SG Market (12 May 17)

Stocks may ease on weak corporate earnings and as technical indicators approach grossly overbought levels.

Regional markets opened lower in Tokyo (-0.2%), Seoul (-0.04%) and Sydney (-0.03%).The STI has rallied 4.6% almost uninterruptedly over the past three weeks and a pause is overdue. Immediate resistance for the index is at 3,290 with underlying support at 3,212.

Stocks to watch:
*Noble Group: Swung to a shock 1Q17 net loss of US$129.4m, a sharp reversal from US$40.5m profit a year earlier and well off street forecasts. Revenue rose 12.8% to US$12.49b from a broad recovery in commodity prices but sales tonnage fell 17.4% to 46.9m tonnes. Supply chain operating income plunged to a US$2.6m loss, largely blamed on market dislocations in the coal market. Bled operating cash outflow of US$323m (4Q16: US$592.5m), which led to higher adjusted net debt-to-capital of 29.6% (4Q16: 25.3%). Founder Richard Elman hinted of long slog to profitability as he stepped down as chairman. Trading at 0.24x P/B after shares tanked to a 15-year low but 74% of equity value hinges on unclear valuation of its commodity derivatives contracts.

*City Dev: 1Q17 net profit declined 18.9% to of $85.5m (14% of FY17 estimates) despite booking higher revenue of $783.8m on higher home sales at a Suzhou project and Gramercy Park. Earnings were affected by the absence of contributions from two JV residential projects completed last year, PPS gains and poorer performances from hotel operations and rental properties. Management sees some signs of revovery in the S'pore residential market and is taking advantage of subdued conditions to invest overseas. Ytd, it has made five acquisitions worth $770m. Trading at 1.06x P/B. MKE reiterates its Hold with TP of $9.80.

*Wilmar: In line 1Q17 core net profit jumped 40.5% to $312.6m, meeting expectations. Revenue grew 17.4% to US$10.6b, driven by higher commodity prices and stronger sales both tropical oils and sugar businesses, which offset weaker seasonal sales from its consumer products segment, which was affected by early Chinese New Year this year. EBITDA margin expanded 0.3ppt to 6.5% as it benefitted from higher CPO prices, higher soybean crushing volume and stable crush margins. Earnings were also shored by higher FX gain of US$25.9m (+201%), investment gains of US$53.3m (+168%) and higher contributions from JVs/associates of US$42m (+228%). NAV/share at US$2.38.

*ST Engineering: 1Q17 net profit fell 6.1% to $103.4m, achieving just 19% of FY17 forecast, weighed by lower government wage credits (-47%). Revenue slipped 5.4% to $1.54b on weaker contribution across aerospace (-12%), land systems (-14%) and marine (-16%), which mitigated growth in electronics (+14%). Operating margin expanded to 7.6% (+1.6ppts). Order book grew to $13.3b (4Q16: $11.6b). Maintained guidance for comparable revenue and higher pretax profit in 2017. NAV/share at $0.7252.

*Thai Beverage: 2QFY17 results met expectations, as net profit sank 23% to Bt6.56b. Revenue declined 8.8% to Bt50.35b, as sales fell amid the mourning period for the late Thai King across spirits (-7.5%), beer (-13.9%) and non-alcoholic beverages (-3.2%). EBITDA margin shrank 1.8ppt to 17.5%, while bottom line was further dragged by lower associates income (-52% to Bt0.53b) stemming F&N and Frasers Centrepoint. Declared interim DPS of Bt0.2 (2QFY16: nil). NAV/share at Bt4.89..

*Ezion: Swung into 1Q17 net loss of US$12.7m (1Q16: US$15.6m profit), on a 16.4% slump in revenue to US$68.6m due to lower charter rates and a drop in utilisation. Accordingly, gross margin crumbled by almost half to 12.8% (-12.4ppts). NAV/share at US$0.6281.

*Wing Tai: 9MFY17 net profit of $10.6m (+104%) missed expectations, albeit supported by strong contributions from JV and associates (+40%), including Wing Tai Properties in Hong Kong, and Uniqlo in Singapore and Malaysia, as well as a $4.5m gain on disposal of JV. Revenue plunged 49% to $204.6m due to lower property development sales. While gross margin expanded 11.1ppt to 50.8%, operating profit dropped 96% to $1.2m as costs remained sticky. Bottom line was also shored by lower finance costs and a $1.4m tax credit. NAV/share at $4.02.

*Asian Pay TV: in line 1Q17 with DPU flat at 1.625¢. Revenue rose 6.1% to $82.6m on positive FX movement. In constant TWD terms, contribution from basic cable TV (-1%), and broadband (-4.2%) fell on lower ARPUs, while premium digital cable TV (+1.2%) increased on more subscribers. EBITDA margin held steady at 59.2% (+0.1ppt). Reaffirmed guidance for FY17 DPU of 6.5¢, implying 12.3% yield. NAV/unit at $0.87.

