Friday, October 30, 2015

SG Market (30 Oct 15)

Singapore shares are likely to stay muted following uninspiring 3Q results from SCI, GLP and UOB, and little catalyst from Wall Street as investors weighed propsects for higher interest rates this year.

Regional bourses are trading lower this morning in Seoul (-0.1%) and Sydney (-0.9%), but higher in Tokyo (+0.2%). BoJ is aniticpated to expand stimulus at its Oct meeting today.

From a chart perspective, the market is technically overbought. Resistance for the STI is capped at 3,120 with downside support at 2,980.

Stocks to watch:
*UOB: 3Q15 net profit of $858m (-1.0% y/y, +12.6% q/q) was at the upper end of estimates, led by higher net interest income which grew 6.9% y/y to $1.2b, due to loan growth of 3.6% and higher NIM of 1.77% (+6bps) which benefitted from rising interbank and swap offer rates. Fee income of $485m (+2.1%) was led by higher contributions from credit card and wealth management income, while trading and investment income advanced 7.1% to $365m, bolstered by one-off gains from the sale of investment securities, partly offset by lower net trading income. Provision was muted at $160m, while NPL ratio was stable at 1.3%. Tier-1 CAR slipped to 13.6% (- 0.4ppt). Interim DPS of $0.20 (3Q14: nil). NAV/share rose 5.9% to $17.49.

*GLP: 2QFY16 results missed estimates, with headline net profit of US$114m (+27.4% y/y), boosted by FX gains, lower borrowing costs from the syndication of GLP Brazil Income Partners II portfolio, as well as the absence of reclassification losses for its Japan and Brazil operations in 2QFY15. Revenue slipped 1.9% to US$189.3m from the deconsolidation in Brazil, the sale of 14 properties in Japan to GLP J-REIT and the weaker JPY/USD. Bottom line was weighed by higher expenses due to the inclusion of the US asset management platform, increased impairment loss on trade and other receivables, and higher staff and business costs arising from an increased property portfolio. NAV/share at US$1.77.

*Sembcorp Industries: 3Q15 results were slightly below expectations as net profit slumped 37.8% y/y to $122.3m on a 21.8% decline in revenue to $2.4b. The decline in revenue was broad based with both its utilities (-11.3% to $1.2b) and marine (-34% to $1.1b) businesses tumbling. Gross margin improved by 0.9ppt to 12.1%. Finance costs soared more than 5x to $64.9m due to the consolidation of Green Infra, commencement of operations at Thermal Powertech (India) as well as Sembcorp Marine’s higher bank borrowings. NAV/share at $3.64.

*AusGroup: 1QFY16 net profit crashed 87.7% to A$0.3m, while revenue inched higher by 1.7% to A$132.7m as improved maintenance services and access services revenue were offset by poor performance of the fabrication business. Gross margin was up 1.4ppt to 11.4%. Nevertheless, an overall increase in costs and a reduction in other operating income brought bottom line into the red. NAV/share at $0.34.

*Tuan Sing: 3Q15 net profit slid 7.7% y/y to $16.2m due largely to an impairment loss of $7.7m on its China development project. Stripping that out, net profit would have grown 36.4% to $23.9m on an 84.6% jump in revenue to $184.3m attributable to higher contributions from its properties in Singapore and hotel investments in Australia. Bottom line was weighed by a jump in admin expenses (+43.6%), finance costs (+373.9%), reduced associate profit (-64.7%) due to the GHG consolidation as well as lower contribution from 44.5% owned GulTech. NAV/share at $0.72.

*GP Hotels: 3Q15 net profit sank 30.1% to $3.6m on a surge in finance costs to $2.7m (+22.7%). Revenue slipped 5.3% to $16.3m with lower contributions from two hotels which were undergoing AEIs. This was mitigated by stronger contribution from Fragrance Hotel-Rose after its AEI was completed in 1H15. Operationally, average occupancy rate declined 1.5ppt to 85.9% while RevPAR retreated 3.6% to $89.50. NAV/share at $0.69.

*MTQ: Continued its sequential losses with 2QFY16 net loss of $0.5m (2QFY15: $5.3m) on lower revenue of $57.8m (-28% y/y) due to weak demand for its oilfield engineering business especially in Singapore. Gross margin trimmed 6.76ppt to 26%. The negative bottom line was partially mitigated by lower staff costs (-22.4%) as well as a $1.8m gain on disposal of scrap. NAV/share at $0.80.

*Eurosports: 1HFY16 net loss narrowed 47.1% to $1.7m, as revenue doubled to $32m, on the back of improved automobile sales and after-sales service revenue. Gross margin narrowed 0.5ppt to 13.9%. Increases in other income were offset by increased admin expenses. NAV at 8.79¢/share.

*Soilbuild Construction: Won a $16.4m contract to construct an industrial development by KH Roberts. Construction is expected to start in Nov ‘15 and end by Dec ‘16.

Thursday, October 29, 2015

Jumbo Group (IPO)

Jumbo Group, best known for the Jumbo Seafood restaurant chain, has priced its public offer of 86.2m new placement shares and 2.0m new public shares at $0.25 each. The shares will be listed on the Catalist board.

Net proceeds of $37.5m will be used to establish net outlets and refurbish existing ones (29.9%), acquire new premises, equipment and machinery (28.7%) and working capital (34.9%). Post-IPO, public shareholders will account for 13.8% of total shares outstanding.

Cornerstone investors include Orchid 1 Investments (6.2%) and Osim’s founder Ron Sim (5.0%).

Jumbo currently operates 14 outlets in Singapore and two outlets in China under five brands, and plans to open more outlets in these markets offering existing and/or new dining concepts to reach a wider audience.

Aside, the group intends to acquire a new premise to house its corporate headquarters, central kitchen, and development kitchen, as well as expand its business via acquisitions and/or joint ventures.

Brands under Jumbo (inclusive of associates) include Jumbo Seafood, JPOT, Ng Ah Sio Bak Kut Teh, Singapore Seafood Republic and Yoshimaru Ramen Bar.

Under the Jumbo Seafood brand, it sells its signature chilli crab and black pepper crab. The flagship Jumbo Seafood outlet in East Coast Seafood Centre is one of Tripadvisor’s 50 iconic places to visit in Singapore.

Over FY12-14, the group enjoyed a three-year net profit CAGR of 20.4% to $11.5m on the back of an 8.6% revenue CAGR to $112.4m. For 1H15, revenue expanded 11.4% across all segments and markets to $62.2m but earnings fell 10.9% to $5.6m, dragged by higher employee expenses and other operating expenses.

Though Jumbo does not have a formal dividend policy, it intends to pay out 30% of net profit for FY16-17.

Based on the IPO price of $0.25, Jumbo trades at 11.9x pro forma FY14 P/E versus Old Change Kee (16.3x), Japan Foods (15.9x), Breadtalk (26.6x), Sakae Holdings (48.3x) and Tung Lok (125.6x), all of which are not very well traded.

The offer closes on 5 Nov ’15 at 12.00 noon, with trading expected to commence on 9 Nov ’15 at 9 am.

UOB is the sponsor, issue manager and alongside UOB Kay Hian as the placement agent for the IPO.

Ascendas Hospitality Trust

Ascendas Hospitality Trust (S$0.675): Strong FX headwinds in 2QFY16

Ascendas Hospitality Trust’s (AHT) 2QFY16 DPU rose 8.7% y/y to 1.38¢ on a distributable income of $16.3m (+15.1%), which includes partial proceeds from divestment of Pullman Cairns International ($0.6m).

Stripping out the divestment proceeds and working capital retention, distributable income grew 9.6% to $15.5m due to absence of a $2.1m fair value loss on cross currency swap.

Gross revenue and NPI ceded to $54.5m (-6.1%) and $22.6m (-2.9%) respectively, as an overall improvement in the trust’s hotel portfolio was doused by depreciation of AUD and JPY against the SGD during the quarter.

Setting aside FX impact, Australia portfolio fared better, with a higher RevPAR of A$142 (+4.4%), albeit a slight dip in occupancy 83.4% (-0.9ppt), largely bolstered by robust demand for hotels in Sydney and Melbourne, as well as Courtyard by Marriott North Ryde benefitting from the closure of a competitor.

China portfolio remained resilient as RevPAR ticked up to Rmb358 (+0.3%), underpinned by cost control measures, despite tougher competition and softer corporate demand for Beijing hotels.

Meanwhile, Japan portfolio recorded a solid performance, mainly driven by Oakwood Apartments which saw RevPAR jumping 21.7% to ¥9,861.

Aggregate leverage for the trust shrank marginally to 37.5% (-0.5ppt q/q), with average cost of debt at 3.3%, while average debt tenor shortened to 2.5 years (-0.3 years).

AHT is currently trading at 0.94x P/B and offers an annualised 1HFY16 yield of 7.7% excluding divestment payout.

SG Market (29 Oct 15)

Singapore shares may a slight lift from spillover risk-on sentiment from Wall Street after the US Fed gave a vote of confidence to the US economy by putting a Dec rate hike back on the cards.

Regional bourse are trading higher this morning in Tokyo (+0.4%) and Seoul (+1.0%) but lower in Sydney (-0.5%).

From a chart perspective, the market is technically overbought. Resistance for the STI is capped at 3,120 with downside support at 2,980.

Stocks to watch:
*Indofood Agri: 3Q15 missed by a mile after the group turned in a net loss of Rp153.9b (3Q14: +Rp124.8b) due mainly to huge FX losses stemming from the weak IDR/USD. Revenue fell 9% y/y to Rp3.3t from lower ASPs for palm products, partially offset by higher CPO sales volume. This translated to depressed gross margin of 25.1% (-0.3ppt), while bottom line was further dragged by share of losses of its Brazilian JV due to lower prices of sugar and electricity. NAV/share at Rp10,198.

*Citic Envirotech: 2QFY16 net profit fell 16.5% y/y to $13.9m on a 32.7% dive in revenue to $70.9m, missing estimates by a wide margin. The drop in revenue was largely due to a 62.9% plummet in lumpy engineering revenue to $27.7m mitigated by growth in treatment revenue (+28.9% to $32.6m) and membrane sales (+96.3% to $10.6m). Bottom line was weighed by higher depreciation (+141%) and finance expenses (+57.3%). NAV/share at $0.79.

*Wing Tai: 1QFY16 results below estimates, with net profit diving 91.6% y/y to $2m in the absence of gains on disposal of its 70% stake in PT Windas in 1QFY15. Revenue advanced 6.3% to $170.3m as it recognised sales of units across Singapore, China, and Malaysia. Gross margin slipped 3.6ppt to 35.2%. Bottom line was further pressured by a 44.9% drop in contributions from its Hong Kong associate as well as JVs in Singapore. NAV/share at $4.17.

*CDL Hospitality Trust: 3Q DPU fell 9.7% to 2.36¢, although distributable income of $23.3m (-9.0%) did not include contributions from the Japan Hotels (acquired in Dec ’14) which is only available for distribution in 4Q. Gross revenue was up 2.4% to $51.1m, led by the Japan Hotels and the newly refurbished mall, Claymore Connect, offset by weaker performances from the Singapore and Australia and New Zealand Hotels. NPI inched down 2.2% to $33.1m due to higher operating expenses. Leverage ratio rose 4.5ppt q/q to 36.5%, with average debt cost of 2.6% and tenor of 2.1 years. NAV/unit at $1.59.

*Ascott REIT: 3Q15 DPU slipped 2% y/y to 2.07¢, although revenue gained 21% to $113.2m, mainly from new acquisitions made in 4Q14 and 3Q15. Gross profit (+13%) rose at a slower pace due to lower profit contributions from master leases in Europe, as well as management contracts in UK, China, Indonesia, Malaysia, Philippines and Singapore. Aggregate leverage dropped 4.2ppt to 40% with average debt cost at 2.9%. NAV/unit at $1.38.

