares are expected to open in negative territory today following a weak results season and a tepid trading session overnight in Wall Street.

Regional bourses are mixed this morning in Tokyo (-0.12%), Seoul (+0.04%) and Sydney (+0.39%).

From a chart perspective, the STI has fallen below its support level at 3,250 yesterday and may portend towards further downside to the next support at 3,200.

Stocks to watch:

*UOB: 2Q15 missed estimates as net profit dipped more-than-expected to $762m (+5.7% y/y, -4.9% q/q), dragged by higher overall expenses (+11.4% y/y, +2.8% q/q) on increased staff costs and IT-related expenses. Total income inched to $1.93b (+2.2% y/y, -1.5% q/q), led by net interest income of $1.21b (+7.9% y/y, +1% q/q) on loan growth of 4.8% and higher NIM of 1.77% (+6bps y/y, +1bps q/q), fee and commission income of $465m (+13.4% y/y, +2.6% q/q), but partially mitigated by a drop in other income to $248m (-29% y/y, -17.5% q/q). NPL ratio remained at 1.2%, while Tier-1 CAR slipped 0.3ppt to 14%. Interim DPS raised to $0.35 (2Q14: $0.20). NAV/share rose 9.5% to $17.71.

*OCBC: 2Q15 results slight beat with net profit of $1.05b (+14% y/y, +5% q/q). Net interest income climbed 14% to $1.28b, supported by 18% loans growth, although NIM narrowed 3bps to 1.67%. Non-interest income rose 10% y/y to $939m, led by wealth management, brokerage and loan-related fee income. Provisions surged 23% to $80m, but NPL ratio was steady at 0.7%, with loan-loss coverage of 153%. Fully-loaded CET1 CAR was 14.1%, with Tier 1 CAR of 14.1%. NAV/share at $7.80. Interim DPS of 18¢ (1H14: 17.5¢).

*GLP: 1QFY16 headline net profit jumped 49.4% y/y to US$268.1m, mainly boosted by higher fair value gains and the inclusion of the US portfolio. Excluding revaluation gains, earnings dropped 7% y/y to US$57m, 18% of street's full year estimates. Revenue gained 12.3% to US$169.3m from completion of development projects in China with increasing rents and inclusion of management fee income from GLP US Income Partners I, but partially offset the absence of contribution from nine properties in Japan sold to GLP J-REIT in Sep '14 and weaker JPY against USD (-19%). Bottom line was weighed by increased property-related expenses (+21.1%) on the enlarged portfolio and other expenses (+44.3%) due to higher staff and business costs from its expansion. NAV/share at US$1.86.

*IndoAgri: 2Q15 far below expectations as net profit tumbled 99% y/y to Rp2.06b, despite a 3.4% gain in revenue to Rp4.13t driven by increased external sales in the Plantations segment (+47.3%), but mitigated by lower ASPs for palm products. Subsequently, gross margin shrank 9.1ppt to 21.8%. Further, bottom line was dragged by higher losses from share of JVs of Rp86.46b (2Q14: -Rp6b) from lower prices of sugar and electricity. NAV/share at Rp10,330.

*Hongkong Land: 1H15 results above estimates although underlying net profit slipped 3.1% y/y to US$419.2m due largely to higher taxes (+19.8%) due to the geographic mix of sales. Revenue soared 50.3% to US$905.1m, led by a 3.6x surge in sales of properties to US$419.9m attributed to residential developments in China and Singapore, while service income and rental income remained relatively stable at US$63.2m (+1.8%) and US$422m (-0.5%), respectively. Maintained interim DPS of US$0.06. NAV/share at US$11.76.

*Dairy Farm: 1H15 underlying net profit dropped 14% y/y to US$193, dragged by margin pressures across its food businesses and disappointing trading in Guardian in Malaysia. Revenue including 100% of associates and JVs rose 27% to US$8.01b, which includes contributions from newly-acquired supermarkets Yonghui in China and San Miu in Macau, while continuing businesses rose 3% (+7% at constant FX rates). Interim DPS of US$0.065 maintained.

*NOL: 2Q15 earnings missed estimates despite core net loss narrowing 85.6% y/y to US$10.9m (2Q14: -US$X). Revenue fell 22% to US$1.32b (2Q14: US$1.7b) on lower shipment volume (-12%) and average revenue/FEU (-16.7%), although utilisation rate remained above >90%. Cost of sales per FEU lowered 15% on operational efficiencies and lower bunker costs. Subsequently, core Liner EBIT turned around to US$20m (2Q14: -US$28m). NAV/share at US$1.02.

*SMRT: 1QFY16 results missed as net profit tumbled 10% y/y to $20.1m albeit a higher revenue (+7.8% to $320.3m) contributed by all segments. Net profit margin narrowed 1.2ppt to 6.3%, hampered by higher cost from staff (+8.3% to $128.9m), depreciation (+13% to $53.5m), repair and maintenance (+19.6% to $33.8m), other opex (24.5% to $60.5m) and financing (+11.6% to $3.1m). Fare segment operating losses widened to $3.8m (1Q15: $-1.1m) as train and LRT lost $3.7m (1Q15: $+5.0m) and $1.6m (1Q15: $-0.6m) respectively, but partially offset by bus profits of $1.5m (1Q15: $-1.1m). Non-fare segment profits improved to $31.5m (+5.5%) on higher taxi (+32.2%) and rental profits (+5.3%). NAV/share climbed 2.3% to $0.5778.

*Stamford Land: 1QFY16 net profit surged 268% y/y to $$17.2m, as revenue rose 16% to $64.7m, mainly driven by significantly higher contribution from the sale of three units in its property development segment, but partially offset by lower hotel contribution from the closure of Stamford Grand North Ryde (SGNR) which made way for a new development, as well lower AUD/SGD. Bottom line was boosted improved operating margin of 26.6% (+18.2ppt) from the change in sales mix, as well as lower staff costs (-30%) from the closure of SGNR. NAV/share of $0.53.

*Tuan Sing: 2Q15 net profit scaled 92% y/y to $22.3m as revenue surged 138% to $194.1m, led by higher revenue recognised for three residential developments and consolidation of revenue of Grand Hotel Group (GHG) following the acquisition in Dec ’14. Gross margin inched 2.7ppt to 19.8% from a change in sale mix due to GHG. However, net profit growth was crimped by a jump in administrative expenses (+73%), finance costs (+366%) and reduced associate profit (-75.3%) due to the GHG consolidation and lower contribution 44.5% owned GulTech, weighed by lower margin and start-up expenses of its new Jiangsu plant. NAV/share at $0.705.

*China Merchants Pacific: 2Q15 net profit fell 22% y/y to HK$195.1m, while revenue climbed 9% to HK$536.8m, driven by growth from Yongtaiwen Expressway and the consolidation of revenue from Jiurui Expressway, partially offset by lower contribution from Beilun Port Expressway. Bottom line was dragged by the absence of gains from the disposal of development business last year. Otherwise, net profit from continuing operations would have grown 10% to HK$290.4m (inclusive of MI). Interim DPS of 3.5¢ maintained. NAV/share at HK$5.84.

*Roxy-Pacific: 2Q15 net profit plunged 43% y/y to $13.0m on weaker revenue of $93.7m (-9%) due to lower contribution from property development and hotel ownership segments. Net profit margin narrowed 8.2ppt to 13.9%, depressed by fair value loss on interest rate swaps and higher financing cost. NAV/share increased 9.9% to $0.3689.

*Sysma: Exiting energy business by disposing 51% stake in Sysma Energy for $1.02m. This will allow the group t ofocus on core construction business. As part of disposal agreement, Sysma Land (subsidiary) will write-off an outstanding $1.3m shareholders loan that was extended to Sysma Energy for the purchase of a factory in 2014.

*Terratech: Awarded a Rmb240m ($53.7m) contract for the supply and installation works for a property development project in Beijing Lido 10 in China. Commencement of the one-year contract is in early Sep.

*Hyflux: Acquiring remaining 50% stake in H.J. NewSpring and H.J. Technical Consultant, which holds the Tianjin Dagang Desalination Plant in China for US$30m ($40m), as part of a portfolio rationalisation.

*Natural Cool: Acquiring paint and basic chemicals manufacturer Loh & Sons Paint Co for $7m (14.8x P/E, 5.4x P/B), which also owns an industrial property at 38 Lok Yang Way valued at $5.9m. The acquisition is expected to result in better synergy for the group and provide an additional revenue stream.

*GuocoLand: Saw a rise in enquiries for purchase at Leedon Residence, with the development recognising the sale of 24 units worth more than $110m in the past six weeks. To date, a total of 181 units representing 80% of all unit marketed have been sold.

*Hi-P: Received a $25m credit facility lasting up to six month from UOB for general working capital.

*YuuZoo: Invested $1.5m in China to hire more than 20 locals to replace current middle-man agreements in favour of direct relationships for its e-gaming business.

*Profit warnings:
- TA Corp
- ES Group
- LH Group


Noble: Shares in Noble fell to a low of $0.52 (-11.9%) today, its weakest point since Nov 2008, as the commodities trader enters a black-out period ahead of its 2Q results.

According to the SGX listing guide, companies should not repurchase their shares two weeks before quarterly earnings (1Q, 2Q, and 3Q) and one month before full year earnings release. Noble will be filing its 2Q15 results on 13 Aug after market closes.

Noble had been actively buying back its shares to support its share price over the past seven weeks. In total, the group has shelled out $131m or 14% of its cash hoard to build up a 2.8% stake by mopping up 191.8m shares in the open market. Notably, Noble has not invested in anything larger than this amount since 2011 when it acquired a US$140m alumina plant in Jamaica.

Noble’s crisis began in mid-Feb when it came under criticism from Iceberg Research about its accounting practices. Iceberg went as far as to call Noble the next “Enron” and primarily cited Noble’s valuation of its stake in Yancoal as particularly dubious. Muddy Waters and former Temasek director, Michael Dee chimed in as well, lambasting management, with the latter calling for Noble’s chairman to resign.

Adding fuel to the fire, S&P recently downgraded Noble’s credit rating outlook from stable to negative.The credit rating agency cited higher earnings volatility as the main reason for the downgrade.

Noble has since called for a review of its accounting practices by PricewaterhouseCoopers in July. However, as current market trends show, investors are still spooked by accounting concerns over the counter.

According to Bloomberg consensus, there are 6 Buy, 7 Hold, and 1 Sell calls on Noble with an average target price of $1.


SGX turned in 4QFY15 net profit of $96.2m (+24.3% y/y) taking FY15 earnings to $348.6m (+8.8%), which met street estimates.

For the final quarter, revenue jumped 24.9% to $215.6m with all segments contributing to the growth, particularly derivatives (+57.7%), supported by securities (+7.2%) and other operations (+13.3%).