*Haw Par: 1Q17 net profit jumped 21.8% to $17.3m, achieving 12% of the street's sole FY17 forecast, on revenue of $60.8m (+16.3%) which was attributable to higher healthcare (+22.2%) offset by lower contributions from its leisure (-67.8%) segment. Gross margin expanded to 63.8% (+1.9ppts) in light of the shift in revenue mix. The bottom line was pressured by higher distribution & marketing cost (+19.9%) and lower other income (-41.9%). NAV/share at $12.22.

*China Everbright Water: 1Q17 net profit increased 11% to HK$114.5m, attaining 22% of the street's FY17 forecast on an 18% growth in revenue to HK$774.1m due to stronger construction contributions (+31%). Gross margin contracted to 34% (-2ppts) mainly due to a shift in revenue mix. Bottom line was weighed on by higher finance costs (+26%) partially mitigated by HK$1.9m in contributions from an associate. NAV/share at HK$2.68.

*First Resources: 1Q17 net profit surged 807% to US$48.5m ahead of estimates. Sales jumped 71.6% to US$194.1m, driven by higher ASPs and volume. Consequently, gross margin fell 16.6%. Bottom line was also boosted by a 231% surge in FX gains to US$1.8m and a US$0.6m gain on derivatives (1Q16: US$1.1m loss). NAV/share at US$0.59.

*SBS Transit: 1Q17 net profit jumped 26.6 % to $10.2m, partially lifted by a drop in finance costs (-23.8%). Revenue climbed 7.6% to $283.4m on stronger public transport business (+9.2%) from higher bus contributions and rail ridership, albeit pared by weakness in other commercial services (-16.5%) due to lower advertising revenue. EBITDA margin widened 2ppt to 13.2%. NAV/share at $1.38.

*Vard: 1Q17 swung into net loss of NOK25m (1Q16: NOK37m profit), as revenue slipped 12% to NOK1.78b due to reduced activity from low order intake in 2015. EBITDA margin stabilised at 2.3% (-0.6ppt). Order book stood at NOK12.98b (4Q16: NOK12.65b). NAV/share at $0.31.

*Health Management International: Swing to 3QFY17 net loss of RM1.6m (1Q16: RM8.7m profit) weighed by RM7.3m professional fees incurred from the consolidation of ownership of two of its hospitals to full ownership and RM1.4m FX loss. Core net profit of RM7.1m (+12%) was in line. Revenue expanded 7% on higher patient load and average bill sizes at both Mahkota Medical Centre and Regency Specialist Hospital. NAV/share at RM0.1806.

*SUTL: 1Q17 net profit inched 1% higher to $0.7m. Total income fell 6% to $6.4m, on lower sales of goods and services (-5%) and membership fees and management fees (-9%). Bottom line was partially lifted by a 44% decrease in income tax expenses. NAV/share at 63.6¢.*Fragrance: 1Q17 net profit rose 1.8% to $5.4m, although revenue surged 92.2% to $43.7m, mainly driven by revenue contribution from the City Gate project. Gross margin rose 4ppt to 35.5%, lifted by City Gate. Bottom line growth was weighed by a 554% surge tax expense. NAV/share at 15.6¢.

*Q&M: 1Q17 net profit of $3.8m (+4%) was in line. Revenue fell 6.7% to $32m as higher takings from dental equipment and supplies distribution (+29%) was offset by the deconsolidation of Aidite to an associate. NAV/share at $0.15.

*Food Empire: 1Q17 net profit surged 58.8% to US$6.3m on revenue of US$62.4m (+23.6%), bolstered by Russia (+23%), Kazakhstan & CIS (+141.6%) and other markets (+37.9%) partially offset by weakness across Ukraine (-14.9%) and Indochina (-18%). Gross margin improved to 39.9% (+7.8ppts) on higher ASPs in key markets. Bottom line was pressured by lower FX gains (-52%) as well as losses of US$0.7m (1Q16: US$0.2m profit) from its Korean associate. NAV/share at US$0.3036.

*Tiong Seng: 1Q17 net profit of $4.1m (+9%) was buttressed by a $1.2m drop in FX loss and a $1.4m positive swing in JV contribution. Revenue slid 16% to $207.7m, as the drop in property development sales (-86%) outweighed higher contribution from construction contracts (+25%). Operating margin narrowed 0.5ppt to 3.2%. NAV/share at $0.5709.

*Frencken: 1Q17 net profit surged more than five-fold to $16.3m, lifted mainly by a $10.2m disposal gain (1Q16: nil) on Precico Electronics. Stripping that out, net profit would have still almost doubled to $6.1m. Revenue grew 17.9% to $134.4m on stronger sales across its mechatronics (+21.5%) and IMS (+11.3%) divisions. Gross margin expanded to 17.2% (+2ppts) on improved capacity utilisation and shift in sales mix. NAV/share at $0.5561.

