SG Market (02 Jun 17)

The market could see some strength today, extending yesterday’s 0.8% gain after US stocks closed at historical highs in light of strong US economic data.

Regional bourses are on a tear with Seoul (0.7%), Sydney (+0.6%) and Tokyo (+1.1%) trading higher and Nikkei-225 topping the 20,000 for the first time since Dec ‘15. Technically, momentum indicators are starting to flip up after correcting from overbought levels. Topside resistance for STI can be found at 3,250/3,275, while near term support is at 3,190.

Stocks to watch:
*Property: HongKong Land’s MCL Land won the en-bloc deal for 330-unit Eunosville for $765m ($909 psf ppr), 17-19% higher than the initial asking price. Separately, Chinese developer, Fantasia submitted the top bid of $75.8m ($525.58 psf ppr) for a 99-leasehold site in Hougang. The aggressive bids are indicative of expectations for a home price rebound. MKE is positive on the sector with top pick UOL (Buy; TP: $9.05).

*Keppel Corp: Closed deal to novate the construction contracts of 5 jackup rigs currently being built for Transocean to Borr Drilling. Borr will take over remaining payment installments for the rigs, which will now cost USD216m each versus original contract price of USD219m. The rigs will be delivered between 1Q18 and 2020. This puts to bed the cancellation risk of the Transocean rigs but will have no impact on share price.

*Perennial Real Estate: Confirmed that it has, as part of a consortium, submitted a proposal in relation to United Engineers. UE’s property portfolio include Rochester Mall, UE BizHub City as well as other residential and hospitality properties.

*China Sunsine: Updated that it has installed an online monitoring equipment at the chimney used for sulphur recycling at its Shandong Sunsine plant, meeting the 31 May deadline. This resolves one out of three lapses highlighted by an environmental inspection last week. The group is working to rectify the remaining weaknesses.*Croesus Retail Trust: Global fashion retailer H&M will open a 1,500 sqm store at the Mallage Shou mall in north Tokyo, the brand’s first store in the area. Operations are expected to commence on 31 Aug. As at 31 Mar, occupancy rate at the 68,074 sqm mall stood at 97.3%.

*Willas-Array: Turned around to an FY17 net profit of HK$48.2m (FY16: HK$57.8m loss) mainly due to the absence of HK$70.1m in impairment losses. Revenue edged higher to HK$3.88b (+6.8%) on strong demand for home appliances (+15.6%) and automotive applications (+32.4%) partially offset by weakness in its dealer arm (-20%). Gross profit slipped to 8.2% (-0.5ppts) on weaker ASPs. Bottom line was strengthened by the absence of loss from associates (FY16: HK$38.3m). Declared first and final DPS of HK$0.31 (FY16: nil). NAV/share at HK$7.6533.

*HC Surgical Specialists: Acquiring a 51% stake in Medical L&C Services, which provides chronic home care and palliative care, from Lai Junxu for $1.05m, with $0.79m being in cash and the remaining via issuance of 0.448m new shares at $0.58 apiece. The deal values the entity at 2.9x P/B, and it includes a 10-year employment contract for the vendor, and an option for the group to acquire the remaining 49% stake by Aug '21.

*HC Surgical Specialists: Separately, the group is acquiring a 49% stake in Medinex, which is a management and service provider for medical clinics, from Jessie Low Mui Choo for $4.32m, with $3.24m satisfied by cash and the remaining via issuance 1.86m new shares at $0.58 apiece. The deal values the target at 14x P/B, and comes with a 4.5 year profit guarantee of $2.94m. It also involves a 10-year employment contract for the vendor to act as CEO of Medinex.

*Cosco: It expects to further delay the delay of the Seven Drilling Rig VI to 30 Jun from 15 Apr. Separately, its 51%-owned COSCO (Zhoushan) delivered a bulk carrier to its Hong Kong buyer.