*Ascendas Hospitality Trust: 2QFY16 DPU rose 8.7 y/y to 1.38¢ on distributable income of $16.3m (+15.1%), which included partial proceeds from divestment of Pullman Cairns International ($0.6m). Gross revenue and NPI ceded to $54.5m (-6.1%) and $22.6m (-2.9%) respectively, mainly undermined by depreciation of AUD and JPY against the SGD. Aggregate leverage lowered to 37.5% (-0.5ppt q/q), with average debt cost of 3.3% and tenor of 2.5 years. NAV/unit at $0.72.

*AIMS AMP Ind REIT: 2QFY16 DPU inched up 1.8% to 2.8¢, while distributable income climbed 1.9% to $17.8m. Gross revenue grew 3.2% to $31.3m, while NPI expanded 2.4% to $20.7m, driven by rental contributions from newer properties. Occupancy stood at 96.5%, with WALE of 3.05 years. Aggregate leverage stood at 31.2%, with average debt cost of 4.2%. NAV/unit at $1.52.

*iFast: 3Q15 net profit was flattish at $2.9m (-0.5% y/y), while revenue fell 6.9% to $20.5m, attributed to the volatile market. Revenue declines in HK offset gains achieved in Singapore and Malaysia. Bottom line performance was shored up by increased finance income. Interim DPS of 0.68¢. NAV/share at $0.29.

*K1 Ventures: 1QFY16 net profit came in at $87.3m (1QFY15: $3m) on revenue of $89.3m (1QFY15: $2.9m), mainly due to a $85.6m investment income from Knowledge Universe Holdings, which was also distributed in cash, increasing the group’s cash hoard to $135m from $46.9m in 4QFY15. K1 will not be making any new investments, but will focus on managing current portfolio and realise the assets when it deems appropriate for value maximisation. NAV/share at $0.14.

*Keppel DC REIT: Acquiring mainCubes Data Centre from mainCubes One Immobilien Gmbh & Co KG for €84m ($130m), and to be fitted out to Tier III specifications by 2018.

*Sim Lian: Entered into SPA with Coles Group Property Developments to acquire Lara Village Shopping Centre, located at Lara, about 60km southwest of Melbourne CBD, for A$30.2m ($30m). The property is a new convenience-based neighbourhood shopping centre completed in Dec '14, and has a gross lettable area of 6,449sqm, with 65% occupied by anchor tenant, Coles Supermarket.

*AusGroup: Notified by Australian authorities that its Port Melville property would not require assessment and approval under the Environment Protection and Biodiversity Conservation Act. This helps ensure that the property is in full compliance with regulations.

Wednesday, October 28, 2015


OSIM: (S$1.445) 3Q15 earnings sink on declining sales and TWG costs
OSIM tumbled 10.2% to $1.445 in morning trades after it reported a botched 3Q15 results, which widely missed the mark as net profit plunged 62.4% y/y to $6.2m on weak sales across its core markets. This brought its 9M15 earnings to $42.1m, making up just 49% of FY15 consensus estimate.

For the quarter, revenue sank 10.5% to $141.6m as sales in North Asia (-7.5% to $74m), South Asia (-10.4% to $60m), and other regions (-27.3% to $8m) continued to falter. Its latest uMagic massage chair failed to do its magic.

EBITDA margin collapsed 6.9ppt to 10.5%, hit by higher startup and operational costs at TWG Tea as well as legal fees of $4m relating to its twin court cases in Singapore and Hong Kong.

On a sequential quarterly basis, the lifestyle marketer closed 15 non-performing stores across Asia bringing its total same-brand stores in North Asia and South Asia to 355 (-9) and 150 (-6) respectively.

Two more TWG outlets were opened in Hong Kong, bringing its total outlets to 49 while six GNC outlets were shut during the quarter. Management intends to open another three TWG outlets before the year ends.

Management maintained its third interim DPS of 1¢, taking 9M15 dividend payout to 4¢, implying an indicative yield of 3.7%.

Maybank-KE opines that 3Q15’s poor results would likely be its worst for this year as it heads into its seasonal peak and as legal costs taper off in 4Q15. However, revenue will likely remain subdued owing to the gloomy economic outlook at its core markets.

At current price, OSIM is trading at 14.3x forward P/E and 2.7x P/B.

Latest broker ratings:
Credit Suisse downgrades to Uunderperform from Neutral, cuts TP to $1.35 from $1.50
UOBKH maintains Hold but cuts TP to $1.42 from $1.56
Maybank-KE maintains Hold but cuts TP to $1.49 from $1.75
OCBC maintains Hold but cuts TP to $1.49 from $1.52
Daiwa maintains Outperform with TP of $1.99


SGX: A foreign broker attended a meeting hosted by SGX’s CEO Loh Boon Chye and CFO Chng Lay Chew in Hong Kong, where more light was shed on the exchange’s new strategic priorities announced last week during its earnings release.

The three priorities announced were 1) improving the liquidity of the securities market; 2) diversifying business mix to broaden revenue streams and reduce reliance on specific contracts; 3) maintain cost discipline by pacing operating expenses and keeping them aligned with business growth.

The broker noted that while there is no particular target for the mix of business over the next few years, management is targeting a more significant contribution from fixed income, currencies, data and listings revenue. Ultimately, the end goal for SGX is to become a more diversified exchange with a sustainable platform.

Management also did not rule out pursuing inorganic growth, if it would aid in accelerating its priorities.

Overall, the house is maintaining its Sell rating on SGX with a TP of $6.96, given limited structural changes to the exchange’s business, possible consensus downgrades in upcoming quarters and unattractive valuation levels.


HTL: Disclosed yesterday that the controlling shareholder BEM Holdings entered into a MOU with Guangdong Yihua Timber Industry on a potential corporate transaction, aimed at realising value. The latter is a Chinese SOE listed on Shanghai market


Biosensors: Disclosed that it received an offer from CITIC Private Equity Funds Management for the proposed amalgamation of the company with CB Medical Holdings, a substantial shareholder of the company.
Biosensors is currently in the midst of reviewing the offer and will make further announcement as appropriate.


CCT: CapitaLand Commercial Trust (CCT) 3Q15 DPU of 2.14¢ (+2.4% y/y, -2.3% q/q) came in line with street estimates, with 9M15's DPU of 6.45¢ (+2.2%) forming 76% of FY15 forecast.

Gross revenue and NPI grew to $68.3m (+2.9% y/y, -1.2% q/q) and $52.7m (+1.5% y/y, -2.2% q/q) from higher rents across the portfolio except at Golden Shoe Car Park, but partially offset by increased property tax and ad hoc maintenance expenses.

Overall portfolio occupancy slipped to 96.4% (-3.3ppt q/q), brought down by CapitaGreen, which opened doors on 9 Sep and has a committed occupancy of 87.7%.

Aggregate leverage climbed to 30.1% (+0.6ppt q/q) with average cost maintained at 2.4%.

Among peers, CCT's exposure to the impending office supply glut is low at 14% of office space up for renewal in 2016, compared with Keppel REIT (16%) and Suntec REIT (21%).

At the current price, CCT is trading at a 3Q15 annualized yield of 6% and 0.82x P/B.

Latest broker ratings:
Maybank-KE maintains Hold with TP of $1.25
OCBC maintains Hold, places TP of $1.39 under review


OCBC: OCBC 3Q15 core net profit of $902m (+7% y/y, -14% q/q) came above street estimates, forming 78% of street's FY15 forecast.

Net interest income rose to $1.32b (+6% y/y, +3% q/q) from a 4% rise in customer loans, although NIM narrowed to 1.66% (3Q14: 1.68%, 2Q15: 1.67%), as improved customer loan spreads in Singapore were more than offset by a lower loan-to-deposit ratio and a decline in money market gapping income.

Non-interest income came in lower at $775m (-3% y/y, -17% q/q), dragged by weaker life insurance income, but partially offset by banking operations which stemmed from treasury-related income from customer flows.

Operating expenses were 3% higher from higher staff costs related to headcount growth to support its regional business expansion. As such, cost-to-income ratio rose to 43.0% (2Q15: 41.3% 3Q14: 42.5%).

Asset quality deteriorated, with NPL ratio of 0.9% (3Q14: 0.7%, 2Q15: 0.7%) largely attributed to the classification of a few large corporate accounts associated with the O&G services sector, while loan-loss coverage was 121%.

Capital position remained healthy, with fully-loaded CET1 CAR of 14.5% (3Q14: 13.2%, 2Q15: 14.1%).

Core ROE at 11.2% trended down (2Q15: 13.4%, 3Q14: 13.1%), largely attributed to the enlarged shareholder base following the rights issue in Sep '14.

At the current price, OCBC trades at 1.18x P/B, compared to UOB (1.14x) and DBS (1.12x).

Results for the latter two banks are due on Friday and the following Monday pre-market, respectively.


MGCCT: MGCCT’s 2QFY16 results were in line. DPU expanded 12.6% y/y to 1.808¢, while distributable income grew 14% to $49.5m.

Revenue increased 25.4% to $84.6m, while NPI rose 26% to $69.5m, from strong rental reversions from Festival Walk (+20%) and Gateway Plaza (+25%) for leases renewed, as well as full quarter contribution from Sandhill Plaza.

Festival Walk, which contributes 71% of top line, saw tenant sales expand 1.7%, amid a 2.9% increase in footfall.

Finance costs surged 70.3% to $16.8m, from the refinancing of loans, higher fixed interest rates from swaps to hedge floating interest payments, and loans to fund the acquisition of Sandhill Plaza.

Occupancy dipped 0.6ppt q/q to 98.4%, from the dilution from Sandhill Plaza. WALE stood at 2.3 years. 84% of expired and/or expiring leases in FY16 have been committed.

Aggregate leverage increased to 41% at Sep, from 36.2% in Mar ’15, largely from increased debt to fund the acquisition of Sandhill Plaza.

Despite headwinds, Festival Walk in Kowloon Tong, which has solid shopper traffic should remain resilient. The mall focuses on mid-tier and mass market brands, and have withstood across economic cycles.

Meanwhile, rental growth at Gateway Plaza has slowed due to an increasingly higher base achieved over time.

MGCCT’s valuations are inexpensive, currently trading at 0.8x P/B and 7.3% annualized yield. MGCCT is a constituent of the Market Insight yield portfolio.

SG Market (28 Oct 15)

Singapore shares could open lower, taking cue from Wall Street, as investors are likely to remain cautious ahead of the Fed policy statement. Nevertheless, the better-than-expected earnings from OCBC may provide a slight boost to investor sentiment.

Regional bourses are trading lower this morning in Seoul (-0.2%) and Sydney (-0.3%), but higher in Tokyo (+0.5%).

From a chart perspective, the STI is due for a technical pullback. Resistance for the index is capped at 3,120 with downside support at 2,980.

Stocks to watch:
*Economy: MAS highlights that a weakening SGD is not on its policy agenda, calling economists’ expectations of more aggressive easing "clearly unwarranted”, as the S’pore economy is neither experiencing an outright retraction in economic activity or widespread price declines.

*OCBC: 3Q15 results better-than-expected, with core net profit of $902m (+7% y/y, -14% q/q), driven by net interest income of $1.32b (+6% y/y, +3% q/q) from 4% loans growth, although NIM narrowed to 1.66% (2Q15: 1.67%). Non-interest income came in 3% lower due to weaker life insurance performance, partially offset by treasury-related flows. Total provisions soared to $150m (3Q14: $97m, 2Q15: $80m), while NPL ratio climbed to 0.9% (3Q14: 0.7%, 2Q15: 0.7%). Tier 1 CAR of 16.0 (3Q14: 17.4%, 2Q15: 14.1%). NAV/share at $7.78.

