Wednesday, February 15, 2017

SG Market (15 Feb 17)

The local market could tread more cautiously after being spooked by banks' credit quality fears, sparked by OCBC's bad debt provisions although prospects for faster US rates hikes, and thereby improving NIMs, could provide some relief. Meanwhile, shares of finance firms surged on news that MAS will loosen its foreign takeover rule and regulations on lending to SMEs.

Regional bourses are mostly higher in Tokyo (+1.1%), Seoul (+0.1%) and Sydney (+0.9%).Technically, STI is backing away from its 3,110 resistance towards the underlying support at 3,025.

Stocks to watch:
*Economy: Visitor arrivals hit historic high of 16.4m (+7.7%) in 2016, overshooting growth expectation of 0-3%, while tourism receipts jumped 13.9% to a record $24.8m (est: +0-2%, 2015: -6.8%). Indonesia remained the top market, just edging out China, while Chinese tourists were the biggest spenders. This could lift sentiment in tourism-related counters such as SATS, CDL Hospitality, OUE-HT, GP Hotels, Straco and Genting SP.

*CapitaLand: 4Q16 core net profit of $289.1m (+16%) brought FY16 earnings to $865.3m (+5.1%), thrashing full year estimates. For the quarter, revenue jumped 6.5% to $1.85b on higher handover of properties from development projects in China and rental income from serviced residences. Headline net profit of $430.5m (+74%) was also lifted by higher higher portfolio gains of $23.1m (+65%) as well as revaluation gains of $118.3m (4Q15: $15.5m impairment). Raised first and final DPS to 10¢ (FY15: 9¢). The stock trades at 33% discount to its RNAV/share at $5.13 and 16.6% discount to book value. MKE last had a Buy with TP of $3.46.

*Thai Beverage: 1QFY17 net profit of Bt7.7b (+28%) came in line with estimates, lifted by increased income from JV/associates (Bt1.8b, +149%) at Fraser & Neave and Frasers Centrepoint, as well as improved profitability in the beer segment. However, revenue fell 8% to Bt46.8b on lower spirits (-11%), beer (-4.6%), non-alcoholic beverages (-1.3%), and food (-1%) businesses, as sales slowed during the mourning period for the Thai king. NAV/share at Bt4.97.

*Silverlake Axis: 2QFY17 results disappointed although net profit spiked to RM246.3m (2QFY16: RM66.6m profit), mainly boosted by a disposal gain of RM223.9m from the sale of shares in Shenzhen-listed Global Infotech. Revenue tumbled 29% to RM126.7m, hurt by a sharp slowdown in software licensing (-90%), software project services (-82%), as well as sale of software and hardware products (-84%), on the slowdown of customers' capex. However, gross margin widened 1.7ppt to 60% on a shift in revenue mix towards the recurring maintenance and enhancement services. Bottom line was partly dragged by an FX loss of RM18m. NAV/share at RM0.3571.

*Parkson Retail Asia: Swung to a 2QFY17 net loss of $2.2m, despite a 7.4% climb in revenue to $111.1m, led by stronger direct sales (+15.8%). EBITDA margin collapsed to 2.7% (-30.1ppt) amid a spike in staff and rental costs, due to the addition of new stores (+12 y/y to 83 stores), while bottom line was dragged by increased depreciation. NAV/share of $0.22.

*Finance companies: Uncollateralised lending limit will be raised from 10% of capital to 25%, benefiting lenders such as Hong Leong Finance, Sing Investments and Singapura Finance. In addition, MAS will lift the bar on foreign takeovers of finance companies with some safeguards attached..

*City Dev: Acquiring a Shanghai office development, Meidao Business Plaza, for Rmb900m ($186m). The 32,300 sqm gfa project is located in Shanghai Hongqiao CBD and is in the final stages of construction, expected for completion by 2H17.

*Ezra: Logistics and transport company, Necotrans Singapore, has filed to wind up EMAS-AMC, a subsidiary of 40% owned Emas Chiyoda Subsea. Ezra is currently seeking advice on the application. Further, the group has sought a further delay for its 1QFY8/17 results release by an additional 30 days due to ongoing efforts to consolidate its funding requirements. Ezra disclosed that if an unfavourable outcome ensues, it would be faced with a going concern issue.

*Tat Hong: Turned in a 3QFY17 net profit of $0.2m (3QFY16: $6.7m loss), boosted by disposal gains from an Australian property of $8m and disbursement received from guaranteed trade receivables of $6.4m. Revenue fell 3% to $121.5m, as reduced crane rental (-35%) was offset by improved contribution from tower crane rental (+14%) and distribution (+21%). However, gross margin contracted to 25.9% (-4.7 ppts) due to lower utilisation rates in crane rental.*Lum Chang: 2QFY17 net profit tumbled 55% to $5.5m, while revenue slipped 3% to $97m, on lower sales recognition from two Malaysian developments and reduced takings from completed construction projects. Gross margin narrowed to 14.3% (-6.2 ppts) due to a shift in mix towards lower margin construction revenue, while the bottom line slump was further exacerbated by a 35% jump in finance costs.

*Stamford Land: 3QFY17 net profit edged higher to $11.4m (+2.6%) on firmer revenue of $55.4m (+5.4%), mainly lifted by hotel owning & management (+3.6%) and property investing (+44.8%) segments. Operating margin narrowed 1.3ppt to 24.9% on a shift in sales mix. NAV/share at $0.56.

*LTC Corp: 2QFY17 net profit soared 90% from a low base to $1.9m, although revenue fell 11.3% to $36.4m from slower property development sales in Singapore. However, higher steel prices and tonnage delivered in the steel supplies segment lifted it into operating profit of $1.3m (2QFY16: $2.1m loss), and led to a marked improvement in LTC's overall operating margin of 8.1% (+7.8ppt). Net cash pile stood at $49.9m, or 57% of market cap. NAV/share at $1.5906.

*Swee Hong: Swung into net profit of $2.1m in 2QFY17, reversing from its $5.5m loss a year earlier. Revenue rose 42% to $13.9m, attributable mainly from a civil engineering project at Bukit Brown. Gross margin jumped 4ppt to 14.3% on reduced costs and a reversal of provisioning made in the previous financial period. Bottom line was lifted by a 93% reduction in admin costs due to the absence of a $4.7m accrual of claims from scheme creditors. NAV/share at 0.19¢.

*Vard: Secured a contract from Aker Biomarine to design and construct one krill fishing vessel for sustainable fishing operations in Antartica, with delivery scheduled in 4Q18.

*IEV: Granted a US patent for its self-cleaning apparatus that helps prevention of marine growth, which has been applied to close to 500 offshore platforms worldwide. The technology is expected to result in stronger and more durable offshore structures that require lower inspection frequency.

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