Over the full year, revenue grew 13.4% to $778.9m, powered by exponential 41.7% growth in the derivatives segment to a record $295.7m, and now accounts for 38% (FY14: 30%) of total turnover. Total volumes spiked 55% to 161.2m contracts on the back of a surge in China A50 (+220%) and India Nifty (+20%) index futures contracts.

Commodities derivatives also did well, such as iron ore (+258%) and rubber (+54%). FX Futures also saw remarkable growth, leaping 22-fold to 2.1m contracts.

Securities revenue was the only blemish, with revenue dipping 7.7% to $209.3m due to the lack of market volatility, which drove daily average trade value to $1.09b (-4%). Turnover velocity shrank to 36% from 39% in FY14. Clearing fees fell to 3 bps (FY14: 3.1bps) following a downward rate revision in Jun '14.

Operating expenses expanded 19.5% to $376.7m primarily due to:
1) Staff costs (+18.5% to $150m) post assimilation of Energy Market Company
2) Technology expenses (+9.8% to $115.9m) on higher system maintenance costs following market disruptions
3) Processing and royalties (+65.1% to $46.9m) along with derivatives growth

Consequently, operating margins slid 2.5 ppt to 51.6% from 54.1%.

Technology-related capex climbed to $74.5m (+56%) as the exchange invested in a new post-trade system, an upgraded derivatives trading and clearing platform, and a new fixed income trading platform.

SGX has proposed a final DPS of $0.16, bringing the total FY15 payout to an unchanged $0.28, which gives a dividend yield of 3.5%.

Management is optimistic about prospects even as the global economy remains uncertain and volatile. This could ultimately mean that growth in its securities business is expected to stay muted with derivatives picking up the slack.

New CEO Loh Boon Chye is conscious of the challenges facing the securities industry and sees the need to address the hitherto dry listings pipeline and improve trading activity but has yet to detail any plans to achieve this.

SGX is currently trading at 22.6x forward P/E compared to HKEx at 28x.

Latest broker ratings:
Deutsche maintains Buy with TP of $9.70
OCBC maintains Hold, raises TP to $8.16 from $7.95
Nomura maintains Neutral with TP of $7.90

Sembcorp Marine

Sembcorp Marine: (S$2.70) 2Q15 profit sank below expectation and could go deeper

Sembcorp Marine’s (SMM) 2Q15 net profit dived 17% y/y to $109.2m. This took its 1H15 earnings to $215.1m (-15.3%), representing 43% of full year consensus estimate.

Revenue sank 9.9% to $1.2b on lower recognition for rig building projects at $622.6m (-28.7%), albeit partially shored by ship repair as well as offshore and conversion projects, which rose to $165.7m (+13.7%) and $401.8m (+33.3%) respectively. On delivery front, it only delivered one semi-submersible in 2Q15, while another 16 rigs remain work-in-progress.

Notwithstanding a $16.9m fair value loss on FX derivatives, operating margin inched up 0.7ppt to 12.2%, in part due to greater sales mix of higher margin ship repair segment as well as recovery in offshore margin.

During the quarter, the group bagged US$1b semi-submersible contract from Heerema Offshore Services, taking ytd order win in 1H15 to $1.35b or about half of the $2.5b it won in 1H14. As a result, net order book dipped 5% lower $10.9b, a far cry from the peak of $14.4b in Jun '13.

On the ill-fated seven Brazilian drillship orders, payments have been suspended since Nov’14 with outstanding payments of $160m, SMM has since slowed construction, with four ships at 80+%, 74%, 60% and 30% completion.

This has led to negative cash flow of $358.6m in 2Q15. Together with other potential delivery deferrals by Oro Negro, the Brazilian woes could strain SMM’s liquidity and impact its future dividend payout.

To this end, the group has trimmed its interim DPS by 20% to $0.04.

Moving forward, management guided a tepid outlook amid persistent low oil prices hampering capex of oil players, thereby leading to weaker demand for new rigs and more deferrals in rig deliveries.

At its current price, SMM is trading at 11.4x FY15 P/E and 1.8x P/B.

Latest broker ratings:
Nomura maintains Buy with TP of $3.85
OCBC maintains Hold, cuts TP to $2.62 from $2.77
RHB maintains Neutral, cuts TP to $2.60 from $2.70
Daiwa maintains Underperform with TP of $2.56
Deutsche maintains Sell, cuts TP to $2.30 from $2.50
KGI maintains Sell, cuts TP to $2.06 from $2.57
Maybank-KE maintains Sell, cuts TP to $2.00 from $2.45

Thursday, July 30, 2015


Ezion: Short note by Maybank-KE issued today. Ezion is issuing $120m worth of 5-year notes under its $1.5bdebt issuance programme at a rate of only 3.65%. This is the lowest rate not only among the bonds it has previously issued, but
also lowest among Singapore small-mid-cap O&M companies.

Furthermore, the notes are backed by a committed funding facility provided by DBS. This means that the bank cannot withdraw this facility unless Ezion breaches its covenants.

House views that Ezion’s continued access to the debt capital markets and at such low cost reflects the bank’s confidence in its business. Comparatively, Ezra Holdings had to raise $200m through a rights issue at 38% discount to its theoretical ex-rights price recently. The 3.65% is also substantially lower than bond yields of most O&M peers and closer to that of the large caps.

Ezion had US$345m of cash as at 1Q15. The new funds, together with expected improvement in operating cashflows would help strengthen its balance sheet and meet any near term debt and capex obligations. House has not factored in the new loans into its balance sheet forecast, pending further review after its 2Q15 results, which is expected on 13 Aug 15.

SG Market (30 Jul 15)

Singapore shares are expected to trade in positive territory today following the overnight boost in Wall Street, after the FOMC sprung no surprises and left its options open for a rate hike later in the year.

Regional bourses opened firmer in early trading in Tokyo (+1.1%), Seoul (-0.1%) and Sydney (+0.6%).

From a chart perspective, the STI look to consolidate between the 3,270 and 3,360 levels as technical indicators suggest a lack of direction.

Stocks to watch:
*SIA: 1QFY16 results missed, despite a 162.1% soar in net profit to $91.2m, which includes a compensation of $110m from Airbus to release orders placed previously by SIA. Revenue inched 1.4% to $3.73b, boosted by the consolidation of Tigerair. Excluding which, revenue would have fallen 3.2% to $3.57b, dragged by lower traffic (-4.4%) as passenger yields were eroded by significant capacity injection and aggressive fares from competitors, particularly on Americas and Europe routes. This was further exarcebated by weakness from cargo (-7.2%) and engineering services. Operating profit was 182% higher at $111.4m, with the bulk from lower fuel costs (-8.7%). Bottom line benefitted from smaller share of associate losses of $7.1m (1QFY15: -$18.9m) on Tigerair's turnaround and consolidation, but offset by losses at JV of $0.7m (1QFY15: $16.3m) on weak performances by NokScoot and SIA Engineering’s JVs. NAV/share climbed 2.5% to $10.93.

*Sembcorp Marine: 2Q15 results below expectations as earnings slumped 17% y/y to $109.2m, on a 9.9% drag in revenue to $1.21b, as well as share of associate and JV losses of $2.6m (2Q14: $9m). The decline in revenue was mainly due to a fall in rig building projects (-28.7% to $622.6m), pared by gains in offshore and conversion (+36% to $401.8m) and repair (+10.6% to $165.7m) segments. This resulted in 1H earnings of $215.1m, 42.6% of street’s full-year estimates. Order book stood at $10.9b (1Q15: $10.6b), with YTD order wins of $1.4b ($0.4b in 2Q). Interim DPS was cut to $0.04 (2Q14: $0.05).

*SGX: 4QFY15 results in line as revenue and profit saw growth of 24.9% y/y and 24.3% to $215.6m and $96.2m, bringing FY15 revenue and profit to $778.9m (+13.4%) and $348.6m (+8.8%). For the quarter, top line was boosted across all segments, particularly in derivatives (+57.7%), underpinned by securities (+7.2%) and other operations (+13.3%). In FY15 revenue was boosted by derivatives which saw exponential growth to $295.7m (+41.7%), driven by the 220% increase in volume for China A50 index futures and commodities benchmarks, but partially mitigated by lower contribution from securities (-7.7%) on lower daily average traded value and total traded value. Maintained final DPS of $0.16, bringing FY15 total to $0.28, implying a 3.4% yield.

*Frasers Hospitality Trust: 3QFY15 DPU marginally higher-than-forecast at 1.56¢ (+0.6%), while distributable income of $18.8m came in line. Gross revenue of $23.7m and NPI of $19.2m came 3% and 1.2% lower mainly due to lacklustre performance in Malaysia, further dragged by the softening of longer-stay rental market in Singapore, partially offset by Japan, Australia and UK properties which all outperformed from greater demand, with strong occupancies and growth in RevPAR, despite unfavourable FX movements. Aggregate leverage at 38.8% with average debt cost at 2.2% and tenor of 3.7 years. NAV/unit of $0.843.

*Starhill Global REIT: 6QFY15 in line with DPU of 1.29¢ (+3.2% y/y), on distributable income of $29.5m (+4.3%). Revenue rose 6.9% to $51.8m, while NPI climbed 5.5% to $41.3m, boosted by new contribution from Myer Centre Adelaide acquired in May, as well as positive rental reversions and high occupancies at Singapore properties. Occupancy stood at 98.2% (-0.9ppt q/q) with WALE of 6.8 years, while aggregate leverage surged 6.9ppt q/q to 35.5%, with debt cost of 3.19%. NAV/unit at $0.90.

*TEE International: 4QFY15 results above forecasts as net profit turned around to $8.2m (4QFY14: -$16.4m), mainly from the absence of a one-off project cost overrun of $19m recognised in 4QFY14. This brought FY15 earnings and revenue to $11.1m (FY14: -13.3m) and $217.9m (+7.4%), underpinned by higher recognition from on-going engineering and real estate projects. Gross margin improved 5.9ppt to 16.5% after project normalized operations. A final and special DPS of 0.4¢ and 0.15¢ declared, bringing FY15 DPS to 0.73¢ (FY14: 0.95¢).

*TEE Land: In spite of a 3.5x y/y jump in 4QFY15 revenue to $30.2m (4QFY14: $8.6m), net profit slipped 19.5% to $4.9m. This brought FY15 revenue and net profit to $60.2m (+49.3%) and $11.1m (-5.3%). For the year, a confluence of factors including sharp jumps in selling and distribution costs (+85% to $2.3m), administrative expenses (+74.2% to $9.5m), finance costs (+599.8% to $3.6m) and other operating expenses (+288.9% to $6.2m), which included a massive write-down due to a failed Malaysian land purchase as well as FX losses. Final DPS was cut to 0.61¢ from 0.75¢, bringing FY15 DPS to 1.05¢ (FY14: 1.25¢).