*SMRT: 2QFY16 results in line, with net profit of $25.7m (+1.9% y/y) on revenue of $328.8m (+4.7%). Top line was led by improvements across rail (+2.7%), bus (+4.1%) and non-fare operations (+9%), although operating profit eased to $32.5m (-2.4%) as rail incurred a $4m loss, weighed by renewal and maintenance costs. Meanwhile, bus division recorded a $2.6m profit instead of a $1.4m loss previously, led by stronger revenue and diesel cost savings, while the non-fare division contributed a $33.1m (+21.7%) profit, led by contributions from the taxis, rentals and advertisements segments. Interim DPS of 1.5¢ maintained. NAV/share at $0.5747.

*Osim: 3Q15 net profit of $6.2m (-62.4% y/y) was a far cry from expectations, taking 9M15 net profit to $42.1m (-43.6%) or 49% of FY15 consensus estimate. Revenue for the quarter tumbled 10.5% to $141.6m, as sales in North Asia (-7.5%), South Asia (-10.4%) and other regions (-27.3%) were eroded. Bottom-line was further hit by higher trading goods purchased, depreciation, interest expense, as well as TWG startup and legal costs. Interim DPS of 1¢ maintained. NAV/share at $0.53.

*CapitaCommercial Trust: 3Q15 DPU of 2.14¢ (+2.4% y/y) came in line with estimates. Gross revenue and NPI grew to $68.3m (+2.9%) and $52.7m (+1.5% y), from higher rents, but partially offset by increased property tax. Overall portfolio occupancy slipped to 96.4% (-3.3ppt q/q), with WALE of 7.7 years. Aggregate leverage climbed to 30.1% (+0.6ppt q/q) with average cost maintained at 2.4%. NAV/unit at $1.74.

*Starhill Global REIT: 1QFY16 results in line, with DPU up 3.1% y/y to 1.31¢, while distributable income rose 5.2% to $30m. Gross revenue was up 16.8% to $56.8m, while NPI rose 10.2% to $43.6m, from full quarter contribution from Myer Centre Adelaide, as well as stronger performance of Singapore properties. Portfolio occupancy inched up 0.1ppt q/q to 98.3% with WALE of 6.6 years. Aggregate leverage stood at 35.7% with average debt cost of 3.13% and tenor of 3.8 years. NAV/unit at $0.90

*Mapletree Greater China Commercial Trust: 2QFY16 results in line with bullish estimates, with DPU expanding 12.6% y/y to 1.808¢, while distributable income grew 14% to $49.5m. Gross revenue increased 25.4% to $84.6m, while NPI rose 26% to $69.5m, led by strong rental reversions from Festival Walk and Gateway Plaza, as well as full quarter contribution from Sandhill Plaza. Occupancy dipped 0.6ppt q/q to 98.4% with WALE at 2.3 years. Aggregate leverage stood at 41%, with average debt cost of 2.64% and tenor of 2.45 years. NAV/unit at $1.192

*Tee Land: Group's associate, Chewathai is acquiring a 6,544sqm freehold land in bangkok, Thailand for THB316.3m ($12.4m) to develop a high-rise condominium. The proposed acquisition will be financed via a mix of internal funds and bank borrowings, and expected to completed by Jul '16.

*Technics O&G: 51% owned subsidiary clinched two EPC contracts worth $4.6m, to fabricate and install steel structures, bringing YTD order wins to $15m.

*Engro Corp.: Issued profit warning for 3Q15 and 9M15.

Tuesday, October 27, 2015

SG Economy

Economy: MAS cuts Singapore's 2015 GDP growth forecast to 2-2.5% from 2-4%
In its semi-annual macroeconomic review, MAS has shaved off the top range of its economic growth forecast for Singapore in 2015/16 to 2-2.5% from its earlier 2-4% estimate.

This comes as a confluence of regional headwinds and limited exposure to a US economic recovery casts a shadow on Singapore’s external-oriented sectors, in particular Singapore’s electronics sector (-5% q/q in 3Q15).

An advanced reading of 3Q15 GDP recovering 0.2% q/q after a 2.5% contraction in 2Q15. Back in Sep, economists polled by the MAS cut their average forecast for GDP to grow 2.2% from 2.7%.

Despite this, the central bank is sanguine on certain oil-related industries (midstream and downstream). Specifically, oil export and cargo volumes saw healthy expansions of 6.7% and 13.3% respectively in 3Q15. In contrast, the upstream offshore & marine industry continued to languish in 3Q15.

Meanwhile, the domestic-oriented industries should also see stable growth with the hospitality sector being a bright spot in the economy after visitor arrivals picked up in 2Q15, climbing 7.5% m/m in Jul.

These should help to support GDP growth in the coming quarters.

With Singapore’s current restructuring efforts, the MAS opines that growth will be driven by productivity gains underpinned by knowledge and skill upgrades. It thus sees the technology innovation-intensive sectors as important players in Singapore’s economy.

Grand Banks Yachts

Grand Banks Yachts (S$0.23): 1QFY16 results turned around on Palm Beach synergies

The luxury yacht maker achieved a turnaround in its 1QFY16 results with a net profit of $1.2m, reversing from a loss of $1.3m a year ago, while revenue more than doubled to $14m (+115.5%).

The recovery was attributable to improved efficiencies and synergies that arose from strategic initiatives undertaken following the acquisition of Palm Beach Motor Yacht (PBMY) in Aug last year:
1) Investments in new boat building equipment in Malaysian facilities
2) Investments in training for Malaysian workforce
3) Align production processes to PBMY Australia
4) Partially migrate PBMY Australia’s production to Malaysia
5) Reorganization of the Malaysian factory

Consequently, gross margin expanded 15ppt to 24.5%, which was also bolstered by a strong USD (against the AUD and MYR), which is the transactional currency for more than half of the group’s boat sales.

During the quarter, the yacht maker secured five new boat orders and lifted its order book to $32.1m as at Sep ’15 (Sep ’14: $17.5m).

Going forward, management expects FY16 to register markedly improved result as compared to FY15 given its larger boat building capacity with enhanced capabilities, and possible tailwinds from favourable FX movements.

Management also plan to accelerate marketing efforts via frequent participation in prominent boat shows, including the upcoming Fort Lauderdale International Boat Show (world’s largest boat show).

Grand Banks Yachts is currently trading at 0.96x P/B.


Banks: Poorer 3Q15 earnings but long term positive on interest rate cycle
While Daiwa expects weaker loan growth and deterioration in asset quality, it nonetheless maintains its positive outlook on the three local banks.

A breakdown of the broker’s forecasts are as follows:
1) Net Interest Margin (NIM) - DBS (+5bps q/q to 1.8%); OCBC (+8bps to 1.75%); UOB (+1bps to 1.78%)
The elevated levels of the SIBOR and SOR in 3Q15 could potentially lift NIMs during the quarter. SIBOR ended 3Q15 32bps higher at 1.14% while SOR gained 46bps to 1.24%.

2) Non-Performing Loans (NPL) - DBS (+4bps to 0.92%); OCBC (+5bps to 0.74%); UOB (+2bps to 1.26%)
One of the key overhangs on local banks is the possible increase in NPLs due to depressed commodity prices as well as poor economic conditions in ASEAN and China. The broker however highlights that up till 2H15, NPL ratios had been near record lows and while NPLs could rise, the severity of which would be highly uncertain.

Even though it sees a slight gain in overall NPLs, the house is factoring in a greater increase in credit costs with a 20bps and 21bps jump in DBS’s and OCBC’s credit cost while a UOB could see an 11bps decline in credit costs.

3) Loan Growth - (+1% across the board)
With loans growth is anaemic (Aug: +1.5% y/y, +0.5% m/m) in Singapore, the local banks are expected to miss their loan guidance of mid-to high single-digit underlying loan growth.

4) Net Trading Income
The broker expects DBS and UOB to see a 19% slump in net trading income in view of the steep correction in global equity markets during the quarter.

Overall, local banks are expected to suffer a crimp in net earnings with the exception of UOB, which is expected to see bottom line grow 27% to $963m on stronger sequential growth in its non-interest income segment.

DBS’s net profit is forecast to ease 10% to $1b after factoring a $277m provisioning charge, while OCBC will be the worst performer with earnings slumping 27% to $770m on a 52% slide in contributions from Great Eastern.

Despite this, the house remains positive on the banking sector owing to its long term bullish view of global interest rates that would underpin NIM growth. It prefers DBS (Buy; TP: $18) over OCBC (Buy; TP: $9.47), and UOB (Outperform; TP: $20.40).

OCBC will kick off earnings reporting on 28 Oct with UOB and DBS reporting on 30 Oct and 2 Nov respectively.


Hi-P: A local broker is maintaining its Trading Buy call on Hi-P with a TP of $0.59, highlighting that the 64.9% acquisition stake of Yota Devices by Hong Kong based Rex Global Entertainment for US$100m, is a positive and increases the chances of a settlement of the arbitration case between Hi-P and Yota Devices.

The broker also expects Hi-P to benefit positively from the record sales of key client Apple’s iPhone 6S and 6s Plus, with 13m handsets sold just three days after its launch. Consensus estimates are for the tech giant to sell ~48.5m iPhones in the Sep quarter, which represents a 24% y/y increase.

Following the recent flow of events, the broker is more confident of a 2H15 turnaround and is lifting its FY15 earnings estimates by 13%.

At the current price, Hi-P trades at just 0.61x P/B.

SG Market (27 Oct 15)

Singapore shares are due for a technical pullback as investors tread cautiously ahead of the Fed’s two-day FOMC meeting which kick starts today, as well as the upcoming release of earnings from the local banks, starting off with OCBC (28 Oct), followed by UOB (30 Oct) and DBS (2 Nov).

Regional bourses are trading lower this morning in Tokyo (-0.1%), Seoul (-0.4%) and Sydney (-0.1%).

From a chart perspective, resistance for the STI is capped at 3,120 with downside support at 2,980.

Stocks to watch:
*Ascendas India Trust: 2QFY16 DPU jumped 8% to 1.37¢ in tandem with a 9% rise in distributable income to $14.0m even as finance costs burgeoned 46% to $5.9m. Gross revenue grew 14% to $36.5m on income from newly acquired CyberVale and aVance 3. NPI jumped 23% to $23.7m on lower utilities expenses (-8.5% to $8.8m). Portfolio occupancy remained stable at 97% with WALE of 3.5 years, while aggregate leverage climbed to 27% (+1ppt q/q) with average debt cost of 7%. NAV/unit at $0.65.

*Grand Banks Yachts: Swung to 1QFY16 net profit of $1.2m (1QFY15 net loss: $1.3m), as revenue more than doubled to $14m from restructuring efforts and progressive recognition of the net order book, inclusive of contribution from the first two Palm Beach yachts being built in Malaysia. Gross margin soared to 24.5% (15ppt) from brand streamlining efforts, and the stronger USD against the AUD and MYR. NAV/share at $0.24.

*CapitaLand: Entered JV with Saigon Commercial & Tourism Corp to develop a prime site in District 2 at Ho Chi Minh City for an estimated project value of US$55m. The site is located in the expat community of the Thao Dien ward. CapitaLand will hold an 80% stake in the JV.

*ARA Asset Management: Group's Korean subsidiary has partnered ShinYoung, a Korean residential property developer and operator, to launch its third privately-held REIT in South Korea. The REIT, ARA ShinYoung Residential Development Real Estate Investment Co. will focus on residential assets.

*Hyflux: Clinched contract from NEA with Mitsubishi Heavy Industries (MVI) to develop and operate (for 25 years, 2019-2044) Singapore's largest waste-to-energy plant, which can incinerate 3,600 tonnes of waste to generate 120MW of electricity per day. The plant will be built by a 75/25 project company (TuasOne), on a 4.8ha land, with construction work commencing in early 2016 and expected to complete by 2019.