*Dutech: 1Q17 results missed, as net profit slid 17.3% to Rmb15.3m. Revenue rose 31.9% to Rmb354.4m on stronger sales from both high security (+3.2%) and business solutions segment (+70.6%), as the latter segment was boosted by the acquisition of Metric. Gross margin shrank 4.3ppt to 27.3% due to higher steel prices for the high security business. Bottom line was also hurt by ballooning operating expenses from the consolidation of Metric and a spike in finance costs. Maintained interim DPS of 1¢. NAV/share at Rmb2.3566.

*Nordic: 1Q17 net profit rose 21% to $2.8m, even though revenue was muted at $19.9m (+1%), as growth in maintenance services (+17%) segment and proceeds from sale of carbon emission allowances were doused by weakness in the project services business (-14%). Gross margin ticked lower by 1.1ppt to 30.6%, but bottom line was shored by a drop in staff cost. NAV/share at $0.177.

*Grand Banks: Slumped into a 3QFY17 net loss of $1.1m bringing 9MFY17 net loss to $0.5m (9MFY16: $2m profit). Revenue fell 23.6% to $13.2m as a boat swap resulted in a reversal of revenues. Gross margin contracted to 14.4% (-0.3ppts) on additional construction hours at its Malaysian yard. Bottom line was further hurt by higher operating expenses (+11.8%) as well as FX losses of $0.7m (3QFY16 $0.1m). NAV/share at $0.241.

*CSE Global: 1Q17 net profit fell 45.5% to $3m, while revenue dropped 11.5% to $74.5m, from lower contributions from Americas and EMEA regions, mainly from delays in orders, particularly in the O&G sector. Gross margin was stable at 29.2%. Operating expenses rose 1.2%, mainly from lower labour cost recovery to projects. NAV/share at 48.08¢.

*Geo Energy: Leapt to a 1Q17 net profit of US$14.6m (1Q16: US$2.6m loss) as revenue surged more than 8x to US$99.3m on higher coal sales volume (+356%) as well as coal ASPs (+1.5%) at its SDJ mine. Consequently, gross margin fattened to 25.5% (+23.4ppts). Cash profit per tonne of coal averaged US$13.52 (-2.5%) on increased production costs that were pegged to coal prices. Bottom line was affected by higher FX losses (+101%) and depreciation (+277%) partially mitigated by stronger interest income (+162%). NAV/share at $0.16.

*iREIT Global: Weak 1Q17 DPU of 1.44¢ (-8.9%) was weighed by €0.7m of income retained. Distributable income rose 1.4% to €6.5m. Revenue inched 0.4% lower to €8.8m, partially weighed by lower service charges income. However, NPI rose 3.5% to €7.9m as there was no corresponding decrease in recoverable property operating expenses. Occupancy stable at 99.8% while aggregate leverage inched up 0.5ppt to 42.1%. NAV/unit at €0.42.

*Gallant Venture: 1Q17 net loss worsened to $39.2m (1Q16: -$15.7m), as revenue fell 7% to $436.9m on weaker passenger vehicle sales and car rental business in Indonesia. While gross margin improved 2.5ppt to 18.5%, bottom line was pummelled by a $12.5m adverse FX swing, higher provision for doubtful debts, $15m loss (1Q16: $1.7m profit) from automotive associates, and a spike in taxes (+153%). NAV/share at $0.3101.

*EC World REIT: 1Q17 DPU of 1.541¢ was 5.3% higher than IPO forecast. Revenue of $23.7m (+4.6%) and NPI of $21.6m (+5.4%) exceeded forecasts, due to higher rental income from the sheltered warehouse in Chongxian Port Investment. Full occupancy maintained, while aggregate leverage stood at 28.6% (+1ppt q/q). NAV/share at $0.90.

*Emerging Towns & Cities: Swung to 1Q17 net profit of $1m, while revenue surged 92.3% to $10m, driven by property units sales at Golden City project. Bottom line was boosted by a $8.3m gain from the transfer of 16 units of residential apartments from development properties to investment properties. NAV/share at $0.1107..

*SPH: Proposed to divest its entire 1/3 stake in online classified business, 701Search, to JV partner Telenor Communications for US$109m.

*China Star Food: Halts production at new manufacturing plant in Liancheng as the completion of the county’s centralised waste water treatment has been further delayed. China Stars’ factories have been closed since CNY from the tightening of pollution control by the local government.

*Nordic: Clinched a three-year $35m scaffolding, insulation and coating capital project from a petrochemical company, and will commence work on 1 Jun '17. Also secured several adhoc projects worth $3.9m from repeat customers, and are expected to complete by 2Q18.