*China Everbright Water: Received 10-year term loan of US$140m from International Finance Corporation for development and expansion of wastewater treatment and environment protection business.

*Ho Bee: Acquiring freehold Grade A office in London for £144m. The 10-storey building totalling 98,000 sf is fully-leased to The House of Commons up to 2029 at an annual rental of £6m, on a five yearly upward rental review.

*Profit warnings:
- Blumont
- Global Palm Resources


GLP: Will be acquiring a sizable industrial portfolio in US from Industrial Income Trust for US$4.55b ($6.2b), based on a cap rate of 5.6%

The deal would boost GLP's footprint in US by 50% and consolidates its position, after one year of entry, as the second largest logistics property owner and operator behind US-listed Prologis.

The 287 target properties have an average age of 15 years and occupancy rate of 93%, with weighted average lease expiry of ~5.5 years. They range across 20 major submarkets, with the largest ones being Los Angeles, Metro D.C. and Pennsylvania.

In addition, the target portfolio average rent of US$4.79 psf would raise GLP's overall rental rate marginally to $4.77 (+0.2%) across the 173m sf of net lettable area.

To be completed by Nov '15, GLP’s initial commitment of US$1.9b for the entire stake will be funded by cash on hand of US$2.3b and existing credit facilities.

Post syndication, GLP will pare its stake down to 10% by Apr '16. Demand from major institutional investors is strong and the group is currently negotiating with several new and existing capital partners.

GLP's target 10% stake is expected to generate compelling returns within the first year of investment, including share of operating results and fund management fees. Post transaction, the US will represent 6% of the group's net asset value.

GLP is a constituent on Market Insight's Growth portfolio. Consensus is generally bullish on the counter with 16 Buy and 1 Hold ratings, and average 12-month TP of $3.20.

Sing Post

Sing Post: Delivered1QFY16 net profit of $46.6m (+15.8% y/y, +20.9% q/q), forming 27% of full year consensus forecast. Excluding on-off divestment gains and M&A fees, underlying profit would have grown 8% y/y to $40.3m.

Revenue jumped 20.7% y/y to $254.6m, driven mainly by its newly acquired e-commerce and logistics subsidiaries. However, excluding new acquisitions, revenue would have been flat.

Mail revenue edged up 1.6% to $125.1m following the 15% upward revision in postage in Oct '14. This helped buffer the impact of declining traditional mail volumes and partial revenue loss after divestment of Novation Solutions and DataPost (HK).

Logistics, which includes its e-commerce logistics business, continued its strong momentum with a 43.6% surge in revenue to $140.1m, and becoming the top contributor for its second consecutive quarter, suggesting that SingPost's realignment strategy has been well carried out.

In retail and e-commerce, revenue rose 5.6% to $24.1m as vPOST and front-end web solutions business were able to offset declining sales from financial services and retail agencies.

At the operating level, expenses rose 24.9%, broadly in tandem with revenue growth. The largest cost increases came from volume-related expenses (+35.9%) due to higher international traffic and increased business activities, labour costs (+13.6%) from higher headcount arising from new subsidiaries, and increased admin charges (+25.2%) related to its transformation initiatives.

Core operating margin slipped to 20.2% from 22.5% in 1QFY15 due to the change in sales mix, continuing integration costs in its logistics business and lower agency fees for its retail offerings.

The group also booked higher other income of $13.6m (+129.2%)m mainly from one-off gains from the disposal of Novation Solutions and DataPost (HK).

Operating cash flow of $59.2m (+15.4%) was healthy, while balance sheet remained sturdy with net cash of $329m. In all, the group has invested $75.6m to improve service efficiency and expand its e-commerce logistics value chain.

For 1QFY16, the group has raised its interim DPS to 1.5¢ from 1.25¢ the previous year.

Going forward, M&As will continue to be part of the group's strategy to build scale and secure its “first-mover advantage” to capitalise on global ecommerce mega-trends. To this end, it recently announced a new tie-up with Internet giant Alibaba to create an end-to-end logistics platform.

At the current price, SingPost trades at 24.1 forward P/E, supported by an indicative yield of 3.6%. The counter is a core holding in Market Insight's Growth portfolio.

Lian Beng

Lian Beng pulled in 4QFY15 net profit of $54.2m (+49.6% y/y) on revenue of $177.1m (+20.6%). This brought its FY15 earnings and revenue to a historical high of $108m (+24%) and $747m (+9.4%) respectively.

Full year revenue was led by construction, which surged to $628.8m (+46.7%) on ongoing and new construction projects, and dormitory operations, which contributed $22.4m (+23.4%). This was pared by a near absence of property development sales amounting to a mere $1m (FY14: $124.8m) and decline in the ready-mixed concrete segment to $93.4m (-15.8%).

Gross margins contracted 7.7 ppt to 10.6% following the full recognition of profit upon completion of industrial development project, M-Space in FY14. Consequently, gross profit fell 36.7% to $79.3m.

Pretax profit of $143.7m (+2.4%) was buttressed by a 40.6% jump in fair value gains on investment properties (mainly dormitory property) to $52.4m, as well as contributions from associates and JVs of $43.6m (FY14: $4.2m). The bulk of this came from the gain on disposal of its 19% stake in a proposed hotel JV at 122 Middle Road and share of profits from other development projects, namely:

1) NEWest (10% stake)- 91% sold
2) KAP Residences (15% stake) - 99% sold
3) The Midtown and Midtown Residences (50% stake) - 97% sold

Lower tax expense of $7.6m (-42.9%) due to government grants under the Productivity and Innovation Credit scheme and reduction in minority interests further bolstered the bottom line.

Operating cash flow is positive (but negative for 4QFY16), giving it a $187.1m war chest for it to further expand its business. Net gearing stood at a comfortable 0.19x as at May '15.

In view of its record performance, the group declared a total final and special DPS of 2¢, bringing its FY15 payout to 3¢ (FY14: 2.25¢).

Moving forward, the group’s $552m construction pipeline should provide some earnings visibility through FY17. Future earnings will also be underpinned by JV development projects such as the Midtown (97% sold), Spottiswoode Suites (78% sold), Mandai Foodlink (98% sold), NEWest, KAP Residences and Prudential Tower (32% owned)

Lian Beng is currently co-developing a dormitory and training centre for The Association of Process Industry at Jalan Papan, which would contribute to its recurring income stream when completed in mid-2016. It has also commenced asphalt premix production for the construction industry this year.

Lian Beng is trading at a discounted P/B of 0.62x and offers an implied dividend yield of 5.4%.

AIMS AMP Industrial REIT

AIMS AMP Industrial REIT: (S$1.485) Slow start to 1QFY16; could outlook be worse?

AIMS AMP REIT’s 1QFY16 results came in a tad below estimates with distributable income at $17.4m (+10% y/y, -5.8%q/q) and DPU at 2.75¢ (+7.8% y/y, -5.8% q/q), forming 23% of full year consensus estimates.

Gross revenue climbed to $30.3m (+10.7% y/y, +0.7% q/q), largely lifted by additional rental contribution from 20 Gul Way Phases 2E and 3, as well as 103 Defu Lane 10. Leases renewed during the quarter also helped increase weighted average rental by 5.9%.

However, NPI grew at a slower pace to $20.2m (+3.7% y/y, -0.5% q/q), dragged by higher property expenses after 11 Changi South Street 3 and 1 Kallang Way 2A were converted to multi-tenancy properties following the expiry of master leases.

Overall occupancy ticked up 0.3ppt q/q to 96.1%, staying above industrial average of 91%. Weighted average lease to expiry stayed at 3.11 years.

Aggregate leverage eased marginally to 31.2% (-0.2ppt q/q). During the quarter, the trust increased the proportion of its fixed rate debt to 96.1% from 86.2%, of which improved average cost of debt to 4.2% (-0.3ppt) but average debt tenor deteriorated to 2.9 years from 3.2 years.

For organic growth, the industrial REIT is redeveloping 30 and 32 Tuas West Road, from two detached three-storey buildings into a purpose build five-storey ramp-up warehouse facility. The $41.7m redevelopment has been 100% pre-committed by CWT and is expected to raise its annual rental income by four-fold to $4.15m.

Externally, management is not sanguine about near term industrial property outlook amid slowdown in global economic growth. In addition, excess supply projected to come on stream in the next twelve months will further depress rentals and occupancy.

Following its results announcement, its share price retreated 1.3%. AIMS AMP currently trades at an annualised 1Q16 yield of 7.4% and P/B of 1x.


CRCT: The China retail mall trust reported 2Q15 results that were largely in line with estimates, with DPU rising 5.4% y/y to 2.73¢ on the back of 7.9% growth in distributable income to $22.9m. This brought 1H15 DPU to 5.37¢, which represents 48.8% of market forecasts.

Revenue and NPI scaled higher by 7.4% and 5.3% to $51.2m and $36m respectively, underpinned largely by a stronger RMB versus SGD. In RMB terms however, revenue and NPI dipped marginally to Rmb249.6m (-0.1%) and Rmb 165.8m (-1%) respectively. This was due to lower contributions from two of its retail malls, specifically:

1) CapitaMall Minzhongleyuan - affected by road closures for the construction of a new subway line
2) CapitaMall Wuhu - undergoing tenant repositioning

The slack was picked up by improved rentals from the other malls, which chalked up higher revenue & NPI (+5.9%). Operationally, CRCT enjoyed 2% and 17.8% growth in shopper traffic and tenant sales at its malls, which gave rise to a positive rental reversion of 4.6%, albeit moderating from the 12.8% and 14.9% achieved in 1Q15 and 2Q14.

Notably, CRCT's malls managed to generate better tenant sales (+15.9%) in 1H15, which is noticeably higher than the national retail sales growth of 10.4%.

Occupancy rates slipped to 95% (-3.1ppt), with the ongoing tenancy adjustments at CapitaMall Wuhu (66.5%) exerting negative pressures. Weighted lease to expiry stood at 8.7 years.

Aggregate leverage was a comfortable 27.7% (-0.9ppt q/q) with average cost of debt at 2.98%. About 77.5% of total debt has been hedged with no major refinancing required for the remainder of 2015.

Moving forward, CRCT intends to strengthen its portfolio through an AEI at CapitaMall Wangjing (target completion by 1H16), as well as continued improvements at CapitaMall Wuhu and Minzhongleyuan.

The trust continues to remain bullish on China’s long-term outlook particularly with the government’s push to ensure a broader base of economic growth.

CRCT is currently trading at an annualized distribution yield of 6.7% and 0.96x P/B.

Recent broker ratings:
OCBC maintains Hold with TP of $1.64


Q&M: Maybank-KE visited Q&M’s operations in Liaoning Province, and was broadly impressed by the scale and standards of operations. Visited places include Aoxin’s three hospitals, the Liaoning Medical University Stomatology Hospital No. 2, and Aidite’s manufacturing facilities.