*Pteris Global: Won 3 contracts worth $64.2m. The first two contracts (Rmb264.3m) are for the supply of Passenger Boarding Bridges (PBB) and ancillary equipment for Terminal 3 and Terminal 2 at Wuhan Tianhe International Airport and Guangzhou Baiyun International Airport in China, respectively. The third contract worth US$4.3m, is related to the baggage handling system for Phoenix Sky Harbour International Airport, USA.

*Frasers Centrepoint: Opening "Modena by Fraser Bangkok", a 239 unit service residence in 2016 within the FYI Center mixed-use development, located at Rama IV Road, central Bangkok.

*First Resources: Acquired an Indonesian plantation company for US$1.4m.

*Asia-Pac Strategic Investments: Terminated the $500m proposed acquisition of Coeur Gold Armenia as the condition precedent for the acquisition was not fulfilled by the extended long-stop date of 24 Oct 2015.

*TalkMed: JV with StemCord launched two private stem cell banks that will be able to store up to 100,000 umbilical cord units and cord blood units.

*NauticAWT: Received partial funding from SPRING Singapore with regards to its new generation oil well cementing materials project. If successful, it will be able to expand its service offerings and grow in the subsurface and wells business segment.

*Oxley: Launched a 4-year 5% per annum retail bond offering to raise up to $125m. Net proceeds will be used for general corporate purposes, working capital and capex.

*Leader Environmental Technologies: Expects to report a significant 3Q15 loss due to impairments on investments in associate as well as write offs.

Monday, October 26, 2015

China Everbright Water

China Everbright Water (CEWL): Proposed the reduction of share premium account to set off against the accumulated losses of the company. DBSV reckons that the main reason for the reduction of share premium account or the elimination of
accumulated losses is to pave way for dividend payment in the future.

Thus, the house views such exercise as positive. Note that the above transaction will be carried out in the accounts of the holding company, i.e. not the consolidated accounts of the Group. On the Group level (or in the consolidated
accounts), share capital will not be affected and total equity remains unchanged. Thus, the exercise will not affect CEWL’s financial ratios and EPS.

Addvalue Technologies

Addvalue Technologies: Entered into a MOU with China International Security Solution Corporation (CSS) to jointly develop and supply satellite communication-based solutions, products and services for the communications needs associated with the ‘the Belt and Road’ initiative spearheaded by China.

The strategic collaboration is expected to forge a win-win partnership between the two companies, with Addvalue being tasked to design and supply the satellite communication products needed in meeting
the complex communication and monitoring demands.

As the “Belt and Road” initiative creates more traction, both companies shall collaborate to set up operating entities within related nations or regions to provide sales and technical services to support satellite communication.


DBS: Newswires reported that DBS and South Africa’s banking group FirstRand are in separate discussions to buy RBS’ India unit, with sources indicating that the deal could be worth US$200m.

RBS businesses in India consist of corporate and institutional banking, cash management and trade finance. The proposed sale will however not involve RBS’ back-office outsourcing business.

Market watchers are guiding that the takeover of RBS’ corporate banking business in India would enable the acquirer to better compete with larger domestic rivals in India, most of which are state-owned banks.

Based on its 2014 annual report, DBS currently has 12 branches in 12 major cities in India, and together with China, Taiwan and Indonesia, contributes to 15% of its 2014 total income.

A successful acquisition of RBS’ assets would enable DBS to make further inroads into India, and expand its Pan-Asian network.

Maybank-KE has a Sell rating on DBS with a TP of $15.90, arguing that Singapore banks are facing serious disintermediation pressures. This shrinks their returns from financial intermediation and marks a structural change for the sector, which should be priced into the sector’s long-term valuations.

Hutchinson Port

Hutchinson Port (US$0.56): 3Q15 earnings beat on tariff and cost improvements

HPHT’s delivered a 3Q15 net profit of HK$525.9m (+7.2% y/y, +31.5% q/q), beating market expectations. This brought 9M15 to HK$1.21b (-14.6% y/y) or 75% of full year consensus estimates.

Revenue rose to HK$3.5b (+2.3% y/y, +12% q/q) on firmer average revenue per TEU following tariff hikes of 4-5% for half of its shipping clients in Hong Kong and Yantian, China.

However, container throughput at Hong Kong terminals suffered (+9.2%) from weaker intra-Asia and transhipment cargoes, and overshadowed throughput growth at its Yantian terminal (+4.7%), thereby partially weighing on the group’s top line performance.

EBITDA margin expanded 1.6ppt to 58.2% on lower costs, primarily due to lower throughput handled and fuel savings.

Moving forward, management guided a tepid container volume outlook for 4Q15 amid lukewarm economic growth in US and Europe.

Despite the challenging environment, management is confident of reaching its FY15 DPU target of HK$0.33-0.36, as they continue to focus on tariff and cost improvements.

HPHT is currently trading at 0.9x P/B and offers a distribution yield of 7.9%.

The street has 4 Buy, 7 Hold and 2 Sell, with a consensus TP of US$0.60.

Latest broker ratings:
HSBC upgrades to Buy, cuts TP to US$0.63 from US$0.65
Deutsche maintains Buy with TP of US$0.62

Sheng Siong

Sheng Siong: (S$0.885) Growth story intact with more stores to be secured
Maybank-Kim Eng is maintaining its bullish call on Sheng Siong in light of expectations of further expansion as well as its defensive nature.

The supermarket group recently announced 3Q15 net profit of $14.5m (+18.7% y/y), meeting the street’s estimates on revenue growth of 7.3% to $200m as five new stores contributed to the group’s overall performance.

Post-earnings, Sheng Siong's growth story continues to have its roots in the opening of new stores with management particularly optimistic about securing more store space from HDB.

HDB is expected to complete about 30 HDB commercial sites by 2016 to support retailers. However to-date, only eight such sites have been completed, suggesting more offerings will be made available in 2016.

So far, the group has confirmed the opening of two stores at Tampines 506 and Junction 9 in 2016, which would add an additional 34,180 sf to its portfolio (3Q15: 426,000 sf).

On the China front however, Sheng Siong's Kunming venture has been unable to source for a suitable location for its first supermarket.

Another key downside remains the lacklustre growth at its old stores, which are projected to grow at a slower 1-3% because of weaker retail sentiment.

The group is taking steps to counteract this trend by renovating stores located in old HDB estates to boost sales with at least one large store to be renovated in 2016.

In view of the above, the house maintains its Buy call on the counter with a TP of $1.07, implying a potential upside of 21% from current prices.

Raffles Medical Group

Raffles Medical Group (RMG) 3Q15 results missed estimates, with net profit inching up 1.2% to $15.6m on revenue of $101.5m (+7.4%).

Top-line was led by hospital services (+11.7%), which commanded better margins but earnings were dragged by higher startup costs of an additional floor at Raffles Hospital and the opening of a new Medical Centre at Shaw Centre, resulting in higher depreciation (+28.5%) and operating lease (+32.3%) expenses.

Maybank-KE believes that the RMG’s expansions should continue to drive healthy topline growth and believes that the street will not read too much into the temporary expansion costs.

Going forward, RMB expects the healthcare landscape to remain competitive and the more measured pace of economic growth in Singapore and the region may have a dampening effect on healthcare demand. The group is however closely monitoring market conditions, and will continue to be responsive to new opportunities that may arise both regionally and globally.
Fundamentals remain strong, with the group in a net cash position of $81.5m, representing 14.2¢ per share.

At the current price, RMG trades at 34.5x FY15E P/E.

CapitaLand Retail China Trust

CapitaLand Retail China Trust (CRCT): 3Q15 DPU of 2.35¢ (+12.3% y/y) came in line with estimates on higher distributable income of $19.5m (+14.2%), boosted by stronger yuan.

In Rmb terms, gross revenue slipped 0.7% to Rmb251.8m, impacted by CapitaMall Minzhongleyuan (affected by a road closure for construction of a new subway line) and CapitaMall Wuhu (tenant repositioning). Excluding the two malls, top line would have improved 4.6% from strong rental growth (+10.9%) in multi-tenanted malls.

With the exception of CapitaMall Minzhongleyuan, overall shopper traffic across CRCT's malls grew 2.4% y/y (+6.5% q/q), with solid tenants’ sales growth of 12.7% y/y (+1.3% q/q).

Portfolio occupancy slipped to 94.8% (-0.2ppt) with WALE of 8.5 years, while aggregate leverage climbed to 28.5% (+0.8ppt q/q) with an average debt cost of 2.98% and debt tenor of 2.42 years.

The trust continues to enhance assets across its portfolio of 10 properties to support future rental reversions, with a facade upgrading at CapitaMall Wangjing (completion by 1H16), facilities enhancement at CapitaMall Grand Canyon (completion in 4Q15) and tenant reconfiguration at CapitaMall Xizhimen (completion in 4Q15 to 1Q16).

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.

At the current price, CRCT is trading at an annualized 3Q15 yield of 6.2% and 0.89x P/B.

Office/ Retail Reits

Office/ Retail Reits: URA 3Q15 data showed acceleration in the fall of office and retail rent rates on a sequential basis, which prompted market observers to project a further softening into 2016.

Office rents in central region slipped 2.9% q/q, following the 2.6% drop in 2Q15. Likewise, capital values dipped 0.1% q/q (2Q15: +0.3%).

Meanwhile, retail rents in the central region tumbled 2% q/q (2Q15: -0.5%), marking its third consecutive quarter of decline. Market values for retail space continue its fall by 0.3%, following the 0.5% drop the previous quarter.

The headwinds from uncertainties in the business climate caused by the weak global economy are expected to remain, as businesses continue to trim operating costs, amid rising labour expenses.

Notably, downsizing of space requirements by financial firms, cost cutting by professional services firms, as well as the expressions of intention by retailers to terminate their leases do not suggest a near term turnaround in sentiment

Maybank-KE is most negative on the retail segment due to a weak demand and strong supply environment, followed by a Neutral stance on the office space from the deteriorating economy.

Within the two segments, the house least favours retailers Frasers Centrepoint Trust (Sell, TP: $1.61) and Mapletree Commercial Trust (Sell, TP: $1.10), followed by office REITs Suntec (Sell, TP: $1.33) and Keppel REIT (Hold, TP: $0.88).

SG Market (26 Oct 15)

Singapore shares may enjoy positive spillover from the tech rally on Wall Street last Fri following bumper earnings by US technology giants and surprise monetary easing by China.

But sentiment is expected to be remain fragile ahead of BoJ and Fed meetings this week and the release of 3Q results from the local banks, starting off with OCBC (28 Oct), followed by UOB (30 Oct) and DBS (2 Nov).

Regional bourses are trading higher this morning in Tokyo (+1.3%), Seoul (+0.3%) and Sydney (+0.3%).

From a chart perspective, the STI has broken out of its tight trading range and is likely to head towards the next upside objective of 3,120 with downside support at 2,980.

Stocks to watch:
*Property: Private home prices continue to slide in 3Q, with the URA index down 1.3% q/q, the steepest in eight consecutive quarters of declines. On the other hand, public housing appears to have stabilised, with the HDB resale price index dipping 0.3%, the smallest q/q fall in nine straight quarters.

*China Water: Consultative draft policies from China ’s 5th Plenum is scheduled to be released this week, with favourable policies and increased government spending in the water treatment sector anticipated. This may spark positive sentiment for counters such as China Everbright Water, SIIC Environment and Citic Envirotech.

*Hutchinson Port: 3Q15 results beat expectations as net profit rose 7.2% y/y to HK$525.9m on a slightly higher revenue of HK$3.5b (+2.3%), supported by firmer revenue per TEU in Hong Kong and China following tariff hikes. Operating margin expanded 1.8ppt to 37.9% on lower costs, primarily due to lower throughput handled and lower fuel price. Management guided tepid container volume outlook for 4Q15, and will continue to focus on tariff and cost improvements to achieve FY15 DPU target of HK$0.33-0.36. NAV/unit at HK$4.84.

*CapitaLand Retail China Trust: 3Q15 DPU of 2.35¢ (+12.3% y/y) was in line, on higher distributable income of $19.5m (+14.2%), boosted by stronger yuan. In Rmb terms, gross revenue slipped 0.7% to Rmb251.8m, impacted by CapitaMall Minzhongleyuan (road closure for construction of a new subway line) and CapitaMall Wuhu (tenant repositioning). Portfolio occupancy slipped to 94.8% (-0.2ppt q/q) with WALE of 8.5 years, while aggregate leverage climbed to 28.5% (+0.8ppt) with an average debt cost of 2.98% and tenor of 2.42 years. NAV/unit at $1.70.

*Raffles Medical Group: 3Q15 results missed estimates, with net profit inching up 1.2% to $15.6m on revenue of $101.5m (+7.4%). Top-line was led by hospital services (+11.7%), which commanded better margins but earnings were dragged by higher depreciation (+28.5%) and operating lease expenses (+32.3%) largely as a result of the new and expanded operations at RafflesHospital and the newly opened RafflesMedicalCentre Orchard. NAV/share at $1.02.

*SIA: Maybank-KE downgrades to Hold from Buy and shaves TP to $11.80 from $11.85, in light of the persistent soft yield environment and management’s plans to taper down future growth capacity plans. Fair value is based on an unchanged 1.0x FY17 P/B, in line with its 10-year mean.

*PSL: Issued profit warning for 3Q15.

Friday, October 23, 2015

Suntec REIT

Suntec REIT recorded a 3Q15 DPU of 2.52¢ (+8.3% y/y) on distributable income of $63.6m (+9.2%), which came in line with expectation. 9M15 DPU was lifted to 7.25¢ or 74% of full year consensus estimate.

Gross revenue of $86.1m (+20.4%) soared in tandem with NPI of $8.5m (+19.9%), bolstered by completion of Phase 3 AEI works at Suntec City and higher contribution from Suntec Singapore.

Occupancy for office portfolio trickled down 0.1ppt q/q to 98.9% , mainly dragged by MBFC properties (-2.3ppt), but remains well above Singapore’s average CBD Grade A office occupancy of 93.9%.

Average office rents for leases secured were higher than previous quarter at $9.21psf (2Q15: $9.14psf), but lower than CBD average of $9.61psf. Suntec is still faced with a herculean task of sustaining its rental rates, as it still has 21.4% of leases expiring in 2016, when a new wave of office supply is expected to come on stream.

On the other hand, retail portfolio’s occupancy inched up 1.4ppt to 96.5%, supported by completion of AEIs at Suntec City Mall (+1.7ppt). However, passing rents also continued its downward spiral to $12.03psf from $12.12psf in the previous quarter, and the retail portfolio has 27.7% of leases due for renewal in 2016.

Both aggregate leverage and average cost of debt crept up to 35.8 % (+0.5ppt) and 2.74% (+0.04ppt) respectively. Average debt tenor has shortened to 2.82 years (2Q15: 3.08 years).

Going forward, management expects the solid occupancy rate from its office portfolio can help the REIT stay resilient in FY15. Nevertheless, headwinds of oversupply in offices and persistent manpower issues, as well as weak retailer sentiment will put much pressure on the REIT in 2016.

Maybank-KE echoes the view of the management and added that Suntec’s forward yield of 5.9% is less compelling as compared to its peers, such as Keppel REIT (FY16: 6.5%) and CapitaLand Commercial Trust (FY16: 6.2%).

As such, the house maintain a Sell rating and TP of $1.33 on the counter.

Latest broker ratings:
UOB Kay Hian maintains Buy with TP of $1.81
Credit Suisse maintains Underperform with TP of $1.54
OCBC upgrades to Hold with TP of $1.50
Daiwa maintains Hold with TP of $1.48
Deutsche maintains Sell with TP of $1.45
Maybank-KE maintains Sell with TP of $1.33

Sembcorp Marine

Sembcorp Marine: (S$2.46) Abysmal 3Q15 hard hit by rig deferments, impairment and associate losses
Sembcorp Marine (SMM) posted 3Q15 results that were far below already lowered expectations as net profit slumped 75.7% y/y to $32.1m. This took 9M15 earnings to $247.2m (-36%) forming just 54% of the street’s full year forecast, triggering a wave of broker downgrades.

Top line performance was poor with 3Q15 revenue sliding 34% to $1.1b as the group got hit by double whammies from its rigs (-43.4% to $943.8m) and repair (-16.5% to $131.4m) businesses, mitigated by contributions from offshore platforms (+6.6% to $234.7m).

The tumble in its rig business was mainly due to the suspension of revenue recognition for five jackup rigs from Aug ‘15 due to customer deferment requests.

Operating margin whittled 3.4 ppt to 6.6% due to reduced operating leverage, coupled with consultant fees for yard transformation and a rebranding as well as a reversal of some previous profits that were recognised.

The group’s bottom line was further pressured by associate and JV losses of $24.4m (3Q14: $2.6m profit) as well as a $17.1m impairment charge. Both were associated with its investment in Cosco Shipyard Group.

During the quarter, the group secured a US$1b EPC contract with Maersk Oil North Sea UK, bringing ytd order wins to $2.9b or ~70% of the $4.2b it won in 9M14. As a result, its order book slipped 8.1% to $11.6b with deliveries and completion stretching until 2020.

Management updated that its Brazilian exposure through seven drillship orders have continued to hamper its finances with operating cash flows contributing a measly $0.2m to its depleted cash hoard of $824.8m (-47%).

Moving forward, management continues to see weak oil prices and an oversupply of rigs weighing on overall sentiments.

At current prices, SMM is trading at 12x forward P/E and 1.7x P/B.

Latest broker updates:
Maybank-KE maintains Sell, cuts TP to $1.75 from $2.00
Deutsche maintains Sell, cuts TP to $1.90 from $2.00
OCBC downgrades to Sell from Hold, cuts TP to $2.00 from $2.20
CIMB maintains Reduce, cuts TP to $2.03 from $2.18
UOBKH maintains Hold, cuts TP to $2.34 from $2.45
Credit Suisse maintains Neutral, cuts TP to $2.40 from $2.60
HSBC maintains Buy, cuts TP to $3.23 from $3.57

Ascendas REIT

Ascendas REIT: (S$2.50) 2QFY16 core DPU in line on acquisitions and solid rental reversions

For 2QFY16, Ascendas REIT reported a stronger-than-expected DPU of 4.16¢ (+13.7% y/y) and distributable income of $100.2m (+14%), but was mainly due to a one-off $6.5m tax writeback (0.271¢/unit). Excluding this, DPU would have been largely in line with expectations.

Gross revenue rose 10.8% to $182.6m, underpinned by acquisition of Aperia and The Kendall, positive rental reversion of 9.1%, led by business parks (+13.2%), and higher occupancy at 40 Penjuru Lane, Aperia and A-REIT City @Jinqiao.

However, NPI grew at a slower pace of 8% to $123.8m, mainly weighed by swelling property services fees (+18.4%) and property taxes (+34.3%).

Overall portfolio occupancy inched 0.2ppt q/q to 89.0%, while weighted average lease to expiry shortened marginally to 3.6 years (1QFY16: 3.7 years).

Aggregate leverage was relatively unchanged at 34.6%, as both average cost of debt and average debt tenor were trimmed to 2.73% (1QFY16: 2.76%) and 3.6 years (1QFY16: 3.8 years) respectively.

As the REIT has locked in 72.1% of borrowings at fixed rates, it estimates a 50bps hike in interest rate will sap distributable income and DPU by $4m and 0.17¢ respectively.

During the quarter, the industrial landlord proposed a maiden acquisition of 26 logistics properties in Australia for A$1.013b, which is expected to be completed by 4Q15. This would increase aggregate leverage to 37.8% (post issue of $300m perpetual securities) and generate an NPI of 6% in the first year.

Meanwhile, BBR Building was divested for $13.9m, and yielded a capital gain of $6.8m.

On asset enhancement initiatives (AEIs), AREIT completed two AEIs worth $30.4m at Techlink & Techview and Honeywell building. The remaining $94.9m of on-going AEIs will likely be completed by 2Q16.

Moving forward, management guided that leases of up to 10.2% of property income are expiring in FY16 and there may be moderate upward reversions on renewal, given that average passing rental rates of these leases are lagging behind market spot rates.

Maybank-KE views the room for positive rental reversions and proposed acquisition of Australian portfolio as catalysts for DPU growth, but noted that business condition will remain challenging as it expects the industry supply glut to start fading only after 2016.

Consequently, the house maintains a Hold rating, but revised TP upwards by 9.6% to $2.28.

Ascendas REIT currently trades at 6.2% annualized yield and 1.2x P/B.

Latest broker rating:
UOBKH maintains Buy with TP of $2.68
OCBC maintains Buy with TP of $2.58
CIMB maintains Add with TP of $2.57
HSBC maintains Hold with TP of $2.50
Maybank-KE maintains Hold, raises TP to $2.28 from $2.08
Deutsche maintains Hold with TP of $2.25

Sheng Siong

Sheng Siong: 3Q15 net profit of $14.5m (+18.7% y/y, 6.6% q/q) brought 9M15 earnings to $42.2m (+17.8%), making up 76% of street's full year forecast.

Revenue grew to $200m (+7.3% y/y, +11.7% q/q), mainly boosted by contribution from five new stores, while same-store-sales (+ 1.1% y/y) was dampened by several factors:

1) Sales contraction at the Woodlands store due to local shoppers crossing over to JB to enjoy the weaker ringgit
2) Lower footfalls at Loyang Point store due to ongoing renovation works in vicinity
3) Drastic fall in the sale of liquor at the Geylang store after imposition of restrictions
4) Lower sales in some of the older stores

Gross margin remained healthy at 24.3% (+0.1ppt y/y), but dipped 0.9ppt sequentially due to seasonal factors.

Meanwhile, bottom line was boosted by higher rental income (+162%) from leasing of excess space, government grants of $0.6m (2Q14: $0.5m), as well as a one-off advertising support from suppliers and business partners ($0.8m).

In the near-term, Sheng Siong is scheduled to open its fifth new store in 2015 at Dawson Road next month, growing its portfolio gfa by ~6.5% this year.

Overall, the street generally likes Sheng Siong's growth potential, mainly from new store additions, as well as its status as the supermarket with the widest margins.

There are 9 Buy, 1 Hold and no Sell ratings on the counter, with an average 12-month TP at $0.98.

SG Market (23 Oct 15)

Singapore shares likely to be lifted along with the buoyant mood US, Europe and possibly China, in anticipation of favourable policies coming from its 5th Plenum next week

But gains may be capped by downbeat 3Q results from index heavyweights Keppel Corp and Sembcorp Marine, which showed the world’s top two rigbuilders are not spared the downturn in the offshore O&G industry.

Regional bourses are trading higher in Tokyo (+2.3%), Seoul (+0.9%) and Sydney (+1.8%).

From a chart perspective, the STI is likely to break out of its tight trading range and head towards the next objective of 3,120 with downside support at 2,980.

Stocks to watch:
*Keppel Corp: 3Q15 results in line with estimates, with net profit down 12.4% y/y to $362.9m on revenue of $2.4b (-23.4%). The weaker topline was due to lower revenue from the O&M division (-36% to $1.4b) and infrastructure division (-30% to $536m), partially offset by a more than doubling of revenue from the property division to $487m. Operating margin fell 2.5ppt to 15.2%. Bottom-line was further weighed by a 73.4% rise in interest expenses, but offset by a 64.7% rise in associate contributions. YTD, the group's O&M division has secured $1.7b of new orders, with current net order book at $10.0b. NAV/share at $5.91.