The house now expects greater contributions from Aidite as it aims to add two new production lines when its new facility is competed in Oct ’15 to meet overwhelming demand.

Maybank-KE also thinks Aoxin has further room for growth, especially in the mid-term, because two of its three hospitals are new.

The house also understands that Aoxin intends to replicate Q&M’s Singapore model of expanding through acquisitions internally. It will turn its attention to the privatisation of public hospitals as this segment offers substantial growth potential

The house raises FY16E-17E EPS by 3% to factor-in Aidite’s stronger growth, but reduces FY15E EPS by 9% for a three month delay in the completion of its four Singapore acquisitions.

Nearer term, the house expects 2Q15 core earnings to be lower q/q at $2.2m due to interest cost from the MTN, but

Looking at results, the house expects 2Q15 core earnings to be 24.1% lower q/q at $2.2m, due to MTN interest costs, but could surge 80% y/y due to Aoxin’s and Aidite’s contributions. 4Q15 will be a catchup quarter.

The house maintains Buy, and increases TP to $1.05 from $1.02.

Wednesday, July 29, 2015


O&M: Keppel Corp and Vard have already reported and missed expectations. CLSA does not expect the rest of the earnings season to be any different.

SMM (Sell, TP $1.75), SCI (Underperform, TP $3.99), Ezion, Nam Cheong (Sell, TP $0.25) and Cosco (Sell, TP $0.44) are likely to disappoint street expectations. ST Engineering is likely to be in line while Yangzijiang remains the wild card as the core shipbuilding segment remains healthy but there is a risk of provisioning in the held-to-maturity asset segment. No stock in its coverage is expected to beat street expectations.

Yangzijiang (Outperform, TP $1.58) and ST Engineering (Outperform, TP $3.68)are its preferred picks.

Ezion (Outperform, TP $1.18) is “deep value” but lacks catalysts. Stay away from the rest.

SG Market (29 Jul 15)

From a chart perspective, the STI may attempt to close the small gap at 3,307-3,311 but momentum is still weak with the MACD exhibiting a bearish crossover.Downside risk is at the 2015 low of 3,250.

Stocks to watch:
*Keppel Infrastructure Trust (wef 2015): 1QFY16 (29 May '15 - 30 Jun '15) DPU of 0.25¢ declared following the merger of Keppel Infrastructure Trust (KIT) and CitySpring Infrastructure Trust. On the combined entity, revenue lowered by 14.2% to $114.4m, from 1) decreased town gas tariff and 2) higher negative commercial risk sharing mechanism payment and increased interest incurred by Basslink, but slightly offset by contributions from the KIT acquisition. Leverage reduced to 37% (-15ppt) from lower gearing of KIT assets and newly acquired Keppel Merlimau Cogen. NAV/unit at 36.3¢.

*Japfa: 2Q15 net profit slumped 86% y/y to US$3.0m, dragged mainly by a US$17m loss on fair value changes of biological assets (2Q14: US$5.6m). Otherwise, earnings would have tumbled 53.8%. Revenue was shaved 8% to US$704.3m, driven by weaker Indonesian operations in the animal protein and consumer food segments due to the continued decline in demand, partially compensated by an improvement from the other animal protein operations in Vietnam, Myanmar and India, as well as dairy operations in China. Operating margins fell 2.4ppt to 6.3% on increased costs despite weaker demand. NAV/share at US$0.37.

*CapitaLand Retail China Trust: 2Q15 results largely in line as DPU gained 5.4% y/y to 2.73¢ on higher distributable income of $22.9m (+7.9%), boosted by stronger RMB/SGD. In Rmb terms, gross revenue and NPI slipped 0.1% and 1.1% to Rmb249.6m and Rmb165.8m, respectively, despite a 4.6% rental reversion, due to lower contribution from 1) CapitaMall Minzhongleyuan- affected by road closure for the construction of a new subway line and 2) CapitaMall Wuhu- undergoing tenancy adjustments, partially offset by rental growth in other malls. Portfolio occupancy stood at 95% (-3.1ppt) with weighted average lease expiry of 8.7 years, while aggregate leverage lowered 0.9ppt q/q to 27.7% with an average debt cost of 2.98% and debt tenor of 2.8 years. NAV/unit stood at $1.70.

*AIMS AMP Industrial REIT: 1QFY16 DPU of 2.75¢ (+7.8% y/y, -5.8% q/q) slightly below estimates. Gross revenue rose 10.7% y/y (+0.7% q/q) to $30.3m, lifted by new contribution from 20 Gul Way Phases 2E and 3, as well as 103 Defu Land 10. NPI grew at a slower 3.7% y/y to $20.2m (-0.5% q/q), dragged by higher expenses from the reversion of two master-tenanted properties to multi-tenanted properties. Portfolio occupancy improved to 96.1% (+0.3ppt q/q), with WALE of 3.1 years. Aggregate leverage stood at 31.2% with an average debt cost of 4.2%. NAV/unit at $1.5224.

*iFast: 2Q15 net profit gained 24.6% y/y to $3.3m, as revenue grew 21.9% to $23.2m, boosted by the commencement of the distribution of bonds and ETFs, underpinned by a 14.7% increase in assets under administration to $5.71b (-0.7% q/q). The bottom line was boosted by a jump in net finance income, but partially mitigated by staff costs (+26.2%) on salary increments and higher rental rates at its HK office. Management updated that its proposed acquisition of stockbroker Winfield Securities is still awaiting regulatory approval. Interim DPS lowered to 0.68¢ (2Q14: 0.95¢).

*Lian Beng: 4QFY15 net profit jumped 49.6% to $54.2m, mainly boosted by higher fair value gain on investment properties of $52.4m (+40.6%), while revenue gained 20.6% to $177.1m. This brought FY15 earnings to $108m (+24%) and revenue to $747m (+9.4%). For the year, top line was largely driven by higher contributions from construction (+46.7% to $628.8m) and dormitory operations (+23.4% to $22.4m), but partially mitigated by property development (-99.2% to $1m) and ready-mixed concrete segment (-15.8% to $93.4m). Bottom line was further boosted by share of profits from associates and JV of $43.6m (FY14: $4.2m) due to a disposal gain. Declared first and final and special DPS of $0.02, bringing FY15 total to $0.03 ($0.0225).

*MTQ: 1QFY16 slipped into red with net loss of $2.3m (1QFY15: $4.1m), on lower revenue of $60m (-21.8% y/y) due to weak demand for oilfield engineering business across all segments. Gross margin fell 8ppt to 26%, while lower staff costs (-16.5%) from cost rationalisation efforts partially mitigated the negative bottom line.

*GLP: Acquiring a US$4.55b logistics portfolio in US from Industrial Income Trust, boosting GLP’s US footprint to 173m sf (+50%) and consolidates GLP's position as the second largest logistics property owner and operator in US. Deal pricing is based on a cap rate of 5.6% and GLP expects to subsequently pare down its stake from 100% to 10% by Apr '16, underpinned by strong demand from major institutional investors. The target 10% stake is expected to generate US$190m with the first year of investment, including fund management fees.

*DeClout: Unveiled PLAYe, a new 3-in-1 online-mobile-offline platform which is a digital personal assistant that displays the latest range of collectibles and gadgets.

*Global Yellow Pages: Profit warning for 1QFY16 and expects to report a loss owing to impairment of trademarks, as well as its investment in Yamada Green Resources.

*Asia Enterprises: Profit warning for 2Q15 with estimated net loss less than $1m, due to sluggish demand for steel products from key customer segments. In addition, steel prices

Parkway Life REIT

Parkway Life REIT: 2Q15 distributable income and DPU jumped 15.6% y/y to a quarterly high of $20.3m and 3.35¢ respectively, primarily lifted one-off gains of $2.3m from the divestment of seven Japanese properties in Dec '14. Stripping these out, normalised distributable income would show a 2.6% growth.

Gross revenue and NPI edged higher to $25.6m (+1.2%) and $23.9m (+1.5%) respectively, buoyed by higher rental from Singapore portfolio and its recently recycled Japanese assets, completed in Mar '15. It also recorded a $1.3m FX gain which arose from its hedging of net Japanese income.

Overall occupancy remained at 100%, benefitting from committed master tenants, backed by its long weighted average lease to expiry of 9.53 years.

While aggregate leverage and all in cost of debt held steady at 34.1% and 1.5% respectively, the REIT has refinanced its loans and extended its debt tenor to 4.0 years from 3.6 years in the previous quarter, whereby 78% of its interest rate exposure is now fixed.

Going forward, PLife will continue to reap benefits from the master lease of its Singapore hospitals which has a built-in minimum rental step-up of 1% annually. In addition, the trust plans to consolidate its Japanese assets for greater operating and cost synergies.

The REIT’s enlarged portfolio of 47 high quality assets places it in a favourable position to capitalise on the robust growth of the healthcare industry in Asia.

The healthcare REIT trades at an annualised 2Q15 yield of 5.7% and 1.4x P/B.

Fortune REIT

Fortune REIT reported a creditable 2Q15 DPU of HK11.75¢ (+11.9% y/y) which rose in tandem with distributable income of HK$221.5m (+12.7%). This brought 1H15 DPU payout to HK23.38¢ (+12%), representing 52% of FY15 consensus estimate of HK$0.451¢

Revenue and NPI both grew 13.5% and 12.6% to HK$922.6m and HK$654.4m, respectively, supported by strong rental reversion across its portfolio (1H15: +22.1%) as well as maiden contributions from Laguna Plaza, acquired in Jan ’15. Growth was however pared by the absence of contributions from Nob Hill Square, which was divested in Apr ’15.

The retail REIT achieved 1H15 passing rent (excluding Laguna Plaza and Nob Hill Square) of US$38.40 psf (+9.5%) despite the slowdown in overall retail sales in Hong Kong.

But portfolio occupancy dipped slightly to 97.3% (-0.8ppt q/q) to 97.3% due to frictional vacancies from ongoing AEIs.

Fortune’s balance sheet improved slightly with aggregate leverage declining 2.6 ppt q/q to 30.6%, and average cost of debt at 2.04% (-0.2ppt) on an average debt term of 2.2 years. NAV/share has been revised up by 4.7% to HK$12.49 from HK$11.93 as at Dec '14 following the revaluation of its investment properties and gain on sale of Nob Hill Square.

On its HK$80m AEI at Belvedere Square, management updated that Phase 1 has been completed, while Phase 2 has commenced in Mar ’15. Meanwhile, ~80,000 sf has been closed for renovations with completion expected by end of 2015.

Although total retail sales in Hong Kong fell by 1.8% y/y in the first five months of 2015, the low unemployment rate of 3.2% would provide some support for local consumption.

Nonetheless, Fortune is relatively shielded from the weak high end and tourist dependent retail sales as its malls caters mainly to day-to-day shopping needs and are is thus more resilient to economic cycles.