*Sembcorp Marine: 3Q15 results way below estimates, as net profit slumped 75.7% y/y to $32.1m, on a 34% drop in revenue to $1.1b. The weak topline was mainly due to fewer rig deliveries (-43.4% to $743.8m) on deferments by customers as well as lower ship repair (-16.5% to $131.4m) revenue mitigated by contributions from offshore platforms (+6.6% to $234.7m). Operating margin fell 3.4ppt to 6.6%. Bottom line was further pressured by associate/JV losses of $24.4m (3Q14: $2.6m profit). Order book stood at $11.6b (2Q15: $10.9b) with YTD order wins of $2.9b. NAV/share at $1.43.

*Ezra: 4QFY15 turned into net loss of US$7.8m (4QFY15: +US$11m), bringing FY15 net profit to US$43.7m (-3%). Revenue of US$147.4m (+22% y/y) was boosted mainly by results from 60.9% owned Triyards. However, weak performance from the marine services division weighed on gross profit (-10% to $16.0m). NAV/share at US$0.465.

*Tigerair: 2QFY16 net loss narrowed to $12.8m (2QFY15: -182.4m), as revenue gained 12.8% y/y to $167.9m, on improved yields (+8.2%) and load factor of 84.1% (+1.6ppt). Operating loss narrowed to $10.4m (2QFY15: -$25.3m, 1QFY16: +$0.6m) from better performance for airline operations in Singapore, with slightly higher expenses (+2.4%) caused by increased aircraft maintenance, aircraft rentals and a stronger USD/SGD, which offset the lower fuel costs (-19.8%). NAV/share at $0.0837.

*Ascendas REIT: 2QFY16 core results in line, with the strong DPU surge of 13.7% y/y to 4.16¢, attributable to a non-recurring tax writeback (0.27¢/unit). Gross revenue grew 10.8% to $182.6m, underpinned by acquisitions of Aperia and The Kendall, positive rental reversions, and higher occupancy at 40 Penjuru Lane, Aperia and A-REIT City @Jinqiao. NPI (+8%) growth lagged behind amid costlier property service fees and taxes. Overall occupancy up 0.2ppt q/q to 89.0% with WALE of 3.6 years. Aggregate leverage and average cost of debt were steady at 34.6% and 2.73% respectively. NAV/unit at $2.10.

*Suntec REIT: 3Q15 results met expectations as DPU climbed 8.3% y/y to 2.52¢ on a stronger distributable income of $63.6m (+9.2%). Gross revenue (+20.4% to $86.1m) soared in tandem with NPI (+19.9% to $58.5m), bolstered by completion of Phase 3 AEI works at Suntec City and higher contribution from Suntec Singapore. Office and retail occupancy were at 98.9% (-0.1ppt q/q) and 96.5% (+1.4ppt) respectively. Aggregate leverage crept up 0.5ppt to 36.7% with an average debt cost of 2.74%. NAV/unit at $2.09.

*Frasers Commercial Trust: 4QFY15 DPU of 2.52¢ (+14% y/y) brought FY15 DPU to 9.71¢ (+14%), above management guidance. Gross revenue and NPI jumped 17% and 15% to $37.2m and $27.1m respectively, boosted by higher contributions from Alexandra Technopark, China Square Central and 55 Market Street on higher occupancies and rental reversion, but partially offset by the weakening AUD. Overall occupancy was healthy at 95.4% with WALE of 3.5 years. Aggregate leverage improved to 36.2% (-1.1ppt) with all-in borrowing cost of 2.96%. NAV/unit at $1.53.

*Sheng Siong: 3Q15 results in line, with net profit at $14.5m (+18.7% y/y) on revenue of $200m (+7.3% y/y), mainly boosted by five new stores, as well as same store sales growth (+1.1% y/y). Gross margin grew 0.1ppt y/y to 24.3%. Earnings were further boosted by higher rental income (+162% y/y) and one-off advertising support from suppliers and business partners. NAV/share at $0.153.

*Chip Eng Seng: Formed a 20% owned JV with five other partners to acquire a 11,800sqm land at Ho Chi Minh, Vietnam for a residential development.

*EMS: Signed LOI with an Asian based shipyard, worth US$570m, to supply, test, and commission six sets of major equipment packages for rigs. Formal contracts are expected to be signed by end-2015 with the delivery of the first set of equipment before Jul ‘17.

*Perennial Real Estate: Increased the total size of its maiden debt issuance to $300m from $150m, after strong interest (4.1x oversubscribed) from both public and private investors.

*IEV: Signed MOU with TL-Emrail Consortium to conduct an LNG feasibility study in Tamil Nadu, India.

*Cosco Corp: Issued profit warning for 3Q15.

*Sim Lian: Issued profit warning for 1QFY16.

Thursday, October 22, 2015


SATS: (S$3.86) Acquiring 49% stake in loss-making MAS caterer
SATS has made a offer to acquire a 49% stake in Brahim’s Airline Catering (BACH) from KLSE-listed Brahim’s Holdings for RM218m, half of which would be conditional upon certain targets being achieved.

With the acquisition, SATS will be looking to tap on an inflight catering contract that BACH had recently secured from Malaysia Airlines (MAS). The new catering contract is for a period of five years with a renewal option for additional five years and comes with a 25% lower price tag than the previous one.

Brahim’s owns a 70% equity stake in BACH while MAS holds the remainder.

According to its Bursa filing, Brahim’s reported a 2Q15 net loss of RM6.8m on lower revenue of RM67.1m (-27.3%) as contributions from its inflight catering segment slumped 28.1% to RM64.3m.

The poor performance was attributable mainly to concessions given to MAS after the national carrier was taken over by Malaysia’s sovereign wealth fund, Khazanah Nasional.

SATS will be looking to expand on its operations after its revenue declined 4.2% in 1QFY16 amid a challenging operating environment. However, cost cutting measures helped to buoy a 8.5% gain in core net profit to $47.1m.

More recently, the group announced that all of its operating metrics improved in 2QFY16 with cargo/mail processing being the sole exception. The increases across most of its operations were driven by both full-service and budget carriers.

At current price, SATS is trading at 20.2x forward P/E, and offers a 3.6% dividend yield. The street is neutral on the counter with 3 Buys and 8 Holds ratings and a TP of $3.61, indicating a potential 7% downside.


MCT (S$1.36): Steady 2QFY16 supported by rental uplift at VivoCity

MCT’s 2QFY16 results came in line as DPU climbed 2.5%y/y to 2.02¢ on a stronger distributable income of $42.8m (+3.3%). This lifted 1HFY16 DPU to 4.03¢ or 49% of full year consensus estimate.

Gross revenue inched up 1.9% to $71.3m, contributed mainly by higher rental income arising from positive rental reversion and step-ups at VivoCity (+4.4%), but partially offset by Mapletree Anson (-12%) which recorded lower occupancy versus full occupancy the previous year.

Both shopper traffic (+3.1%) and tenant sales (+5.5%) at the retail mall made a strong comeback in 2QFY16 after dipping 6.7% and 2% respectively in the prior quarter.

Top line aside, property expenses were trimmed by 7.6% to $16.5m, resulting from lower electricity consumption and tariff rates. Accordingly, NPI was bumped up by 5.1% to $54.8m but was shaved by higher finance expenses of $9.9m (+14.6%).

Overall portfolio occupancy strengthened marginally by 1.1ppt q/q to 96.6%, largely lifted by improvements at Mapletree Anson (+4.3ppt) and PSA Building (+2.4ppt), while weighted average lease-to-expiry was extended slightly to 2.3 years from 2.2 years.

Aggregate leverage and average cost of debt held at 36.4% and 2.4% respectively, as average debt tenor shortened to 3.9 years (1QFY16: 4.1 years). Proportion of fixed debt also remained unchanged at 70.6%.

Looking ahead, MCT is cautious about the outlook for the retail industry as manpower issues, tepid retail sales and swelling business costs deter retailers has deterred retailers from expanding their business, with a few planning to consolidate their stores.

The office segment is not faring any better as tenants were kept at bay by anticipation of further rental pressure when a new wave of supply comes on stream in 2H16.

However, management expects MCT's properties to maintain their resilience given their location within commercial hubs.

MCT currently offers an annualised 1HFY16 yield of 5.9% at 1.1x P/B.

Latest broker ratings:
Credit Suisse upgrades to Outperform with TP of $1.62
Deutsche maintains Buy, with TP of $1.44
CIMB maintains Hold, cuts TP to $1.44 from $1.54.
Maybank-KE maintains Sell with a TP of 1.32


SGX (S$7.56): Great start to 1QFY16 amid soaring derivatives and improving securities

SGX kicked off FY6/16 on a high with 1QFY16 net profit of $99.3m (+28%) topping estimates at 26.8% of full year consensus forecast.

Revenue soared 30.1% to $219.6m, led by its derivatives business (+69.1%), with securities (+13.8%), market data & connectivity (+12%), and depository services business (+24.4%) playing their part. Issuer services (-5.8%) was the only laggard amid a fall in listing revenue (-12.1%).

Derivatives, which accounts for 41% (1QFY15: 32%) of total revenue, stole the show as total volume swelled 82% to 52.5m contracts, notably from the heavily traded China A50 (+164%) and iron ore (+266%) futures, despite a lower average fee per contract (-16.5%).

Securities business (25% of total revenue) saw a 27% improvement in daily average traded value to $1.23b but average clearing fees declined 6% to 2.9bps. Turnover velocity for the quarter picked up to 46% against 32% last year.

There were no mainboard listing and only seven Catalist IPOs raising $103.9m in 1QFY16, compared to 13 new listings raising $1.9b a year earlier. About $41.6b was raised from 97 new bonds versus $52.8b drawn from 131 bond listings in 1QFY15.

Operating expenses rose at a slower pace to $102.3m (+25%) on better cost containment, especially from technology (10%). Consequently, operating margin expanded 1.9ppt to 53.4%.

In view of the strong start, interim DPS was raised by 1¢ to 5¢.

Management attributed the solid results to increased trading activities stirred by recent volatility in global financial markets, but cautioned that a persistently weak market sentiment may be a stumbling block in the coming quarters.

New CEO Loh Boon Chye set out three key priorities to ensure the exchange remains resilient - 1) improve liquidity in the securities market, especially STI’s small-mid caps, 2) maintain cost discipline, and 3) pursue diversification through growing FX futures market, broadening fixed income service offerings, as well as expanding market data and index businesses.

SGX currently trades at 22x consensus FY16e P/E, relatively lower than that of HKEx at 29.6x, and offers an annualised dividend yield of 4.1%.

Latest broker rating:
Credit Suisse maintains Outperform with a TP of $10.00
Deutsche maintains Buy with TP of $9.40
RHB upgrades to Buy, increases TP to $8.13 from $7.58
CIMB upgrades to Hold with a TP of $7.98
CLSA maintains SELL with a TP of $6.96

Cache Logistics Trust

Cache Logistics Trust’s 3Q15 results were in line, with flat DPU of 2.14¢, while distributable income inched up 0.6% y/y to $16.8m which includes a partial capital distribution of $1.5m from its divestment of Kim Heng Warehouse in Jun '15.

Excluding the Kim Heng proceeds, distributable income would have fallen 8.4% to $15.3m following a 51.9% surge in net financing costs to $4.1m.

Revenue jumped 11.3% to $23.1m on full quarter contribution from the three Australian properties that were acquired in Feb ‘15, namely the Chester Hill, Somerton, and Coopers Plains properties.

However, NPI slipped 3.6% to $18.8m mainly due to higher vacancies and property expenses at newly converted multi-tenanted buildings as well as additional expenses from its DHL Supply Chain Advanced Regional Centre (DSC ARC), which received its TOP in Jul ‘15.

Portfolio occupancy slid 3.1ppt q/q to 95.2% with weighted average lease to expiry of 4.3 years after the trust renewed or replaced about 97% of total lease expiries in FY15.

The dip in occupancy was mainly due to the conversion of Pandan Logistics Hub to a multi-tenanted property as well as interim leasable space at the DSC ARC (19% leased out).

Aggregate leverage was stable at 38.3% (+0.3%) but average all-in financing cost jumped 29bps q/q to 3.4%, signalling some interest rate risk as 35% of its debt remained unhedged.

The trust recently announced the acquisition of a warehouse in Queensland, Australia for $27.1m. The property is fully let to Western Star Trucks Australia for a long WALE of 7.9%, giving a net property yield of 7%.

Management expects the industrial property market to remain challenging due to the ongoing supply glut of industrial space, uncertain macroeconomic conditions, and prohibitive government regulations regarding subletting that are in place.

As a gauge, JTC sees factory and warehouse space to jump by 76.7% y/y to 2.8m sqm by 2016.

In view of the weakening operating environment, the trust intends to pursue growth by way of acquisitions while working closely with master lessees to maintain its occupancy levels. Rental income from DHL ARC will commence from Jan '16.

Cache is currently trading at a 3Q15 annualised distribution yield of 8.35% and 1.1x P/B.


CMT: 3QFY15 core results largely in line, with DPU up 9.6% y/y to 2.98¢ on distributable income of $103.2m (+10.2%). The strong bottom-line was largely aided by the release of $8.0m of taxable income retained in 1Q15.

Gross revenue and NPI fell 1.8% and 0.7% to $161.7m and $113.3m respectively, due to on-going asset enhancement works in IMM Building, and lower occupancy at JCube and Clarke Quay, but mitigated by lower property operating expenses. Overall portfolio occupancy remained high at 96.8%, with WALE of 2.8 years.

For 9M15, CMT guided that tenants’ sales increased 4.4% and shopper traffic grew 4.2% y/y.

Thanks to its proactive capital management, CMT's bottom line distribution was aided by lower finance costs (-16.8%) after it refinanced its US$500m 4.321% fixed rate note at a lower interest rate through the issuances of 3 tranches of fixed rate notes.

On a q/q basis, aggregate leverage and average debt cost both held steady at 33.7% and 3.3% respectively, while average debt tenor declined to 5.8 years from 6.1 years.

Going forward, CMT remains confident of its prospects, citing its strong portfolio of quality shopping malls which are mostly well-connected to public transportation hubs and are strategically located. This, coupled with the large and diversified tenant base of the portfolio, will contribute to the stability and sustainability of the malls’ occupancy rates and rental revenues.

At the current price, CMT trades at 5.9% annualized yield and 1.1x P/B.

SG Market (22 Oct 15)

Singapore shares could open lower, taking lead from the negative close on Wall Street, in a session which saw the “biotech bloodbath” continuing.

Regional bourses are trading lower this morning in Tokyo (-0.1%) and Seoul (-0.2%), but flat in Sydney.

From a chart perspective, technical upside for the STI is capped at 3,050 with near-term support at 2,980.

Stocks to watch:
*Strategy: Maybank-KE opines that Singapore-listed glovemakers Riverstone and UG Healthcare are laggards in the glovemakers rally, possibly due to slower newsflow and investors being too preoccupied with the penny stocks rally. Both stocks are trading at deep discounts to peers (20% for Riverstone and 50% for UG in FY16).

*SGX: 1QFY16 results beat expectations, as net profit jumped 28% y/y to $99.3m on revenue of $219.6m (+30.1%), with derivatives business (+69% to $90.8m) being the biggest driver as volume surged 82% primarily drive by China A50 Index futures (+164%). Securities revenue was up 14% to $55.9m, as average daily trading value increased 27% to $1.23b. Operating margin expanded 1.9ppt to 53.4% on better cost efficiencies. A higher interim DPS of 5¢ (1QFY15: 4¢) was proposed. NAV/share at $0.794.

*CapitaLand Mall Trust: 3QFY15 core results largely in line, with DPU up 9.6% y/y to 2.98¢ on distributable income of $103.2m (+10.2%). The strong bottom-line was largely aided by the release of $8.0m of taxable income retained in 1Q15. Gross revenue and NPI fell 1.8% and 0.7% respectively, due to on-going asset enhancement works in IMM Building, and lower occupancy at JCube and Clarke Quay, but mitigated by lower property operating expenses. Portfolio occupancy was at 96.8% with WALE of 2.8 years. Aggregate leverage stable at 33.8%, with average debt cost of 3.3% and tenor of 5.8 years. NAV/unit at $1.85.

*Mapletree Commercial Trust: 2QFY16 results in line as DPU climbed 2.5% y/y to 2.02¢. Gross revenue inched up 1.9% to $71.3m, largely lifted by higher rental from VivoCity, but partially offset by lower occupancy at Mapletree Anson. NPI was further boosted to $54.8m (+5.1%), led by a reduction in electricity consumption and tariff rates. Occupancy increased 0.9ppt q/q to 96.6% with WALE of 2.3 years, while aggregate leverage and average debt cost held still at 36.4% and 2.42% respectively. NAV/unit at $1.24.

*Cambridge Industrial Trust: 3Q15 DPU of 1.204¢ (-3.7% y/y) came below forecast, weighed by a 22.1% rise in borrowing costs used to fund acquisitions. Gross revenue and NPI was at $28.5m (+13.8%) and $21.7m (+10.5%), led by contributions from four recently-acquired properties and the completion of AEI projects. Occupancy held steady at 95.4% with WALE of 3.9 years, while aggregate leverage was at 37.2% with average debt cost of 3.7%.

*Frasers Centrepoint Trust: 4QFY15 results in line, with DPU of 2.859¢ (+2.7% y/y) taking FY15 DPU to 11.608¢ (+3.8%). Gross revenue and NPI for the quarter was up 1.7% and 1.2% to $47.5m and $31.7m respectively, driven by steady rental income growth from the portfolio properties and contributions from Changi City Point which was acquired in Jun ’14. Occupancy was at 96% with WALE of 1.5 years (3QFY15: 1.6 years). Aggregate leverage stable at 28.2% with average debt cost of 2.4%. NAV/unit at $1.91

*Cache Logistics Trust: 3Q15 results in line on flat DPU of 2.14¢ while distributable income inched up 0.6% y/y to $16.8m on a $1.5m distribution of proceeds from the Kim Heng Warehouse divestment. Gross revenue surged 11.3% to $23.1m on contributions from its three Australian acquisitions, but NPI slipped 3.6% to $18.8m from higher property expenses at newly multi-tenanted buildings. Occupancy stood at 95.2% (-3.1ppt q/q) with WALE of 4.3 years. Aggregate leverage stood at 38.3% with average debt cost of 3.4% and tenor of 3.3 years. NAV/unit at $0.97.

*Stratech: Clinched a contract to upgrade its iFerret intelligent airfield/runway surveillance and foreign object & debris (FOD) detection system at Singapore Changi Airport.

*TriTech: Signed a 5:95 JV with two Chinese partners to provide technical expertise, know-how, and support for a build-operate-transfer project of a wastewater treatment plant in Anhui, China.

*Tee Land: Formed a 55/10/35 JV co., TCK Commercial, with Peter & Jan Clark and Kenmooreland to acquire seven commercial units and three car park lots in Sydney, Australia, for a total consideration of A$6.26m ($6.32m). The acquisition will be funded via a mix of internal funds and bank borrowings, and is expected to complete by Jan '16.

*MMP Resources: Issued profit warning for 3Q15

Wednesday, October 21, 2015


Noble: (S$0.515) Red flag raised on its credit rating by Moody's
Credit rating agency Moody's has warned Noble that its Baa3 investment grade rating may be downgraded if the commodity group's leverage position does not improve in the next 1-2 quarters.

Just two days back, Noble successfully upsized its senior secured revolving trade credit facility from US$450m to US$1.1b, to support its US energy business.

While the overall debt level for the group is expected to stay stable and drawings under the facility would increase liquidity, Moody's caution that the upsized facility will limit the financial flexibility of Noble and raise the risk of subordination for the company's senior unsecured creditors, which are credit negative.

Noble's ratings could also be downgraded if the company's liquidity position does not improve over the next one to two quarters, or its leverage continues to rise, such that net debt/EBITDA stays at 3.5x-4.0x and retained cash flow/net debt falls below 20% for a prolonged period.


Sarine: Bloomberg reports that the China-led commodity slump is now hitting the diamond industry, with cooling demand for jewellery from the Asian giant causing a build-up in inventories and price slides.

Reinforcing this view, Chow Tai Fook Jewellery, the world’s largest listed jewellery chain, registered a 13% decline in 2Q revenue this month, weighed by China’s clamp down on corruption and extravagant spending.

De Beers, which sells ~35% of the world’s rough diamond production, has cut production twice this year by a total of 15% and lowered its selling prices, yet this has proven to be insufficient, with customers rejecting 35-50% of diamonds on offer at De Beers’s Oct sight.

The news will be negative for diamond testing equipment maker, Sarine Technologies, which recently warned of an operating loss of US$1.5m in 3Q15 due to persistent rough-to-polish diamond price mismatch and residual inventory overhang.

Following the profit guidance, Maybank-KE has slashed its FY15-17 earnings forecasts by 88%, 18%, and 10% respectively and downgraded the counter to Hold from Buy, with a lower TP of $1.29.

ISEC Healthcare

ISEC Healthcare: (S$0.29) Ripe for the picking as M&As could gather pace

ISEC Healthcare rebounded 7.4% in morning trade as Maybank-KE upgraded the counter to Buy from Hold after its recent share price plummet below its IPO price of $0.28.

The eye specialist recently announced the acquisition of Malacca-based Southern Specialists Eye Centre (SSEC) for RM37.1m, of which, 57% will be paid out in shares and the remainder doled out in cash.

The price tag represents 12.4x SSEC’s FY14 earnings, which appears relatively cheap compared to ISEC’s FY15 P/E valuation of 20x.

SSEC is one of the largest and most reputable private eye specialist (ophthalmology) practices in Malaysia. Located in Malacca, SSEC is well positioned to benefit from medical tourists from Southern Sumatra and Singapore. Maybank-KE estimates that the acquisition is likely to boost ISEC’s FY16-17 EPS by 8-9%.

More of such M&As are in store with the group in various discussions with practices in Taiwan and Indonesia, with a possible major deal in Taiwan.

On the flip side however, ISEC is expected to report weak earnings in FY15 on charges taken with regards to the closure of its loss-making Mount Elizabeth Novena Specialist Centre as well as ringgit weakness. But these may have already been factored in its current prices.

Overall, the house opines that the risk/reward has now turned favourable for ISEC, and rates it as the cheapest healthcare stock under its purview.

The house maintains its TP of $0.40, after ascribing a 10% discount to its peers in view of its smaller size.

Keppel T&T

Keppel T&T (S$1.41) 3Q15 results impacted by divestment but new assets coming on stream

Keppel T&T’s 3Q15 net profit tumbled 17.1% to $15.3m on a weaker revenue of $50.9m (-5.1%), largely due to divestment of two data centres to Keppel DC REIT in Dec '14.

Operating profit was more severely hit, plunging 34.5% to $7.4m, due to lower non-core investment and sundry income. As such, operating margin narrowed 6.6ppt to 14.6%.

Bottom line was further hit by higher taxes (+36.5% to $5m) during the quarter, but partially supported by a stronger set of results from associated companies and joint ventures (+9% to $17.7m).

Net gearing climbed to 0.38x from 0.25x in Dec ’14 as shareholders' equity shrank post payment of final and special dividend in May and increased capex for fit-outs of its data centres.

Looking ahead, management plans to focus on improving occupancy and operational efficiency of its logistics properties amid a challenging environment. Its warehouse at Tampines Logistic Park has commenced operations in 2Q15 and has achieved above 60% occupancy rate with commitments of over 70%.

Marketing efforts are also being ramped up for its new Tianjin Eco-city distribution centre and Lu'An logistics park in China to boost take-up rate as they commence operations within the next six months.