Fortune is currently trading at an annualised distribution yield of 5.4%, and 0.65x P/B.

Recent broker updates:
OCBC maintains its Hold ith TP of HK$8.04

Raffles Medical

Raffles Medical: Downgraded by CLSA after earnings missed as staff costs grew 9.4%, outpacing revenue growth of 7.2%.

Management remains confident for 2H15 as the Shaw Centre medical centre starts to contribute while China expansion plans are on track with Shenzhen and Beijing being key targeted cities.

While earnings estimates are raised by 4-9% over the next two years on the China hospital business, execution risks remain key given past experience.

CLSA raised its TP to $4.90 from $4.12 but sees limited upside.

Hongkong Land

HongKong Land: CLSA raised its TP by US$0.50 to US$9.20 and maintains its Outperform rating, highlighting that Hongkong Land is expected to benefit from the tightest office market since 2Q08.

Central rents were up 5.6% q/q in 2Q, the strongest growth since 2Q11 as vacancies dropped to just 1.7% in 1H15, driven by expansion and relocation requirements in the finance industry and mainland demand.

With limited supply in other decentralised hubs, the house expects bargaining power to shift back to landlords and for Central rents to accelerate faster to +12% in 2H15.

Friday, July 24, 2015

Suntec REIT

Suntec REIT:

Suntec's 2Q15 distributable income of $62.9m (inclusive of $6m capital distribution) and DPU of 2.5¢ (+10.3% y/y, +12.1% q/q) came in broadly in line with expectations.

Gross revenue of $81.4m (+19.6%) and NPI of $56.9m (+23.5%) were boosted by the completion of Phase 2 AEI works at Suntec City, as well as stronger performance of Suntec Singapore, particularly the convention centre, which enjoyed a 37.7% and 126% q/q jump in revenue and NPI respectively.

Overall occupancy of its office portfolio ticked down to 99% (-0.6ppt) at both Suntec (-1.4 ppt) and Park Mall (-0.4ppt) but were well above Grade A office occupancy of 95.2%. New leases secured averaged $9.14 psf (-1.1% q/q) or 3.2% lower than the CBD average of $9.44.

However, this is set against an incoming supply of 4m sf of office space in 2016/17. With 49.7% of its office leases expiring by 2017, there is no telling whether Suntec will be able to sustain its rental and occupancy rates.

Suntec’s retail portfolio did not fare much better, although overall occupancy climbed to 95.1% (+1.6ppt) largely due to completed AEIs at Suntec City mall, while passing rents were relatively flat at $12.12 psf but below its guided target of $12.59. About 14% of Suntec Phase 3 remained unoccupied, and 31% of its retail space will be up for renewal by end 2016.

Recent findings by AdNear showed that Suntec City received the lowest shopper footfall out of five other locations (including Orchard Road and nearby Marina Square) during the Great Singapore Sale. With tourist arrivals and retail sales figures remaining weak, there are concerns that Suntec REIT DPU may come under increasing downside risk. Management indicated that it may use part of the proceeds from the divestment of Park Mall to stabilise it DPU.

Suntec’s debt profile remained little changed with aggregate leverage of 36.2% (+0.5ppt), while cost of debt climbed 0.17ppt to 2.7%. Average debt-to-maturity stood at 3.08 years.

Suntec REIT currently trades at an annualised distribution yield of 5.8% and P/B of 0.82x.

Latest broker ratings:
HSBC maintains Hold with TP of $1.85
CIMB maintains Hold, cuts TP to $1.79 from $1.86
Daiwa maintains Hold with TP of $1.76
Nomura maintains Reduce with TP of $1.74
Deutsche maintains Sell with TP of 1.65
Credit Suisse maintains Underperform with TP of $1.54
OCBC maintains Sell with TP of $1.50

Mapletree Commercial Trust

Mapletree Commercial Trust: (S$1.46) Steady 1QFY16 results, but headwinds looming
MCT’s 1QFY16 results were in line after DPU notched up 3.1% y/y to 2.01¢ on distributable income of $42.5m (+3.8%), representing 24.5% of the street’s FY16 estimate.

Gross revenue rose 1.6% to $69.7m, with bulk of the improvement arising from higher rental at VivoCity.

However, the retail mall which contributes 66.4% of MCT’s total revenue saw an erosion in shopper traffic (-6.7%) and tenant sales (-2%) during the period. In addition, positive rental reversion softened to 14% from 18% in the prior quarter.

NPI bumped up by 5% to $54.3m as property operating expenses shrank 9%. The cost savings were primarily from lower electricity tariffs but were partially offset by higher property taxes and maintenance expenses.

Overall occupancy dipped 0.2ppt q/q to 95.5%, as PSA Building saw a sharp drop in occupancy to 91% (-4.4ppt), while weighted average lease to expiry marginally extended to 2.2 years from 2.1 years.

Although aggregate leverage held steady at 36.4%, MCT’s all-in borrowing cost crept up 0.13ppt q/q to 2.41%. The higher financing cost came at the gain of a longer average debt tenor of 4.1 years (4QFY15: 3.6 years) and rising short-term interest rates on its floating rate debt (70.6% fixed debt).

Going forward, headwinds loom over MCT’s retail portfolio amid subdued economic outlook in Singapore, slower tourist arrivals, tepid retail sales and tighter labor constraints. Office segment is not looking sanguine either as upcoming new and secondary office supply is likely to depress office rents.

The REIT currently trades at 1.2x P/B and offers an annualised 1QFY16 yield of 5.5%.

Latest broker ratings:
Deutsche maintains Hold with TP of $1.58
CIMB maintains Hold with TP of $1.54
Maybank-KE maintains Hold with TP of$1.43


OSIM: (S$1.525) 2Q15 marks a turnaround?
The lifestyle marketer surged 7.6% to a high of $1.565 in early trading today following the release of its 2Q15 results, which saw net profit tumble 24% to $18.6m, bringing 1H15 earnings to $41.4m, meeting 48% of street's full year estimates.

Revenue slumped 12.7% y/y to $159.5m, as retail sales across OSIM's core countries in the region remained soft due to the weak environment and the latest uMagic massage chair suffered from a lack of celebrity endorsement.

EBITDA margin slipped 2.1ppt to 21.4%. hurt by startup costs for TWG Tea outlets and higher rental costs, but partially offset by lower staff costs. However, this is a significant improvement from the 15.3% bottom reached in 1Q15.

Management maintained its second interim DPS of 2¢, taking 1H15 dividend payout to 3¢.

On the outlook, OSIM remains optimistic for 2H15 with the launch of a new low-priced budget massage chair (uDiva Classic) and other upcoming planned product launches.

At the current price, OSIM is trading at 14.8x forward P/E and 2.7x P/B.

Latest broker ratings:
RHB upgraded to Buy but cuts TP to $1.78 from $2.00
Maybank-KE maintains Hold with TP of $1.75
UOB Kay Hian maintains Hold, cuts TP to $1.56 from $2.02
OCBC maintains Hold, cuts TP of $1.52 from $1.87
Credit Suisse upgraded to Neutral but cuts TP to $1.50 from $1.65

Noble Group

Noble Group Buys Back 28.5m Shares on Thursday; Results Due Aug. 13

(Bloomberg) -- Co. buys back shrs at avg S$0.6284: filing.

* Bought back total 174.2m shares of max. 673.9m allowed: filing
* NOTE: Shares down 3.1% to S$0.63 Thursday; fell for 3 days
* NOTE: Noble Group Drops to 6-Year Low on Commodity Rout,
Criticism Link
* To report results after mkt close on Aug. 13: separate
* Conference call to be held at 6:30pm that day for “anyone
who wishes to participate”
* Further to normal call, co. to hold follow-up Investor
Information Day in Singapore; initiative to incorporate
“ample opportunities for questions and answers, will be a
comprehensive explanation of how Noble’s business works and
the findings of the PwC Assurance Review”
* NOTE: Noble Group’s Outside Review by PwC Lacks Clarity:
Iceberg Link

SG Market (24 Jul 15)

Singapore shares are expected to remain range-bound as corporate earnings have largely met expectations, although negative sentiment may spill over from the weak Wall Street overnight caused by weak earnings and a cautious mood.

Regional bourses are mixed this morning in Tokyo (+0.44%), Seoul (-0.63%) and Sydney (-0.27%).

From a chart perspective, the STI is trading just under its key 200-dma at 3,360, with technical indicators coming off from the overbought region. Next downside support for the index at 3,330 (14-dma).

Stocks to watch:

*Keppel Corp: 2Q15 results sorely missed, as net profit fell 2.3% to $396.7m despite being massively propped up by one-off gains of $273.9m, mainly due to an unexpected ~$200m loss on the Doha EPC project from cost over runs. Revenue fell 19.3% to $2.56b, dragged by weaker O&M contributions (-23% y/y) on less work, project deferment, as well as infrastructure segment (-28% y/y) from weak power generation business and less revenue from EPC projects. The property division gained 24% from increased sales in China. O&M EBIT margin was weak at 13% (-1.7ppt y/y, +1ppt q/q), while order book stood at $11b (1Q15: $11.3b), with YTD order wins of $1.5b (none in 2Q). Maintained interim DPS of 12¢. NAV/share at 5.96.

*OSIM: 2Q15 in line with net profit of $22.5m (-24% y/y), as revenue sagged to $159.5m (-12.7%), on broad-based weakness in all operating markets. Bottom line was weighed by startup costs for TWG and higher rental costs of outlets. Second interim DPS of 2¢ maintained, bringing 1H15 DPS to 3¢.

*SATS: 1QFY16 underlying net profit of $47.1m (+8.5% y/y) came in-line. Revenue fell 4.2% to $416.9m due to 1) soft underlying performance from Japanese subsidiary TFK Corporation, 2) weaker JPY, 3) divestment of Urangan Fisheries in Jul ’14 and 4) loss of revenue from SATS BRF Food (SBRF) after the transfer to a JV. EBIT margin improved 1.4ppt to 10.6% on productivity improvement and cost control initiatives. Bottom line excludes a one-off gain of $2.5m from SBRF.

*Suntec REIT: 2Q15 DPU and distributable income advanced 10.3% y/y and 11.1% to 2.5¢ and $62.9m, respectively. Gross revenue surged 19.6% to $81.4m and NPI jumped 23.5% to $56.9m, from the completion of Phase 2 AEI works at Suntec City, as well as stronger performance from Suntec Singapore (Convention). Overall office and retail occupancy rates were 99% (-60bps q/q) and 95.1% (+160bps q/q), respectively. Aggregate leverage rose 50 bps q/q to 36.2%, with average debt-to-maturity of 3.08 years and cost of debt at 2.7%. NAV/unit stood at $2.101.

*CapitaLand Commercial Trust: 2Q15 at the lower end of estimates with both distributable income and DPU inched 0.5% y/y to $64.4m and 2.19¢. Gross revenue grew 5% y/y to $69.1m, while NPI climbed 3.6% to $53.9m, from higher rents and occupancy rate, but partially offset by increased property tax. Overall portfolio occupancy (excluding CapitaGreen) maintained at 99.7%, with weighted average lease to expiry of 7.7 years. Including 40%-owned CapitaGreen, occupancy rate would have expanded to 98% (1Q15: 97%). Aggregate leverage at 29.5% (-0.4ppt) and average cost maintained at 2.4%. NAV/unit at $1.76.

*Mapletree Commercial Trust: 1QFY16 results in line as DPU rose 3.1% y/y to 2.01¢. Gross revenue inched 1.6% to $69.7m boosted by higher rental at VivoCity, while NPI climbed 5% to $54.3m on lower electricity expenses, partially offset by increased property taxes and maintenance expenses. Occupancy dipped 0.2ppt q/q to 95.5% with WALE of 2.2 years, while aggregate leverage remained at 36.4% with average debt cost of 2.41% (+0.13ppt q/q). NAV/unit at $1.24.

*Ascendas India Trust: 1QFY16 results met estimates with DPU of 1.37¢ (+19% y/y) and distributable income of $12.7m (+20%). Gross revenue grew 7% to $34.2m, boosted by new contribution from CyberVale acquired in Mar ’15, positive rental reversions and higher occupancy at one of its properties. NPI jumped 17.1% amid lower utilities expenses and drop in provision for doubtful debts. Overall occupancy stood at 97% with WALE of 3.2 years, while aggregate leverage at 26% and all-in cost of debt of 6.8%. NAV/unit at $0.64.

*Sheng Siong: 2Q15 net profit in line at $13.6m (+23.1% y/y), on revenue of $179m (+4.3%), mainly boosted by five new stores, as well as same store sales growth (+0.3% y/y, -2.9% q/q). Gross margin gained 50 bps to 25.2% (24.7% in 2Q14) from lower input cost and efficiency gains derived from the central distribution centre. Earnings further boosted by higher rental income from leasing of excess space and government grants. Interim DPS of 1.75¢ declared (2Q14: 1.5¢).

*Bumitama Agri: 2Q15 CPO production rose 14.8% y/y to 178,347 mt, while extraction rate fell 0.5ppt to 22.8%. Palm kernel (PK) production surged 26.1% to 35,956 mt, as extraction rate climbed 0.3ppt to 4.6%. For 6M15, CPO production was 338,738 mt (+15.4%), while that for PK was 66,532 mt (+22.7%).

*GLP: Clinched leasing contracts in China totalling 81,000 sqm with five industry leaders in retail, e-commerce, and third-party logistics companies.

*Frasers Commercial Trust: Private placement for 96m new units at $1.48 apiece, to part finance the acquisition of a Melbourne property, reduce debt and/or for working capital. An advanced distribution of ~0.7805¢ will be made prior to the issue of new units for the period from 3 Aug - 30 Sep.

*IEV: Gas distributor IEV secured a 2.7 mmbtu feed gas source worth US$23m, through a 40-month gas supply agreement with PT Rabana Gasindo Makmur. The contract is based on an agreed off-take of 80% and will commence in 4Q15.

*Artivision: MOU worth 18m shekels (US$4.7m) per year to provide video advertising network to a global advertising agency in Israel. Separately, it also signed an exclusive contract with Yediot Internet to purchase 15m video views per month.

*SIIC Environment: Substantial shareholder Global Environment Investment reduced its stake on 22 Jul from 13.98% to 9.05%, selling down 550m shares at $0.183 each via a married deal.

Thursday, July 23, 2015


HPHT delivered 2Q15 net profit of HK$399.9m (+8.5% y/y, +40% q/q), which brought its 1H15 earnings to 40% of full year estimate. This marked a significant turnaround from 1Q15 when the infrastructure trust reported an almost 50% y/y drop in profit.

Revenue inched up 2.1% to HK3.1b from higher throughput at Yantian terminals (+4%) due to growth in US and empty cargoes, mitigated by weaker intra-Asia and transshipment cargoes at HIT (-2.5%)

Average revenue per TEU in HK grew 5.5% owing to tariff hikes as well as a favourable throughput mix by liners. Over at China, rates rose a more subdued 0.7%.

The improved bottom line reflected cost savings from lower fuel charges and better cost management, which helped to boost operating margin to 32.1% (+3.6ppt). As a result, operating profit grew 14.9% to HK$1b from HK$874.4m a year ago.

Management sounded cautious in its outlook for volume growth in 2H15, given the uncertainty over the eurozone debt crisis, but expects US cargo shipments to pick up. Meanwhile, the trust will continue to focus on containing costs and improving tariffs.

While interim DPU was slashed to HK$0.157 from HK$0.187 in 1H14, the trust is maintaining its full year guidance of HK$0.33 to HK$0.36. Based on the mid-point DPU of HK$0.345, this implies a distribution yield of 6.5%. The counter also trades at a slight 4% discount to its NAV/unit of HK$4.79.

The street has 4 Buy, 11 Hold, and 2 Sell calls on HPHT with a consensus TP of US$0.65.

Latest broker ratings:
HSBC maintains Hold with TP of US$0.65
OCBC maintains Hold, cuts TP to US$0.63 from US$0.68
Deutsche maintains Hold with TP of US$0.62
Citigroup upgrades to Neutral but cuts TP to US$0.605 from US$0.66


NauticAWT: (S$0.325) Stellar debut for O&G play amid industry downturn
Oil & gas engineering services provider NauticAWT is off to a fine start on its trading debut, hitting a high of $0.36/share, 80% above its IPO price of $0.20.

The issue of 28m new shares (27m placement and 1m public offer) was 6.1x subscribed. Based on the enlarged share base of 189m, its market value was priced at $37.8m.

Net proceeds of $2.8m is earmarked for capex to strengthen its contracting services.

Questions, however, have been raised on the group's true listing intentions, given the relatively paltry sum raised for a company in a very capital intensive industry. As a gauge, $2.8m was equivalent to its listing expenses and less than its current cash pile of US$3.4m.

NauticAWT is engaged in subsurface, subsea and surface facilities engineering services and contracting solutions for field exploration, field development and field refurbishments in the oil & gas industry

The group has an order book of US$34.6m, expected to be recognised across FY15 and FY16. Past earnings have been volatile, fluctuating between US$0.8m and US$4.3m in FY12-14.

NauticAWT intends to pay 20% of its FY15-17 net profits as dividends. This translates to a DPS payout of 0.58¢ and yield of 1.8% based on FY14's earnings.

At the current price, the new counter does not come cheap at 4x P/B and 10.6x historical P/E.

Frasers Centrepoint Trust

Frasers Centrepoint Trust: FCT’s 3QFY15 DPU reached a record 3.04¢ (+0.5% y/y, +2.5% q/q) on distributable income of $26.9m (+15.0% y/y, -0.9%q/q). For 9M15, DPU totalled 8.75¢, meeting 74% of consensus FY15 estimate.

Gross revenue and NPI grew 14.3% and 12.8% (but declined 0.8% and 2% sequentially) to $47.1m and $32.9m respectively, primarily lifted by Changi City Point which was acquired last year and higher rental from existing malls. The only exception was Bedok Point which generated lower average rental.

Leases renewed during the quarter have helped the retail mall REIT achieve positive rental reversion of 5.3%, better than 3.8% in the prior quarter. This was supported by encouraging shopper traffic (+3.6%) and tenant sales (+2.2%) from its malls (ex Changi City Point).

Overall portfolio occupancy dipped 0.6ppt q/q to 96.5%, largely dragged by lease expiry of an anchor tenant at Bedok Point (9% of NLA), which saw occupancy drop a sharp 9.3ppt to 84.9%. Weighted average lease to expiry remained steady at 1.6 years.

Aggregate leverage remains healthy below the 30% mark at 28.7%, giving the retail REIT ample debt headroom to expand. All-in borrowing cost was 0.5ppt cheaper at 2.3%, with 66% (87% in prior quarter) of its debt is hedged on fixed rates.
FCT currently does not have any acquisition plans in the pipeline but is exploring AEI for Northpoint.

Despite the tight labour market and challenging retail scene, management expects FCT’s rental and occupancy at its suburban malls to remain resilient.

The REIT is currently trading at 1.1x P/B and offers an annualized 3Q15 yield of 5.8%.

Latest broker ratings:
Daiwa maintains Outperform with TP of $2.26
OCBC maintains Buy, cuts TP to $2.24 from $2.27
CIMB maintains Add, cuts TP to $2.23 from $2.24
Maybank-KE maintains Hold with TP of $2.03

Pan-Asian service residence REIT

The Pan-Asian service residence REIT reported 2Q15 results that missed expectations as DPU dipped 4.6% y/y to 2.09¢, due largely to the absence of FX gain. Adjusting for the one-off item in 2Q14, DPU would have risen 5%. This brought its 1H15 DPU performance of 3.85¢ to 45% of full year consensus estimate.

For the quarter, revenue climbed 12% to $98.7m, underpinned by additional contributions from acquisitions made in Australia, China, Japan, and Malaysia in 2014.

However, gross margins fell 2.7pp to 50.1% on lower gross profit contributions from master leases in Europe (due to the weaker euro) as well as lower margins from management contracts in Indonesia, Philippines, and Singapore. Consequently, gross profit grew at a slower 6% to $49.4m.

Overall RevPAU fell 6% to $129/day due to weaker performance from properties in Singapore and Philippines as well as lower average daily rate from China properties. Excluding new acquisitions, the room rates were comparable to 2Q14.

Continuing on its acquisition prowl, ART is adding another five serviced residences in Australia (Citadines Melboune), Japan (Citadines Shinjuku, Citadines Kyoto, portfolio of four Osaka properties) and US (Element NY Times Sq) totalling $466.7m. This will enlarge its portfolio size by 12.2% to $4.6b.

When the acquisition of the refurbished Cairnhill serviced residence in Singapore is completed by 2017, ART’s portfolio would reach $5b, closer to its target of $6b.

Apart from the Cairnhill asset, these acquisitions are expected to increase DPU by 3.8% to 8.51¢. That implies a dividend yield of about 6.4% based on current prices.

Aggregate leverage improved 2.9ppt to 35.8% following the issue of perpetual securities earlier this year. Average debt-to-maturity held steady at 4.3 years with effective borrowing rate flat at 2.9%.

ART is currently trading at 0.96x P/B with an annualised dividend yield of 6.1%. The street has 5 Buy, 6 Hold, and 1 Sell calls on the counter with a TP of $1.34.