As for its data centres, the group intends to continue pursuing expansion opportunities amid rising demand for its facilities. In 3Q15, the group has commenced operations at its Almere Data Centre 2 in Netherlands and acquired a $20m industrial building at Tampines to redevelop into its fourth data centre in Singapore.

Keppel T&T is currently trading at 12.8x FY15e P/E and 1.2x P/B.


MIT: 2QFY16 results above estimates, with DPU up 7.3% to 2.79¢ on distributable income of $48.9m (+7.7%).

Gross revenue and NPI advanced 6.2% and 8.6% respectively to $82.7m and $61.0m, due mainly to the contribution from the build-to-suit project for Equinix Singapore, as well as higher occupancies and higher rental rates achieved, while property expenses remained flat.

Average portfolio passing rent increased to $1.88 psf/month from $1.86 in the preceding quarter, mainly due to new leases secured in the Hi-Tech Buildings and Business Park Buildings segments which raised the overall portfolio occupancy and passing rental rat.

Going forward, MIT will embark on its next AEI to optimise the use of available GFA at the Kallang Basin 4 Cluster through the development of a new high-specification industrial building, while improving the existing buildings in the cluster. The AEI is slated for completion in 4Q17 and is expected to be DPU accretive.

Aggregate leverage stood at 29.7% with average debt cost of 2.3% and tenor of 3.8 years. Portfolio occupancy inched up 0.3% q/q to 93.8%.

Going forward, Colliers International expects rents for prime multi-user conventional industrial space to ease further in 4Q15, while business park rents could experience a slight dip. However, rents of independent high-specs industrial premises could remain stable for the rest of the year on the back of limited supply.

At the current price, MIT trades at an annualized 7.4% yield and 1.14x P/B.


Wilmar: (S$3.17) Majority shareholder ADM sparks rally
Majority shareholder NYSE-listed Archer Daniels Midland (ADM) purchased shares in the market yesterday, potentially sparking Wilmar's 8.9% climb in share price yesterday.

In response to a SGX trading query, the group disclosed that the 18.31% shareholder bought an approximate 22% worth of total volume yesterday, or ~5.2m shares, and raises its stake to 18.39%.

The stake increase may perhaps provide assurance to other shareholders and may also signal a share price support at the $3.00 region.

In the near term, market watchers will be anticipating Wilmar's 3Q15 results to be released on 11 Nov after trading hours. The street expects earnings per share of US$0.045 (3Q14: US$0.066, 2Q15: US$0.032).

Bloomberg consensus currently has 14 Buy, 5 Sell and 2 Hold ratings on Wilmar, with a 12-month TP of $3.31.

SG Market (21 Oct 15)

Singapore shares are likely to trade within a narrow range following the tepid close on Wall Street as investors lie low before the release of 3Q results by SGX today and heavyweights Keppel Corp and Sembcorp Marine tomorrow.

Regional bourses are trading lower this morning in Tokyo (-0.1%) and Sydney (-0.3%) but slightly firmer in Seoul (+0.1%).

From a chart perspective, technical upside for the STI is capped at 3,050 with near-term support at 2,980.

Stocks to watch:
*Mapletree Industrial Trust: 2QFY16 results above estimates, with DPU up 7.3% to 2.79¢ on distributable income of $48.9m (+7.7%). Gross revenue and NPI advanced 6.2% and 8.6% respectively to $82.7m and $61.0m, due mainly to the contribution from the build-to-suit project for Equinix Singapore, as well as higher occupancies and higher rental rates achieved. Aggregate leverage stood at 29.7% with average debt cost of 2.3%. Portfolio occupancy inched up 0.3% q/q to 93.8%. NAV/unit at $1.33.

*Keppel T&T: 3Q15 net profit tumbled 17.1% y/y to $15.3m on weaker revenue of $50.9m (-5.1%), largely due to absence of revenue from two data centres divested to Keppel DC REIT in Dec '14. Operating margin narrowed 6.6ppt to 14.6% on lower investment and sundry income. Bottom line was further hit by higher taxes (+36.5%). Net gearing edged up to 0.38x from 0.25x in Dec '14. NAV/share at $1.20.

*Wilmar: In response to a trading query, group disclosed that majority shareholder Archer Daniels Midland, which controls 18.3% in Wilmar, had purchased shares in the market yesterday, comprising ~22% of total volume.

*Citic Envirotech: Awarded a Rmb400m ($88m) EPC contract to construct a 80,000 cubic meters/day waste water treatment plant in Tianshui City, Gansu Province, China. The project will commence immediately and is expected to complete in 18 months.

*ST Engineering: Land systems division, ST Kinetics injected 5.8m real ($2.6m) into Technicae Projetos e Servicos Automotivos as working capital for its operations in Brazil, mainly involving MRO services for armoured vehicles of the Brazilian army. Total investment in the latter was lifted to 13.05m real ($6.6m), and shareholding increased to 94.36% from 90%.

*UOB: Brunei branch divested its retail banking business to Baiduri Bank for a gross consideration of $65m, in an attempt to cut costs and remain focus on the wholesale banking segment in Brunei.

*Noble Group. Moody's warned that it may downgrade Noble Group's Baa3 investment grade rating if the group's leverage position does not improve in the next 1-2 quarters.

*Boustead Projects: Clinched two individual contracts totalling $59m in value, to deliver an integrated production and office facility to JEP Precision Engineering and Markono Print Media respectively, by 4Q16, thereby lifting order book to $273m.

*Rex Int'l: Terminated an agreement with MEO Australia for the acquisition of a 30% participating interest in an offshore license in Western Australia, incurring a cash compensation of US$53,500.

*Food Empire: Entered into a 49:51 JV with an Italian partner to produce and market capsules for coffee and other beverages with a total investment of US$109k.

*SunMoon Food: Reached a settlement of $2.3m regarding nTan Corporate Advisory’s Apr ‘14 claim for services it provided. The settlement may have a significant impact on its FY15 financial performance.

*Weiye: Seeking a dual primary on Stock Exchange of Hong Kong.

*Broadway Industrial: Issued profit warning for a net loss in 3Q15.

*TA Corp.: Issued profit warning for a net loss in 3Q15 and full-year 2015.

Tuesday, October 20, 2015

Keppel Infrastructure Trust

Keppel Infrastructure Trust: 2QFY16 results in line as concessions and KMC powers growth

Keppel Infrastructure Trust (KIT) posted results that were largely in line with street and management forecast with 2QFY16 DPU of 0.93¢ (+13.4% y/y) following the merger of Crystal Trust (old Keppel Infrastructure Trust) and CitySpring.

Distributable cash flows leapt more than 2.5x to $32.9m as cash flows generated from its waste and water treatment plants (concessions), and 51% owned Keppel Merlimau Cogen (KMC) more than offset the declines from City Gas and Basslink units.

A breakdown of cash flow contributions are as follows:
1) City Gas: $7.3m (-34.6%) - Cash flows were negatively impacted by the time lag in adjustment of gas tariffs to reflect actual fuel costs and higher interest expenses

2) Concessions: $17m (+759.3%) - First full quarter contributions from Crystal Trust assets

3) KMC ($12m) - Maiden contributions after acquisition completion on 30 Jun.

4) Basslink (Nil vs $2.1m in 2QFY15) - Entire distributable cash flow of $0.4m was used to repay debt.

5) Others (-$3.4m vs -$2.2m in 2QFY15) - Contributions were crimped as interest expense on qualifying project debt securities soared 221.8% to $22.7m despite a 313.6% jump in profit to $18.5m.

Overall, KIT’s core assets fulfilled all obligations with its City Gas unit growing its customer base by 5% to 740,000 as at the end of 2QFY16.

Leverage was reduced by 5ppt to 32% post equity fund raising for its KMC acquisition, with an average interest rate of 4-5%.

Management updated that construction of DC-One data centre remains on track and is expected to be completed in 1Q16.

The trust is also planning to increase capacity at its 2,100 tpd Senoko WTE plant by up to 10%. The upgrade of the first of six boilers was completed in early Sep with the remainder will be completed by 3Q16 and will boost cash flows on an incremental basis.

KIT is currently trading at an annualised 1HFY16 yield of 6.6% and 1.4x P/B.

Latest broker ratings:
Credit Suisse maintains Outperform with TP of $0.57
UOBKH maintains Hold with TP of $0.56

Mapletree Logistics Trust

Mapletree Logistics Trust: 2QFY16 in line on acquisitions; more room to grow overseas
Mapletree Logistics Trust (MLT) reported 2QFY16 DPU of 1.86¢ (-1.1% y/y, +0.5% q/q) ), meeting 49% of full year market estimate.

On the operational front, gross revenue and NPI grew 6.5% and 7.3% y/y to $87.5m and $73m respectively, underpinned by eight acquisitions across China, Korea, Singapore, Australia, and Vietnam, positive rental reversions and higher contributions from Hong Kong properties boosted by a stronger HKD.

Top line growth would have been higher if not for lower occupancies at several converted multi-tenanted buildings, ongoing redevelopment at 76 Pioneer, and weaker JPY and MYR partly mitigated by substantial hedging.

Property expenses rose 12.9% to $14.5m due to its enlarged portfolio as well as higher costs of converting single user assets to multi-tenanted ones in Singapore. This, coupled with higher borrowing costs of $10.5m (+30.9%) arising from acquisitions and capex, led to flat distributable income of $46.2m (-0.3%).

Portfolio occupancy improved 0.3ppt q/q to 96.9%, with weighted average lease to expiry increasing 17.1% to 4.8 years after 572,000sqm (18% of total portfolio) of leases were renewed, leaving 168,000sqm yet to be renewed in 2HFY16.

Aggregate leverage has risen to 38.8% (+4.4 ppt q/q) as MLT drew down $293m of loans for its Coles Chilled Distribution Centre (Australia) and Mapletree Logistics Park Bac Ninh (Vietnam) acquisitions as well as capex. Average debt tenor is 3.4 years with low interest cost of 2.3%, of which 81% is on fixed rates.

Management highlighted that while leasing activities have remained relatively stable, concerns over the weakening global economy have made clients more cautious.

Looking ahead, the trust plans to covert another two single tenanted properties into multi-tenanted ones and divest older low yielding assets. Development projects at 5B Toh Guan Road and 76 Pioneer Road are on tract for completion in 1QFY17 and 4QFY18. However, rental reversions are expected to continue to moderate amid the dull economic outlook.

The street remains sanguine on MLT’s push towards overseas markets with 64.3% of its portfolio value now derived from overseas assets against its target of 75% exposure.

At the current price, MLT trades at an annualised 1HFY16 yield of 7.2% and 1x P/B.

Latest broker ratings:
UOB Kay Hian maintains Buy with TP of $1.28
Daiwa maintains Outperform, raises TP to $1.13 from $1.12
Deutsche maintains Buy with TP of $1.10
OCBC maintains Hold, cuts TP to $1.04 from $1.13


Triyards: 4QFY15 net profit leapt 59% y/y to US$8.4m (+59% y/y), bringing FY15 earnings to US$27.2m (+2%), 5% above street estimates.

For the quarter, revenue surged 81% to US$88.4m due mainly to contributions of four self-elevating units, and recently-acquired aluminium shipbuilder Strategic Marine.

However, gross margin slipped to 21.8% (3QFY15: 22.1%; 4QFY14: 27%) due to the change in sales mix.

First and final DPS was maintained at 1¢.

Separately, Triyards announced US$100m of new orders, comprising three chemical tankers for ship-owner Swiss-Canadian Maritime, two high speed craft and an industrial fabrication contract.

The new contracts are due to be delivered between 2QFY16 and FY17, and bring year-to-date order wins to US$600m.

Management is of the view that while the weak oil prices have led to the reduction or delay of oil & gas capital expenditure, particularly in exploration activities, Triyards' exposure to the full O&G value chain is expected to shelter the group from the downturn.

At the currrent price, Triyards trades at 3.8x trailing P/E and 0.46x P/B.