Latest broker ratings:
Daiwa maintains Hold with TP of $1.28
CIMB maintains Hold with increased TP of $1.30
OCBC maintains Buy with TP of $1.44 under review

SG Market (23 Jul 15)

Singapore shares are expected to trade within a tight range, following a tepid session in Wall Street overnight on a mixed bag of results, wighed by some technology giants.

Regional bourses are mixed this morning in Tokyo (+0.35%), Seoul (-0.49%) and Sydney (-0.23%).

From a chart perspective, the STI closed just under its key 200-dma at 3,360 yesterday, and may see further downward pressure on rising momentum from the technical indicators. Next downside support at 3,320.

Stocks to watch:

*Oil: US crude inventory rose 2.5m barrels last week compared to street expectations for a 2.3m barrels fall. Total inventories now at 463.89m barrels, 27% over the five-year seasonal average.

*HPH Trust: 2Q15 net profit of HK$399.9m (+8.5% y/y) beat estimates, primarily as cost of service fell 4.5% from lower fuel price and improved deployment which resulted in operational costs savings, but offset by higher outsourced manpower costs. Revenue inched 2.1% to HK$3.13b from higher throughput at Yantian terminals (+4%) due to growth in US and empty cargoes, mitigated by weaker intra-Asia and transshipment cargoes at Kwai Tsing (-2.5%). Average revenue per TEU for HK grew 5.5% due to tariff increment and favourable throughput mix from liners, while China's average grew 0.7% from tariff increment. Interim DPU of HK$0.157 (1H14: HK$0.187). NAV/unit stood at HK$4.79.

*Frasers Centrepoint Trust: 3QFY15 in line with expectations, with DPU of 3.04¢ (+0.5% y/y, +2.5% q/q), yielding an annualized 5.9%. Gross revenue and NPI improved 14.3% and 12.8% to $47.1m (-0.8% q/q) and $32.9m (-2% q/q), primarily lifted by new contributions from Changi City Point and higher rental (+5.3%) from existing malls. Portfolio occupancy dipped 0.6ppt q/q to 96.5% with WALE of 1.6 years, while aggregate leverage stood at 28.7% (+0.1ppt q/q) with all-in borrowing cost of 2.29%. NAV/unit of $1.85.

*Ascendas REIT: 1QFY16 DPU rose 5.5% to 3.841¢ while distributable income increased 5.6% to $92.5m. Revenue expanded 10.6% to $180m, while NPI grew 6.9% to $124.3m, from the recognition of rental income from The Kendal, positive rental reversions, and higher occupancy rates at Aperia and newly converted multi-tenanted buildings. Occupancy stood at 88.8% (+1.1ppt q/q), with WALE of 3.7 years. Aggregate leverage stood at 34.7% with weighted average borrowing cost of 2.76%. NAV/unit at $2.05.

*Cambridge Industrial Trust: 2Q15 DPU of 1.225¢ (-2.1% y/y) slightly below estimates, weighed by a 56.6% surge in borrowing costs to fund acquisitions. Gross revenue rose 13.2% to $27.8m from new contribution from four recently-acquired properties and the completion of property development at 3 Pioneer Sector 3 and 21B Senoko Loop, while NPI grew slower at 9.9% to $21.6m due to increased costs from multi-tenancy conversions at several properties. Portfolio occupancy improved 0.5ppt to 95.5%, while aggregate leverage grew 0.8ppt to 37.2%. NAV/unit at $0.676.

*Ascott Residence Trust: 2Q15 results missed, with DPU down 5% to 2.09¢, due largely to the absence of a one-off item recognised (FX gain) in 2Q14. Excluding that, DPU would have rose 5%. Revenue grew 12% to $98.7m, while gross profit rose 6% to $49.4m, led by new acquisitions made in 2014, but gross margins fell 2.7ppt to 50.1% due to lower profit contributions from master leases in Europe, as well as management contracts in Indonesia, Philippines, and Singapore. Aggregate leverage lowered 2.9ppt to 35.8% with average debt cost holding at 2.9%. NAV/unit stood at $1.37.

*Keppel T&T/ Mapletree Logistics Trust (MLT): Keppel T&T to buy a light industrial from MLT at $20, to build its fourth data centre in Singapore. The property will be developed to Tier III (carrier-neutral specifications with robust security systems), with construction for the 183,000 sf gfa property expected to be complete by 2016.

*Starhub: 30:70 JV with major shareholder ST Telemedia (55.95% stake), where the latter will invest $36.9m for a stake in MediaHub, a data centre currently being constructed by Starhub. Subsequently, Telemedia will manage the property located at Mediapolis@one-north, while it will be Starhub’s convergence hub for its fixed, mobile and pay TV networks.

*First Resources: To spend US$28.6m to acquire PT Falcon Agri Persada, an oil palm plantation business in West Kalimantan.

*SATS: Acquiring an additional 13% stake in Philippines-based MacroAsia Catering Services for PHP168.8m ($5.1m), lifting its total stake to 33%.

*Noble Group: Substantial shareholder Franklin Resources raised its stake from 7.96% to 8.06% with the acquisition of 6.3m shares via the open market at $0.6807 each, on 20 Jul.

*E2-Capital Holdings: Sought second round of extension for its proposed RTO of Malaysian property developer Astaka Padu, up till 29 Nov ’15.

*NauticAWT: Trading debut for O&G engineering services provider. The invitation for 28m new shares (27m placement shares and 1m public offer) at $0.20 each was 6.1x subscribed. No individual has been allotted 5% or more of the invitation shares.

*Yongmao: Profit warning for 1QFY16 due to lower revenue and profit margins arising from sluggish China market conditions and lower rental revenue contribution from Macau capital goods rental operations following the completion of various casino projects. This is despite a one-time gain on restructuring and unrealised profits from sales of tower cranes.

*Atlantic Navigation: Lodged a report for an unauthorised withdrawal for US$736k and investigations are presently pending. Group intends to make a provision of US$368k in the upcoming 2Q15 results.

Wednesday, July 22, 2015


Stratech: The systems provider jumped 12% today after it marked a major breakthrough into the US commercial airfield surveillance market with a major contract win for its flagship iFerret intelligent Vision system alongside its US partner, Organizational Strategies.

The scope of the contract is to install and maintain the iFerret airfield/runway surveillance system at Miami International Airport, one of the world’s top commercial aviation hubs. The initial term of the contract is five years, with options to extend for another nine years (3 x 3-years).

The iFerret system is accredited by the US Federal Aviation Administration and is capable of detecting, tracking and displaying foreign objects and debris (FOD) in real time. It has also seen encouraging adoption by major international airports in Singapore, Dubai and Hong Kong.

Management sees huge growth potential for the system amid ballooning concerns over aviation safety worldwide. Increasing number of airline hubs are expected to adopt more efficient and effective FOD surveillance systems over manual inspection of runways and other key areas of airports.

Adding to the optimism, US authorities have set aside funds for major airports in the country to install FOD systems.

The stock currently trades at 11x P/B pending the product take-off of its iFerret system


CWT: CWT is up 0.9% in today’s trading session as The Edge reports that controlling shareholders may be exploring a sale of their stakes in the logistics company.

According to its sources, CWT’s chairman, Loi Kai Meng, could be looking to sell his stake in the company. Loi currently owns an 18.21% direct stake in CWT as well as an additional 31.93% indirect stake in the company through C&P Holdings. Loi’s son, Loi Pok Yen, is CWT’s CEO and holds a 5.35% stake.

C&P is jointly owned by Loi as well as CWT director, Liao Chung Lik, and businessman Lim Soo Seng.

The magazine reported that the parties are working with investment banks to reach out to potential buyers in the next few months. Under the SGX’s listing manual, a purchase of the abovementioned stakes could trigger a general offer for the rest of CWT.

Given that CWT is currently trading at 1.7x P/B and 12.5x trailing P/E, there could be little scope for upside should a general offer come through.

Already, the counter is trading above the consensus target price of $2.05. The street has 2 Buy and 4 Hold calls on the counter.

iX Biopharma

iX Biopharma: (S$0.57) Getting hard on its painkillers
Specialty pharmaceutical firm iX Biopharma surged to a high of $0.64, 39% above its IPO price of $0.46 on its listing debut on SGX Catalist Board.

The offer of 65.5m new shares (64.5m placement and 1m public offer), representing 11.1% of enlarged share capital, was 1.4x subscribed.

Substantial shareholders include Yeo Chung San (6.6m), prominent investor Alan Wang’s Asdew Acquisitions (4m) and orthopedist Ang Kian Chuan (3.9m). There are also a number of pre-IPO investors who participated at between 6.7¢ and 12.5¢, with some not subject to moratorium.

iX Biopharma specialises in the development and commercialisation of pharmaceutical therapies for pain management and male erectile dysfunction.

The group currently has three drugs under development – Wafermine, Wafernyl and PheoniX, and operates an integrated business model encompassing drug development, manufacturing and supply.

Net proceeds of $27.6m from the IPO will mainly be used to fund clinical trials for product development.

Upon successful outcomes of the trials, iX Biopharma intends to apply for marketing and commercialisation approval of the products in the US. The group also plans to register its products for commercialisation in other markets where viable.

However, investors should note that iX remains a conceptual and highly speculative stock, given that:
1) Its drugs are still under development and have not achieved commercial viability
2) The company is loss-making and constantly draining cash at an annual burn rate of $1-2.1m
3) The stock is priced at a massive 28x premium to book value of $11.9m, including accumulated losses of $13.7m and $2.9m of intangible assets

In addition, eyebrows have been raised over CEO Eddy Lee's generous remuneration in FY14-15 despite iX’s mounting losses. Lee has no medical training and has more experience running casinos, including Burswood in Perth.

Keppel Corp

Keppel Corp: Awarded a US$684m conversion contract by Golar LNG, after the latter exercised the second of two options granted back in Sep '14.

The is the third project won by Keppel for the conversion of a Moss-type LNG carrier into a Golar Floating Liquefaction facility. Construction is expected to commence in 2016 with completion within 31 months.

Maybank-KE notes that the contract prices have been trending down, with the first contract valued at US$735m, second at US$705 (-4.1%) and the latest one coming in 6.9% lower than the initial order.

This could perhaps be due to execution efficiency for series units and the stronger USD, which rose 9.4% against SGD over the last 11 months, as well as the weak offshore market.

The new order will bring Keppel's year-to-date order win to $1.5b against house forecast of $2.9b for the full year (FY14: $5.5b).

Bloomberg consensus has 10 Buy, 11 Hold and 3 Sell ratings for the counter, with average 12-month TP of $8.79.


OSIM: Maybank-KE has cut its FY15/16 earnings estimates for the lifestyle product maker, citing lacklustre consumer spending in China, Hong Kong and Malaysia, and slashed its TP to $1.75 from $2.08 ahead of its 2Q results on 23 Jul.

China’s automobile sales saw its first y/y decline (-2.3%) in Jun, a magnitude not seen in more than two years, as demand appears to have been sapped by its recent stock-market rout.

Hong Kong’s retail sales continued to drift down for the sixth consecutive month, save for a festive Chinese New year bump in Feb.

In Malaysia, retail figures have held up but the Malaysia Retailers Association recently revised down its 2015 retail sales growth projection for the third time, from 4.9% to 4%, on the back of ringgit weakness.

Meanwhile, the house expects earnings to be volatile as OSIM continues to build a base for its next growth phase, underpinned by:
- TWG tea business expansion
- Minority stakes in HK-based cosmetics company Laboratoires du Palais Royal and Singapore-based technology solutions provider Trek 2000.

Maybank-KE maintains its Hold rating in the counter and expects the upcoming 2Q15 earnings to show a 33% drop to ~$20m.

Rubber gloves

Rubber gloves: Sector re-rating to stretch longer
According to Maybank-KE, the rubber gloves sector is likely to continue its upward re-rating as price competition eases and new capacity is well absorbed by growing demand.

The universe of six rubber gloves manufacturers listed in Malaysia and Singapore surged 43% year-to-date versus KLCI's -0.4% decline and STI's 1.5% gain.

This came on the back of rising global demand that has since outpaced the current available supply, even at maximum capacity, driven by improvement in healthcare awareness and more stringent industry regulations following the recent outbreak of diseases like H1NI influenza and MERS.

As a bonus, the sector will continue to benefit from the strengthening USD.

The house believes that rubber glove manufacturers are expected to perform well on strong near-term earnings growth, underpinned by new capacities and higher margins due to improved efficiencies.

In Singapore, the two rubber gloves manufacturers are Riverstone (Buy, TP $2.05) and UG Healthcare (non-rated).

UG Healthcare sits on Market Insight's Growth portfolio. The company is an established glove maker and may also enjoy a potential re-rating as it plays catch-up with its larger rivals, with 50% capacity expansion coming on stream in the next few months.


Rex: The company announced that one of the wells it was exploring in the North Sea would not be commercially viable. It will stop drilling and plug the well. Costs estimated at US$0.9m


Vard: The Norwegian yard operator managed to eke out a 2Q15 net profit turnaround to NOK58m (-58.6% y/y) from a NOK92m loss in 1Q15. However, its 1H15 net loss of NOK34m is still a long shot from full year consensus forecast of NOK275.3m profit.

For the quarter, revenue shrank 15.4% to NOK2.5b owing to reduced activity at its European and Brazilian yards. In total, four vessels were delivered from Vard’s shipyards in 2Q15, with one vessel from each of its yards, excluding Vard Promar (Brazil) which is still seeing delays in vessel delivery.

Six more vessels are expected to be delivered in 2015. This implies that recovery in revenue figures might not be seen until FY16 or later.

EBITDA margin compressed further by 4.6 ppts to barely breakeven at 1.8%, reflecting weaker execution and continued losses at its Promar yard in Brazil, as well as higher staff expenses (+4.6% y/y). The group also incurred a restructuring cost of NOK14m for termination benefits and payments as it downsizes its workforce due to lower yard utilisation.

Consequently, it bled NOK21m at the operating level, in stark contrast to operating profits of NOK140m in 2Q14 and NOK9m in 1Q15.

Earnings were further crimped by ballooning finance costs of NOK60m as its net gearing soared to an alarming 222% from 188% at the start of the year. Together with negative cash flows of NOK481m, the group’s financial position appears to be untenable.

The yard is also awaiting an appeal decision on its Brazilian tax liability of ~NOK200m, for which no provisions have been made.

With only a solitary contract win (1 OSCV worth NOK1.2b) in 2Q15, outstanding order book was depleted to NOK13.9b from NOK15.6b as at end 2014.

Management maintains a bleak outlook on the offshore oil and gas sector as orders in the North Sea peters out. With a diminishing order intake, the group expects the trend of lower utilisation rates at its yards to accelerate in 2H15 and into 2016.

At its current market price, Vard is trading at 0.78x P/B. The street has 2 Hold and 8 Sell calls on the counter with a consensus TP of $0.46.


GLP: Deutsche notes that the establishment of the US$7b China Logistics Fund II (CLFII) was larger than anticipated. The research house had assumed a US$6b fund with a longer investment period would be established.

To recap, GLP announced the establishment of the opportunistic development together with seven other partners. GLP will hold a 56% stake in the fund that has a total committed equity of US$3.7b. CLFII will develop 13m sqm of logistic space over four years commencing in Apr-16.

The research house sees potential upside to its fee income from FY17 onwards and estimates a potential 3-5% uplift in its FY17-19 earnings estimate. Deutsche feels that the shift into the earnings growth profile, the high growth in its fund management platform as well as the possibility of NAV realisation in the future should see the stock reverse its underperformance. It maintains its Buy call on GLP with a TP of $3.20.

Mapletree Industrial Trust

Mapletree Industrial Trust:1QFY16 results were in line. DPU increased 8.8% to 2.73¢, while distributable income rose 12.8% to $48.2m.

Revenue climbed 4.1% to $81.6m, while NPI expanded 6.2% to $60.2m, from higher occupancies across all property segments except stack-up/ramp-up buildings, higher rental rates, and contributions from Equinix Singapore.

Occupancy stood at 93.5% (3.3ppt q/q) with WALE of 3.2 years. Aggregate leverage stood at 30% with weighted average all-in funding cost of 2.3%.

9.8% of leases by gross income are set to expire for the remainder of FY16. Management sees further pressure in rental rates for conventional industrial space, but is more optimistic towards independent high-specs industrial space, as well as business parks as new supply is expected to be limited.

The Hewlett Packard BTS development is on track for completion in 1H17, and should drive significant DPU upside once it begins contributing.

Mapletree Industrial Trust is currently trading at 6.1% yield and 1.2x P/B.

Latest broker ratings:
Maybank-KE maintains Buy with TP of $1.77
Deutsche Bank maintains Hold with TP of $1.53

SG Market (22 Jul 15)

Singapore shares may open lower today, taking cue from the downturn on Wall Street following the poor results showing by the major tech names.

Regional bourses are all in the red this morning in Tokyo (-0.9%), Seoul (-0.6%) and Sydney (-0.9%).

From a chart perspective, the STI may be due for a short term pullback and consolidation as technical indicators are at overbought levels. The index is just above its key 200-dma resistance-turn-support at 3,360 with the next support at 3,320, while resistance is at 3,400.

Stock to watch:
*Mapletree Industrial Trust: 1QFY16 in line, as DPU increased 8.8% to 2.37¢, while distributable income rose 12.8% to $48.2m. Revenue climbed 4.1% to $81.6m, while NPI expanded 6.2% to $60.2m, from higher occupancies across all property segments except stack-up/ramp-up buildings, higher rental rates, and contributions from Equinix Singapore. Occupancy stood at 93.5% (3.3ppt q/q) with WALE of 3.2 years. Aggregate leverage stood at 30% with weighted average all-in funding cost of 2.3%. NAV/unit at $1.32

*CapitaLand Mall Trust: 2Q14 in line, with both distributable income and DPU up 0.7% y/y to $94m and 2.71¢, respectively, boosted by lower finance costs (-16.5%) due to the refinancing of its Euro-Medium Term Note in Apr '15 at a lower rate. However, gross revenue slipped 2.9% to $159.6m, while NPI dropped 4% to $109.5m, due to ongoing asset enhancement works in IMM Building and Bukit Panjang Plaza, and lower occupancy at JCube and Clarke Quay. Subsequently, overall occupancy slipped 0.8ppt q/q to 96.4%. Meanwhile, aggregate leverage held at 33.7% (-0.1ppt q/q) with average debt cost of 3.3%, debt tenor lengthened from 5.1 years to 6.1 years. NAV/unit at $1.84.

*Keppel T&T: 2Q14 net profit jumped 11.2% y/y to $15.9m, despite a 4.2% drop in revenue to $49.1m, due mainly to absence of revenue from the two data centre properties disposed in Dec '14 to Keppel DC REIT, partly offset by higher revenue from logistics segment. Subsequently, EBIT margin dropped 8.6ppt to 9.4, while bottom line was boosted by higher associate income (+34%). NAV/share of $1.17.

*Vard: 2Q15 results sharply below estimates as net profit fell 58.6% y/y to NOK58m, on a 15.4% drop in revenue, due to lower activity levels at its European and Brazilian yards. EBITDA margin compressed 4.6ppts to 1.8%, hurt by weaker performance at some of the yards, which led to an operating loss of NOK21m, down from operating profit of NOK140m in 2Q14. The Brazil tax claim is still pending decision in the second out of three levels of appeals and no provision has been made. Order book at NOK13.92b, down from NOK15.63b at end-1Q. NAV/share at 0.61.

*Tigerair: 1QFY16 net loss narrowed 97.4% y/y to $1.6m, while revenue declined 3% to $168.3m, on the back of a 7.2% capacity decrease. At the operating level, group turned in profit of $0.6m compared to loss of $16.4m in 1QFY15, as expenses fell 10.8% from lower fuel costs (-36%), FX gain of $0.3m (1QFY15: -$3.3m) due to the stronger USD/SGD, partially offset by a $4.1m increase in depreciation costs following a change in policy last quarter. NAV/share of 9.08¢.

*UOB: Teaming up with Temasek on a 50:50 JV, to provide up to US$500m in venture debt financing to start-ups in China, India and South-east Asia operating across sectors including tech, consumer, healthcare and clean technology.

*Keppel Corp: Secured US$684m conversion contract with Golar LNG to convert a moss type LNG carrier into a Golar Floating Liquefaction facility. The contract marks the exercise of the second of two options. The notice to commence the 31-month conversion contract is expected to be issued in 2016.

*First Resources: Jun production of CPO was at a 3 mth high of 54.4k tonnes (+12.9% y/y) aided by a 13.8% y/y gain in FFB harvest.

*Stratech: Secured its first commercial US contract alongside US-based partner, Organizational Strategies, to deploy its iFerret airfield/runway surveillance and foreign object & debris detection system at Miami International Airport. The contract term is up to 14 years, comprising an initial 5-year term and options to renew for 3 additional 3-year periods.

*iX Biopharma: Trading debut at 9am for specialty pharmaceutical firm. The invitation for 65.5m new shares (64.5m placement shares and 1m public offer) at $0.46 apiece was 1.4x subscribed. Substantial applicants allotted over 5% of invitation shares include private investor Yeo Chung San (6.6m), prominent investor Alan Wang’s Asdew Acquisitions (4m) and Orthopedist Ang Kian Chuan (3.9m).

*Lion Asiapac: Profit warning for 4QFY15 and FY15 due to allowances for impairment of investments, manufacturing plant and equipment, and property development. Results expected in late-Aug.